“The board has set a high standard for reporting projects, recognizing the scarcity of resources in government finance departments,’ Joel Black, Chair of the Governmental Accounting Standards Board (GASB), told us recently.  “This approach has received positive feedback, particularly from preparers, auditors and the advisory council, who value projects focused on infrastructure and severe financial distress.

In mid-March, the Governmental Accounting Standards Board took its first major forward step in dealing with the second of these two issues.  Dubbed “Severe Financial Stress and Probable Dissolution Disclosures, it’s a request for preliminary views, the first step in the process that could lead to clarification about what disclosures are necessary when “governments get into financial difficulties but continue to exist and provide services.”

It also covers instances in which governments actually dissolve and “cease to exist for reasons other than financial stress (for example, to realize greater efficiency and cost savings through governments merging or combining operations).”

This matter has been covered in the past by the GASB based on standards promulgated by the American Institute of CPA’s literature about “going concerns,” which means companies that have every reason to be assured that they’ll continue to operate and pay their bills into the foreseeable future.

However, wrote CPA Advisor, “research showed that stakeholders were unclear on what going concern means in the government context.”

According to a GASB release, “A government would be required to make (these) disclosures if, as of the financial statement date, it is experiencing financial stress at such a degree that it is near or at the point of insolvency, regardless of whether it will continue to exist. The point of insolvency would be when a government generally is not paying its liabilities as they come due or is unable to pay its liabilities as they come due. A government near the point of insolvency would be experiencing a very high level of financial stress but would not be insolvent.”

The actual document and the opportunity to comment can be found by clicking here.

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