The Adoption of Gasb 34 in Small, Rural, Local Governments
Patrick, Patricia A., Journal of Public Budgeting, Accounting & Financial Management
ABSTRACT. In June 1999, the Government Accounting Standards Board issued Government Accounting Standards Board Statement No. 34 - Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments (GASB 34) to improve the transparency and accountability of governments. This study examines the adoption of GASB 34 in local governments where the state government does not mandate GAAP-compliant financial reporting. The findings show low adoption rates among small, rural, local governments and high adoption rates among large, urban, local governments. Factors such as occupational specialization, government type, and a history of GAAP-compliant financial reporting are positively associated with adoption.
In June 1999, the Government Accounting Standards Board issued Government Accounting Standards Board Statement No. 34 - Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments (GASB 34) to improve the transparency and accountability of local governments. Governments are expected to begin issuing GASB 34-compliant statements for years beginning after June 15, 2005. An examination of local governments in Pennsylvania shows that only 19% of small, rural, local governments adopted GASB 34 while more than 85% of large, urban, local governments adopted GASB 34. Most of the adopting governments are staffed by highly specialized accounting professionals that were issuing GAAP-compliant financial reports before the issuance of GASB 34. Most of the non-adopting governments are small, rural, local governments staffed by semiskilled municipal secretaries, which use the cash basis of accounting. This study explores how the type of local government, occupational specialization and past practices such as compliance with Generally Accepted Accounting Principles (GAAP) and basis of accounting are associated with the adoption of GASB 34. It also discusses how state government reporting requirements can influence the adoption of reformative government accounting standards such as GASB 34.
OVERVIEW OF GASB 34
GASB 34 was issued to encourage local governments to begin reporting balance sheet information such as current and long-term assets and liabilities, in addition to budgetary revenues and expenditures. GASB 34 asks local governments to cease using the cash basis of accounting and to report financial statement elements using the modified and full accrual basis of accounting. Ideally, local governments will issue fund financial statements using the modified accrual basis of accounting and government-wide financial statements using the full accrual basis of accounting. The objective of GASB 34 is to improve the overall transparency and accountability of local governments (Patton & Bean, 2001).
GASB 34 is rooted in Government Accounting Standards Board Concept Statement No. 1 - Objectives of Financial Reporting (Kravchuck & Voorhees, 2001). Concept Statement No. 1 was issued in 1987 with the purpose of making local governments more accountable to the public. The Board holds that taxpayers in a democratic society have the right to know how local governments are fulfilling their duties to the public and to receive facts about the activities of governments. Financial reporting should provide relevant and reliable information to legislators, state oversight agencies, investors, creditors and the citizenry. This information should enable users to assess the financial viability of governments and to determine whether governments are maintaining inter-period equity. Inter-period equity is maintained when existing taxpayers carry the burden of current governmental activities and the cost of those activities are not passed onto future generations. Financial information contains the information needed to make these assessments. For this reason, financial reporting plays a major role in government accountability. Kravchuck and Voorhees (2001) believe GASB 34 was issued to achieve the accountability the Board hoped to achieve with Concept Statement No. …