Annual reports prepared according to the standards of the Governmental Accounting Standards Board often contain more than 30 pages of notes--one recent report contains 70 pages. (See exhibits 1 and 2 on pages 93 and 94.) Although due process procedures are intended to ensure that each required disclosure specified in GASB standards is needed, the cumulative volume of information raises these questions:
* Do current GASB standards require note disclosures that no longer serve a useful purpose?
* Are there disclosure needs that current GASB standards don't meet?
A READER SURVEY
To answer these questions, the GASB sponsored a research study on note disclosures in 1987-88. A series of interviews was held with representatives of important user groups: debt rating agencies, debt insurers, underwriters, investment bankers, bond attorneys, legislative and oversight officials, public finance researchers and citizen advocate and information groups. A sample set of notes to financial statements was sent to each interviewee before the interview. A total of 55 individuals representing 28 organizations were interviewed.
In every interview, the main interest of serious readers--persons whose occupations require regular use of government financial reports--was on major individual operating funds and enterprise funds with material amounts of outstanding debt. However, data presented in the general purpose financial statements are aggregated by fund type. This finding should be of special interest to auditors and their clients because only the general financial statement and its notes usually are covered by the independent auditor's report.
DISCLOSURES CONSIDERED IMPORTANT
Although the objectives of users in each category differed, there was general agreement that notes to financial statements should be concise presentations of essential information. Interviewees had very little interest in
* General policy statements.
* Recitations of financial reporting standards.
* Lengthy explanations of unessential details.
If a reporting entity followed accounting policies not in conformity with generally accepted accounting principles--particularly policies relating to revenue recognition and expense or expenditure recognition--interviewees said notes should disclose this. Also, the entity should disclose situations in which its accounting policies differed from those used during the previous year. To the extent policy statements are needed, respondents indicated they should be presented with the appropriate note or notes explaining the items appearing in the financial statements.
Also considered useful were disclosures regarding
* Events of noncompliance with laws, regulations and agreements.
* Material contingent liabilities.
* Significant effects of subsequent events.
Although these disclosures are useful as they are now presented, respondents suggested they would be even more useful if they were expanded.
MORE DISCLOSURE WANTED
Rather than present a financial picture at one given point in time, respondents wanted to know whether balance sheets are representative of an entity's financial position during the fiscal year. Also, they wanted to know whether the revenues and expenditures reported for the year fit the trend of revenues and expenditures over time and whether events have occurred, or are expected to occur, that may affect revenue streams or expenditures materially.
Interviewees didn't expect annual forecasts but they wanted reports to contain information that would help them develop their own evaluations of financial position and results of operations of individual funds--not fund types.
DISCLOSURES OF SUBSEQUENT EVENTS
Specifically, serious readers wanted disclosures of events or actions that may materially affect financial data after the balance sheet date. …