The User's Perspective

November 2007

GASB Research Project Update

      Establishing and improving standards of state and local governmental accounting and financial reporting in ways that will yield useful information for users of financial reports is the core of the GASB's mission. In keeping with this mission, we thought it would be useful to update users on the impact selected projects on our current research agenda could have in this regard if they become standards-setting projects. Additional information on all of the projects discussed below is available in our Technical Plan.

Reporting Unit Presentation and Statement 14 Reexamination

      One of the key objectives of this project is to determine if generally accepted accounting principles (GAAP) should be developed for separately issued financial statements for reporting units that make up less than a separate legal entity (for example, a state department of transportation or an individual special revenue fund of a municipal government) and if so, what those requirements would be.

      Traditionally, preparers of financial statements for departments and funds have taken the accounting literature and applied what GAAP seems to be applicable based on the scope of what is being reported. For instance, they would try to allocate capital assets and long-term debts related to the department or fund's activities. Even though this reporting may be required by statute, and despite the fact that auditors have given clean audit opinions to such reporting, in fact there is no GASB statement that guides such applications.

      The project also includes an examination of the effectiveness of Statement No. 14, The Financial Reporting Entity, as amended. After standards have been in effect for a time, the GASB reviews them to determine if they have accomplished what they were intended to, if any difficulties arose in the application of the standard, and if improvement is warranted.

      Impact on the financial report:  Establishing a set of reporting guidelines for reporting units could result in greater comparability and consistency in this type of financial reporting and resolve longstanding questions about how to determine which assets, liabilities, inflows, and outflows are associated with units smaller than the reporting entity. Any standards, however, have the potential for significantly changing current reporting practices.

      Statement 14 is crucial in determining which activities of a government are included in the financial statements and which are excluded. The decision to include legally separate entities, such as public authorities, as well as joint ventures and organizations governed jointly with other governments, is guided by this standard. A revamping of this standard could help to ensure that financial statements include all of a government's relevant financial activity, regardless of whether it takes place in a government's funds or in a separate component unit.

      Status:  In December 2007 the Board will receive a draft staff proposal regarding whether to add this project to the current agenda and begin deliberations. A revised proposal will be shared with the Governmental Accounting Standards Advisory Council (GASAC) and the Board will consider this and other potential current agenda projects at its April 2008 meeting.

      Contact:  Wesley Galloway (

Public/Private Partnerships

      The objectives of the so-called "P-3" project are to research the various types of public/private partnerships to determine whether new accounting and reporting requirements should be developed to address them.

      A wide variety of arrangements appear to fall under the P-3 category, but the most highly publicized type of public/private partnership has involved governments leasing a toll road to a private company, which operates and maintains it for the state and in return is allowed to keep the toll revenues. Critical questions for the Board to examine include: Who should report this asset (in this example the toll road)—the government or the private company? If an up-front payment is made to the government, when should it be recognized as revenue—right away, or over the term of the lease?

      Impact on the financial report:  Specific accounting and financial reporting guidelines for these kinds of transactions should improve the comparability of financial statements and result in governments reporting assets and inflows of resources only when appropriate.

      Status:  The GASB, which is the main contributor to a collaborative project with the International Public Sector Accounting Standards Board on this issue, is scheduled to decide in April 2008 whether to add this project to its current agenda.

      Contact:  Greg Driscoll (

Pension Accounting and Reporting

      Similar to the Statement 14 reexamination, this project assesses the effectiveness of the GASB's pension standards—Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 27, Accounting for Pensions by State and Local Governmental Employers. The central questions are: Do the standards provide users with the decision-useful information they need? Can the disclosure requirements be improved? How have governments implemented the standards in practice? What choices have they made about the methods and assumptions used to estimate their pension obligations and costs? How have these choices affected the usefulness of the reported information?

      In order to answer these questions, the staff has analyzed hundreds of financial reports and surveyed pension plans, financial statement users, and actuaries. The GASB has also initiated discussions about its pension standards in two ways. First, an advisory committee of experts from various relevant fields was brought together to consider the current standards, whether they are working, and what improvements, if any, are necessary. A similar dialogue was held in four regional discussion forums that brought together finance officers from government employers and pension plans, auditors, actuaries, municipal analysts, citizen groups, and other financial report users.

      Impact on the financial report:  Unclear. If changes were to be made to the current standards, the intent would be to resolve implementation issues and to make the reported information more useful.

      Status:  The Board is scheduled to decide in April 2008 whether to add this project to the current agenda.

      Contacts:  Karl Johnson (

                      Michelle Czerkawski (

Investment Omnibus

      "Omnibus" projects bring together multiple disparate issues related to a common topic. This project will consider the need to address issues that have arisen since the implementation of GASB Statements No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, and No. 40, Deposit and Investment Risk Disclosures.

      Impact on the financial report:  Unclear. The issues being considered are mostly technical in nature and would resolve implementation difficulties encountered by governments. Changes to the standards could improve consistency and comparability among governments.

      Status:  The staff is scheduled to present the results of research and offer initial recommendations regarding the direction of the project in April 2008.

      Contact:  Randy Finden (

Further Reading