The GASB is monitoring the process of the Financial Data Transparency Act of 2022 that was floated by Congress earlier this year to “see how it goes” and what that means for financial reporting, Chair Joel Black said at a trustee meeting.
“We are going to be devoting more time to this effort in understanding what our role should be and whatever this evolution of financial reporting is,” he told the Board of Trustees of the Financial Accounting Foundation (FAF) on Nov. 15, 2022. “But this Act would speed that up in requiring in some way, shape, or form, machine readable information to come out of at least some government reporting that works its way through, for example, the [Municipal Securities Rulemaking Board].”
His remarks come amid a climate of concerns being raised by finance officials publicly that the Financial Data Transparency Act (FDTA), which was introduced in May by Senators Mark Warner, a Democrat representing Virginia and Republican Mike Crapo from Idaho, would require the Municipal Securities Rulemaking Board (MSRB) to establish data standards, and scale reporting requirements for smaller regulated entities.
Companion legislation, introduced by Representatives Carolyn Maloney, a New York Democrat, and Republican Patrick McHenry of North Carolina, was recently included in the House version of the chamber’s National Defense Authorization Act (NDAA).
Groups such as the Government Finance Officers Association (GFOA) said they take issue with the provisions in Section 203 of the legislation, stressing it may create more confusion or reduce transparency of publicly available information because most state and local governments adhere to governmental reporting standards established by the GASB.
The GASB is a seven-member accounting standard-setting body that develops U.S. generally accepted accounting principles (GAAP) for state and local governments. The FAF holds oversight responsibility for the board and its sister body the FASB.
Black’s comments were in response to a question posed by outgoing FAF Trustee Chair Kathleen Casey, who observed the GASB had added resources that focus on electronic financial reporting. “And we know there’s legislation that’s being contemplated by Congress that could speak to the establishment of electronic reporting standards,” she said. “What would the potential impact be of that legislation on what you do and what role should GASB have in that in your view?”
If another entity is also setting data standards for what information users need and the GASB was not involved in that process then it would affect the board’s mission, which is to ensure that users receive the right financial information out of government reports, Black also said. “And so we would like to be involved in whatever that process is – whether it comes from that Act or not come from that Act as a standard setter I think should be in setting what the right information is for users should receive,” he said.
But groups such as the GFOA and the National Association of Counties (NACo) will not wait to see what develops and have urged entities “to reach out to your Senators and ask them to oppose including S. 4295 – or more specifically, Section 203 of the legislation – in the defense authorization bill.”
Among provisions in Section 203 that is said to be concerning is the timing – as it requires joint rulemaking for regulated entities that will take place for two years after passage and then providing two years for implementation. Full implementation and compliance would be required beginning 2027.
“This is a big issue,” Emily Brock, Director-Federal Liaison at GFOA, said on Nov. 16. “One of our big challenges with this bill is that they want full implementation in about four years,” she said. “Well that is especially hard in an environment where you’ve got budget cycles, audit cycles, and election cycles from local government and a public service perspective – so the way that it’s drafted is unworkable.”
Other concerns include the involvement of the MSRB, which was established through Dodd-Frank to regulate broker-dealers, municipal advisors and protect issuers and investors.
“What we find very, very interesting about this,” said Brock, “is that technically by setting standards the MSRB would ad hoc be regulating issuers and that’s not in the spirit of Dodd-Frank.”
This article originally appeared in the November 17, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
Get all the latest tax, accounting, audit, and corporate finance news with Checkpoint Edge. Sign up for a free 7-day trial today.