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The Great GASB

October 13, 2003 By

Governments big and small, state and local, issue them every year. But is there anyone who actually considers even the most well written and stylized Comprehensive Annual Financial Report (CAFR) a really good read?

In fact, CAFRs -- painstakingly researched and thoughtfully recorded each fiscal year -- generally languish unread and gathering dust in numbers equal only to auditors' assessments, environmental impact reports and copies of Beowulf ... in the original Old English.

But with Statement 34, the Governmental Accounting Standards Board (GASB) hopes to make the documents not only reader-friendly, but useful as well. "[Statement 34] provides information to people in a format that has a much broader interest, and that's provided in a format that a citizen or a financial statement user can actually compare to other governments," said Tom Allen, GASB chairman.

The general purpose of GASB 34 is to make governmental accounting more like business accounting. Whereas state and local government entities have traditionally used cash accounting methods, GASB 34 requires accrual accounting from the public sector.

Instituted in 1999 and implemented in stages over the past several years -- with the third and final phase under way as of June 15 -- Statement 34 requires governments to significantly change the way they report their finances.

Once Upon a Time

GASB officials considered implementing the changes for nearly a decade, but struggled to determine exactly how to maintain the positive features of traditional fund accounting while requiring disclosure of economic resources on a full accrual basis. Statement 34 was finally issued when officials found an acceptable way to blend the two.

"Statement 34 retains the fund accounting focus, which is important from a budgetary and a short-term focus," said Allen. "We added what are called 'government-wide financial statements,' wherein a government has to account for all assets -- including infrastructure assets -- all liabilities and financial position; is it improving or deteriorating? That's a key measure."

Created in 1984, GASB is a nonprofit agency charged with setting Generally Accepted Accounting Principles (GAAP) for state and local governments. It is a sister organization to the Financial Accounting Standards Board (FASB), which sets similar standards for private business.

Although GASB has no authority to set law, most -- though not all -- public agencies follow its standards. Doing so helps governments obtain clear opinions from their auditors and may reduce the cost of issuing debt, as bonding organizations generally like to see accounting information based on GAAP.

Despite the seeming improvements Statement 34 offers public-sector accounting, many governments were none too happy to see the required changes.

Continuing Changes

Most notable is the new requirement that calls for the capitalization and depreciation of infrastructure assets. That change means governments must find resources and information to accurately record and value such items as roadways, bridges, sewer facilities and dams.

Although most people who work in finance agree that such an approach more accurately reflects a government's true financial status -- physical infrastructure, after all, continues to have value long after its original purchase -- many officials balked at the work required to record, value and formulate depreciation of their infrastructure.

"We could see the positives, but we could also see the great deal of work involved," said Calvin McKelvogue, division administrator of the State Accounting Enterprise for Iowa. "We were very concerned about what the cost benefit was going to be for the work involved."

Indeed, most government entities confronted with the changes required in GASB 34 wondered how they would get a handle on their diverse infrastructure.

"I see change as a good thing," said Doreen Hazelip, financial analyst for Carroll County, Md. But Hazelip admitted, "At first the staff could not see the benefit in the implementation of GASB 34."

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