Government Accounting System
On June 30, 1999 the GASB passed statement
number 34. Statement
34 establishes new accounting requirements for state and
local governments that
are scheduled to begin on June 15, 2002. There are
three phases scheduled for
the implementation of statement 34, each depending
on the size of the
government. The largest governments must meet the
requirement first while the
smaller governments have more time to comply with
the statement. Statement 34
will improve the governmental accounting system
in many ways. First, statement
34 will create easier to understand
financial statements. This will allow people
other than accountants to
understand the information within a government
financial statement. Secondly,
statement 34 will help city officials keep track
of fixed assets that need to
be replaced or improved. This addition is important
because city officials
often forget that assets have been in use for too long,
resulting in costly
improvements that could be avoided. Furthermore, statement
34 will allow
readers to determine whether the government has improved since the
last
fiscal year. These goals will be accomplished in several ways. First,
a
management discussion and analysis (MD&A) statement will be required.
Within
this statement, managers will discuss the financial achievements of
the
governmental entity during the fiscal year. In this discussion, managers
will
compare the current and previous years-financial statements, and inform
the
reader if there has been an improvement or deterioration financially.
The
managers preparing the MD&A must also explain any significant
fluctuation
within any major accounts, as well as, any future event expected
to have a major
impact upon the said government. Another notable change made
by statement 34 is
the adoption of the full accrual method. This will greatly
change the bottom
line of many governmental entities. Under this system,
governments will report
all revenues earned in a given period. This change
will give financial statement
readers a better idea of the actual financial
position of the government,
because all revenues earned within a given period
will be reported. The full
accrual method will help government officials
determine if citizens have paid
for the benefits that have been received and
if the government’s financial
position has changed since the previous year. A
third important change that
statement 34 will usher in is the way governments
report activity in their major
funds. Governments will no longer report their
funds in aggregate form. The new
model will reclassify funds into more
specific individual fund listings. This
change will make it easier to track
specific expenditures while increasing
government accountability. Another
substantial change brought about by statement
34 is asset management.
Governments currently record assets at the time of
purchase as expenditures.
The new accounting model will force governments to
monitor their assets cost
and value on an annual basis. This could prevent major
damage to government
assets that could otherwise be neglected, such as sewers
and drainpipes.
Governments are having mixed reactions concerning the
implementation of GASB
No. 34. Some states, such as Wisconsin, have already
implemented the
statement while others, hardly know it exists. The state
controller of
Wisconsin is sending out a strong message, urging all states to
get an early
start. Other states, such as Michigan, already use procedures
similar to
those of statement 34. As a result, Michigan plans to have met
the
requirements of statement 34 sometime in 2001. The larger states are
under the
most pressure, given they have the most to do and the least time to
accomplish
it. In most cases, in order to comply with statement 34
regulations, states will
have to create new accounting software. In addition,
because of the new asset
management methods many states will have to value
their existing assets. This
will require governments to create new data
collection methods. Many governments
find the time constraints difficult,
given the Y2K problem is still not fixed in
many states. Governments,
especially the larger ones, must really be on top of
things to meet the time
requirements of statement 34. In conclusion, GASB
statement No. 34 will
improve financial reporting for state and local
governments in many ways.
First, the reports will be easier to read and
understand. The management
discussion and analysis will give people with little
or no accounting
background a good idea of the financial position a government
is in.
Secondly, the financial reports will be more accurate. Since the full
accrual
method will be used, governments will report all revenues they have
earned.
Finally, it will be easier to determine if government money is being
spent
properly. The new fund system will provide specific information about
where
money is being spent. Statement 34 will be a considerable improvement
for
state and local governmental accounting.