Many governments are operating in extraordinary times. For the first time in a long while, we may be facing the realization of having to permanently suspend part of our operations, furloughing long term employees, or extending property tax deadlines.
This new era is bringing about many questions. The Governmental Accounting Standards Board (GASB) has identified and responded to many of these issues in the recently-released GASB Technical Bulletin 2020-1, Accounting and Financial Reporting Issues Related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Coronavirus Diseases.
However, many issues may still impact states and local governments. The GASB has recently added more guidance to its recently issued “Emergency Toolbox,” meant to address questions you may have related to the financial reporting impact of the COVID-19 pandemic. New issues were added to the toolbox relating to:
Here’s a quick recap of some of these items that governments may face this fall.
How do governments move forward post COVID-19?
Impairment of Assets
Many governments are struggling to figure out what the so called new normal will be like. Will cities still operate swimming pools? Will school districts expect to operate all buildings at capacity? Will airports continue to operate all structures at expected volumes? All these questions (and many more) could generate analyses of whether or not your government may have a potentially impaired asset.
Guidance relating to potential permanent impairment recognition is included in the GASB Codification Section [GASB Cod. Sec.] 1400: Reporting Capital Assets . In general, if a capital asset is judged as temporarily impaired, only note disclosure is required. Otherwise, a permanent impairment may trigger a revaluation of the asset to the lower of cost or fair value.
Donated PPE – Revenue Recognition and Expenditure/Expense
During the first few weeks of the pandemic, personal protective equipment (PPE) was scarce. So much so, many hospitals were pleading for donations of PPE from local contractors, businesses and citizens. Americans and people from all over the world responded with donations of N95 masks, face shields, gloves, and protective gowns. If your government hospital received significant amounts of PPE during the year, you may be faced with issues of recording such transactions. Like food commodities, GAAP requires the acquisition value of the PPE to be recognized as revenue in the period when the commodities are received. Then when consumed, the donated PPE will likely be recognized as supplies or as part of a program.
Contravention of Grant Requirements
When congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March, it provided billions of dollars to states and local governments. Funds were passed down from the federal government mostly to states and large cities over 500,000 in population, with those organizations further passing funds onto subrecipients.
Most governments are accustomed to receiving grant funding near the completion of the project, thereby mitigating the risk of covering all eligibility requirements of the grant. However, this new normal has flooded grant proceeds into the bank accounts of governments across the nation. Governments who have received upfront cash in the form of a grant may want to brush up on the guidance found in GASB Cod. Sec. N50 paragraph 123. Once it has become apparent that eligibility requirements have no longer been met, a grantee may need to either derecognize the revenue or recognize a new liability.
Subsequent Event Disclosures
Many governments will face unexpected circumstances since COVID-19 continues to impact our world even after the end of the fiscal year. Governments will need to evaluate whether they have a recognized event that existed as of the end of the reporting period, but additional information was then received after the period that impacted estimates made at the reporting period end, requiring adjustment to the financial statements. The alternative is a non-recognized event, as it arose after the reporting period and just requires note disclosure.
Furthermore, governments should also address any currently known facts, circumstances, or existing conditions with the Management Discussion and Analysis (MD&A). Guidance on this topic is found within GASB Cod. Sec. 2250, paragraphs .109–.116. Note that even if an amendment to the CARES Act is passed by Congress and approved by the president prior to the issuance of the financial statements with retroactive provisions to prior to the prior year, the amendment is not a condition that existed at period end. Only note disclosure is presented.Understand how Relief Funding and Other Provisions Will Impact You
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