Historical Sources and Current Status of GAAP for State and Local Governments

By Johnson, Gary G.; Langsam, Sheldon A. | The Government Accountants Journal, Summer 1991 | Go to article overview

Historical Sources and Current Status of GAAP for State and Local Governments


Johnson, Gary G., Langsam, Sheldon A., The Government Accountants Journal


I. INTRODUCTION

Until 1984, standards for government accounting and financial reporting had a long history of being neglected by the established accounting standard-setting bodies. Formation of the Governmental Accounting Standards Board (GASB) in 1984 under the auspices of the Financial Accounting Foundation (FAF) provided recognition of the importance of establishing financial accounting and reporting standards for state and local governments.

The focus of this paper is on the various standard-setting bodies responsible for establishing financial accounting and reporting standards for state and local governments. See Figure 1.

FIGURE 1

STANDARD-SETTING BODIES RESPONSIBLE FOR GAAP FOR STATE AND LOCAL GOVERNMENTS

National Committee on Municipal Accounting--1934-1941

National Committee on Governmental Accounting--1948--1968

National Council on Governmental Accounting--1974-1984

American Institute of Certified Public Accountants--1974-Present

Governmental Accounting Standards Board--1984-Present

II. BACKGROUND: PRIOR TO 1934

Government accounting in the United States can trace its origin to the municipal reform movement prominent at the beginning of the 20th century. The municipal reform movement derived its impetus from the numerous publicized cases of political corruption, fraud and inefficient financial practices prevalent in major American cities during that time. In response to these conditions the National Municipal League was organized in 1894 (Stewart, 1950).

By 1901 the National Municipal League had begun adopting uniform accounting practices for municipalities (Potts, 1977). The League established the Committee on Uniform Municipal Accounting and Statistics to direct this effort. During the next eight years Committee reports were presented at the League's annual meetings. In its early reports the committee suggested financial schedules be prepared in the hopes of convincing municipal officials to convert to a uniform accounting system. Later reports of the League emphasized the progress the committee made in pursuit of uniform municipal accounting practices. The influence of the National Municipal League from 1901 to 1912 is evidenced by the fact that uniform accounting regulations were passed by a majority of states (Potts, 1978).

In the early 1900s, Herman A. Metz was elected comptroller of New York City on a platform of "a business man for a business office." Metz's major contribution as comptroller was the establishment of a fund for the formation of the Bureau of Municipal Research. One of the primary purposes of the bureau was to make available to other cities the experience of New York City in revising its accounting methods (Dahlberg, 1966). The most important contribution of the bureau was the publication of the "Handbook of Municipal Accounting," commonly referred to as "The Metz Fund Handbook", in 1913 (Morey, 1948).

As a result of the work of organizations such as the National Municipal League and the Bureau of Municipal Research, interest in the formulation of municipal accounting principles was widespread by late 1933. In October 1933 representatives of various professional organizations attended a conference in Chicago to lay groundwork for establishment of the first organization to be concerned with the promulgation of financial accounting and reporting standards for U.S. state and local governments.

II. NATIONAL COMMITTEE ON ACCOUNTING (NCMA): 1934-1941(1)

The early 1930s may be referred to as the era in which accounting standards for state and local government units emerged from obscurity. In 1934 various organizations of public accountants and public finance officials joined together to form the National Committee on Municipal Accounting (NCMA) under the auspices of the Municipal Finance Officers Association (MFOA). Nine influential organizations appointed advisory committees on municipal accounting. …

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