Understanding the statement now may make it easier to implement in 1994.
As recently as 1989, the existence of the Governmental Accounting Standards Board was in doubt. The Financial Accounting Foundation, which oversees both the GASB and its more-established sibling the Financial Accounting Standards Board, was reviewing the GASB's first five years. In addition, the FASB was issuing statements on private and publicly run hospitals and universities which the GASB found inappropriate for government-owned entities.
Nevertheless, the FAF's 1989 review was positive, praising the GASB. and providing it with additional financial resources. The FAF also authorized the GASB to set standards for government-run institutions when similar institutions exist in the private sector as long as comparability is considered. (GASB statements do not apply to financial reports of the federal government.) This action prevented possible defections from the GASB by the Governmental Finance Officers Association (GFOA) and other government accountants and financial personnel.
With newly gained confidence, the GASB launched a project to review and modify, as necessary, financial reporting for state and local governments. The first fruits of this effort are found in GASB Statement no. 11, Measurement Focus and Basis of Accounting--Governmental Fund Operating Statements. Implementation is prohibited until years beginning after June 15, 1994; however, the statement is significant now both because of the reporting changes it calls for and the potential it signals for other major changes in subsequent statements as the project continues.
The purpose of this article is to review the background and scope of Statement no. 11, discuss the major changes it calls for, illustrate its impact on one government's financial statements and suggest ways to prepare for its implementation.
Statement no. 11 initially was introduced as a discussion memorandum in 1985 as part of an overall financial reporting project. Numerous comment letters and four hearings provided a significant forum for an exchange of views.
The DM included the following three measurement focuses:
* Current financial resources (the present government-type funds model).
* Economic resources (similar to private sector accounting).
* Total financial resources (a new concept).
The total financial resources focus includes cash, claims to cash (debt securities and receivables), claims to goods and services (prepaid items) and inventories and equity securities. Adopting such a concept means supplies, prepaid items and noncurrent securities are included in the balance sheet.
Two exposure drafts on measurement focus were issued subsequent to the DM. In the first ED issued in 1987, the GASB settled on a financial resources focus but was uncertain if a change should be made to full accrual. Although flow of current resources-modified accrual basis and flow of economic resources-accrual basis had numerous proponents, an intermediate position, flow of total financial resourcesaccrual basis found acceptance by the second exposure draft in 1989.
Statement no. 11 established a measurement focus (which resources are measured and how) and an accounting basis (when to recognize the effect on resources of transactions or events) for government fund and expendable trust fund operating statements. The statement applies not only to state and local governments but also to government and expendable trust funds of some government-operated colleges and universities.
Statement no. 11 addressed some liability issues: for example, balance sheet treatment of general long-term capital debt. However, the GASB indicated in the first ED in 1987 that it was deferring a number of liability-related issues for treatment in a separate statement.
Although Statement no. …