Q1 2026: Subsequent Events, ARPA Reporting, and More

Get updates on developments that might affect state and local government financial reporting, compliance posture, operational risk, and governance oversight.

Message from Tony Boras, partner, national office

Welcome to the inaugural issue of the State and Local Government Executive Briefing.

As state and local governments move further into 2026, finance, audit, and governance leaders continue to operate in an environment defined by evolving accounting standards, expanded reporting obligations, and increased governance expectations. Recent activity from the Governmental Accounting Standards Board (GASB), the American Institute of CPAs (AICPA), The Institute of Internal Auditors (IIA), and federal agencies underscores the pace at which regulatory, compliance, and reporting developments are affecting public sector entities.

This quarter’s briefing highlights newly issued and proposed GASB guidance, federal grant reporting, changes affecting public sector payroll and employee taxation, infrastructure funding developments, digital accessibility compliance requirements, and updated internal audit guidance related to procurement oversight and cybersecurity risk assessment.

Our objective with this quarterly publication is to provide state and local government leaders – including finance directors, governing officials, internal auditors, and administrative executives – with a concise update on developments that might affect financial reporting, compliance posture, operational risk, and governance oversight in the months ahead.

I am grateful to my Crowe colleagues Jim Ansberry, Brad Schelle, and Jennifer Wilson for their significant contributions to this publication. We hope you find this briefing informative and welcome your feedback as we continue to refine future editions.

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From the GASB

GASB current standard-setting project forecast

Project	Expected date
Project	Q2 26	Q3 26	Q4 26	Q1 27	Q2 27	Q3 27	Q4 27	Q1 28	Q2 28
Implementation Guidance Update – 2026		Final
Infrastructure Assets				Final
Going Concern Uncertainties and Severe Financial Stress					Exposure draft				Final
Revenue and Expense Recognition				Exposure draft 1					Exposure draft 2
Voluntary Digital Financial Reporting	Discussion memorandum
GAAP Structure	Discussion memorandum				Final

Based on the GASB technical plan for the first third of 2026.

GASB issues subsequent events guidance

The GASB issued Statement No. 105, “Subsequent Events,” in December 2025 to improve and clarify financial reporting requirements for events that occur after the fiscal year-end but before the financial statements are available to be issued. The statement standardizes the definition of subsequent events throughout GASB literature and distinguishes between “recognized” events – those that provide evidence about conditions that existed at the financial statement date – and “nonrecognized” events, which are significant but reflect conditions arising after the measurement date. It also specifies when note disclosures are required and what information should be presented about nonrecognized events, including the date through which subsequent events were evaluated. These changes are intended to enhance consistency, comparability, and transparency in government financial reports by reducing diversity in practice under prior guidance. Statement 105 is effective for fiscal years beginning after June 15, 2026, with earlier application encouraged.

For more information, refer to the Crowe article “GASB Updates Disclosure Requirements for Subsequent Events.”

GASB releases proposed implementation guidance on subsidies

In February 2026, the GASB released an exposure draft, “Financial Reporting Model Improvements – Subsidies,” to provide clarification on reporting subsidy transactions in accordance with GASB Statement 103, “Financial Reporting Model Improvements.” The proposal, which applies to financial statements of proprietary funds and business-type activities, addresses fact patterns involving resource transfers for the benefit of specific recipients or classes of recipients and is open for public comment through April 27, 2026. If finalized, the guidance would supplement current standards and provide additional interpretive direction on the application and classification of subsidies under Statement 103.

GASB releases proposed guidance on infrastructure assets

In March 2026, the GASB approved an exposure draft, “Infrastructure Assets,” to propose targeted improvements to the accounting and financial reporting requirements for infrastructure assets. The exposure draft should be available on the GASB website in April. The proposed statement refines the definition of infrastructure assets and enhances consistency in practice by clarifying that certain significant components with different useful lives should be depreciated separately. It also emphasizes the need for periodic review of estimated useful lives and salvage values.

In addition, the proposed guidance would expand note disclosure requirements, including disaggregation of infrastructure assets by network and new disclosures related to assets approaching or exceeding the end of their estimated useful lives. Governments that maintain policies for monitoring the condition of infrastructure assets would be required to disclose those policies. The proposal also includes updates to required supplementary information for governments using the modified approach.

The proposed guidance would be effective for fiscal years beginning after June 15, 2028, with earlier application encouraged. Comments are due June 26, 2026.

GASB launches financial reporting video series for elected officials

The GASB has released a new video series designed to help elected officials better understand government financial reports, recognizing that lengthy printed financial statements are not always easily accessible to nontechnical users.

The series consists of 16 videos, each about 10 minutes in length, presented in a whiteboard-style format. The videos explain the key components of a government’s annual financial report in clear, accessible language. While the primary audience is state and local elected officials – such as city council members, county commissioners, and state legislators – the videos also are intended to benefit taxpayers and other stakeholders seeking a better understanding of governmental financial reporting.

The GASB developed the series to promote financial literacy, transparency, and informed decision-making by explaining what each section of a financial report communicates about a government’s financial position and results of operations.

Upcoming GASB statement effective dates

GASB statement	Effective dates – periods beginning after	Early adoption
Certain Risk Disclosures (GASB Statement 102) Provides users of government financial statements with essential information about risks related to a government’s vulnerabilities due to certain concentrations or constraints. This statement requires a government to assess whether a concentration or constraint makes the government vulnerable to the risk of a substantial impact. Additionally, this statement requires a government to assess whether an event or events associated with a concentration or constraint that could cause the substantial impact have occurred, have begun to occur, or are more likely than not to begin to occur within 12 months of the date the financial statements are issued. If these criteria are met, the statement provides disclosure requirements that will enable users of financial statements to understand the nature of the concentrations or constraints identified and the government’s vulnerability to the risk of a substantial impact.	June 15, 2024	Permitted
Financial Reporting Model Improvements (GASB Statement 103) Improves key areas of the current financial reporting model, including enhancements of management’s discussion and analysis (MD&A); presentation of the proprietary fund statement of revenues, expenses, and changes in net position; budgetary comparison information requirement changes; display of unusual or infrequent items; presentation of major component unit information; and other application issues.	June 15, 2025	Permitted
Disclosure of Certain Capital Assets (GASB Statement 104) Provides users of government financial statements with essential information about certain types of capital assets. This statement requires certain types of capital assets to be disclosed separately in the capital assets note disclosures required by Statement No. 34. It also establishes requirements for capital assets held for sale, including additional disclosures for those capital assets.	June 15, 2025	Permitted
Subsequent Events (GASB Statement 105) Clarifies the definition and evaluation period for subsequent events – the period from the financial statement date to the date the statements are available to be issued – and requires disclosure of that evaluation date. The standard distinguishes recognized events from nonrecognized events and specifies four categories of nonrecognized events that may require disclosure.	June 15, 2026	Permitted

From the federal government

Single audit threshold increase now in effect

While many of the U.S. Office of Management and Budget (OMB) updates to the Uniform Guidance (2 CFR Part 200) became effective in 2024, the increase to the single audit threshold is taking effect later and is becoming operational. The threshold has been raised from $750,000 to $1 million in federal expenditures within a fiscal year for fiscal years beginning on or after Oct. 1, 2024 (generally affecting audits for fiscal years ending Sept. 30, 2025, and later). As governments begin to implement this change, federal grant recipients should reassess their federal expenditure levels and related compliance processes to determine how the revised threshold might affect their audit requirements and oversight responsibilities.

Treasury publishes SLFRF reporting update

In January 2026, the U.S. Department of the Treasury published the latest Project and Expenditure Report User Guide, version 17, for State and Local Fiscal Recovery Funds (SLFRF) program recipients. The updated guide provides step-by-step instructions for preparing and submitting required quarterly reports through Treasury’s reporting portal, including navigation, data entry, bulk upload options, and expenditure category templates. Q1 26 project and expenditure reporting will open April 1, 2026, and reports are due April 30, 2026, through the Treasury portal. Treasury continues to update reporting resources and anticipates an April 2026 Project and Expenditure Report User Guide to support recipients.

These periodic reports remain a core component of SLFRF compliance and transparency, documenting obligations and expenditures of American Rescue Plan Act (ARPA) funds. Treasury also reminds recipients to maintain accurate point-of-contact information in the portal and to prepare for ongoing expenditure reporting through the SLFRF performance period ending Dec. 31, 2026.

Congress secures federal transit funding through September 2026

Congress recently passed the Consolidated Appropriations Act of 2026 (H.R. 7148), signed into law on Feb. 3, 2026, which secures federal transit funding through Sept. 30, 2026. The bill includes core formula and discretionary grant funding intended to support operations, capital improvements, fleet replacements, and expansion projects nationwide. Key allocations include about $14.6 billion for Federal Transit Administration formula grants and $1.7 billion for capital investment grants (New Starts, Small Starts, and Core Capacity projects).

Compliance deadlines approach for ADA Title II digital accessibility rule

The U.S. Department of Justice’s revised Americans With Disabilities Act (ADA) Title II rule requires state and local government websites and mobile applications to comply with Web Content Accessibility Guidelines Version 2.1 Level AA.

Compliance deadlines are:

April 24, 2026, for governments serving populations of 50,000 or more
April 26, 2027, for smaller governmental entities and special districts

The rule applies broadly to digital content, online forms, and public-facing documents.

IRS issues guidance on federal income tax deduction for qualified overtime compensation

The IRS issued Notice 2025-69 providing guidance on the new federal income tax deduction for qualified overtime compensation enacted under the One Big Beautiful Bill Act. The provision applies for tax years 2025 through 2028. Eligible taxpayers – including state and local government employees who receive overtime pay – may deduct the overtime premium portion of compensation (generally the additional one-half time required under the Fair Labor Standards Act) from federal taxable income, up to $12,500 annually ($25,000 for joint filers), subject to income phase-outs.

Notice 2025-69 clarifies that the deduction applies to overtime compensation paid to employees subject to federal overtime rules, including public sector employees. The deduction affects federal income tax only and does not alter Federal Insurance Contributions Act (FICA) tax treatment. For tax year 2025, employers are not required to separately report qualified overtime compensation on Form W-2. Separate reporting is expected beginning in tax year 2026.

State and local government payroll and HR departments might wish to review payroll coding and reporting capabilities in anticipation of potential Form W-2 reporting updates beginning in tax year 2026. Larger governmental entities with multiple bargaining units or blended overtime structures might need to evaluate how payroll systems identify the premium component of overtime compensation.

IRS proposes updated rules for tax-exempt refunding bonds

In March 2026, Treasury and the IRS issued proposed regulations (REG-117298-21) that would update several federal tax rules affecting tax-exempt bonds issued by state and local governments. The proposal is intended to clarify arbitrage rebate rules, incorporate recent administrative guidance, and modernize certain procedural requirements.

Among the proposed updates, the IRS would adopt a more flexible filing deadline for issuers seeking refunds of arbitrage rebate overpayments, giving bond issuers additional time to recover excess rebate payments. The regulations also would update rules affecting state guarantee funds used to secure municipal bonds, provide guidance related to qualified student loan bond refinancings, and clarify treatment of certain transactions that otherwise could be considered taxable advance refunding bonds. The proposal also removes outdated provisions and updates procedures for submitting notices and elections to the IRS.

The IRS is accepting comments on the proposed regulations through May 11, 2026, and most provisions would apply to bonds sold beginning 90 days after final regulations are published.

From the AICPA

AICPA issues updated edition of its state and local government audit and accounting guide

In Fall 2025, the AICPA released the 2025 edition of its State and Local Governments – Audit and Accounting Guide, providing updated authoritative guidance for auditors and preparers of state and local government financial statements. This comprehensive edition reflects recent pronouncements – including GASB Statement 102, “Certain Risk Disclosures”; Statement 103, “Financial Reporting Model Improvements”; and Statement 104, “Disclosure of Certain Capital Assets.” It also addresses updated auditing considerations related to recent standards such as Statement on Auditing Standards No. 146, “Quality Management for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards.” The guide continues to serve as a fundamental resource for planning and performing financial statement engagements in accordance with generally accepted auditing standards and government accounting principles, helping practitioners navigate evolving technical and reporting issues in the public sector. Entities and audit practitioners should review the 2025 guide to understand updated examples, clarified procedures, and enhanced coverage of critical audit areas.

GAQC submits comment letter on 2025 OMB Compliance Supplement

The AICPA’s Governmental Audit Quality Center (GAQC) submitted a comment letter to the OMB regarding the 2025 OMB Compliance Supplement in response to a Federal Register request for comments. The letter, issued on Jan. 20, 2026, highlights areas where the GAQC believes improvements could be made, outlines concerns related to the structure and guidance in the supplement, and identifies matters that might be relevant to execution of high-quality single audits under the Uniform Guidance.

The Compliance Supplement is a foundational resource for auditors and auditees involved in single audits of federal awards, and the GAQC’s engagement reflects ongoing stakeholder efforts to ensure the supplement supports consistent and effective compliance testing and reporting.

From The IIA

IIA issues updated procurement auditing guidelines

The Institute of Internal Auditors (IIA) issued the Global Practice Guide “Auditing Procurement in the Public Sector, 2nd Edition” in December 2025, providing updated, practical guidance for internal auditors engaged in public sector procurement oversight. The revised guide outlines key risks, internal controls, and audit considerations across the full procurement life cycle, helping public sector organizations strengthen governance, enhance transparency, and safeguard public funds. This update aligns with current internal audit standards and serves as an important resource for improving accountability and value for money in government procurement activities.

IIA issues requirements for assessing cybersecurity in an organization

The IIA released its Cybersecurity Topical Requirement, an addition to the International Professional Practices Framework that establishes a consistent baseline for internal auditors to assess cybersecurity governance, risk management, and control processes. Effective Feb. 5, 2026, this requirement standardizes how internal audit functions evaluate cybersecurity risks and related assurance activities, ensuring organizations address what is arguably one of today’s most pervasive and evolving risk areas. The requirement complements the Global Internal Audit Standards and must conform with those standards when cybersecurity is included in audit plans or emerges during engagements. This should support stronger risk oversight and stakeholder confidence in audit outcomes.

Portions of AICPA materials reprinted with permission. Copyright 2026 by AICPA.

GASB materials reprinted with permission. Copyright 2026 by Financial Accounting Foundation, Norwalk, Connecticut. Copyright 1974-1980 by American Institute of Certified Public Accountants. Copyright 1976-1984 by Government Finance Officers Association.