Gasb Statement 34 and the Managerial Accounting Nexus
McCue, Clifford P., Gianakis, Jerry, Frank, Howard, Journal of Public Budgeting, Accounting & Financial Management
Will implementation of GASB Statement 34 induce the adoption of cost-accounting models in local governments? The authors address that question based on the findings of a national survey of local and county finance officers. Findings suggest that while finance officials recognize that GASB 34 will prompt greater accuracy and transparency in financial reporting, it may not serve to propagate greater utilization of activity-based costing (ABC) or its derivatives. Possible explanations may include feared impacts of increased cost accounting transparency as well as limited perceived payoff for investments in ABC-related tools. The authors acknowledge that this is a baseline "read" of attitudes; continued experience under GASB 34 may crystallize attitudes and lend greater support for future implementation of private-sector based-accounting methods.
In June, 1999, The Governmental Accounting Standards Board revised the financial reporting model for state and local governments with the passage of Statement No. 34 (Basic Financial Statements and Management's Discussion and Analysis - for State and Local Governments). Until the passage of Statement No. 34, state and local government annual financial reports focused primarily on providing information about various governmental activities or sources of revenue within a governmental fund. Under the new reporting model, however, state and local governments' financial reports must provide information that deemphasizes traditional fund precepts while augmenting an entity-wide perspective. Further, Statement No. 34 requires state and local governments to adopt, in part, a full accrual accounting methodology while generating two new sets of financial statements; a statement of net assets and a statement of activities.
The goal of the two new statements is that governments will now report the total costs of service production and will delineate the bearers of those costs. For example, under the new accounting rules, financial statements may reveal the costs of operation for library reading programs or golf courses, and answer questions about whether the programs or courses are self-supporting via user fees, or require subsidies from other sources such as the general fund.
Equally important, Statement 34 implementation will allow consumers of state and local government financial statements to address a simple but profound question: "Are current users of a jurisdiction's infrastructure bequeathing a physical plant to future users that is in the same condition-or better-than that which they received from prior users?" During the early- and late-Eighties, and well on into the Nineties, there was much discussion of "The Infrastructure Crisis" and the apparent neglect of our nation's infrastructure. Many experts in government budgeting and financial management contended (Frank, 1997) that while fiscal stress was the primary driver of this neglect, governmental accounting models that overlooked the depletion of assets in many government operations were a contributory factor. From this perspective GASB 34 implementation represented a long overdue recognition of the fact that streets, roads, museums, courts, and other structures have lifecycles that warrant transparent reporting to the public in order to assess a jurisdiction's true fiscal condition. This aspect of Statement 34 implementation was perhaps its most controversial, and the one most likely to alter governmental financial reporting over time.
Statement 34 Implementation raises a number of auditing, accounting, and budgeting issues. Although GASB does not officially set budgeting standards for state and local governments, there is an implicit relationship between the new reporting model and the budgeting process. In this vein, Chan (2001) notes six implications of Statement No. 34 for budgeting, including the possibility of accrual budgeting, multi-year budgeting, emphasis of budgets as accountability documents, focus on budgetary aggregates rather than agencies, the linkage of budgets and financial position, and the reevaluation of budgetary processes. …