The New Governmental Financial Reporting Model under GASB Statement No. 34: An Emphasis on Accountability

After more than a decade and a half of research, study, and public comment, the Governmental Accounting Standards Board (GASB) in June 1999 issued the standards for a new governmental accounting model, GASB Statement No. 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments (hereafter Statement No. 34). These new standards introduced significant operational accountability by adding a set of additional government-wide financial statements to the current set of fund-based financial statements, which had previously focused on fiscal accountability. Other changes have resulted in substantially improved accountability in the government reporting model.     

Implications of GASB's New Reporting Model for Municipal Bond Analysts and Managers

This article explores the implications of the new Government Accounting Standards Board (GASB) Statement No. 34 reporting model for municipal bond analysts and managers. Bond analysts and state and local government managers have overlapping objectives for the use of governmental financial information, but managers also face the costly task of implementing the new model. The new and improved financial information provided by the new reporting model will permit users of the information to better understand a government's long-term and short-term financial position and changes in financial position. The new model also has important ramifications for evaluating performance, particularly regarding the reporting of net costs for each program or function.     

Government‐wide Financial Statements and Credit Risk

Now that state governments issue comprehensive annual financial reports in accordance with Statement No. 34 of the Governmental Accounting Standards Board, it is possible to generate a consistent and comprehensive set of government‐wide financial information. We use the information to develop financial ratios to benchmark government financial performance from information beyond the traditional general fund, and test the hypothesis that such information is incorporated into the assessment of credit risk. We provide an empirical analysis of the incorporation of government‐wide financial information into state government credit ratings, which provides a positive empirical test of the theory of certification and demonstrates how information from the government‐wide financial statements is infused into financial markets.     

Service Efforts and Accomplishments Reporting: Has Its Time Really Come?

In April 1994 GASB released Concepts Statement No. 2, Service Efforts and Accomplishments Reporting , bringing required SEA external financial reporting a very large step closer to reality. Before long, public financial officials may be required to annually report measures of performance. We are now about halfway through the experimentation phase established in Statement 2. This article summarizes the status of GASB's SEA experimentation process. It then suggests important behavioral, auditing, and other issues which GASB ought to address before proceeding with any formal pronouncements regarding SEA reporting requirements.     

The Why and How of the New Capital Asset Reporting Requirements

New requirements for reporting capital assets associated with the governmental funds of state and local governments are among the most significant changes that will be required by Government Accounting Standards Board (GASB) Statement No. 34. Under Statement No. 34, the historical cost of these assets, including general infrastructure assets (for example, roads and bridges), must be reported in the government-wide Statement of Net Assets. The cost of using those assets—generally depreciation expense—must be reported in the government-wide Statement of Activities. This article explores why the GASB established these requirements and how it worked with preparers and others to make meeting these requirements less costly.     

An Investigation of the Characteristics of Local Governmental Units Disclosing High Deposit and Investment Credit Risk as Defined by Governmental Accounting Standards Board Statement No. 3

As a result of severe financial losses by local governments in the mid-1980s due to falling interest rates, the Governmental Accounting Standards Board Statement No. 3 was issued. The GASB No. 3 provides information for assessing a government's actual and future deposit, investment market, and credit risks. This article investigates the number of governments disclosing deposits and investments in the high risk category and determines if there are common characteristics among those reporting high risk deposits and investments.     

Audit Issues Related to GASB Statement No. 34

This paper discusses a variety of audit issues related to the implementation of GASB Statement No. 34. Ten specific audit issues are addressed. Each issue is defined and discussed, and the relevant professional literature is reviewed. The results of interviews of four experienced auditors of governments are presented with respect to these issues. These auditors identified several additional issues related to the implementation of Statement No. 34. The focus is on gaining insight from the concerns of auditor professionals to assist academics by identifying topics that warrant future research.     

The Implications of GASB Statement No. 34 for Public Budgeting

This paper discusses a variety of audit issues related to the implementation of GASB Statement No. 34. Ten specific audit issues are addressed. Each issue is defined and discussed, and the relevant professional literature is reviewed. The results of interviews of four experienced auditors of governments are presented with respect to these issues. These auditors identified several additional issues related to the implementation of Statement No. 34. The focus is on gaining insight from the concerns of auditor professionals to assist academics by identifying topics that warrant future research.     

Service Efforts and Accomplishments Standards: Fundamental Questions of an Emerging Concept

In 1994, the Governmental Accounting Standards Board (GASB) adopted and published Concepts Statement No. 2, Service Efforts and Accomplishments Reporting} Although service efforts and accomplishments (SEA) is not a common term, this statement establishes the foundation for the subsequent adoption of reporting requirements that may expand the boundaries of reporting to significantly increase the amount of non-financial information that states and municipalities will report, as well as the cost of external reporting Budget analysts are among prospective users of SEA information. A study of comment letters filed in response to the exposure draft, which preceded Concepts Statement No. 2, shows two divergent views of SEA reporting requirements.2 Support for SEA reporting requirements is grounded in a vision of the potential benefits of SEA reporting;3 opposition to SEA standards is grounded in concerns about potential consequences of instituting reporting requirements.4 The strength of opposition to SEA reporting requirements suggests that consideration of the rationale for standards setting is appropriate. In this article, commonly expressed concerns about reporting requirements are incorporated into five questions. Analysis of these questions evidences the weakness of the rationale for SEA standards as distinguished from the rationale for voluntary SEA reporting. Two proposals are advanced to address concerns about SEA reporting requirements. First, adoption of models of information use from the disciplines of public administration and political science is encouraged. Second, modification of the standard setting process to reflect the non-financial domain of SEA is advocated. Thus, it is proposed that standard setters adopt approaches that emphasize cross-disciplinary research, cooperation with other organizations, and active extension of due process to new stakeholders.     

Before There Was Enron,There Was Orange County: A Study of Local Government Financial‐Oversight Committees

Recent financial scandals in some of America's largest corporations have prompted popular speculation that a similar crisis may occur within the public sector and, therefore, that government and nonprofit organizations should be required to adopt financial oversight practices similar to those that are mandated of publicly‐traded corporations in the Sarbanes‐Oxley Act of 2002. One of those mandated practices—the use of financial‐oversight committees—is already a common practice in public organizations, though little is known about its effectiveness. This study uses a national sample of local governments to examine whether financial‐oversight committees improve financial control and strengthen stakeholder confidence in financial reporting. The findings provide preliminary support for the use of financial‐oversight committees as an effective tool to improve financial accountability in local government.     

Cross‐Sector Transfer of Consolidated Financial Reporting – Conceptual Concerns

This article addresses a major concern about the use of particular accounting concepts, notably those of control and assets, for whole‐of‐government consolidated financial reporting. While whole‐of‐government consolidated financial reports may resemble the formats required by accounting standards and so provide a benchmark for comparative purposes, inherent weakness in the specification of underpinning concepts means that proper and full application of the consolidation methodology cannot be assumed. A study of the whole‐of‐government consolidated financial reports of the Commonwealth, state and territory governments of Australia revealed that significant assets, obligations and controlled entities have not been included.     

Potential State Government Practices Impact of the New GASB Accounting Standard for Retiree Health Benefits

The Governmental Accounting Standards Board (GASB) has adopted a new accounting standard for state and local government retiree healthcare benefits that, for many states, will require accrual accounting for such benefits for the first time. The purpose of this paper is to examine the recent reporting practices of state governments with respect to retiree health insurance programs sponsored by the states in order to determine the dimensions of potential state employer practices likely to be changed by the new Other Postemployment Benefits (OPEB) standard with respect to accounting for such state plans, as well as financing and offering such state plans.     

Promoting Accountability in Municipalities

Local government financial reporting reforms in Australia in the late 1980s and early 1990s were promoted on the basis of usefulness for decision making and for enhanced accountability purposes. Persistent criticisms of these reforms continue to be made, including those made by councillors and other ratepayers who often appear to find such information to be too narrow, too complex and often bewildering. A case is made for rethinking the present mentality, requirements and practices, especially with respect to the contrived recognition of ‘community assets’. Instead, an emphasis is placed on advancing broad‐scope accountability and meaningful financial reporting. To this end, the disclosure of a set of factual, reliable and interpretable indicators is proposed to enable a broader, more functional notion of accountability to be applied in Australian local government within prevailing social and organisational contexts. This contribution seeks to present a series of views, questions and proposals that are strictly concerned with ‘promoting accountability in municipalities’ (PAM).     

Why Governments Should Produce Balance Sheets

This contribution to a controversy argues that accrual reporting at the whole of government level is appropriate and necessary as it provides a full picture of a government's financial position, discloses the impact of policy over the longer term (and therefore the sharing of the burdens between current and future taxpayers), focuses the attention of governments and public sector managers on the management of total resources and obligations and introduces discipline in financial reporting and therefore ensuring the integrity of the reported information.
Yet, accrual reporting, whether at the whole of government level or individual agency level, will not bring about changes of behaviour necessary to realise the full benefits of financial and other management reforms unless it is complemented by an accrual planning and budgeting regime to ensure that financial performance is planned and assessed on the same basis.     

Appraising Commitments and Guarantees with Option Prices1

Budgetary decision‐making is prone to myopia and to tunnel vision. Pension commitments suffer from both of these pathologies. In this case, we look closely at the State of Oregon's Public Employee Retirement System to show how the disclosure standards adopted by the Government Accounting Standards Board (GASB) help correct the fiscal vision of state and local governments and further conclude that postemployment commitments ought to be comprehensively examined in GASB's review of its accounting and reporting standards scheduled for 2008, ideally from the standpoint of present‐value budgeting.     

Federal Financial Management Reform and The Chief Financial Officers Act

This study analyzes the development of financial management reform in the federal government. A series of reform initiatives culminated in passage of the Chief Financial Officers (CFO) Act that prescribes a wide spectrum of changes in federal accounting, budgeting, and financial reporting. The CFO Act may well be the most significant executive branch federal financial management reform since the adoption of the Budget and Accounting Act of 1921.     

Enron/Andersen: Crisis in U.S. Accounting and Lessons for Government

Accounting and auditing play a key role in the belief of ordinary taxpayers and investors in their institutions. This is equally true of the private and governmental sectors. The Enron/Andersen scandal, regrettably, is not an isolated case, but rather merely indicative of underlying, structural flaws in our financial systems. Moreover, there is evidence that some of these flaws may be present in governmental accounting and auditing. The Sarbanes‐Oxley Act of 2002 is an attempt to address these problems in the private sector, but does not address concerns in the public sector. Public sector accounting issues that need to be addressed and monitored include substandard audit work and related liability issues, the appropriate funding of GASB so as to ensure its independence, auditor fees, and auditor independence questions including protection of elected and appointed state auditors.     

Federal Financial Reporting: Some views of R.K. Mautz

A number of proposals would apply Generally Accepted Accounting Principles (GAAP), as developed for reporting the financial performance of for-profits, to federal financial reporting and budget accounting. Critics of these proposals include R.K. Mautz, a distinguished professor of accountancy. This article summarizes some of Mautz's conceptual objections to the use of private GAAP by not-for-profits and indicates his preferred approach to improved financial reporting by government.     

Alternative measures for the financial condition of the multifamily housing stock

Abstract

Indicators of the financial condition of the multifamily housing stock can potentially inform several policy issues, such as the loss of affordable rental units, multifamily developers’ access to capital, and the emerging secondary mortgage market for multifamily properties. Several rules of thumb exist for assessing financial condition. This article uses the Residential Finance Survey to investigate whether it matters, from a practical standpoint, which one is employed. Specifically, we ascertain how five measures—loan‐to‐value, debt coverage, rent‐to‐value, net operating income—to‐value, and vacancy loss ratios—relate to each other and rank properties.

We found that Pearsonian correlations among the measures varied dramatically. Factor analysis produced two factors, one corresponding to a rent‐flow measure and the other to a debt‐burden measure. Spearman rank‐order correlations revealed that with one exception, measures yielded noticeably dissimilar financial condition rankings. We conclude that single‐dimensional measures of financial condition should not be used in isolation.     

Federal Financial Management Control Systems: An Integrative Framework

The increasingly large and complex web of federal government finances seems to require ever more comprehensive and consistent financial management control systems to achieve managerial responsibility. This article identifies a framework for promoting integrated accounting, budgeting, and financial reporting in order to achieve the goal of providing relevant information to management and policy leaders. The article identifies four central areas in which endeavors to develop effective financial management control systems should concentrate: accounting for funds; assessing the cost of operations; managing cash; and collecting money due the government.