About GASB no. 34

The article “Government Financial Reporting Faces an Overhaul” (JofA, Jan.00, page 49) is misleading. GASB Statement no. 34 requires two sets of financial statements for a government. One set, which is based on modern accrual accounting, is described at length in the article. The other set, based on traditional fund accounting, is mentioned in only three short paragraphs.

Two sets of statements require twice the bookkeeping. More important, these statements report two different numbers for operating performance—one reports the items as expenses; the other reports expenditures. (To clarify, expenses are the resources consumed during the period; expenditures are the resources purchased during the period. Expenses are the preferable method of measuring financial performance.) One report might say that the government operated at a surplus, while the other reports that there was a deficit. The user is told, in effect: “Accept whichever statement you wish.”

A standard-setting body is supposed to specify the preferred method of reporting—Statement no. 34 doesn’t do this. The reason for GASB’s unprecedented approach probably is that board members couldn’t agree on which treatment was preferable, so they decided to leave it up to the reader. This “weaseling” gives accounting a bad name.

Robert N. Anthony
Ross Graham Walker Professor of Management Control, Emeritus
Harvard Business School
Hanover, New Hampshire