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GASB's implementation of the new measurement focus and basis of accounting.

The "measurement focus" and "basis of accounting" of governmental funds determine how those funds measure and report their revenues and expenditures. Accordingly, the measurement focus and basis of accounting, or MFBA, is important to state and local government financial statements.

Starting in 1984, the Governmental Accounting Standards Board (GASB) undertook a major project to reexamine the current MFBA for governmental funds. This effort eventually resulted in the release of GASB Statement No. 11,

Measurement Focus and Basis of Accounting--Governmental Fund Operating Statements.

In response to the GASB's efforts, the GFOA Executive Board and membership adopted a formal policy statement on MFBA in May 1988. One of the key points made in that policy statement was that the new MFBA for governmental funds should only be implemented in conjunction with the GASB's separate project on financial reporting. The GFOA was gratified when GASB Statement No. 11 committed the GASB to the joint implementation of the two projects.

Since the issuance of GASB Statement No. 11, various delays have made it appear increasingly less likely that the GASB could keep its commitment to the simultaneous implementation of the MFBA and the financial reporting project. Therefore, the GASB recently decided to implement GASB Statement No. 11 prior to the completion of the financial reporting project.

Both the GFOA's Executive Board and the GFOA's Committee on Accounting, Auditing and Financial Reporting have taken strong exception to this change in direction on the part of the GASB. One cause for concern is that separating the implementation of the new MFBA from the completion of the financial reporting project could conceivably result in a series of major changes in accounting standards. The scheduled implementation of the new MFBA, for example, could be followed in a few years by another major change in accounting standards as a result of the GASB's subsequent work on its financial reporting project.

In GFOA's view, repeated major changes in accounting standards would detract from both the understandability and credibility of government financial reports. How many times can finance officers explain to governing boards and the public that the financial statements have changed because the rules of the game have changed? City councils and county boards and similar legislative bodies will quickly lose confidence in finance professionals who try to explain changes in financial statements because the standards have changed again. The likely response from elected officials would be, "Who is this GASB body and why do they keep changing the rules?"

The GFOA believes that it will be difficult to explain and gain acceptability for the new MFBA unless it is presented within the framework of a comprehensive governmental financial reporting model. The GFOA's policy statement on MFBA explains that the financial reporting project needs to be completed prior to implementing the new MFBA "so that preparers, attestors, governmental officials and other users have an opportunity to know not only how, but why, financial statements are henceforth to be presented in this manner."

For all of these reasons, the GFOA continues to believe that it would be inopportune for the GASB to implement the new MFBA for governmental funds prior to the completion of its broader project on financial reporting.

Some have argued that the GASB must implement the new MFBA on some arbitrary schedule if it is to maintain its credibility. The GFOA disagrees. While timeliness is important, the credibility of the GASB does not depend primarily upon its success in meeting arbitrary deadlines. Rather, the GASB's ultimate credibility depends instead upon its issuing accounting guidance of such logic, consistency and usefulness as to compel assent. In the case of the new MFBA, all of these qualities are likely to be significantly enhanced by simultaneous implementation with the GASB's financial reporting project.

Also, there is no reason to believe that the simultaneous implementation of the new MFBA and the financial reporting project should indefinitely delay the implementation of the new MFBA. After all, it was the GASB itself that scheduled its work on the financial reporting project to be completed in time for simultaneous implementation with the new MFBA for fiscal years beginning after June 15, 1994. While some slippage is understandable, it is unclear why what the GASB considered a reasonable goal only several years ago should now be an impossible one. Rather, the GFOA continues to believe that both projects could be implemented simultaneously in the reasonably near future if the GASB made the financial reporting project its top priority.

The GASB stated in GASB Concepts Statement No. 1, Objectives of Financial Reporting, that "accountability is the cornerstone of all financial reporting in government." Accountability also ought to be the cornerstone of the accounting standard-setting process as well. All of us in public finance, whether we prepare official statements, budgets, financial statements or audit reports, understand what it means to have to complete a difficult job on schedule. We cannot choose to delay completion of a task indefinitely, or be satisfied with completing only a portion of an assignment. The same situation ought to hold true for the GASB as well.

The time has come, therefore, for the GASB to set aside plans for the premature implementation of GASB Statement No. 11 and to focus instead on completing the financial reporting project, as originally planned. Only by doing so, can the GASB be sure of bringing its MFBA project to a successful conclusion. Admittedly, the task confronting the GASB is not an easy one, but it is a necessary one.

FOR MORE INFORMATION For background and more detailed discussion of recent developments relating to the GASB's MFBA and financial reporting projects, see "Issues in Accounting" on page 37 of this magazine.
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Title Annotation:Governmental Accounting Standards Board
Author:Esser, Jeffrey L.
Publication:Government Finance Review
Date:Jun 1, 1992
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