This week, we are studying general capital assets and long-term obligations. Using one of the articles, Relevance of GASB No. 34 to Financial Reporting by Municipal Governments or The First Quarter Century of the GASB (1984-2009): A Perspective on Standard Setting (Part One), share one key point you found interesting and explain why this point is important to the topic this week.

1:INTRODUCTION

GASB Initiatives and Accomplishments

As mentioned in the predecessor paper to this one (Roybark et al., 2012), the GASB achieved early success in part because of its stable leadership and the work of the founding board members. In addition, three unique factors also contributed to its early success. The first factor was the AICPA's recognition of the GASB as the authoritative accounting standards-setting body for governmental entities (GASB, 1995a). A second factor was the resolution of jurisdictional issues between the GASB and the FASB (GASB, 2004a). Despite their early jurisdictional conflicts, the two Boards were able to establish a working relationship. For example, 1995 marked the first joint meeting between the members of the GASB and the FASB. The third factor was the benefit of the organizational framework of the FAF and the proven FASB model for the accounting standards-setting process, which had been in place since 1972.

As of 8 June 2009, the GASB has issued 88 exposure drafts (GASB, 2009f),1 5 concepts statements (GASB, 2003a, 2005a, 2007b, 2008d, 2009e), 56 statements (GASB, 2009i), 6 interpretations (GASB, 2009h), and 14 technical bulletins (GASB, 2009j). The Board also has issued 10 discussion memorandums (DM), 7 preliminary views (PV), and four invitations to comment (ITC) for some of the major projects that it has addressed: these are discussion documents which precede an exposure draft (Schermann, 2009). In addition, the GASB has issued a series of implementation guides, which include questions and answers about specific topics.2

During its 25-year history, the GASB has addressed a wide range of complex topics. A summary of the statements issued by the GASB is provided in Appendix A. Developmental summaries of the five concepts statements (by issuance date) and 56 pronouncements (by general topic and issuance date) are presented in Appendix B, Panels A and B, respectively. GASB standards are officially recognized as authoritative by the American Institute of Certified Public Accountants and by many laws and regulations that apply to state and local governments (FAF, 2010, p. 1).

GASB's 2009 Agenda

During its 25-year history, the GASB has tackled many complex and controversial issues, but what issues will the Board face in the coming years? As of 1 January 2009, the GASB's current technical agenda includes the following projects (GASB, 2009a):

Conceptual FrameworkRecognition and Measurement Attributes,

Postemployment Benefits Accounting and Financial Reporting,

Guidance on PublicPrivate Partnerships,

Reporting Unit Presentations (a re-examination of GASBS No. 14),

Service Efforts and Accomplishments ReportingSuggested Reporting Guidelines for Voluntary Reporting,

Chapter 9 Bankruptcies,

Economic Condition Reporting,

Electronic Financial Reporting, and

Fair Value Measurements.

On 31 March 2009, the GASB issued an invitation to comment (ITC) on Pension Accounting and Financial Reporting (GASB, 2009b). Comments were requested by 31 July 2009. The ITC is intended to obtain feedback from constituents concerning the Board's re-examination of its pension accounting and financial reporting standards. Topics addressed in the ITC include recognition of liabilities and expenses, measurement of unfunded pension obligations, the use of actuarial methods, reporting by government employers in cost-sharing multiple-employer pension plans, and reporting by pension plans.

Many state and local governments have and are continuing to experience significant financial pressures as a result of the U.S. economic downturn. In response, the GASB has added Chapter 9 Bankruptcies3 to its agenda. While Chapter 9 bankruptcies are rare, the continued economic slowdown in the United States and recent high-profile filings of Chapter 9 bankruptcies have brought this issue to the public's attention.4 Declining tax revenues increase the possibility of additional filings (Taub, 2008; Whitmire and Walsh, 2008).5 Such economic conditions and pressures raises questions about the accounting implications that result from such filings. To that end, the objective of the Chapter 9 Bankruptcies project is to provide accounting and financial reporting guidance for municipal governments that have been granted protection from creditors under Chapter 9 of the U.S. Bankruptcy Code. An exposure draft on this project is expected June 2009 (GASB, 2009a).

Another current issue being considered by the GASB is its Economic Condition Reporting (ECR) project. The objectives of the ECR project are to identify the information that users require to assess a government's economic condition, to compare these needs with the information users receive under current standards, and to consider whether guidance should be considered for any remaining information. Research is currently being conducted including interviews and user forums (GASB, 2009a).

2:FUTURE CHALLENGES FACING THE GASB

Despite its accomplishments, the GASB is facing some major challenges in the future, including: (a) the GASB's Service Efforts Accomplishments (SEA) project; (b) the GASB's budgetary constraints including sustainable funding sources for operations; (c) the limitations associated with the U.S. Municipal Securities Market; (d) the FAF's restructuring initiative; and (e) the convergence of international public sector accounting standards.

GASB's Service Efforts Accomplishments (SEA) Project

Accounting for performance measures was included in the GASB's original 1984 technical agenda. By 1985, the GASB issued a resolution encouraging governments to experiment in this area (GASB, 2008b). In April 1994, the Board issued GASB Concepts Statement No. 2 (Service Efforts and Accomplishments Reporting). Since 1997, the GASB's work on SEA reporting has been funded by a series of grants from the Alfred P. Sloan Foundation. The objective of the funded research is to further SEA research, to address developmental needs for performance measurement, and to further encourage reporting of performance information to citizens (GASB, 2008a, p. 1).

The SEA project proved to be a very thorny issue. While discontent over the Board's SEA initiative was voiced, the FAF Board of Trustees reaffirmed the GASB's jurisdictional authority to include SEA in its standards-setting activities for state and local governments on 28 November 2006 (GASB, 2006d). By April 2007, the GASB formally added a project on SEA reporting to its technical agenda, but according to Mead (2008), opposition to this project arose long before it had even been added to the agenda. The project was to consider how to establish suggested guidelines for governments that voluntarily choose to report on their performance. Unlike most projects on GASB's current technical agenda, however, the SEA reporting project will not result in any new requirements. Whatever the outcome of the project, governments will not be required to report on their performance (Mead, 2008, p. 6). Some constituents do not believe that the GASB should be involved in developing performance measures (Mead, 2008, p. 9).

Specifically, they have stated that choosing what performance to measure should not be decided by GASB, but rather by elected officials, based on their government's mission and goals. GASB agrees completely with this point and has taken steps to address these concerns. In January 2007, GASB convened a roundtable discussion in Washington, D.C., to give critics an opportunity to speak directly to the board members and to open a dialogue between them and the constituents that support GASB's SEA reporting project. In response to what GASB heard at that roundtable, at meetings of the Governmental Accounting Standards Advisory Council, and at other meetings with constituent groups, GASB decided to amend Concepts Statement 2 to highlight that its role is limited to SEA performance reporting.

In December 2006, the Executive Board of the GFOA voted to begin working with other major state and local government organizations to reassess the GASB's continued role as the authoritative accounting standard-setting body for state and local governments (GFOA, 2008a, p. 1). The GFOA argued that the GASB appears in recent years to be attempting more and more to find an accounting solution to every financial problem (to a man with a hammer, everything looks like a nail) (GFOA, 2008c, p. 1): an example cited by the GFOA was the GASB's SEA initiative (GFOA, 2008c).

By March 2007, the GFOA publicly called for the elimination of the GASB and urged state and local groups to call for the transfer of the Board's responsibilities as the standards-setting body for statement and local governments to the FASB (Ackerman, 2007a).6 In a letter dated 5 June 2007, Robert E. Denham, Chairman of the FAF, advised the GFOA that the FAF Board of Trustees adopted unanimously a resolution affirming the continued role of the GASB, separate from FASB, as the independent standard setting body for financial accounting and reporting for state and local governmental entities . . . We thus call upon the GFOA to reaffirm its long history of supporting the mission and financial viability of the GASB (FAF, 2007a, pp. 12).

At its annual conference in June 2007, outgoing president of the GFOA, Thomas J. Glaser, strongly denounced the GASB as the accounting standard-setting body for state and local governments and pledged to work with other public finance market groups to oppose certain GASB initiatives (Ackerman, 2007a). According to Glaser, GASB's involvement in SEA reporting has expanded the scope of its mission beyond accounting and financial reporting to government accountability, which is more properly a part of the budget and management process (Ackerman, 2007a, p. 1). In March 2008, the Executive Board of the GFOA voted to rescind its call for the FASB to assume the GASB's standard-setting role for state and local governments because of the uncertainty that now surrounds the FASB's future as a standard-setting body (GFOA, 2008a). In a letter to the editor of the Bond Buyer, Robert J. Desantis, President and Chief Operating Officer of the FAF, stated that recent comments by GFOA President Thomas J. Glaser (in the 12 June 2007 Bond Buyer) about the GASB are not in the best interest of municipal bond investors and other users of government financial statements. According to Desantis, Mr Glaser's letter clearly demonstrates the rationale and necessity for financial accounting and reporting standards setting to be independent from commercial, political and other influences that put specific self-interest above the public interest and erode trust in government. And that's what the FAF is here to protect against (FAF, 2007b, p. 2).

Adding their voices of dissent concerning the GASB's future work on SEA reporting, the National Association of State Auditors, Comptrollers and Treasurers (NASACT) posted a joint news release dated 6 February 2008 on its website stating that (NASACT, 2008a, p. 1):

Representatives of 9 leading state and local public interest associations have joined forces to set up a commission charged with creating a national principles-based framework for public sector performance measurement and management.7

The Commission will be made up of elected and appointed public officials representing the sponsoring organizations as well as leaders in the field from management, research organizations, and academia. The Commission is expected to complete its work within the next two years, during which it will identify critical issues, solicit feedback from government practitioners and other interested parties, and then provide a public review draft and a final version of the framework.

Given that state and local governments will not be required to report on their performance, constituents' reactions about SEA reporting seem to be excessive. One explanation may be that state and local governments are experiencing standards-overload. Another explanation may be that many state and local governments do not want to report performance measures. De Lancer Julnes and Holzer (2001) conducted a study of the factors that affect adoption and implementation of performance-measurement systems; they found that many state and local governments have not developed performance-measurement systems, and even fewer use these systems to improve decision making (p. 693).

SEA performance reporting may have been one of the most contentious issues that the GASB tackled during its 25-year history. Foltin (2008) argues that while the premise of SEA has merit (p. 31), if the GASB clears this impasse, the wounds will take years to heal (p. 30). But it would appear that the GASB understood the discontent of its constituents concerning SEA reporting. In November 2008, the Board issued its Concepts Statement No. 5 (Service Efforts and Accomplishments Reporting, an amendment of GASB Concepts Statement No. 2). The new concepts statement clarifies that it is beyond the scope of the GASB to establish the goals and objectives of state and local government services, to develop specific nonfinancial measures or indicators of service performance, or to set benchmarks for service performance. GASBCS No. 2 (1994) was amended to update terminology and to modify SEA provisions to reflect what has taken place over the 14-year period (GASB, 2008d).