The Governmental Accounting Standards Board is resetting the parameters for state and local governments tasked with making the correct accounting moves following a subsequent event.
"We had research that showed an omission rate of about 30% of things when we look at subsequent time periods and things we know happened," said GASB Chairman Joel Black in an interview with Accounting Today. "Primarily debt issuances that weren't disclosed that we thought probably should have been."
The time period in question lies after the date of the financial reporting statements but before the date the financial statements are available to be issued.
"We figured we needed to do something to improve the guidance to get more consistent application," said Black. "What we've proposed is to try to better describe what we always wanted to get, not necessarily add to the guidance."
The resulting guidance comes in the form of
Events that might trigger invoking the new rules include a bond issuance, a customer financial collapse, or a government restructuring – an especially relevant possibility given the dynamic relationship happening between state and local governments.
The clarifications include explanations of recognized and non-recognized events.
Per the statement, "A recognized event is a subsequent event that provides evidence of conditions that existed at the financial statement date that inform accounting estimates reported as of the financial statement date."
The statement also indicates that, "Identifying recognized events requires professional judgment and knowledge of the facts and circumstances."
For examples it cites a major water utility customer going bankrupt, which "may be indicative of deteriorating financial conditions that existed at the financial statement date."
Conversely, a major catastrophe like a fire or a flood, "would not be indicative of conditions that existed at the financial statement date."
Non-recognized events are described as occurrences that result in a significant effect that is recognized or disclosed in the basic financial statements for the reporting period in which the event occurs, and includes one of four qualifiers.
The qualifiers include debt-related transactions, a disposal of government operations, a change to the legally separate entities or a transaction or other event that contains information that's essential to a user's analysis.
Statement No. 105 takes effect for fiscal years beginning after June 15, 2026. The board is encouraging early adoption to give governments time to update policies, train teams, and align with auditors.
