FINANCIAL MANAGEMENT/New GASB statements seek to clarify 34

Since it was issued in 1999, Governmental Accounting Standards Board (GASB) Statement 34 has commanded the attention not just of government finance professionals, but of virtually everyone involved in local government. Recently, GASB issued two new statements: one intended to clarify Statement 34 provisions and one that revamps certain disclosure requirements.

The first new standard, Statement 37, “Basic Financial Statements — and Management’s Discussion and Analysis — for State and Local Governments: Omnibus,” provides guidance to assist financial statement preparers and attestors in preparing and auditing the new financial statements required by Statement 34. It is intended to enhance the usefulness of those statements for a broad range of users. (None of the changes alters the basic scope and reporting objectives of Statement 34.)

Specifically, Statement 37 clarifies: 1) the basic requirements for management’s discussion and analysis; 2) how to account for a change from the traditional depreciation to the modified infrastructure approach; 3) program revenue classifications; and 4) the criteria for identifying “major” funds. Statement 37 eliminates the requirement to capitalize construction period interest for governmental activities and changes the minimum level of detail required for business-type activities in the statement of activities. It also addresses GASB Statement 21, “Accounting for Escheat Property,” by providing reporting guidance for escheat property consistent with the revised fiduciary fund structure set forth in Statement 34.

The second new standard, Statement 38, “Certain Financial Statement Note Disclosures,” modifies or rescinds certain financial statement disclosure requirements and establishes new ones to make the note disclosures in state and local government financial statements more useful.

Statement 38 modifies existing disclosure requirements by requiring governments: 1) to describe the activities accounted for in major funds; 2) to define the period during which revenues are recognized in the governmental funds; 3) to disclose the actions taken to address violations of finance-related legal or contracted provisions; 4) to provide additional details regarding future debt service requirements; and 5) to provide more information about interfund balances. It also requires additional note disclosures related to interest requirements for variable rate debt and details about components of receivable and payable balances.

The effective implementation date of 37 and 38 generally is based on the same three-phase implementation schedule for Statement 34. (The implementation schedule is based on the size of government revenues, although larger governments, now in the first year of Statement 34 implementation, were given one additional year to implement some of the provisions of Statement 38.)

Furthermore, there are specific provisions in Statement 37 for those governments — more than 50 local governments in 19 states — that have already implemented Statement 34. The “early implementers” have been given special recognition in the form of a certificate and a letter of commendation from GASB.

Feedback from the early implementers generally has been positive. Many financial statement users have commented that the new information is valuable to better understanding the financial position and results of operations of state and local governments.

Copies of the new standards and new non-technical user guides to government financial statements are available through GASB’s order department; telephone (800) 748-0659 or online at www.gasb.org.

The author is chairman of the Governmental Accounting Standards Board, Washington, D.C.