The Governmental Accounting Standards Board (GASB) has issued an exposure draft, Accounting Changes and Error Corrections—An Amendment of GASB Statement No. 62, clarifying the definitions and amending the guidance on how accounting changes and error corrections are presented in financial statements, including when a prior period restatement is required. The proposal eliminates the category of “prior period adjustment” previously included in Statement 62, explaining that the term is used broadly, and the exposure draft more clearly differentiates accounting changes and error corrections.
GASB’s exposure draft specifies three categories of accounting changes:
- Changes in accounting principles resulting from either a change in existing GAAP or the implementation of a new pronouncement. (However, the initial adoption of a new GASB standard, when required, is considered a new financial reporting framework and not an accounting principle change.)
- Changes in accounting estimates resulting from changes in the data inputs, assumptions, or measurement methods used to quantify amounts reported in financial statements.
- Changes to the reporting entity resulting from additions or removals of funds; funds reclassified form major to nonmajor (or vice versa); or changes in component units or their presentation not caused by an acquisition, merger, or transfer of operations.
Regarding error corrections, examples provided in the draft include correcting—
- Mathematical mistakes
- Application of accounting principles
- Misuse of facts known when financial statements were issued
Changes in accounting principles, changes in the reporting entity, and corrections of errors all require restatements of opening balances of the earliest period presented, if practicable. The cumulative effect, if any, should be reported as a restatement of beginning net position.
Changes in accounting estimates are reported prospectively in the reporting period in which the change occurs.
The proposal contains stipulations on required disclosures, including a new tabular format that reconciles beginning balances as previously reported to beginning balances as restated due to accounting changes or error corrections. Governmental entities also must describe the nature of the change.
Comments are due to GASB by August 31. NACUBO encourages institutions to comment separately and also to contact us with feedback to inform our comments.