The Governmental Accounting Standards Board recently issued an Exposure Draft, Accounting Changes and Error Corrections – an amendment of GASB Statement No. 62. If finalized, this proposed Statement would:
- Define accounting changes as changes in accounting principles, changes in accounting estimates, and changes to or within the financial reporting entity, and would describe the transactions or other events that constitute those changes. As part of those descriptions, for (a) a change in accounting principle and (b) a change in accounting estimate that results from a change in measurement methodology, the new principle or methodology would be required to be justified on the basis that it is preferable to the principle or methodology used before the change.
- Address corrections of errors in previously issued financial statements. The first-time adoption of the U.S. generally accepted accounting principles established by the GASB would not be an accounting change or an error correction.
- Require that (a) changes in accounting principles and error corrections be reported retroactively by restating prior periods, (b) changes to or within the financial reporting entity be reported by adjusting beginning balances of the current period, and (c) changes in accounting estimates be reported prospectively by recognizing the change in the current period. The proposed Statement also would require the aggregate amount of adjustments to and restatements of beginning net position, fund balance, or fund net position, as applicable, to be displayed by reporting unit in the financial statements.
- Require disclosure in the notes to the financial statements of descriptive information about accounting changes and error corrections, such as their nature. In addition, information about the quantitative effects of each accounting change and error correction would be required to be disclosed in a tabular format by reporting unit to reconcile beginning balances as previously reported to beginning balances as restated.
- Address how information for prior periods that is affected by a change in accounting principle or error correction would be presented in required supplementary information and supplementary information. For periods that are not presented in the basic financial statements but for which information is presented in required supplementary information or supplementary information, information would be required to be restated in required supplementary information and supplementary information for error corrections but not for changes in accounting principles.
If finalized, the proposed Statement would be effective for accounting changes and error corrections made in reporting periods beginning after June 15, 2023. The Exposure Draft is available for comment until August 31, 2021.