On Friday, March 28, the Governmental Accounting Standards Board posted a due process document for public comment: Preliminary Views (PV), Severe Financial Stress and Probable Dissolution Disclosures. Approved by the Board last week, the PV proposes to replace the existing standards for going concern uncertainties with separate evaluations of “severe financial stress” and “probable dissolution.” Here is a thumbnail sketch of the proposal.

• Going concern, as it is currently defined, is not particularly relevant to state and local governments.
  • Governments rarely go out of business and, when they do, it usually is not because of major financial collapse.
  • The focus of the going concern standards, however, is on whether an entity will continue to exist, and the considerations for evaluating going concern generally are financial.
  • Financial statement users indicate they would benefit more greatly from disclosure that a government is facing substantial financial problems, well before shutting it down is even an issue.
• The GASB PV proposes that continued existence and financial difficulty be evaluated separately.
  • Severe financial stress means that a government is near or at the point of insolvency as of the date of the financial statements.
    • At the point of insolvency, a government generally is not paying or is unable to pay its liabilities as they come due.
  • Probable dissolution means that a government likely will cease to exist as the same legally separate entity within 12 months of the date the financial statements are available to be issued.
    • Ceasing to exist as the same legally separate entity may be the result of merger, acquisition, or dissolution without replacement.
• If a government determines it meets the severe financial stress condition, it would disclose:
  • The reasons and causes
  • Its evaluation of their significance
  • Actions it took in response, and
  • The known effects of the condition, such as a ratings downgrade.
• If dissolution is probable, a government would disclose:
  • The fact that dissolution is probable
  • The reasons and causes
  • Its evaluation of their significance
  • Actions it took in response
  • The disposition of assets and liabilities.
• Comments are due 6-30-25 and can be submitted by email or online form.
• Six public forums will be held between July and September 2025, both in person and virtually.

The views expressed in this blog are my own and are not positions of any organization with which I am affiliated.