Eric Berman, CPA, CGMA: Good day, everybody, I'm here with Janeen Hathcock, and she's broadcasting from her home office. We're still all remote, if you may remember, from our previous broadcast, Janeen is a GASB fellow and she is a GASB Fellow for the rest of this year. And so we last checked in with Janeen back last fall. So, it's been a while. And it's great to see you, Janeen.
Janeen Hathcock, CPA; GASB Fellow: Nice to see you, Eric.
Eric Berman, CPA, CGMA: That's great. So, since we last checked in with you in October, gosh, it's October. So many months. What have you been doing at the GASB?
Janeen Hathcock, CPA; GASB Fellow: Well, I've been working on all four of the projects which are in various phases, and they continue to progress. So with our Accounting Changes and Error Corrections Project since we last met, we've issued an exposure draft and we are currently in the comment period.
And so what that means is that the stakeholders actually have an opportunity to comment on the exposure draft for a 90 day period. So, we welcome any feedback that stakeholders provide us on an exposure draft for sure. For the Financial Reporting Model Project, we have read a total of two hundred and seventy six comment letters, which doesn't include one hundred and thirty four letters that were kind of a template, if you will, with the exception of the respondent. And we participated in eight public hearings that we held in March and April, and we had 43 testifiers in those public hearings where 16 were individuals and then we had twenty-seven who represented an organization. And they all provided great feedback to the board.
And then we also held two user forums in the month of April. And during those two forums, we had 20 individual users participate. And risks and uncertainties disclosure, we performed some more user outreach where we interviewed fifty-one additional users, which has now led to the board tentatively deciding on two categories for that project. So, they have tentatively decided to include current vulnerabilities due to certain concentrations. And a government environment is part of the risks and uncertainties, disclosures, scope and what's going concern, disclosure.
Our team has completed the ratio analysis that we were tasked with. We have performed we have analyzed hundreds of ratios over various governments that have experienced either a bankruptcy or a default on their bonds to see if we could notice any trends that could shed a light maybe on a default or bankruptcy that was in inevitable. So everything is progressing nicely with all four of the projects that I'm on.
Eric Berman, CPA, CGMA: Sounds like you're really busy. Now, you mentioned it really does. You mentioned the financial reporting model. And obviously a lot of our listeners are going to really be they're really focused on the financial reporting model project because that may most affect them. So, what do you think are the four or five things that you heard at the public hearings and user forums that, you know, our listeners should know who are state and local governments?
Janeen Hathcock, CPA; GASB Fellow: Well, most of the comments that we received related to management's discussion and analysis, those proposals were pretty positive, pretty positive on the changes to the proprietary fund type statements. But there was a wide range of feedback that we received on a short-term financial resources measurement focus and accrual basis of accounting from the recognition in a governmental fund.
So we heard about the method, whether they agreed or disagreed, the period, the terms. But in my opinion, Eric, a lot of feedback that we received wasn't much different than what we had, what they had, the respondents had provided in our preliminary views. But that doesn't mean that the board just ignores it, so they will reconsider all of the substantive comments in their deliberations and so that we really did appreciate all of the feedback that was received. And the board is going to redeliberate all of the substantive areas in the comment letters.
Eric Berman, CPA, CGMA: So all those comment letters are really important. Just to emphasize to our viewers, our listeners, they really are important. And, you know, one little thing in a comment letter could change the course of any proposed standard, right?
Janeen Hathcock, CPA; GASB Fellow: Right, right. I mean, it happened with the Disclosure Framework Project. During their comment period, they received certain feedback that had the board go re expose the exposure draft. So it is very important the board does take it seriously.
Eric Berman, CPA, CGMA: That's awesome to hear. And hopefully folks out there realize that your voice really matters to the board. You are the most important stakeholder that's out there. And is the preparers. Yes, we have users and auditors, but the preparers really, you know, they're the folks who have to implement it. Right. You know, so with that you have a few months left in your term as a practice fellow. You know, what do you what's on the agenda? What do you hope to be working on for the remainder of your term?
Janeen Hathcock, CPA; GASB Fellow: So I'm not going to start anything new because we all know in the GASB world, things aren't measured really by months. It's measured by years. But I will be working on and assisting with getting my current projects to that next phase of GASB's due process. So by the end of my fellowship, I'm hoping to get through a certain part of the phase of all four projects. So for accounting changes and error corrections, we are going to get through all of the comment letters and then we will have to present to the board all of the feedback that we received so that the board can be redeliberate on any comments, substantive comments that we receive.
For our financial reporting model, we're going to continue with our re-deliberations based on the feedback from the comment letters. So, for example, we presented all of the summary of the feedback in the May meeting. In June and July, the board considered the feedback on the alternative approaches that were brought up in our comment letters, in the public hearings and the user forums. So they redeliberated looking at an economic resources measurement focus and accrual basis of accounting for governmental funds, or maybe just making modifications to the current financial resources and modified accrual basis of accounting. So they are looking at that.
I know in our August meeting, the board's going to consider the recognition method and the recognition period and the terms for a short-term financial resources measurement focus in accrual basis of accounting. And the board also still needs to consider the feedback that they received on alternatives for coordinating the timing with the revenue and expense project. So that's all on the docket coming up in the next few months.
For risks and uncertainties disclosures, cross my fingers, but we should have our pre ballot draft on an exposure draft discussed with the board by my last meeting in December. I know. I'm excited. And then for our Going Concern Project, this one is really exciting, too. We will have completed our research and we will have made a recommendation on whether to add the project to the technical agenda. And why I say that's a really exciting is that it has been in the pre agenda research phase for like five or six years. So we will make a recommendation for the board. So we're excited for that.
Eric Berman, CPA, CGMA: I mean, do you think that governments do not go bankrupt or get into financial difficulty at all. And yet it does happen and that's why we have five years of research and yes, you know that GASB's doing research on more than one project, at any one time. But still, there's a lot of stuff that's out there. I mean, for example, oversight provided by a state for, say, a school district or, you know, or a local government because they're in some form of financial difficulty. How do you disclose that?
Janeen Hathcock, CPA; GASB Fellow: Right. Right. And just the research memo itself, looking at the literature review, I think we have it's going on 50 pages, just reading articles and looking into what others have done, what the academic community has done in their research as well. So it's really exciting. And for me anyway, when I first started, I remember the previous fellow handed this project over to me, and I guess that normally has just been fellow to fellow just takes over where we had. And then we did have a project manager step in and lead this project. But it is going to be really exciting to finally have some sort of conclusion on that project.
Eric Berman, CPA, CGMA: It certainly sounds like it. On the risks and uncertainties, you know, I know that it's still kind of gelling a little bit, you know, how do you think you know, what do you think the focus areas would be for state and local governments? And what do you think the timeline would be for, you know, a final standard? And then, you know, obviously we don't know potential implementation, but what's the ballpark?
Janeen Hathcock, CPA; GASB Fellow: Sure. Well, a little bit of background on this project. This project is going is proposing to require certain disclosures related to risks that the government faces that may impact their ability to provide services or meet their obligations as it becomes due. It is a spin off of the Going Concern Project. And it should provide users of financial statements, certain warning signs that could lead a government to financial stress or even going concern.
This project, I think, is also pretty special because it is the first disclosure project that is test driving the disclosure framework, exposure draft. And overall, I do believe that what the board intended to propose in the framework project is working as they intended. I don't anticipate Eric that it will have a substantial effect on most governments, because in order to be required to disclose the risk within the scope of this project, the government actually has to meet certain limitations. So just because you have a risk, it may not rise to that level of requiring a disclosure.
So hopefully that answers your question. We should expect the exposure draft should be issued in January of 2022. So that means a final statement probably January 2023. And then I'm not sure about, you know, implementation years yet. We what we do at the GASB is not just throw out a bunch of implementation for governments to do all at once. So we do consider what's been issued with other projects. So we don't have a huge burden on that prepare community to have to implement too many things at once.
Eric Berman, CPA, CGMA: Right. For folks who are trying to gauge their retirement, coming up is after GASB-87 is Statement 94 and Statement 96 on P3s, as well as subscription-based information technology arrangements. And how could I forget conduit debt, a lot of people are forgetting it, but it is coming up as well. You know, after you do GASB-87. And so this would probably come at, you know, well after that, you know, just as facts and circumstances dictate of course.
I guess my final question is, you know, the accounting changes and error corrections, again, it's in its comment period. You know, what are the things that folks should focus on as sort of the big changes? As you and I know that the accounting changes in error corrections, it's a revision of long-standing GAAP that was actually old AICPA and maybe even Accounting Principles Board GAAP that was put into the AICPA. That was then put into GASB-62 oh gosh, 11 years ago now. And but with minimal changes. So, you know, what are the things that you think would be, you know, have the most impact, you know, should it go forward? Obviously, you're not on the board, but should it go forward?
Janeen Hathcock, CPA; GASB Fellow: Sure. So, I just kind of discuss some of the proposals in the exposure draft. But there is a proposal to eliminate this category of prior period adjustments because that's really what you're doing instead of an actual category itself. It's also proposing to expand the change in reporting entity to include not only your changes in the legally separate entity that comprise of your funds in the financial reporting entity, but also any additions or removals of funds that result from any movement of that primary government's resources.
And it also includes any changes to funds and component unit presentations. There were a lot of technical inquiries on that, as we've all experienced in practice. So I think that's a really good proposal. This project also addresses the first time adoption of GAAP, but only to clarify that the adoption of a new financial reporting framework where your government is asserting for the very first time that their financial statements are prepared in accordance with GAAP, established by GASB. So, it's not going to be that's not going to be considered an error correction or an accounting change. So that's a clarifying part of this project. But the board also concluded that establishing any accounting or financial reporting requirements for this category, I guess, would be beyond the scope of the project. So, it's just really a clarifying statement.
Eric Berman, CPA, CGMA: Well, certainly that last aspect there is for our friends in Oklahoma and Wyoming, the Dakotas that may have state specific allowability to effectively use either a budgetary basis or cash basis accounting until they sell debt. And then once they sell debt, that triggers, you know, GAAP implementations. So how do you do it? And that's actually a pretty good provision in my mind, you know, in doing that. And so there was no real GAAP on how to do that on a previous basis.
So with that, any final thoughts before or before we wish you well on your last few months at the GASB?
Janeen Hathcock, CPA; GASB Fellow: Well, I'm just I'm really looking forward. We're tentatively reopening the office in September, so I'm hoping to be back in Norwalk for at least part of this year to meet and spend some more time with the project managers. I mean, they're keeping us busy. We're doing work from home. But it sure would be nice to get in there and see everyone face to face. So, crossing my fingers. Yep.
Eric Berman, CPA, CGMA: Here we go. It sure will. All right. With that, we thank you, Janeen. And please stay healthy. And I hope to see you in Norwalk soon.
Janeen Hathcock, CPA; GASB Fellow: All right. Thanks, Eric.