GASB's Financial Reporting Model - a Decade in the Making
Bean, David, Journal of Accountancy
Since its inception on June 14, 1984, the Governmental Accounting Standards Board has devoted a considerable amount of its efforts to reexamining the financial reporting model for government entities. The reporting model project was intended to address deficiencies in the current model that have been noted by practitioners and financial statement users as well as to keep up with new types of government transactions. As part of this project, the GASB recently released a preliminary views (PV) document, Governmental Financial Reporting Model: Core Financial Statements.
The GASB's new proposal is based on a dual-perspective presentation. The first perspective--the fund perspective--would present many of the traditional measurements found in the current fund-type-based model while providing users with additional information for the major funds of a government.
The second perspective--the entity-wide perspective--would provide a whole new look at a government entity's financial activities. Although the fund perspective provides important information for users, there are many users who want a summarized overview to assist them in determining whether a government is better or worse off. To provide this type of information, the GASB decided that the economic consequences of transactions within the government environment are best reflected from an entity-wide perspective.
Dianne K. Mitchell, technical manager in the Division of State Audit in Nashville, Tennessee, and a member of the Governmental Accounting Standards Advisory Council, said the dual perspective would cater to the diverse group that uses government financial reports. "The entity-wide perspective will benefit those who want information about the economy, efficiency and effectiveness of a government's operations and the long-term effects of a government's transactions and events," said Mitchell. "The fund perspective will provide detailed information to those interested in the current budget and financial resources and in government fund activities. Certain users, such as the bond community, will likely employ both reporting perspectives to obtain the information they need."
One of the most significant adjustments in the new perspective is the capital charge based on the "using up" of capital or fixed assets. In government accounting, the purchase of a capital asset is reported as an expenditure when the asset is acquired. To recognize the economic benefits that these assets provide to future periods, they are capitalized and charged to operations over their useful life in the entity-wide perspective. GASB also believes that certain capital assets, if adequately maintained, have an indefinite life. To recognize this life, the board proposed that governments may use required maintenance as the only charge to operations.
To provide a link between the two perspectives and to reach less-sophisticated users, the GASB's new model requires that a management's discussion and analysis (MD&A) letter be presented in addition to the basic financial statements. …