The User's Perspective

December 2010

The User’s Role in GASB Research

            It should come as no surprise that the setting of governmental accounting and financial reporting standards is fundamentally a research-based activity. The decision to establish standards is based on a determination—first established through research and later supported through public due process activities—that there is a compelling need for information that can be met at a reasonable cost.

            Once an accounting or financial reporting issue has been identified, initial exploratory research normally is conducted before the GASB considers whether to add a project to its technical agenda to address the issue. At this point, unless the issue is very straightforward, more detailed research must be conducted before a project ever reaches the point of being actively deliberated by the Board. This research effort often includes surveys of users of governmental financial information, as well as interviews and focus groups with users.

            In 2010, GASB surveys were conducted with users on fiduciary responsibilities and timeliness of financial reporting. Interviews are expected to be conducted with users in the first half of 2011 on measuring the fair value of investments. Each of the related research efforts and the potential implications for users are described briefly below.

Fiduciary Responsibilities

            Activities in which state and local governments, including school districts and special districts, are responsible for holding or investing money for others are collectively referred to as fiduciary activities. The GASB research project on fiduciary responsibilities arose from the inconsistency in the treatment of various types of fiduciary activities, with different governments reporting or not reporting activities that are essentially identical. This inconsistency appears to stem from a lack of clarity in the accounting and financial reporting standards regarding what constitutes fiduciary responsibility. Further inconsistency also exists in the reporting of fiduciary activities between business type-activities and general purpose governments.

            A user survey conducted in 2010 by the GASB asked about the importance of various fiduciary activities, including agency activities, private-purpose trust activities, investment trust activities, and pension and other postemployment benefit (OPEB) activities. The survey was completed by users from three distinct groups—staff from citizen research organizations, legislative fiscal staff, and municipal bond analysts.

            Survey respondents generally indicated that pension and OPEB information is most important, followed by information about investment trusts, agency funds, and private-purpose trusts. However, the importance of the information may not be fully reflected in the survey results, because there appears to be a significant level of misunderstanding among the survey respondents regarding the nature of some fiduciary activities.

Timeliness of Financial Reporting

            Timeliness is one of the six qualitative characteristics under the GASB conceptual framework that financial information is expected to possess if it is to communicate effectively. Timely information is defined in GASB literature as information that is made available “soon enough after the reported events to affect decisions or assessments of accountability.” These questions may reasonably be asked about timeliness:

  • When is the reported financial information most useful to users?
  • At what point does usefulness begin to diminish?
  • How rapidly does usefulness diminish with the passage of time?”

            The GASB’s extensive 2005 user needs study found an overwhelming and united call for improving the timeliness of financial reporting. The GASB does not require financial statements to be issued in a specific timeframe, nor does it have the authority to do so. However, the GASB wishes to consider how its standards can be crafted in order to enable governments to issue reports on a timely basis.

            A user survey conducted by the GASB in 2010 sought to identify the relationship of usefulness to timeliness. The survey was paired with archival research intended to measure how long it takes governmental entities to issue audited annual financial reports that are compliant with generally accepted accounting principles. The results of the survey are expected to be published in the first few months of 2011.

            The timeliness study, of which this survey was a part, is the first stage of the GASB’s present effort to improve the dynamics of these high-level issues regarding timeliness of financial statement preparation and issuance.

Fair Value Measurement

            The objective of the fair value measurement research project is, in light of issues related to alternative investments, to review and consider further development of the definition of fair value, the methods used to measure fair value, and potential related disclosures. The alternative investments contemplated by the project include those relating to private placements, hedge funds, real estate investment trusts, state land trusts, and partnership interests.

            Fair value, in a general sense, is the price something is expected to have if sold on the open market between two unrelated willing parties. Due to a lack of related guidance on alternative investments, a variety of methods of accounting for alternative investment assets have come about in practice. Consistency and comparability have suffered as a result, and financial statement users have been left uncertain of what the values of these alternatives investments represent when they appear in governmental financial statements.

            A fair value measurement survey of financial statement preparers and auditors conducted by the GASB staff in 2010 posed a number of questions relating to the application and determination of fair value. The survey results suggest that financial statement users would benefit from additional fair value guidance on alternative investments. The related findings indicate that additional guidance would promote the transparency and comparability of financial statements. Interviews with users on the fair value measurement project and related survey and its findings are planned for the first half of 2011.

Concluding Thoughts

            Your contributions to the GASB’s process have been invaluable in 2010. Thank you for your participation. The GASB works continually to ensure its standards are effective for and appropriate to the existing governmental environment, and result in information that is useful for making decisions and assessing accountability.

            Your assistance in this process is very valuable to the GASB, and because we know how busy you are, we try to keep our surveys as brief as possible. Just a small investment of your time can make a big difference in the GASB’s standards-setting process—your participation in GASB research is the primary way we find out what your information needs are.

            Finally, there is an additional way you can assist the GASB in it research efforts. Each year, the GASB encourages academics and other researchers to conduct studies that would be relevant to the GASB‘s standards-setting activities. Through its Gil Crain Memorial Research Grant, the Board hopes to encourage more collaborative research efforts by offering this a grant that is awarded each June. A call for proposals for the 2011 grant will be available on the GASB website,, in March.