The Governmental Accounting Standards Board (GASB) has appointed a new task force to assist with its project addressing going-concern uncertainties and severe financial stress disclosures, Accounting Today reported.

The project “will consider (1) improvements to existing guidance for going concern considerations to address diversity in practice and clarify the circumstances under which disclosure is appropriate, (2) developing a definition of severe financial stress and criteria for identifying when governments should disclose their exposure to severe financial stress, and (3) what information about a government’s exposure to severe financial stress is necessary to disclose,” according to GASB.

Membership of the task force, appointed by GASB Chair Joel Black, comprises 17 people representing three stakeholder groups. Seven represent users, six represent preparers and four represent auditors.

On its project page, GASB noted, "The concept of going concern uncertainties was not specifically developed for state and local governments and was not significantly modified for the government environment when incorporated into the GASB literature. The GASB’s pre-agenda research indicated that, although current guidance provides that financial statement preparers have a responsibility to evaluate a government’s ability to continue as a going concern, such evaluations often pose challenges to preparers and auditors and has resulted in diversity in practice when applying that guidance."

GASB added, "The pre-agenda research also indicated that, even when governments are in or have been experiencing severe financial stress, few dissolve or cease operations. Some state laws prohibit governments from filing for bankruptcy and some states do not allow dissolution of governments without a merger or consolidation arrangement with another government to avoid interruption of services provided for affected citizens. Even when a government seeks Chapter 9 bankruptcy protection, it generally continues to exist as the same legal entity."

The project is considering the following accounting and financial reporting issues:

• How should the existing guidance on going concern uncertainties be clarified or improved to reduce diversity in practice in applying the guidance?

• How should severe financial stress be defined? How should that definition differ from going concern uncertainties?

• What are the common indicators that a government is exposed to severe financial stress? How might those indicators and other information be used to evaluate exposure to severe financial stress?

• If a government is determined to be exposed to severe financial stress, what relevant information should a government disclose in notes to financial statements?