The serious new pressures facing governments of all sizes are changing their financial reporting, says Joel Black, the chair of the Governmental Accounting Standards Board — and GASB has a lot of projects underway to help them.
Transcription:
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Dan Hood (
Welcome to On the Air with Accounting Today. I’m editor-in-chief Dan Hood. It’s worth remembering the governments of all sizes are subject to the same sort of economic, demographic, social, and other stresses that businesses are. And that means their financial reporting is going to be impacted too, just as happens with businesses. But how their financial reporting is impacted may well be very different and what that looks like can be very different from what happens with businesses. Here to talk about what’s going on in government financial reporting right now is none other than Joel Black. He’s the chair of the Governmental Accounting Standards Board. Joel, thanks for joining us.
Joel Black (
Thanks for having me,
Dan Hood (
Dan. I want to take a big 10,000 foot view. You obviously are in tune with this world. A lot of your stakeholders are in government or are governments themselves. Sure. Let’s talk about what are some of the big issues you see them facing generally?
Joel Black (
Generally, while it’s not probably this is I would say normal behavior for governments, they’re always being asked to do more with less, but I think that’s especially exacerbated in today’s environment. Costs are raising, costs are rising in lots of ways. There’s increased demand for government services and there’s extreme pressure for governments to keep things like taxes either low or steady, even in spite of increased costs. Those costs are coming from at a state and local government level, which we cover from federal reductions in the amount of funds going from the federal government to state and local governments. State and local governments having to determine if a federal government stops funding a program, whether they want to backfill it. There’s in certain parts of the country, population growth where there’s an increased demand for more services or changing demographics within other parts of the country that changes the mix of the services governments are being asked to provide.
(
All this in a time of infrastructure really aging and becoming an important priority for governments to invest in all with technology. And no discussion goes without talking about artificial intelligence and how is that being applied for government. So I think when I talk to stakeholders, those tend to be the broad concerns and things they’re focused on and paying attention to.
Dan Hood (
Right. That’s quite a list. That’s a lot. There’s a lot going on. And it’s one of the reasons why we’re excited to have you, because I think for a lot of people, they don’t necessarily realize the complexities of what governments are facing. Some of those issues are similar to what businesses are facing individuals, but he said, there’s also the specific ones for businesses. Let’s dial it down folks a little more narrowly. What sort of big issues do you see them facing in terms of their financial reporting specifically?
Joel Black (
Sure. So the financial reporting, certainly as they budget, they’re dealing with all those pressures I talked about. But from a finance department perspective, including the financial report, that being asked to do more with less really works for them because if a government has enough to add a position or to, they tend to want to add those position in those customer citizen-facing direct service parts, not in a back office type finance department. So finance departments are not being able to keep up with increases in cost for people, costs for technology and things like that, because any of those investments, again, a government’s making, they’re doing it to the police department or for teachers or things that really directly affect citizens. And so I think that’s where our government and finance departments are really seeing feeling this pain.
Dan Hood (
Right, right. Well, that’s almost a one for one. I think you see that in a lot of corporate environments too, where the finance departments in there, I guess the difference there is they’re trying to find ways to, they can find ways to make themselves more of a profit center than a cost center. They can find savings. Is there anything similar like that for government finance departments where they can up their value?
Joel Black (
You’ll see a lot of that. I think maybe if you’re in a large, like a state government, you can, you can become more of a support service center broader for more departments and things like that get into payroll and payrolls and stuff like that. And maybe a large local government, large county or city, you might see that. But for many of our governments, medium and small sized, they’re an administrative function and that’s what they’ll be
Dan Hood (
Hard to convince anybody to spend more money on them. Well, let me actually give this is an interesting question. I just want to quickly maybe give us a sense of not your users because that’s confusing with financial statement users, but the governments you’re talking about, I guess the vast majority of them must be relatively small. We’re talking cities and townships, that kind of thing?
Joel Black (
Absolutely. I mean, we set standards for all the state and local governments in the country. And so that ranges from all 50 states down to the smallest cities and towns. Each state really in particular, their laws drive what financial reporting framework each of their governments has to follow. And so in many states or several states, every government, no matter how small, has to follow GAAP as their financial reporting framework. But a lot of times there’s some threshold. Usually it’s a pretty low threshold under which the reporting for that local government might be more a cash basis, agreed upon procedures type things. And then anything above that threshold would have a gap and an audit of their financial statements. So we see a little bit of a mix, but theoretically, even those really small towns or special districts have to follow a gap. And so we have to think about governments large, small of all types when we set the standards.
Dan Hood (
Excellent. Well, let’s talk a little bit about that. Let’s talk about … You’ve got a full agenda. We were talking a little about this earlier. The projects you’ve got going, there’s a lot of them. Let’s go through some of them. I’m going to start with a recent exposure draft on infrastructure assets. What’s that about? Where’s it stained? Where is it in its lifecycle and what’s the aim of it?
Joel Black (
Sure. The infrastructure asset projects, thinking about infrastructure assets, I actually mentioned it in our open, right? It’s an aging kind of asset for many governments in today’s environment. When we did research on capital asset accounting broadly, we found that most of the accounting was working pretty well, but for infrastructure assets in particular, users of the government financial report asked for two main things or had two main concerns. One was the carrying value on the statement of net position for infrastructure wasn’t always very reflective of its actual condition. And then two, they wanted more information about how a government is maintaining or preserving their infrastructure assets. So this project is aimed at those objectives. And so in 24, we issued a preliminary views document that proposed some initial changes in some of the recognition and measurement principles. Although I would say broadly we kept the current guidance intact, but we added a couple of things to try to improve that carrying value, improve the spreading of government costs over time.
(
And then we proposed to add some disclosures really aimed at how old are certain parts of the infrastructure? How is the government maintaining or preserving them? From that, we got a lot of feedback and now we’re moving forward. We as you noted recently issued the exposure draft, so it’s out in comment period now of the proposed standard where a lot of that stuff from the printer MRA views has come forward, but we’ve refined some of it and we did take some of the requirements out that the board felt like maybe for cost benefit purposes just wasn’t worth the ask, but there are still some new enhanced and improved disclosures being proposed.
Dan Hood (
I think this is a fascinating topic as we were talking earlier about the infrastructure across the country is crumbling. We were talking about the New York City subway and the disclosure there seems to be, how old is it too old? How are we maintaining it? We’re not. And probably a little more detail would be helpful to know where that stands. All right. We’ve also got another exposure draft talking about implementation guide updates. What’s that about?
Joel Black (
That is as governments are implementing Statement 103, which was a financial reporting model improvement standard we issued a couple years ago. It’s effective in 2026. As they’ve been working through their implementation of that standard, they’ve had some common questions. And so we released our proposing … Well, in 2025, we released some Q&As to help with some of the questions we had. We’ve since gotten some more. So this exposure draft is eight new proposed questions and answers really geared all around subsidies. One of the main changes Statement 103 made was for proprietary funds, business type activities that within their income statement, we really drove at defining what should be classified as operating or non-operating revenues and expenses and what’s non-operating. One of the non-operating categories was something new called subsidies and identifying those specifically on the income statement. So governments are, as they’re implementing that are saying, well, is this a subsidy?
(
Is that a subsidy? That’s what these implementation guide questions you’re trying to help them
Dan Hood (
With. Well, it’s fascinating how often the questions come down to just definitions, literally just is this guy. You were talking about some of the examples of what was a subsidy and was like, oh, okay. Yeah, I wouldn’t have thought of that as a subsidy, but it makes sense when you describe it that way. So that definitional aspect of things has got to be useful. And I also realized since we were talking about all this, that I’m not sure that I or our audience has a strong sense of how you decide what you’re going to work on, what’s the process by which issues get raised and moved through sort of a process up to whether they might become a full-on standard and then what goes beyond that. Maybe you could just … I understand there’s probably a lot of different ways this happens, but is there a main standard, this is what it mostly looks like pathway?
Joel Black (
So it can come from lots of different places, board members interacting with the public, stakeholder requests, et cetera. But I would say the main thing that we do as a normal process is meet with our advisory council. The advisory council, the GAS Act is made up of 34 individuals that represent different stakeholders. So we’ve got some preparers on there, state and local government. We’ve got some auditors, we’ve got some different types of users on there and we meet with them, the board meets with them three times a year for a day and a half. And in each of those three meetings, we say, “Hey, what are the emerging issues? What are the challenges you’re facing?” And so those are brought to us then annually, which they actually just did back a month or so ago, they prioritize all the things that we’ve kind of heard we might be working on, potential reexamination standards that have been around a while.
(
They prioritize them and each of them votes to rank what are the things they think we should be working on. The board then takes that kind of feedback in and says, “Well, these are the things our stakeholders are telling us we should be working on. Let’s explore that. Let’s explore.” And typically exploring means maybe let’s do some research so we can hone in on the problem, make sure we’ve got a wide swath of input into what the problem is, how a path forward for standard setting might look like. From that research, then the board can vote whether or not to take on a standard setting project. Then the standard setting process starts with due process documents, working through all the issues, et cetera, till final issuance.
Dan Hood (
There you go. All right. It sounds so simple when you put it how I, but this is often- It can be years long processes, right? That’s the thing. There’s a lot of care and consultation that goes into it reaching out to all kinds of stakeholders, not you start with the council, but then it goes beyond your reaching out to everybody. Absolutely. So the exposure drafts are for it, get comments on.
Joel Black (
And the research, right? Surveys and interviews so that we get, and we try to get lots of representation from different types of stakeholders on each of the issues.
Dan Hood (
Excellent. All right. There’s a lot more questions I have about some of the projects you all have going on, but for now we’re going to take a quick break and we’re back. We’re talking with Joel Black of GASB. Thank you for walking us through that process because I think gives people a better sense of how issues get raised and where they go from. I want to talk a little about the research agenda you mentioned, probably just go out for research. You see whether is this something we need to take onto the next step. What are some of the things you’ve got on your research agenda now?
Joel Black (
Well, we’re just wrapping up a look at cybersecurity risk disclosures. We’ve just completed our research on that. So very shortly the board will look at a project prospectus and vote on whether or not to undertake a project that this was something that our stakeholders in particular the users really said, “Hey, we want more information. This is becoming more prevalent risk. This is a really big deal for our state local governments. We want more information about how governments are dealing with cybersecurity risks.” And so our research has kind of looked at that and issues around that and whether or not the external financial board is the right place for disclosure and can we even have disclosure related to these things. And so staff has prepared that research paper and the board will look at whether or not we have a standard setting project in the coming time.
Dan Hood (
Right. It’s interesting. We were talking about this a little bit earlier and you mentioned one concern would be would disclosures actually make people less secure? Would it impact cybersecurity in a negative way? I was sort of a fascinating that OSHA, I don’t think people think of that as the kind of thing that might happen with cybersecurity disclosures or disclosures in general. But can you talk a little bit about that, the risks that come along with that kind of disclosure?
Joel Black (
Sure. I think the research really laid out that there’s an opportunity for generic descriptions of cybersecurity risk. We kind of look at that as maybe boilerplate, not really sure that’s helpful for anybody, but anything beyond that almost seems like what it’s what we would call, or we termed a cybersecurity disclosure conflict, which means that our disclosure requirement might actually expose or increase the risk a government faced because bad actors would now have access to information about a government’s vulnerabilities or give them more information in which to target a government. And we don’t really, I think, want to do that.
Dan Hood (
That would be
Joel Black (
Best. So we will see what the board really thinks about that when we vote ultimately, whether or not to continue and add a standard setting project, but certainly that’s what the research showed us.
Dan Hood (
I mean, it’s just not a thing you think about and then suddenly like, yeah, of course we don’t want to talk about everything we’re doing to hedge against cybersecurity risk because then that’s just like saying, this is where we put our alarms and this is where we … That would be the conflict. Yeah. While we’re talking a litle bit about cybersecurity and technology, I know you have some other on the research agenda, other projects going on or thinking about in terms of technology. I know you’re talking a little bit about digital assets and how governments are approaching those. Maybe you could talk a little bit about that.
Joel Black (
Sure. We’ve been monitoring the use of that. We does feel like it’s coming more prevalent, more governments are getting involved at at least somewhat larger amounts. And so in this same board meeting that’s upcoming, the board will be voting on whether to add it as an official research topic. And the idea behind the research would really be to be sure we have a broad swath of how governments are interacting with different types of digital assets. And then within that, honing in on what would be our response or standard setting. For example, we might feel like guidance already exists if a government pension fund is investing in cryptocurrency. We have standards that tell them that’s fair value. Maybe we could issue some implementation guide questions just to make it clear for these different ways governments are dealing with these different kinds of digital assets, how they should account for it.
(
Or maybe we have a standard setting project on other specific points within digital assets like stablecoins and looking at other things that the FASB’s done or is working on related to those and whether or not we have standard setting to do there. We have issues within that environment where states are issuing their own stable coins of what’s the accounting for that. We have states or local governments with confiscated property or unclaimed property in the form of digital assets or there accounting issues to be dealt with there. Those are the kinds of things the research will hone in on, making sure we’ve got a good population of what’s currently going on in a prevalent way and what potential standard setting paths may or may not exist for those.
Dan Hood (
Right. I mean, and I rise that the rest of research is still TK, but the general assumption is that government’s involvement in these kinds of things will lean more towards confiscated property investments in as part of a pension fund as opposed to governments issuing stablecoin. I mean, there is one, you said, but I’m assuming it’s going to lean a little more or that’s the guess.
Joel Black (
That’s what we hope the research shows is what do we see now? Some maybe look at the future, but really we can always adjust standards later if something else pops up later, but what should we mean to address now?
Dan Hood (
Gotcha. And one other, just on the stills while we’re on the technology front, everybody’s favorite technology these days is AI. I know you’re working on, I think it’s a suggested taxonomy or potential taxonomy. Maybe you can talk a little bit about that.
Joel Black (
Sure. When we look at technology AI included and how it’s impacting governments and financial reporting, what we’re seeing so far on a preparation side is not much yet. When governments deal with and are working on implementing artificial intelligence, it tends to be on taxpayer facing, citizen facing components. The finance department, at least in our outreach, isn’t yet really changing the way the financial reporting works, but that’s something we’re paying attention to to see if or how it would affect the standards and how we interact with the financial reporting preparation process. Where we are seeing a lot of changes is on the user side. The data ingestion of that financial information is using AI and technology less of a manual process, more of an automated process. And so the project we’re working on, which is a voluntary digital financial reporting project, the voluntary being we’re not going to ask preparers to make them report in a more digitized way, but if they choose to, or if a user wants to create and use the GASB suggested structure for importing consuming information in a digital way, this kind of would create a, for lack of a better term, data standard or data structure that would ensure that, and in my view, maybe train an AI agent, for example, to understand the government financial report and as it picks bits of information out to understand the context in which it’s pulling it out so that when it ingests it into a system, a user isn’t misusing that information.
(
For example, does the AI agent know to go look and see is the information round it? Is this really $300,000 or $300 million? Is this revenue on the modified accrual basis, the budgetary basis, or the full accrual basis of accounting? We don’t want that context loss. We can provide a structure and an organization to the data using GAP, using GASB information and that’s what we’re developing there for anybody that would ultimately want to use that kind of organization or taxonomy.
Dan Hood (
Right.That makes a ton of sense. I mean, one of the things we have with all of these information sources is whether people really understand what’s in them and AI is no more likely to understand it than the average person and the average person probably doesn’t understand it that well. So there you go. One thing I do, I just want to touch on, because I think it’s fascinating, you’ve put out a video series or a series of videos on government financial reporting and financial statements and all that sort of stuff for elected officials to help them better understand what’s in these reports and what they mean. Maybe talk a little bit about that, what sparked that and what’s in it. We don’t need to go through all, I think there’s 16 videos in it, but give a sense of what they cover and how people are meant to use them and who therefore and that sort of thing.
Joel Black (
Absolutely. Thanks, Dan. We’re excited about this release. We’ve gotten a lot of good initial response from our stakeholders who are excited for this, but the genesis was we’ve always had user guides to help different parts of our user, different types of user stakeholders understand the financial report and knowing they’re maybe not, they’re not accountants always like elected officials, even municipal bond analysts, et cetera. But our user guides traditionally have been a PDF 200-page document. Not many elected officials in today’s environment are going to go read a 200-page document to better understand their 200-page financial report. So we tried to develop something that’s more modern and that resulted in this educational video series. It is a series of 16 videos. They’re all short though, 10 minutes roughly in length, but there are three that are introductory and we think helpful. The rest of the 13 all each cover a different part of the financial report.
(
They explain in layman’s terms what this part of the financial report is trying to tell you and how you as an elected official or a citizen who’s evaluating, et cetera, might use the information that’s coming out of that particular part of the report. And so you can watch them all and understand the whole ACFER, or if you just want to understand one part of the ACVER, you just go to that video, you don’t have to necessarily watch all of them.
Dan Hood (
But very cool. No, I liked that idea. I think it was fantastic. This is a problem across accounting. It’s the difference between what accountants know and mean when they read something or when they put something together and what everybody else gets out of them, whether they understand it. And I think there’s always a big disconnect there. So I think that’s a great service. And I like to think that I am at least as smart as any of my elected officials, so I can probably understand it as well. Very cool. I know there’s tons of other projects we probably haven’t touched on everything, but any other things you want to highlight that are going on there or other messages you want people to know about GASB and its work and what’s going on with government financial reporting?
Joel Black (
I’m just saying I mentioned early on that our government finance departments are being asked to do more with less and we do understand that anytime we add to or change gap, we’re asking them to do something they otherwise wouldn’t have to do or change something. And we’re really focused on if we’re going to ask them to do that, that it’s really a significant improvement in the financial report. And so that has us, we’re trying to be customer service, stakeholder focused, listening to all our stakeholders and only work on those significant improvements. And so while we do have a number of things on our agenda, it is smaller than it used to be, but we hope that everybody understands the reason behind everything and that they see the significant potential improvement in the financial report. And so then hopefully they’re very accepting of the projects that we are working on.
Dan Hood (
Very cool. And if they don’t understand it, don’t want to go watch those videos, that’ll clear it up. No, that’s great. Excellent. All right. Joel Black of GASB, thank you so much for joining us. Thanks for having me, Dan. And thank you all for listening. This episode of On the Air was produced by Accounting Today with audio production by Adnan Khan. Rate or review us on your favorite podcast platform and see the rest of our content on accountingtoday.com. Thanks again to our guests and thank you for listening.
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