Magazine article Government Finance Review

GASB's Implementation of the New Measurement Focus and Basis of Accounting

Magazine article Government Finance Review

GASB's Implementation of the New Measurement Focus and Basis of Accounting

Article excerpt

The "measurement focus" and "basis of accounting" of governmental funds determine how those funds measure and report their revenues and expenditures. Accordingly, the measurement focus and basis of accounting, or MFBA, is important to state and local government financial statements.

Starting in 1984, the Governmental Accounting Standards Board (GASB) undertook a major project to reexamine the current MFBA for governmental funds. This effort eventually resulted in the release of GASB Statement No. 11,

Measurement Focus and Basis of Accounting--Governmental Fund Operating Statements.

In response to the GASB's efforts, the GFOA Executive Board and membership adopted a formal policy statement on MFBA in May 1988. One of the key points made in that policy statement was that the new MFBA for governmental funds should only be implemented in conjunction with the GASB's separate project on financial reporting. The GFOA was gratified when GASB Statement No. 11 committed the GASB to the joint implementation of the two projects.

Since the issuance of GASB Statement No. 11, various delays have made it appear increasingly less likely that the GASB could keep its commitment to the simultaneous implementation of the MFBA and the financial reporting project. Therefore, the GASB recently decided to implement GASB Statement No. 11 prior to the completion of the financial reporting project.

Both the GFOA's Executive Board and the GFOA's Committee on Accounting, Auditing and Financial Reporting have taken strong exception to this change in direction on the part of the GASB. One cause for concern is that separating the implementation of the new MFBA from the completion of the financial reporting project could conceivably result in a series of major changes in accounting standards. The scheduled implementation of the new MFBA, for example, could be followed in a few years by another major change in accounting standards as a result of the GASB's subsequent work on its financial reporting project.

In GFOA's view, repeated major changes in accounting standards would detract from both the understandability and credibility of government financial reports. How many times can finance officers explain to governing boards and the public that the financial statements have changed because the rules of the game have changed? City councils and county boards and similar legislative bodies will quickly lose confidence in finance professionals who try to explain changes in financial statements because the standards have changed again. The likely response from elected officials would be, "Who is this GASB body and why do they keep changing the rules?"

The GFOA believes that it will be difficult to explain and gain acceptability for the new MFBA unless it is presented within the framework of a comprehensive governmental financial reporting model. The GFOA's policy statement on MFBA explains that the financial reporting project needs to be completed prior to implementing the new MFBA "so that preparers, attestors, governmental officials and other users have an opportunity to know not only how, but why, financial statements are henceforth to be presented in this manner. …

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