GASB Statement No. 100, Accounting Changes and Error Corrections

Jan 30, 2023

On June 13, 2022, the Governmental Accounting Standards Board (GASB) achieved a major milestone in issuing its 100th accounting statement, GASB Statement No. 100, Accounting Changes and Error Corrections (GASBS 100 or “Statement”). The Statement establishes accounting and financial reporting requirements for (a) accounting changes and (b) the correction of an error in previously issued financial statements (also referred to simply as “error correction”). The Statement supersedes guidance found in GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements (GASBS 62).

Background

Financial reporting requirements for accounting changes and error corrections were originally based on guidance issued in the 1970s. In 2010, the GASB issued GASBS 62, which became the primary guidance for accounting and financial reporting of prior-period adjustments, accounting changes and error corrections. In August 2018, the GASB added to its technical plan a project to reexamine the effectiveness of GASBS 62 related to prior-period adjustments, accounting changes and error corrections. Research performed by the GASB identified certain issues regarding the understanding and application of the requirements of GASBS 62, as well as information not previously required that financial statement users found valuable concerning accounting changes and error corrections. This article presents a summary of the updates included in GASBS 100.

Accounting Changes

GASBS 100 outlines three types of accounting changes: changes in accounting principles, changes in accounting estimates and changes to, or within, the financial reporting entity.

A change in accounting principle results from either (a) a change from one generally accepted accounting principle (GAAP) to another due to the newly adopted GAAP being preferable, or (b) the implementation of a new accounting or financial reporting pronouncement. A change in accounting principle under GASBS 100 does not include the initial adoption and application of an accounting principle to transactions or other events that are clearly different in substance from those previously occurring, occurring for the first time or that were previously insignificant. Moreover, a change in the application of an accounting principle that is not generally accepted under GAAP is considered an error correction, not a change in accounting principle.

A change in accounting estimate occurs when the inputs (e.g., data, assumptions, measurement methodology) used for the estimate change. Changes can occur due to changes in circumstance, information or experience. A change in accounting estimate due to a change in measurement methodology should be based on the new measurement methodology being preferable or a change required due to a GASB pronouncement. In determining whether a change in measurement methodology is preferable, only the qualitative characteristics of financial reporting should be assessed.

Changes to or within the financial reporting entity can occur due to:

The addition or removal of a fund resulting from the movement of continuing operations within the primary government
A change in a fund’s presentation as major or nonmajor
A change in a component unit’s presentation as blended or discretely presented
The addition or removal of a component unit for reasons besides the acquisition, merger or transfer of operations that result in the addition or removal of a discretely presented component unit under GASB Statement No. 69, Government Combinations and Disposals of Government Operations, or the reporting of a component unit pursuant to GASB Statement No. 90, Majority Equity Interests.

Changes in accounting principle (absent other specific requirements addressing the circumstance) should be reported retroactively in single period financial statements by restating beginning net position, fund balance or fund net position, as applicable, for the cumulative effect, if any, of the change to the newly adopted accounting principle on prior periods. Changes in accounting principle reported in comparative financial statements should include restating financial statements for all prior periods presented, if practicable.

Any cumulative effect of the change to the newly adopted accounting principle on prior periods not presented should be reported as a restatement to beginning net position, fund balance or fund net position, as applicable, for the earliest period presented. If restatement of all prior periods presented is not practicable, any cumulative effect should be reported as a restatement in the earliest period for which it is practicable.

Changes in accounting estimate (absent other specific requirements addressing the circumstance) should be reported prospectively by recognizing the change in accounting estimate in the reporting period in which the change occurs.

A change to or within the financial reporting entity should be reported by adjusting the current reporting period’s beginning net position, fund balance or fund net position, as applicable, as if the change occurred as of the beginning of the reporting period.

The notes to the financial statements should disclose the nature of the accounting change, the reason for the change and the financial statement line items affected. A change in accounting principle should include disclosure in the notes identifying the new pronouncement and an explanation why the newly adopted accounting principle is preferable. For comparative financial statements, if prior periods presented are not restated because it is not practicable to do so, the reason why the restatement is not practicable should be disclosed. A change in accounting estimate resulting from a change in measurement methodology should be accompanied by a disclosure of the reason for the change and an explanation why the new measurement methodology is preferable.

Error Corrections

The application of GAAP to transactions or other events previously accounted for using accounting principles not generally accepted is considered an error correction. Errors can occur due to mathematical mistakes, mistakes in the application of accounting principles, or oversight or misuse of facts that existed at the time the financial statements were issued about conditions that existed as of the financial statement date. A fact is considered to have existed at the time the financial statements were issued if the fact could reasonably be expected to have been obtained and taken into account at that time about the conditions that existed as of the financial statement date.

An error correction to single period financial statements should be reported retroactively by restating beginning net position, fund balance or fund net positions, as applicable, for the cumulative effect of the error correction on prior periods. An error correction reported in comparative financial statements should be reported retroactively by restating all prior periods presented. The cumulative effect of the error correction on earlier periods not presented should be reported as a restatement of beginning net position, fund balance or fund net position, as applicable, of the earliest period presented. Each individual prior period presented should be restated to reflect the period-specific effects of correcting the error.

The notes to the financial statements should disclose the nature of the error and correction, the periods affected and the financial statement line items affected. The effect on the prior period’s change in net position, fund balance or fund net position, as applicable, had the error not occurred, should be presented for single period financial statements. The notes to comparative financial statements should likewise disclose the effect of the error correction on the change in net position, fund balance or fund net position, as applicable, of the prior period.

Other Reporting Requirements

Accounting changes and error corrections that do have an effect on beginning net position, fund balance or fund net position but result in a reclassification in the financial statements should be accompanied by a disclosure in the notes to the financial statements covering the nature of the change, financial statement line items affected and the reason for the change. For comparative financial statements, amounts should be reclassified in all prior periods presented, if practicable. If not, the reason why it is not practicable should be disclosed.

For all accounting changes and error corrections affecting beginning net position, fund balance or fund net position, as applicable, the aggregate amount of adjustments and restatements to each should be displayed by reporting unit. To the extent the financial statements themselves don’t disclose the beginning balances as previously reported by reporting unit, the note disclosures should include a table presenting the effects on beginning net position, fund balance or fund net position, as applicable, of the earliest period adjusted or restated, which reconciles to beginning balances as previously reported to the beginning balances as adjusted or restated by reporting unit. Each column in the basic financial statements, excluding total columns, is considered a reporting unit for the purposes of these requirements.

For changes in accounting principle, required supplementary information (RSI) (including management’s discussion and analysis) and supplementary information (SI) should be adjusted or restated to match the basic financial statements for reporting periods presented in the basic financial statements. Prior reporting periods presented earlier than those presented in the basic financial statements should not be restated in the RSI or SI. If prior-period information in the RSI or SI is not consistent with current-period information as a result of the change, an explanation should be included in the RSI or SI, as applicable.

RSI and SI should be restated for error corrections affecting the reporting periods presented in the basic financial statements. To the extent practicable, earlier periods presented in RSI and SI should be restated for errors affecting such periods. Periods affected should be identified as restated or not restated, as appropriate, with an explanation of the nature of the error. If it is not practicable to restate RSI or SI, an explanation of why it is not practicable should be provided.

Effective Date

The requirements of GASBS 100 are effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023. Earlier application is encouraged.