The Governmental Accounting Standards Board (GASB) is an independent, not-for-profit organization that was organized in 1984 as an operating entity of the Financial Accounting Foundation (FAF). The GASB’s role is to establish standards of financial accounting and reporting for state and local governmental entities. While the GASB technically has no legislative authority, its standards are widely recognized as the guide for preparing external financial reports for state and local governments.
In June 1999, the GASB adopted GASB Statement 34, which contains sweeping changes for financial reporting. Known as Statement No. 34: Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, these changes represent a fundamental revision of the current financial reporting model, which has been in place since 1979. While there are a number of significant changes in financial reporting under GASB Statement 34, probably the most major one is the presentation of government-wide financial statements.
Government-wide statements are consolidated financial statements for all of a county’s operations on a full accrual basis of accounting—accounting that is similar to what is used by many businesses and not-for-profits. The intent of these statements is to provide the “big picture” of a county’s financial position and operations as a whole.
They will not be presented on a fund basis. Instead, fiscal operations will be organized into two major activities: governmental and business-type. The statements will have a “net asset” focus and exclude fiduciary funds and interfund transactions (such as internal service funds). Expenses will be shown both gross and net of related revenues (such as fees and grants). Sample government-wide financial statements.
Financial statements also will be presented on a fund basis, in a similar way as they were before GASB Statement 34. Emphasis will be given to “major” (i.e. larger) funds. Governmental funds do not use the same basis of accounting as the government-wide statements (i.e. modified accrual or current financial basis). Sample fund financial statements.
Because there will be differences in the basis of accounting and scope of transactions, there also will be significant differences between the fund and government-wide financial statements. For this reason, a detailed reconciliation between these two types of statements will be required as part of the basic financial statements. In Tennessee, the county’s independent, external auditor typically prepares this reconciliation as well as the draft financial statements. This service is purely technical in nature as the financial statements are derived from financial data prepared and provided by county accounting personnel. The appropriate county officials also must take responsibility for the accuracy of the prepared financial statements.
The independent auditor, as in the past, will typically prepare the financial statements from a county’s current accounting records. However, county management will be required to prepare and maintain additional financial information. Without this additional information, it will be impossible to prepare financial statements that comply with GASB Statement 34.
While GASB encouraged early implementation, it required even the smallest Tennessee county to comply with Statement 34 (except for retroactive capitalization of infrastructure assets) by the end of the fiscal year that ended June 30, 2004. After this date, any Tennessee county that was not compliant with GASB Statement 34 received an adverse audit opinion on their financial statement audit for failure to comply with Generally Accepted Accounting Principles (GAAP). In May 2005, the Tennessee General Assembly passed into law the Local Government Modernization Act of 2005. This act allows financial penalties to be imposed on county governments that are not in compliance with GASB Statement 34 by June 30, 2008. For additional information, see Local Government Modernization Act of 2005 under Financial Structure of County Government.