Proposed changes in enterprise fund accounting.

• Author: Gauthier, Stephen J.

Governments often use enterprise funds to account for many of their business-type activities (e.g., utilities, transit districts). The Governmental Accounting Standards Board (GASB) is now considering changes that could affect the accounting and financial reporting used by those funds. Specifically, the GASB is currently addressing the following issues.

* To what degree should private-sector accounting and financial reporting standards continue to apply to activities reported in enterprise funds?

* Should enterprise funds continue to report an extraordinary gain or loss when debt is refinanced?

Applicability of Private-sector Standards

The authoritative accounting and financial reporting standards for private-sector enterprises are set by the Financial Accounting Standards Board (FASB). The FASB, like the GASB, is under the oversight of the Financial Accounting Foundation. Current GASB standards call for the enterprise funds of governments to use the same generally accepted accounting principles (GAAP) applicable to their private-sector counterparts. Accordingly, FASB pronouncements have applied automatically to enterprise funds, barring GASB guidance to the contrary.

To date, the GASB has twice explicitly rejected the applicability of specific FASB guidance to enterprise funds. The first instance involved FASB Statement No. 87, Employers' Accounting for Pensions. The GASB believed it was inappropriate to initiate major changes in pension accounting for enterprise funds prior to the completion of the GASB's own pension project. The board, therefore, issued GASB Statement No. 4, Applicability of FASB Statement No. 87, "Employers' Accounting for Pensions," to State and Local Governmental Employers, which prohibited enterprise funds from implementing the guidance contained in FASB Statement No. 87. Similarly, GASB Statement No. 12, Disclosure of Information on Postemployment Benefits Other Than Pension Benefits by State and Local Governmental Employers, effectively precluded the automatic implementation of FASB Statement No. 106, Employers' Accounting for Postemployment Benefits Other Than Pensions, pending completion of the GASB's own work on other postemployment benefits.

In April, the GASB issued a proposed statement on Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting. In that proposed statement, the GASB announced that it intends to continue to require that...