GASB issues

GASB Issues reporting Model Proposal.

T 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 managements discussion and analysis (MD&A) letter. Comments on the new reporting model, Basic Financial Statements and Managements 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 governments 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 governments 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 helpful to nontraditional users of government financial statements, such as local legislative bodies, citizen and taxpayer groups and members of the media.

The New Reporting Model
Management’s Discussion and Analysis		Core Financial Statements
Required supplementary information		Entity-wide Perspective + Fund Perspective

Whats needed to comply?
“If the proposed reporting model is finalized, most governments would have to implement a considerable education process and there likely would be some systems changes,” said Mitchell. She said the education process could be most difficult at the local government level where city councils and county executives may not be as informed as legislators at the state level.

How popular is the new model?
Mitchell said the biggest problem that faced the GASB as it developed the new reporting model was the number of different groups affected by changes in the financial reporting process, including the traditional users (such as the financial and creditor communities), nontraditional users, preparers and auditors. “Users who supported reporting aggregated information wanted the model to have the entitywide perspective while those who supported reporting disaggregated information wanted only the fund perspective,” said Mitchell. “The GASB compromised by putting both perspectives together in one reporting model.”

The GASB expects to issue an exposure draft this spring on a new reporting model for colleges and universities as well as one on nonexchange transactions. Six public hearings on the EDs will be held in June, July and August; the proposed effective date for the new government agencies model is for fiscal years beginning after June 15, 2000. One copy of each proposal is available from the GASB order department by calling 203-847-0700, ext. 555.

FASAB Issues MD&A Proposal

T he Federal Accounting Standards Advisory Board (FASAB) published an exposure draft on the managements discussion and analysis (MD&A) supplement to federal financial reports required under the Chief Financial Officers Act of 1990. The ED, Managements Discussion and Analysis , provides general concepts on what should be included in the MD&A.

1997 marks the first time that all major federal agencies are required under the CFO Act to prepare financial statements and an MD&A supplement. These financial statements will be consolidated by the Treasury Department for the first audit of a governmentwide financial statement.

MD&As are expected to help users of federal financial statements, including auditors, preparers and the heads of federal agencies, understand the overall financial condition and the results of operations of the federal entity. “Agencies will need to include comprehensive MD&A sections in their financial reports, and we felt the FASAB was in the position to provide guidance on what they should include,” said Wendy M. Comes, FASAB executive director.

Comments on the ED are due by May 18. One free copy of the ED can be obtained by calling the FASAB at 202-512-7350.