The Governmental Accounting Standards Board issued its long-awaited exposure draft on the financial reporting model for government agencies. The model, which the GASB has been working on since its inception in 1984, calls for both fund- and entitywide disclosure and a management's discussion and analysis (MD&A) letter. Comments on the new reporting model, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, are due by May 30.
"The proposal is intended to make governments' external financial reports easier to understand and more useful to citizens, investors, creditors and legislative bodies," said GASB Chairman Tom L. Allen. He said governments currently disclose their finances based only on fund accounting. "There is a general fund, which typically is used to account for things such as police and fire protection in local government and public assistance in state government," said Allen. "But a government can have virtually an unlimited number of other funds, and it often is difficult for users to understand how all the funds add up."
Under the dual perspective, governments would continue to disclose detailed information about funds and would be required to present an entitywide perspective to show in one place all of the government's operations--for example, police, fire, water and sewage. The entitywide financial statements would be prepared on the accrual basis of accounting, similar to that used by most businesses.
The MD&A supplement would give readers, especially users who are less familiar with government financial reports, a brief, objective and easy-to-read analysis of the government's financial performance for the year and its financial position at yearend. Dianne K. Mitchell, technical manager in the Division of State Audit in Nashville, Tennessee, and a member of the Governmental Accounting Standards Advisory Council, told the Journal that a "plain English" MD&A would be most...