Academic journal article The Government Accountants Journal

The Governmental Accounting Standards Board's Reporting Model: Evolution or Revolution?

Academic journal article The Government Accountants Journal

The Governmental Accounting Standards Board's Reporting Model: Evolution or Revolution?

Article excerpt

Summary of Issues

Key Features of Proposed Model:

Dual perspective approach-entity-wide and fund-level. Entity-wide perspective:

Utilizes flow of economic resources and accrual basis of accounting Requires depreciation for all capital assets including infrastructure Statement tif Activities is presented on a net-cost format by program Interfund activities are virtually eliminated Fund-level perspective:

Utilizes flow of current financial resources and modified accrual basis of accounting for governmental funds and flow of economic resources and accrual basis of accounting for proprietary funds

Budget to actual statement requires original budget along with final budget Balance sheets required for both governmental and proprietary funds Account groups are eliminated Management's Discussion and Analysis is required supplemental reporting.

Where Are We Now?

The period to comment on the Exposure Draft (ED) is completed. The public hearings have been held. The Governmental Accounting Standards Board (GASB) members are beginning deliberations on the financial reporting model. When they have completed their work, will the model for state and local governments be an evolution over existing reporting requirements or will it be so revolutionary that it will not be accepted by many of GASB's constituents?

Following the 1990 issuance of Statement 11, Measurement Focus and Basis of Accounting--Governmental Fund Operating Statements, the board has been working on the financial reporting model project. An Invitation to Comment (ITC) provided respondents with a choice between two models. The board has issued for comment a Preliminary Views (PV) document, introducing the dual perspective concept, which was continued in the ED.

One major hurdle that the board has faced, beginning with the ITC, is the lack of consensus within the state and local government community. Respondents liked certain features and did not like others. Unfortunately, among the various special interest groups representing state and local governments, no two groups like or dislike the same features. Given the diversity of opinion, the board received little direction as to how to proceed.

To establish a framework for action on the model, the board used Concepts Statement No. 1, Objectives of Financial Reporting ("Objectives"). By applying the objectives and subobjectives, the board concluded that neither model presented in the ITC met them. More importantly, the board concluded that no single perspective could meet the objectives and subobjectives. As a result, the dual perspective approach was developed and presented in the PV.

To satisfy the objectives and subobjectives, it is necessary to look at a government from two different, unrelated perspectives. One perspective requires looking at the government as a whole, irrespective of component units and funds that encompass it. This perspective is similar to that used by companies in the private sector. When one reads the financial statements of General Motors, one cannot find details about Pontiac or Buick. The same would be true for the State of Ohio. One would not find information about the General Fund or a particular enterprise. To satisfy other objectives and subobjectives, it is necessary to look at funds and component units of the government. This second perspective is similar to the current financial reporting model.

What Next?

Given the lack of consensus, the board seems to be in a position to do pretty much as it pleases-or is it? If the board establishes a standard that is extremely costly to implement, then a government may conclude that the cost outweighs the benefit and may refuse to follow the standards when issuing its financial report. In this case, the auditors would either qualify their opinion or not render an opinion, since the report would not be prepared in accordance with generally accepted accounting principles (GAAP). …

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