GFOA and the GASB reporting model.

• Author: Esser, Jeffrey L.
• Position: Government Finance Officers Association; Governmental Accounting Standards Board - Editorial

Accountants use the term "governmental financial reporting model" to describe the framework of funds and financial statements that undergirds financial reporting for state and local governments. Past efforts of the Governmental Accounting Standards Board (GASB) have been directed chiefly at improving the quality of financial reporting within this existing framework or "reporting model." In January, however, the GASB proposed in an exposure draft (ED) to make fundamental changes to the reporting model itself. Such changes would have a profound effect on state and local governments that prepare their financial statements in conformity with generally accepted accounting principles (GAAP).

The GASB's reporting model initiative is part of a project that reaches back to the establishment of the GASB in 1984. GFOA, through its Standing Committee on Accounting, Auditing and Financial Reporting has been an active participant at every stage in this process. Furthermore, the GFOA's Executive Board has thoroughly discussed the issue at two separate meetings and approved the organization's responses to the two GASB reporting model proposals that immediately preceded the current exposure draft. GFOA also will present testimony on the model at a GASB public hearing that will be held in conjunction with the GFOA's upcoming annual conference in Fort Lauderdale, Florida.

GFOA supports the GASB's proposal to retain modified accrual accounting for governmental funds. Modified accrual accounting focuses on near-term inflows and outflows of spendable resources. Consequently, the information provided by modified accrual accounting is consistent with the focus of state and local government operating budgets and is of practical use to public-sector decision makers, who must operate in a budgetary environment. Retaining modified accrual accounting in governmental funds also would ensure that the traditional meaning and measurement of "fund balance" would remain unchanged, thus avoiding the need to change laws that mandate that budgets be prepared on a GAAP basis.

GFOA's support of modified accrual accounting in governmental funds does not mean that some important changes are not needed in the current governmental financial reporting model. Users of financial reports need better information on the long-term effects of the near-term financing decisions made in the context of governmental funds. Unfortunately, past efforts to improve the current financial reporting...