by Glenn Cheney
Norwalk, Conn. -- The Governmental Accounting Standards Board has issued a proposal that would strengthen the reporting concepts of its Statement 34 by expanding the statistical section of financial reports. Information on economic conditions, the board said, would be more comprehensive and more useful to investors, analysts and citizens.
“After we issued Statement 34, we knew there was a number of things we needed to do in order for the new financial statements to produce the same information as the old ones,” said project manager Dean Meade, referring to the statement’s new reporting model. “One of the primary purposes of this proposal is to ensure that governments that prepare statistical sections include accrual-based trend information about the entire government.”
Statement 34, Basic Financial Statements - and Management Discussion and Analysis - for State and Local Governments, radically overhauled the way government entities prepare and present financial statements. The model called for financial statements to be integrated with government-wide reporting and enhanced fund reporting.
The model’s most dramatic change was to the handling of government-wide reporting, bringing together government activities, business-type activities and discretely presented component units. Each is to be reported with a flow-of-economic-resources measurement focus and the accrual basis of accounting. The standard required, for the first time, the reporting of all outstanding debt, regardless of what it financed or how it was repaid.
A statistical section is normally required or voluntarily offered by state governmental entities, and by most large or midsized local governments that issue comprehensive annual financial reports, or CAFRs. Currently, statistical sections tend to focus only on general obligation debt.
The proposed standard, “Economic Condition Reporting: The Statistical Section,” would require financial statements to show 10-year trends and all outstanding debt. The more comprehensive requirement reflects the recent tendency for governments to issue more revenue-backed debt, special assessment debt, certificates of participation and other forms of debt that were rarely seen 25 years ago.
Meade said that the proposal is not onerous, because it does not call for the gathering of new kinds of information that are not normally found in a CAFR. The proposal does not require governments that do not issue CAFRs to prepare a statistical section.
“As in just about every standard, they are not expected to produce information that does not exist,” Meade said. “For some time, there have been requirements that statistical sections include economic and demographic information about the jurisdiction. But if that information doesn’t exist, governments are not expected to go out and, for instance, conduct their own census.”
The proposal calls for statistical sections to be updated to reflect the significant changes that have taken place in government finance over the past 10 years. Typical statistical reports display the various types of debts that governments and their agencies have issued, as well as general obligation bonds. The information is often measured against changes in demographics, revenues and other shifting factors.
“One thing that became clear in our research with users of financial information is that information from one year is meaningless to them, that unless they have a number of years prior to the current year, it’s very difficult to interpret where the government stands right now,” Meade explained.
The proposal would also require new contexts for certain kinds of information, such as a comparison of all outstanding debt and population to produce a per-capita figure that expresses the burden of debt on taxpayers. Reporting entities are expected to determine the comparisons that are most relevant to the debt. Typical comparisons could include changes in population, revenue, property values, retail sales and demographic incomes.
Martin Ives, distinguished adjunct professor of public administration at New York University and former first deputy comptroller of New York City, praised the proposal, but expressed hope for more.
“This is a step in the right direction,” Ives said. “It will take the reporting in the statistical section and make it more consistent, so that all entities that report under the same rules [will] report in the same manner. The only downside is that it is prescribed only for organizations that prepare a CAFR. I would like to see some of the statistical data be required for all governments. That would help.”
Ted Sauerbeck, supervisor for local government audits at the Florida Auditor General’s Office, agreed. He would like to see all governments produce CAFRs. In Florida, the state government tries to provide benchmarks by comparing and averaging towns of similar size and economic condition. Comparisons are difficult, however, because about half of Florida towns do not produce CAFRs.
“Governments are like snow flakes - you can never find two that are exactly alike ... but you can average similar entities,” Sauerbeck said. “Because not everybody is doing a CAFR, you’re not going to have all this wonderful information from a lot of entities, and that’s going to inhibit you - or even preclude you - from coming up with a benchmark.”
GASB requests comments on the proposal by Nov. 28, 2003. If re-deliberations do not become complex or convoluted, a final standard could be issued by, and would be effective for periods beginning after, June 15, 2005.
