GASB Update – Elizabeth Thyer, Partner, CPA

The Governmental Accounting Standards Board (GASB) has issued Statement No. 84, Fiduciary Activities and this new standard will be implemented for the fiscal year ending June 30, 2020. This standard changes the definition of a fiduciary activity, establishes criteria for identifying fiduciary activities, and establishes reporting standards for fiduciary activities.

One of the major changes cities and counties will see is the change in terminology that comes with the implementation of this standard. Funds previously referred to as “Agency Funds” will now be referred to as “Custodial Funds”. Another major change is the addition of a Statement of Changes in Fiduciary Net Position for all custodial funds. Previously reported “Agency Funds” always reported liabilities equal to their assets, while under GASB Statement No. 84, Custodial Funds will not always be reporting liabilities equal to their assets and custodial funds will be reporting a net position.

The implementation of this standard will also include a restatement of beginning net position for the Custodial Funds.

The GASB has also issued Statement No. 87, Leases. The implementation for this standard has been deferred due to COVID-19 and will now be effective for reporting periods beginning after June 15, 2021. This standard requires the recognition of certain lease assets and liabilities for leases which had previously been classified as operating leases. These leases will be reported in the government wide financial statements for GAAP basis entities and will be included in a footnote disclosure for entities reporting on the cash basis of accounting. While this standard will not be implemented in the next fiscal year, entities should be taking steps now to facilitate the implementation of this standard as it requires a restatement of beginning balances.

Steps that should be taken now include identifying all leases in all of the departments that the entity has entered into. Entities should also be establishing and implementing internal controls to identify leases and lease modifications. If possible, delegate one staff member to track all of the leases in effect for the entity. As leases don’t always include a stated interest rate, leases should be modified as they are renewed or entered into from now on to document the interest rate in effect for each lease as this is required to be disclosed with the implementation of this standard. Entities should also be updating accounting systems for these new information needs and updating capitalization policies if necessary. Taking these steps now will ensure your city or county is prepared for the implementation.