GASB 34 and government financial condition: an analytical toolbox.

• Author: Chase, Bruce W.
• Position: Governmental Accounting Standards Board

Most governments have now implemented the new reporting requirements mandated by Governmental Accounting Standards Board Statement No. 34, and are now faced with the task of explaining the results to citizens, policymakers, and government officials. When the new reporting model was adopted, the GASB issued the following statement in a news release:

"Never before has the public" been able to get a comprehensive overview of a state or local government's finances in one place. This new reporting system will give citizens a clearer picture of what a government is doing with the taxes it collects." How can this information be used to analyze the financial performance of a government? The reporting model under Statement No. 34 provides new information that enables users to assess financial position and results of operations for local government. This article will discuss analytical techniques by which citizens, policymakers, and government officials can use GASB 34 information to indeed achieve a clearer picture of a local government's finances.

WAYS TO USE FINANCIAL INFORMATION

Government financial statements contain a lot of numbers and can be difficult to analyze. Numbers by themselves provide little useful information. Reporting dollar amounts for such items as cash, net assets, and certain revenues and expenses has limited value. Even comparing dollar amounts from the financial statements of different governments can have limited value because localities vary significantly in terms of size, making direct dollar value comparisons inappropriate. However, there are tools that can be used to bring more meaning to the numbers presented in financial statements. This article examines four of these tools.

The first tool is trend analysis. This technique tracks the change in financial statement accounts over a period of time, and can be very useful in identifying significant relative changes. Unfortunately, most governments only have one or two years of reporting completed under GASB 34. Trend analysis will be more valuable in the future as more GASB 34 data becomes available.

A second technique is to express financial statement information on a per capita basis. This allows for meaningful comparisons among localities of different sizes. The ability to compare financial resources, debts, and certain revenues and expenses on a per capita basis provides useful information about a government's finances to policymakers, citizens, and other stakeholders.

A third tool that can be used is common size statements. The items in the statement of net assets can be stated as a percentage of total assets, and the items in the statement of activities can be stated in terms of either total general revenues or total expenses. These percentages can reveal important information about a government's finances, and they lend themselves to comparisons among governments. For example, a government may compare its proportional spending on various functions to that of similar entities.

Another tool that can be used to analyze financial information is ratio analysis. Ratios are often used to express a relationship between two elements on the same financial statement or between two elements from different statements. In addition to providing information about the relationship between elements for a particular government, ratios are a good way to make comparisons among governments of different sizes. For example, a government's unrestricted net assets can be expressed as a percentage of total expenses, thus providing helpful information about the level of unrestricted reserves.

These four tools provide a useful way to analyze and explain the information contained in the new financial statements under GASB 34, as will be illustrated in the rest of this article.

THE NEW STATEMENTS

GASB 34 requires two new financial reports: the statement of net assets and the...