The Governmental Accounting Standards Board (GASB) has proposed changes to the methods of accounting for changes in accounting principles, changes in accounting estimates, and changes in reporting entity. Proposed changes are intended to provide clarification and improve consistency in the application of these standards. The proposed statement would eliminate the separate category of prior-period adjustments. Change in reporting entity, as defined in GASB Statement No. 62, will be changed to “change to or within the financial reporting entity” in the proposed exposure draft. According to GASB, the revised category will include “changes in legally separated entities that compose the financial reporting entity, changes in the funds that compose the fund structure of the primary government, and changes in the presentation of funds as major or non-major and component units as blended or discretely presented.”
The proposed draft classifies a change to or within the financial reporting entity as a change in circumstance. Conversely, a change in accounting principle is the application of a different generally accepted accounting principle to the same circumstance. For example, a government may choose to report a fund as a major fund even though it does not meet the requirement for classification as a major fund. Subsequently, if it chooses to classify this fund as a non-major fund, such a change is a change in government policy rather than a change in circumstance. To avoid confusion, GASB concluded that a change that could be categorized as either a change to or within the financial reporting entity or a change in accounting principle should be reported as a change to or within the financial reporting entity. Lastly, the first-time adoption of US GAAP as a financial reporting framework would no longer be considered an error correction, nor would it be considered a change in accounting principle. The proposed changes would be effective for accounting changes and error corrections in reporting periods beginning after June 15, 2023.