GASB Statement 34
Has Major Impact On Government Accounting
By Don Frey
In June 1999, the Governmental Accounting Standards Board
(GASB), published comprehensive changes in state and local
government financial reporting. This revolutionary reporting
standard provides a new look and focus for reporting public
finance in the United States.
GASB is the independent private sector organization,
formed in 1984, that establishes and improves financial accounting
and reporting standards for state and local governments. These
standards effect more than 84,000 units in the US, not including
the federal government.
The new standard will take effect on the
following schedule, based on revenues, starting in fiscal
years, beginning after June 15:
Large governments, over $100 million, in
Medium governments, $10 - $100 million, in 2002.
Small governments, under $10 million, in 2003.
Statement 34 is the most sweeping fund accounting standard
Frey & Company has seen since the start of the business
in 1974. It is seen as causing a major accounting reorganization
for most governments.
This article is not going to get into a detailed
discussion of all aspects of Statement 34. However, it will
comment on several key parts of the requirement that will
require substantial changes.
The new standard calls for financial statements
prepared using full accrual accounting for all of the government's
activities, not just those that cover costs by charging a
fee for services, which was previously required. Typically,
those funds were parks, utilities, etc. Today, the vast majority
of local governments operate on a Cash or Modified Accrual
basis. A number of entities don't even maintain balance sheets,
by fund. This new requirement will certainly tax the financial
expertise and resources of many of those affected.
Reporting will be required on all capital
assets, including the infrastructure, in the government-wide
statement of net assets and will report depreciation expense.
Few governments maintain fixed asset records, much less asset
records on their infrastructure.
The format of the newly required reports
represents an extensive departure from those of the past.
They require new information, grouping and layout specifications
that will be challenging to fulfill.
Government-wide statements will be required,
consisting of a statement of net assets and a statement of
activities. The statements will distinguish between government
and business type activities as-well-as reporting by component
Fund based financial statements will be required
that provide information about the government's major and
other government and enterprise funds. These reports will
include by fund, balance sheets, statements of revenue, expenditures
and changes in fund balances.
Supplementary information will be required
comparing original, final and actual information on the budgetary
basis for the general fund and major special revenue funds.
One set of financial statements will include
a comparison of current to prior year's financial position.
This means that one will need to upgrade their chart-of-accounts
to the GASB 34 requirements, a year before they implement
the new reporting Standard. If this is not done, the information
will not be easily available for the prior years comparison.
To users of our software, this won't be a problem as long
as the Chart-of-Accounts reflects the new needs.
Frey Software will address Statement 34 requirements.
BUCS, in its current form, has long offered the capability
to handle full accrual accounting. We have been in this specialized
market for over thirty years and have always dealt with
the needs of our clientele on a timely basis. Since Statement
34 will require a number of specialized government specific
changes, they will likely show up in a GASB 34 reporting module.
Since Frey software caters to both government and not-for-profit
markets, we segregate functions peculiar to a market segment
in separate modules.
In the past, accounting was divided into
commercial or for profit and fund or not-for-profit accounting.
With the advent of the GASB Statement 34 requirements, we
see subdivisions developing in the not-for-profit market between
government and nonprofit fund accounting operations. These
new requirements more clearly define the need for true fund
accounting software versus commercial applications with report
overlays. Products that cannot create separate balance sheets,
by fund, will not work. The next few years should be very
challenging for everyone in government finance!