NAKED TRUTH.

• Author: STOUT, ROBERT V.
• Position: Government finance accounting

GASB 34's REPORTING MODEL REQUIRES A BIG PICTURE ANALYSIS. NOW IT'S EASIER TO SEE JUST HOW GOVERNMENT IS SPENDING YOUR MONEY.

iNDUSTRY WATCHERS ARE CALLING GASB 34 the most significant change to occur in the history of governmental accounting. One of GASB's objectives in writing KY this new statement was to encourage more citizens to read and understand their government's financial statements.

GOVERNMENT MODELS ARE DIFFERENT

Since early in this century, governments have used a different financial reporting model than the private sector uses. Governments face important legal restrictions on how they can use resources. Unlike the private sector, a government's budget is not just a financial plan. The budget sets public policy and serves as a controlling document with legal sanctions to ensure compliance.

Because accountability and the need to demonstrate stewardship of public resources are so important, a major goal of governmental accounting and financial reporting is to demonstrate compliance with such finance-related legal and contractual restrictions.

In the governmental sector, nearly all financing decisions are made in the context of an annual or biennial appropriation budget. The emphasis on a government's financial reporting, therefore, has been to help decision-makers, whether legislators or citizens, understand how the money was spent. This is in marked contrast to the private sector where the emphasis is on an organization's ability to meet its operational costs and generate a profit. Government financial statements, in other words, focus on short-term financing while the private sector's emphasize an organization's ability to enhance its economic resources over the long-term.

To meet these needs, the governmental model has evolved with three distinct differences from the private sector's model. These differences are:

* Short-term emphasis on financial rather than economic resource flows.

* Fund accounting.

* Budgetary reporting.

Governments have traditionally reported on the financial resources they receive and how they were spent, rather than on revenues earned and costs incurred. Thus, for example, a government would report an expenditure for the entire cost of a vehicle when the vehicle is purchased rather than allocating the cost of that vehicle over its useful life.

Governments use separate funds to segregate financial resources that are subject to special regulations or restrictions. State and local government financial...