GASB Tightens the Rules on Subsequent Events for Cities and States

What Counts as a Subsequent Event Now

Under the new guidance, a subsequent event is any transaction or occurrence that happens after the financial statement date but before the statements are issued. Issued means complete and approved for release under GAAP, not just drafted.

That timing clarification alone solves a lot of confusion. Under the old rules, governments interpreted the cutoff differently, which led to uneven treatment across cities, states, and agencies.

GASB Statement No. 105 replaces older, vaguer guidance and sets a single framework everyone must follow.

Why GASB Stepped In

GASB found wide variation in practice when it reviewed how governments handled post year end events. Some entities adjusted numbers aggressively. Others disclosed very little. Similar events were treated differently depending on who prepared the statements.

This update is meant to standardize the approach so users of financial statements can compare governments more easily and understand what really changed after year end.

The new standard applies to fiscal years beginning after June 15, 2026. Early adoption is allowed.

Recognized Versus Nonrecognized Events

The heart of the guidance is a cleaner split between events that require adjusting the numbers and events that only require disclosure.

Recognized Subsequent Events

These confirm conditions that already existed at the financial statement date. Think of a major customer bankruptcy that reveals receivables were impaired before year end.

In these cases, governments must adjust estimates in the financial statements using all available information. Judgment still matters, but the direction is clearer.

Nonrecognized Subsequent Events

These represent new conditions that did not exist at year end but could still affect how users interpret the statements. Examples include issuing new debt, merging entities, or entering into major agreements after year end.

For these events, governments do not adjust prior period numbers. Instead, they disclose the event if it is significant.

What Must Be Disclosed

For material nonrecognized events, notes must include
A clear description of what happened
An estimate of the financial impact or an explanation if it cannot be reasonably estimated

Disclosures should be made at the reporting unit level and should avoid unnecessary duplication.

Why This Matters for Government Finance Teams

This guidance reduces uncertainty around one of the trickiest parts of year end reporting. Finance teams now have clearer rules for timing, classification, and disclosure.

It also helps audits run more smoothly. When standards are clearer, there is less back and forth about whether something should have been adjusted or merely disclosed.

GASB kept familiar examples in place, such as distinguishing between a customer bankruptcy and a natural disaster. The difference is that now the rules explaining why they are treated differently are much more explicit.

What to Watch Going Forward

Governments that adopt early may signal stronger financial reporting controls. Auditors will be paying close attention to how entities identify and document subsequent events under the new framework.

For preparers, this is a good time to review year end close checklists, internal controls, and communication between finance, legal, and operations teams. Subsequent events often surface outside accounting, and catching them early matters.

Conclusion

GASB Statement No. 105 brings long needed clarity to subsequent event accounting for cities and states. By tightening definitions and standardizing treatment, it reduces confusion and improves comparability across government financial statements. For finance teams, it means fewer gray areas and a more disciplined approach to year end surprises.