Academic journal article The Government Accountants Journal

25 Years of State and Local Governmental Financial Reporting - an Accounting Standards Perspective

Academic journal article The Government Accountants Journal

25 Years of State and Local Governmental Financial Reporting - an Accounting Standards Perspective

Article excerpt

From an accounting standards perspective, I believe that these are the six most significant developments affecting state and local governmental financial reporting during the past 25 years.

1. Emergence of a permanent structure to concentrate on accounting standards.

2. Development of the requirement that accounting principles take precedence over legal provisions in financial reporting.

3. Emergence of the integrated operating statement as a means of reporting on performance.

4. Development of a reporting entity concept.

5. Emergence of an accountability-based approach to financial reporting.

6. Recognition of the need for accrual accounting.

To provide some perspective on the changes in financial reporting and where it seems to be headed, I would note that state and local government is big business. One out of every eight employees works for state and local government; state and local government expenditures are more than 13% of the gross national product. If you were to rank the 50 states in with the Fortune 500 (in terms of sales or revenues). California and New York would be in the top eight; twelve states would fall in the top 50; and Missouri, the 21st largest state in terms of revenues, would rank as number 80.

In addition, state and local government has grown increasingly complex, both in the things it is trying to do and in the way it is organized to do them. These complexities have affected both the kinds of information reported and how that information is reported. Until the last 25 years, very few changes occurred in governmental accounting. The 1968 Governmental Accounting, Auditing and Financial Reporting (GAAFR), which is a good starting point for reviewing the past 25 years, contained essentially the same standards as the 1934 work of the National Committee on Municipal Accounting.

Now let's look at some of the major developments of the past 25 years.

1. Emergence of a permanent structure to concentrate on accounting standards.

One of the most significant developments of the past 25 years has been the gradual emergence of a permanent structure to deal with accounting and financial reporting standards for state and local government. All groups in the accounting community--state preparers, local preparers and attestors--contributed extensively to this process.

* The AICPA Governmental Accounting and Auditing Committee has played a key role. Its 1974 Industry Audit Guide, Audits of State and Local Governmental Units was a particularly significant document.

* The National Council on Governmental Accounting (NCGA) was a major force for change during the late 1970s --early 1980s. There had been very little change in accounting standards between 1934 and 1968 and even NCGA Statement 1, published in 1979, purported to make only a modest revision to the 1968 GAAFR. But the NCGA began to meet regularly in the late 1970s and issued seven Statements, 11 Interpretations and a Concepts Statement before the GASB was organized in 1984.

* The State Accounting Project, which functioned between 1977 and 1982, undertook a comprehensive study of many accounting and financial reporting issues affecting state government, and ultimately provided the basis for several NCGA pronouncements.

* With the creation of the GASB in 1984, accounting standards-setting for state and local government finally came of age. From a structural perspective, among the more significant milestones in the life of the GASB are: (a) its recognition in 1986 by the AICPA as the body authorized to establish financial accounting principles under Ethics Rule 203, and (b) resolution of the jurisdiction and hierarchy issues by the Financial Accounting Foundation in 1989 and the issuance of AICPA SAS 69 last year.

2. Requirement that accounting principles take precedence over legal provisions.

Principle 2 of the 1968 GAAFR stated: "If there is a conflict between legal provisions and generally accepted accounting principles applicable to governmental units, legal provisions must take precedence. …

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