by Glenn Cheney
Norwalk, Conn. — The Governmental Accounting Standards Board issued a new statement on economic condition reporting that will give citizens and analysts a better idea of changes and trends in a government’s economic condition.
Or will the new information bury that better idea in a forest of statistics and explanations?
Statement 44, “Economic Condition Reporting: The Statistical Section,” significantly enhances the information presented in comprehensive annual financial reports, known as CAFRs. The statement expands the types of statistical information that should be included in CAFRs, and it requires that the statistics look back 10 years, albeit not until 10 years from now.
While CAFRs themselves are not required, those that are produced must meet the new standard. Some 5,000 state and municipal governments, and many agencies and authorities under those governments, produce CAFRs. Statement 44 will be effective for periods beginning after June 15, 2005.
“A basic fact of financial analysis is that the information you get in any given year’s annual report doesn’t tell you a heck of a lot,” said GASB project manager Dean Mead. “In order to give it meaning, you need to put it in a context that makes it meaningful. One way to do that is to look at the information over time, so you know not only where governments are now but how they got there.”
To avoid burdening governments with a sudden need to search for a decade of previously uncollected data, GASB is requiring reporting entities to look back only as far as they currently have information. Only 10 years after the statement goes into effect will all entities be expected to report a full 10 years of statistics for all categories of information.
“Governments that have been doing this have been doing it for a long time, and the changes here are not drastic,” Mead said. “They should have most, if not all, of the information that is required. We’ve gone out of our way to make the transition as easy as possible. Nobody has to go back the full 10 years if there’s some new piece of information that they haven’t reported before. They can report prospectively. Our aim is to make it easy for governments that aren’t doing a statistical section to start doing one even if they don’t do an entire CAFR. We believe that this information is truly valuable.”
The statement also requires governments to present statistical sections with more notes regarding sources, methodologies, assumptions, and narratives on new concepts, atypical trends and anomalous data that users might have difficulty understanding.
Government CAFR preparers are still working with a rather simple standard that was set in the late 1970s. It requires the statistical reporting of only one kind of debt, that of general obligation debt.
In recent years, however, governments have entered into a wide variety of types of debt, such as debt backed by taxes not based on property, sales tax back debt, revenue bonds, certificates of participation, and special assessment debt. The new standard requires the reporting of all kinds of outstanding debt shown in ratios with the total debt.
Over the past two or three years, governments have been preparing financial statements under the reporting model required under GASB Statement 34, “Basic Financial Statements — and Management’s Discussion and Analysis — for State and Local Governments.” The new model requires new kinds of information on government-wide finances. Much of that information was not covered under the prior standard on CAFR statistics.
Among the new requirements for the statistical section are notes and explanations that will make the information more usable. If there is an anomaly in a trend, for example, the report will need to explain the causes or significance. Notes will also have to explain significant relationships between types of information.
Mead emphasized, however, that GASB does not intend for the notes to be onerous. “We’re not looking for anybody to write a book,” he explained.
Who’d read it?
J. Dwight Hadley, chief financial officer of the Albany, N.Y., County Airport Authority isn’t concerned about accountants needing to write a book. He’s concerned about citizens needing to read such a book.
“One concern that I’ve heard is that the statement requires 10 years’ worth of data on items that not everyone believes it’s worth giving 10 years of data on,” Hadley said. “For governments that prepare CAFRs, this greatly increases the number of pages in their reports. That leads to the question that people have been asking for some time: Is the CAFR becoming so large that nobody reads it? ... We must ask whether we’ve lost sight of being able to present data to citizens and users who don’t want to get buried in 10 years’ worth of data but want a report that is quickly and easily read.”
Hadley said that Albany County Airport issues a CAFR on its single proprietary fund. The report is already over 100 pages long. He expects that the new requirements will add another 10 or 15 pages.
On the whole, however, Hadley applauded GASB’s effort. “I think overall, what GASB is trying to do to enhance and bring comparability to financial reporting is the right movement, but what we need to focus on now is presenting the right information in the right quantity in a manner that is useful to the majority of users.”
Lee Carter, vice president of Capital Management of the Carolinas, said that the statement is a good thing. “The top benefit, I would say, is the consistency of financial reports across governments,” Carter said. “But I also appreciate that this information is not required of all governments. We have a lot of small cities in North Carolina, and generally, the financial section of the CAFR is enough for them, so we like that it’s voluntary whether a statistical section is prepared.”
