August 1999


There was much joy in Norwalk, Conn., on June 10. By unanimous vote, the Governmental Accounting Standards Board (GASB) agreed to issue a standard that will create a new model for financial reporting for state and local governments. The standard was a long time in coming. Statement 11, issued in May 1990 to create a new basis of accounting for governmental funds, had been deferred indefinitely because of perceived problems in implementation. With the issuance of this new, comprehensive standard, Statement 11 will be rescinded.

The new model will require state and local governments to prepare a government-wide set of financial statements on the full accrual basis. The separate long-term liabilities group of accounts will disappear, as will the fixed asset account group.

The most problematic issue will be recording the assets of the government, including infrastructure, on a comprehensive, accrual-based balance sheet. Transition rules will recognize the practical difficulties of establishing the costs of those assets. Governments will only be required to go back to the 1980s or so, the point at which the National Council on Governmental Accounting first prescribed the need to establish inventories of infrastructure-type assets. Nevertheless, the Government Finance Officers Association (GFOA), which represents the chief financial officers of many state and local governments, has expressed alarm. GFOA is concerned about the difficulty of reconstructing the cost of items such as water systems, highways, and public transportation systems. At a recent meeting, a resolution was passed authorizing the GFOA board to withhold its financial support of GASB to protest the standard.

To reduce the cost and effort required to implement the standard, state and local governments with revenues of less than $10 million will be permitted to account for infrastructure on a prospective basis, beginning the year the standard becomes effective for them.

GASB took a giant step forward with the finalization of this standard. It has not been easy, considering the pressure applied by various interest groups seeking to preserve the old ways. That pressure is only increasing, as evidenced by GFOA's objections to accounting for infrastructure.

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