Journal Entries

This recurring website feature highlights articles from The GASB Report, the GASB’s monthly newsletter. The current article appeared in the March 2011 issue.

GASB Research Brief Examines Timeliness of State and Local Financial Reporting in Comparison with User Needs

In March, the GASB released a research brief that examines how long it takes state and local governments to issue financial reports prepared in conformity with generally accepted accounting principles (GAAP), and how the passage of time affects the usefulness of the financial information for users.

With respect to time-to-issuance, the GASB reviewed the financial reports of the 50 states, the 100 largest counties and localities, and the 50 largest independent school districts and special districts for the 2006–2008 reporting periods. The findings contained in the research brief, The Timeliness of Financial Reporting by State and Local Governments, indicate that the largest local and county governments and independent school districts issued their financial reports approximately six months after the fiscal year-end on average. State governments averaged closer to seven months to issue their reports, while special districts averaged about four months. On the whole, 73 percent of the largest governments issued their reports within 6 months, while 2 percent took more than 1 year.

Examination of a random selection of smaller governments drawn from the list of 89,527 governments included in the 2007 Census of Governments found that smaller county governments took an average of 8 months to issue their financial reports—about 2 months longer than their larger counterparts, while smaller local governments were on a par with their larger local governments with an average issuance of 6 months after year-end. Smaller special districts averaged six months, or about two months longer than larger special districts. The smaller independent schools examined issued their reports in less than five months on average, or about six weeks faster than their larger counterparts. On the whole, under 46 percent of the smaller governments examined issued their reports within 6 months, and 7 percent took more than 1 year.

While GASB research found that financial report information retains some degree of usefulness to municipal bond analysts, legislative fiscal staff, and researchers at taxpayer associations and citizen groups for up to six months after the fiscal year-end, afterward the relative usefulness declines rapidly. Fully 89 percent of respondents to a GASB survey rated information received within 45 days as “very useful,” but that proportion fell to 44 percent for information received within 3 months, and to 9 percent for information received within 6 months.

The GASB identifies timeliness as one of the six qualitative characteristics that financial information is expected to possess if it is to communicate effectively. While the GASB does not require that GAAP-based financial reports be issued within a specific timeframe, the GASB does consider timeliness when developing its standards of accounting and financial reporting. Even though the GASB does not set benchmarks related to timeliness, the intended result of setting accounting and financial reporting standards is the communication of decision-useful information. This continues to be a central concern for the Board as it strives to balance the benefits of information to its users with the cost of providing that information. This study is the first part of the GASB’s existing research efforts to better understand the dynamics of financial reports presentation and the factors that determine time-to-issuance.

The research brief, The Timeliness of Financial Reporting by State and Local Governments Compared with the Needs of Users, is available for free download at the GASB website, www.gasb.org.