Monday, March 20, 2006

GASB--Masters of the Obvious or Groundwork for New Standards?

The Governmental Accounting Standards Board has released a study pointing out the major environmental differences between financial reporting for state and local governments and financial reporting for business organizations. The overall goal of governments is to maintain or improve the state of its citizenry by providing appropriate services at a reasonable cost; while the intrinsic goal of private businesses is wealth creation and providing a satisfactory return to shareholders. Additional significant differences include an expanded range of stakeholders for governments, far greater reliance on involuntary revenue, a greater emphasis on monitoring budgetary compliance and greater stability (little or no bankruptcy risk). Financial Accounting Foundation board chairman Robert Denham pointed out that state and local governments collected 20% of gross domestic product and employed 12% of Americans with jobs; Denham then justified differential accounting standards for state and local governments on this basis along with the intrinsic differences noted earlier.

It should be pointed out that several of the supplementary differences: expanded stakeholders, budget monitoring and long life effectively are also true of many large corporations (it is also true that some of those corporations have been criticized for being too set in their ways). While the differences cited may justify a different accounting focus at the individual fund (versus government as a whole) level, it also emphasizes the importance of upgrading service and efforts accounting and expanding popular financial reporting. Additionally, there is little if no excuse for all except the smallest towns, townships, etc. being required to report according to GASB GAAP--nevertheless, it still happens.


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