September 2001

The Big Bang in Governmental GAAP: A Synopsis of Recent GASB Statements

By Michele Mark Levine, CPA

CPAs with government clients and those in government service are probably familiar with a string of new, and not so new, pronouncements of the Governmental Accounting Standards Board that are beginning to affect reporting by some governmental entities, and will soon spread to all state and local governments. If you’re not as familiar with these monumental new standards as you would like to be, see the accompanying sidebars for recommended reference and training materials.

New and Noteworthy

GASB 37: Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments: Omnibus

This statement, which was issued in June 2001, refines and clarifies certain important provisions of GASB 34. It should be implemented simultaneously with that statement.

Highlights of GASB 37:

Management Discussion & Analysis (“MD&A”) discussions should be limited to elements required by GASB 34.
Program revenues include all charges, fees and fines that derive directly from the program or function, as well as those grants and contributions that are restricted exclusively to it.
Construction period interest should not be capitalized for assets of governmental activities.
The definition of a segment, the minimum level of detail that should be reported on in the Statement of Activities for business-type activities, has been changed to an “identifiable activity” for which there is debt outstanding and for which separate accounting is required.

GASB 38: Certain Financial Statement Disclosures

This statement, the fruit of a project initiated to reduce required footnote disclosures, instead adds a few new disclosures and modifies several current ones, but eliminates only one: the required disclosure of the accounting policy for encumbrances. Issued in June 2001, most provisions of this statement should be implemented simultaneously with GASB 34. Certain items (indicated with an asterisk) may be postponed one year by the large governments that are required to implement GASB 34 for their fiscal years beginning after June 15, 2001.

GASB 38 new and modified disclosure rules require:

Descriptions of activities accounted for in the individual major funds and in the internal service and fiduciary fund types.
The length of time used to define “available” resources for purposes of revenue recognition in governmental funds.
ctions taken to address significant violations of finance-related legal or contractual provisions.
Debt service principal and interest and lease obligations in each of the subsequent five years and in five-year increments thereafter.
Short-term debt changes and purposes.*
Interfund balances and transfers by major funds and by nonmajor funds aggregated by type, with descriptions of balance and transfer purposes.*
Details of receivable and payable balances—where obscured by aggregation—and identification of those receivables not expected to be collected within one year.*
Terms of variable rate debt and interest requirements thereof (calculated using the interest rate in effect at year-end).

And Don’t Forget About…

GASB 33: Accounting for Nonexchange Transactions

This statement, issued in December 1998, became effective for fiscal years that began after June 15, 2000. GASB 33 governs the recognition of nonexchange transactions, those in which a government gives or receives something of value without directly receiving or giving equal value in return. GASB 36, which amended GASB 33 to provide for parallel accounting by grantors and recipients of shared tax revenues, is to be implemented simultaneously with GASB 33. Governments with June 30 year-ends are already preparing their first financial statements in accordance with these pronouncements.

Highlights of GASB 33:

Applies to all state and local governments, including primary governments and component units that engage in nonexchange transactions. The federal government and nongovernmental entities are referred to as providers, but the statement does not apply to them.
Governs accounting recognition of assets and revenues for nonexchange transactions involving financial and capital resources, excluding contributed services as well as food stamps and on-behalf payments, which continue to be recorded in accordance with GASB 24.
Groups nonexchange transactions into classes and specifies revenue recognition rules for them. For modified accrual (governmental fund) recognition, the resources must be “available” in addition to meeting the following full accrual rules:
1. Derived Tax Revenues such as sales and income taxes are to be recognized when underlying transactions occur.
2. Imposed Nonexchange Revenues such as property taxes, fines and escheats are to be recognized in first period when use is permitted and there is an enforceable legal claim to the assets. For property taxes, this will generally be the period for which they are levied.
3. Government Mandated Nonexchange Transactions such as funding for entitlements and programs/projects required by senior governments and Voluntary Nonexchange Transactions (other intergovernmental and nongovernmental grants) are recognized when all eligibility requirements, including time requirements, are met.

GASB 34: Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments

This historic statement has redrawn the government financial reporting landscape, introducing completely new financial statements and partnering them with more traditional government financial reporting. GASB 34 effective dates vary based on the size of the primary government (component units must implement concurrently). The largest (with revenues greater than $100 million) are Phase I governments, and are required to implement for fiscal years beginning after June 15, 2001. Phase II governments (with revenues of $10 million to $100 million, inclusive) are granted one additional year, and the Phase III governments (with revenues less than $10 million) are granted yet another year, until their fiscal years beginning after June 15, 2003.

Highlights of GASB 34:

MD&A is a new narrative analysis of the government’s financial statements that should precede the presentation of the basic financial statements.
Government-wide statements are a new addition to the basic financial statements, with a total economic resources measurement focus and a full accrual basis of accounting. They are presented with separate columns for the total governmental and total business type activities of the primary government and for discretely presented component units.
1. The Statement of Net Assets incorporates all assets and liabilities, including those formerly reported in account groups and infrastructure assets.
2. The Statement of Activities is presented in an innovative “net costs” format, facilitating expense and revenue analyses of each function or program.
3. Infrastructure assets, required to be reported for the first time, may be depreciated, or, if preserved indefinitely, can be reported under a “modified approach” to accounting for their period costs. Retroactive reporting of infrastructure, required for governments with $10 million or more in revenues, may be delayed for up to three years beyond implementation of remaining GASB 34 provisions.
Fund Financial Statements report on the financial position and results of operations of each major governmental and enterprise fund. Internal service fiduciary fund types and nonmajor governmental and enterprise funds are separately reported. These statements generally retain familiar measurement focuses and bases of accounting for each fund category.

GASB 35: Basic Financial Statements and Management’s Discussion and Analysis for Public Colleges and Universities

This statement amends GASB 34 to include public institutions of higher education, ending their distinct accounting and reporting and creating a single governmental financial reporting model that is applicable to all (nonfederal) governmental entities.

Michele Mark Levine, director of accounting services for the New York City Office of Management & Budget, is a member of the NYSSCPA Government Accounting & Auditing Committee and a member of The CPA Journal editorial board. Significant contributions were made by David Bean, director of research of the Governmental Accounting Standards Board, and by Robert A. Dyson, of Friedman Alpren & Green LLP, also a member of the NYSSCPA Government Accounting & Auditing Committee and The CPA Journal editorial board. Additional editorial assistance was provided by John Francis Georger Jr., of KPMG LLP, also a member of the Government Accounting & Auditing Committee. Highlights of GASB statements in this article drew extensively from summaries published by GASB.