Final answer:
The exception to GASB standards on interest and principal on long-term debt is not accruing principal and interest under certain conditions. This is only applicable when a government uses the modified accrual basis of accounting.
Step-by-step explanation:
The Governmental Accounting Standards Board (GASB) standards typically require governments to accrue interest and principal on long-term debt. However, there is an exception where a government does not need to accrue principal and interest until due or when resources are available for those payments. So the correct option here would be 3) Not accruing principal and interest, given that this practice is only applicable when a government uses the modified accrual basis of accounting and recognizes debt service expenditures when they are due.