Financial Accounting Foundation.

• Author: Ellsworth, Douglas R.

401 Merritt 7, P.O. Box 5116, Norwalk, CT 06856-5116 _ 203-847-0700 FAX: 203-849-9714

The Role of Local Governments in Ensuring the Financial Viability of the GASB

In the world of Enron, WorldCom, and other corporate scandals, the need for transparent and credible financial reporting has received more attention than at any time in recent history. Transparent and credible financial reporting is the primary end result of strong accounting standards.

Since its inception in 1984, the Governmental Accounting Standards Board (GASB) along with the Financial Accounting Foundation (FAF), under whose umbrella the GASB functions, have been mindful of two key operational issues: (1) independence from federal government control and (2) adequate resources to fulfill the GASB's mission.

With the recent passage of the Sarbanes-Oxley Act of 2002, the Financial Accounting Standards Board (FASB), which is also under the FAF umbrella, will now be funded through a mandatory assessment levied on all U.S. companies registered with the Securities and Exchange Commission (SEC).

Can the GASB have both independence and a stable funding structure?

The GASB currently remains apart from this mandatory funding, which is good news for protecting its independence from federal government influence but bad news for ensuring adequate financial resources. The corporations that in the past financially supported the FASB and the GASB combined through the FAF will begin receiving an annual invoice assessing them for funding the FASB and the new Public Company Accounting Oversight Board as legislated by the Sarbanes-Oxley Act. This is likely to make it very difficult to generate any meaningful voluntary financial support from this group for the GASB. Prior to passage of the Sarbanes-Oxley Act, support from corporations represented the third-largest source of direct contributions to the GASB. In addition, with changes in the public accounting profession, contributions from this constituency dropped nearly $100,000 in 2002, and state contributions will likely also be down in 2003 and 2004.

At a fall 2002 meeting of the leadership of the public interest group organizations, various aspects of the Sarbanes-Oxley Act were discussed, as was the potential opportunity that might exist should the FAF Trustees pursue securing a means for the GASB to receive support under the umbrella of mandatory funding. The group expressed its strong preference that no funding for the GASB come from any...