The First Quarter Century of the GASB (1984–2009): A Perspective on Standard Setting (Part Two)

Authoritative Status of NCGA and AICPA (GASBS Nos 1 and 56)

GASBS No. 1: In July 1984, the Board's first formal action was to issue GASBS No. 1 (Authoritative Status of NCGA Pronouncements and AICPA Industry Audit Guide).²² It was issued to eliminate any uncertainty concerning the status of existing accounting and reporting standards applicable to state and local governmental entities, as a result of the creation of the GASB as the successor standard-setting organization of the NCGA (GASB, 1984). Paragraph 8 states (GASB, 2003a, p. 249):

GASBS No. 56: In March 2009, the GASB issued its GASBS No. 56 (Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards). It incorporates accounting and financial reporting guidance previously only contained in the AICPA auditing literature into the GASB's accounting and financial reporting literature for state and local governments. The statement addresses three issues from the AICPA's literature—related party transactions, going concern considerations, and subsequent events. It is intended to make it easier for preparers of state and local government financial statements to identify and apply relevant accounting guidance (GASB, 2009d).

Hierarchy of Generally Accepted Accounting Principles for State and Local Governments (GASBS No. 55)

GASBS No. 55: In March 2009, the Board issued its GASBS No. 55 (The Hierarchy of Generally Accepted Accounting Principles of State and Local Governments). The statement incorporates the hierarchy of GAAP for state and local governments into the GASB's authoritative literature. Prior to the issuance of this statement, the GAAP hierarchy was set forth in the AICPA's Statement on Auditing Standards (SAS) No. 69 (The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles), rather than in the authoritative literature of the GASB. GASBS No. 55 moves relevant portions of that SAS to the GASB literature without substantive changes. The statement is effective upon issuance (GASB, 2009k).

Deferred Compensation (GASBS Nos 2 and 32)

GASBS No. 2: From its beginning, the Board tackled complex issues of the day. For example, the Internal Revenue Code Section 457 (Section 457) authorized state and local governments to provide deferred compensation plans for their employees. In January 1986, the Board issued GASBS No. 2 (Financial Reporting of Deferred Compensation Plans Adopted under the Provisions of Internal Revenue Code Section 457). It required that all amounts deferred by the plan participants be reported asassets of the employer, without restriction, until made available to the participants or their beneficiaries (GASB, 2003a).

GASBS No. 32: On 20 August 1996, the federal law was changed. It required all assets and income of Section 457 deferred compensation plans (effective for plan years beginning on or after 1 January 1997) to be held in trust (or custodial account or annuity contract). In response, the GASB issued Statement No. 32 (Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans—a rescission of GASB Statement No. 2 and an amendment of GASB Statement No. 31) in October 1997 to reflect the changes necessitated by the legal changes to deferred compensation plans (GASB, 2003a).

Investments (GASBS Nos 3, 28, 31, 40, 52, and 53)

GASBS No. 3: Several failures of governmental securities dealers resulted in significant losses to some of those who invested in repurchase agreements, including state and local governmental entities. Some losses related to the use of repurchase and reverse repurchase agreements. Following the ESM Government Securities, Inc.²³ collapse in March 1985, the Board issued an Exposure Draft (E-1, June 1985) to address deposits with financial institutions and other investments, including repurchase and reverse repurchase agreements. Specifically, the Board was concerned about the potential for losses on uninsured deposits due to the continuing decline of some financial institutions (GASB, 2003a).

In April 1986, the Board issued GASBS No. 3 (Deposits with Financial Institutions, Investments (including Repurchase Agreements and Reverse Repurchase Agreements)), effective for periods ending after 15 December 1986. It required certain note disclosures about governmental entities' deposits with financial institutions, investments, including repurchase agreements, and reverse repurchase agreements.²⁴ It also provided guidance on accounting for repurchase and reverse repurchase agreements (GASB, 2003a).

Except for antifraud provisions, the market for municipal securities is largely unregulated at the federal level. On 6 December 1994, Orange County, California, and the Orange County Investment Pools, an instrumentality of the County of Orange, filed for Bankruptcy under Chapter 9 of the federal Bankruptcy Code.²⁵‘These filings began the largest municipal bankruptcy in our nation's history’ (USC, 1995, p. 3). Additional collateral of securities and negative returns under reverse repurchase agreements generated a cash-flow squeeze, which precipitated the bankruptcy. In short, Orange County lost $1.7 billion of taxpayers' money through investments in risky securities (PPIC, 1998). While GASBS No. 3 required disclosure of the market value (later changed to fair value) and carrying value of each major category of investments, it did not require that any specific accounting method be followed in determining the carrying amount, nor did it address how state and local governments were to measure the carrying value of these securities.²⁶ Orange County's financial statements for the fiscal year ended 30 June 1993 ‘indicated that investments were valued at cost, with noted exceptions’ (USC, 1995, p. 13). A footnote to the statements required by GASBS No. 3 included the carrying value and market value of investments. ‘As of June 30, 1993, aggregate market value of investments exceeded aggregate cost by approximately $50 million’ (USC, 1995, p. 13).²⁷

GASBS No. 28: In May 1995, the Board issued GASBS No. 28 (Accounting and Financial Reporting for Securities Lending Transactions). It established accounting and reporting standards for securities lending transactions. There were no pre-GASBS No. 28 governmental standards that directly addressed securities lending transactions. Common practice had been to report the underlying securities in the balance sheet, but not to report assets and liabilities arising from the lending transactions (GASB, 2003a). Governmental entities that lend securities are usually long-term investors with large investment portfolios—such as pension funds, state treasurers, state investment boards, and college and university endowment funds—that want to earn additional income. In these transactions, governmental entities transfer their securities to broker-dealers and other entities for collateral—which may be cash, securities, or letters of credit—and simultaneously agree to return the collateral for the same securities in the future.²⁸ Governmental lenders invest the cash received as collateral and, if the return on those investments exceeds the rebate paid to the borrowers of the securities, the securities lending transactions generate income for the government. If the investment of the cash collateral does not provide a return that exceeds the rebate or if the investment incurs a loss in principal, part of the payment to the borrower would come from the government's resources (GASB, 2003a).

GASBS No. 31 While the Orange County debacle may have been influential during the Board's deliberations, the heart of the matter addressed in GASBS No. 31 related to what was going on across the country with investment pools.²⁹ During ‘1994 and 1995, some governments announced significant realized and unrealized losses in the investment pools they sponsored for other governments’ (GASB, 2003a, p. 989). In March 1997, the Board issued GASBS No. 31 (Accounting and Financial Reporting for Certain Investments and for External Investment Pools). GASBS No. 31 established accounting and reporting standards for all investments held by governmental entities, including governmental external investment pools. For most other governmental entities, it established fair value³⁰ standards for investments in (a) participating³¹ interest-earning investment contracts, (b) external investment pools, (c) open-end mutual funds, (d) debt securities, and (e) equity securities, option contracts, stock warrants, and stock rights that have readily determinable fair values. Fair value is an estimate of the net future cash flows of investments, discounted to reflect both time value and risk (para. 49). GASBS No. 31 amended GASBS Nos 2, 3, and 28 by replacing the previously used term market value with the term fair value. For defined benefit pension plans and Section 457 deferred compensation plans, GASBS No. 31 provided guidance for applying fair value to investment transactions (GASB, 2003a).

GASBS No. 40: The GASB began its deliberations of deposit and investment risk disclosures to reassess GASBS No. 3, in accordance with the GASB's strategic plan. The memories of the investment pool losses, such as the EMS collapse and the Orange County bankruptcy, may have contributed to the Board's deliberations and the eventual disclosure requirements relating to investment risk. In March 2003, the Board issued GASBS No. 40 (Deposit and Investment Risk Disclosures—an amendment of GASB Statement No. 3). GASBS No. 40 refined the custodial credit risk disclosure requirements of GASBS No. 3 and established more comprehensive disclosure requirements for other common risks associated with deposits and investments of state and local governments. It addresses credit risk, concentration of credit risk, interest rate risk, and foreign currency risk. It requires disclosures of investments that have fair values that are highly sensitive to changes in interest rates. Portions of GASBS No. 3 are modified to limit required disclosures to (GASB, 2003a):

GASBS No. 52: In November 2007, the Board issued GASBS No. 52 (Land and Other Real Estate Held as Investments by Endowments), effective for periods beginning after 15 June 2008. Endowments exist to invest resources for the purpose of generating income. GASBS No. 52 aligns financial reporting with the objectives of endowments (GASB, 2007d).

Previous standards required permanent and term endowments, including permanent funds, to report land and other real estate held as investments at their historical cost. GASBS No. 52 requires endowments to report their land and other real estate investments at fair value. Governments also are required to report the changes in fair values as investment income and to disclose the methods and significant assumptions employed to determine fair value (GASB, 2007d).

GASBS No. 53: In June 2008, the Board issued its GASBS No. 53 (Accounting and Financial Reporting for Derivative Instruments). The statement addresses the recognition, measurement, and disclosure of information regarding derivative instruments entered into by state and local governments. Common types of derivative instruments used by governments include interest rate and commodity swaps, interest rate locks, options (caps, floors, and collars), swaptions,³² forward contracts, and futures contracts. A key provision in the statement is that derivative instruments covered in its scope, with the exception of synthetic guaranteed investment contracts that are fully benefit-responsive, are reported at fair value. The changes in fair value of derivative instruments that are used for investment purposes or that are reported as investment derivative instruments because of ineffectiveness are reported within the investment revenue classification. Alternatively, the changes in fair value of derivative instruments that are classified as hedging derivative instruments are reported in the statement of net assets as deferrals. Derivative instruments associated with hedgeable items that are determined to be effective in reducing exposures to identified financial risks are considered hedging derivative instruments. Effectiveness is determined by considering whether the changes in cash flows or fair values of the potential hedging derivative instrument substantially offset the changes in cash flows or fair values of the hedgeable item. In these instances, hedge accounting should be applied. Under hedge accounting, the changes in fair values of the hedging derivative instrument are reported as either deferred inflows or deferred outflows in a government's statement of net assets. Requirements of the statement are effective for financial statements for periods beginning after 15 June 2009 (GASB, 2008c).

Pensions (GASBS Nos 4, 5, 25, 27, 50)

GASBS No. 4: In September 1986, the Board issued GASBS No. 4 (Applicability of FASB Statement No. 87, ‘Employers' Accounting for Pensions,’ to State and Local Governmental Employers). GASBS No. 4 clarified that state and local governmental employers should not change their accounting and financial reporting of pension activities as a result of FASB Statement No. 87 (GASB, 2003a).

GASBS No. 5: In November 1986, the Board issued GASBS No. 5 (Disclosure of Pension Information by Public Employee Retirement Systems and State and Local Governmental Employers). In 1986, most public pension plans were ‘defined benefit plans,’ therefore GASBS No. 5 was written within the context of those plans. It established standards for disclosure of pension information by public employee retirement systems and state and local governmental employers in notes to financial statements and in required supplementary information (hereafter RSI) (GASB, 2003a).

GASBS No. 25: Pension reporting was driven by a number of complex environmental pressures (i.e., erosion of funded status of pension plans due to the stock market slide). In November 1994, the Board issued GASBS No. 25 (Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans). It established reporting standards for defined benefit pension plans and for the notes to the financial statements of defined contribution plans (GASB, 2003a).

GASBS No. 25 established a financial reporting framework for defined benefit pension plans that distinguishes between two categories of information. The first category includes current information about plan assets and financial activities: (a) a statement of plan net assets that provides information about the fair value and composition of plan assets, plan liabilities, and plan net assets and (b) a statement of changes in plan net assets that provides information about the year-to-year changes in plan net assets. The requirements for the notes to the financial statements include a brief plan description, a summary of significant accounting policies, and information about contributions, legally required reserves, and investment concentrations. The second category includes actuarially determined information, from a long-term perspective about the funded status of the plan and the progress being made in accumulating sufficient assets to pay benefits when due. This information should be presented as RSI immediately after the notes to the financial statements. GASBS No. 25 also requires the notes to the financial statements of defined contribution plans to include a brief plan description, a summary of significant accounting policies (including fair value of plan assets, unless reported at fair value), and information about contribution and investment concentrations (GASB, 2003a).

GASBS No. 27: In November 1994, the Board issued GASBS No. 27 (Accounting for Pensions by State and Local Governmental Employers), effective for periods beginning after 15 June 1997. GASBS No. 27 established standards for the measurement, recognition and display of pension expenditures/expense and related liabilities, assets, note disclosure, and, if applicable, RSI in the financial reports of state and local governmental employers (GASB, 2003a). Employers that participate in single-employer and agent multiple-employer defined benefit pension plans (sole and agent employers) are required to measure and disclose an amount for annual pension cost (required contributions) on the accrual basis of accounting. Employers that participate in cost-sharing multiple-employer defined benefit pension plans are required to recognize pension expenditures/expense equal to the employer's contractually required contributions and a liability for unpaid contributions. Recognition should be on the modified accrual or accrual basis, depending on the fund type or type of entity. Employers that participate in defined contribution plans are required to recognize pension expenditures/expense equal to the employer's required contributions to the plan and a liability for unpaid contributions (modified accrual or accrual basis). The required disclosures include descriptive information about the plan and the required and actual contributions of the employer and plan members (GASB, 2003a).

GASBS No. 50: In May 2007, the Board issued GASBS No. 50 (Pension Disclosures—an amendment of GASB Statements No. 25 and No. 27). It amends GASBS No. 25 to require defined benefit pension plans and defined contribution plans to disclose in the notes to financial statements the methods and assumptions used to determine the fair value of investments, if the fair value is based on other than quoted market prices. GASBS No. 50 amends GASBS No. 27 to require cost-sharing employers to include, in the note disclosure of the required contribution rates of the employer(s) in dollars and the percentage of that amount contributed for the current year and each of the two preceding years, how the contractually required contribution rate is determined (i.e., by statute or by contract, or on an actuarially determined basis) or that the cost-sharing plan is financed on a pay-as-your-go basis (GASB, 2007c).

GASBS No. 50 was issued on the heels of the San Diego unfunded pension debacle. San Diego might have gone on unchallenged indefinitely had it not been for one of its pension trustees, Dianne Shipione, who blew the whistle, eventually forcing the city to correct the financial disclosures it had made in connection with an impending bond sale (Walsh, 2006). An independent audit committee was established by San Diego's City Council in March 2005 to evaluate previous investigative reports into the city's pension system and perform any additional investigative steps necessary to uncover relevant facts and reach conclusions about the city's financial management. The members of the Audit Committee included Arthur Levitt, former chairman of the SEC, Lynn E. Turner, former chief accountant of the SEC, and Troy A. Dahlberg, national director of forensic accounting and litigation consulting for Kroll, Inc. An independent investigation was required by the city's external auditor, KPMG LLP, in order to complete its audit of the city's 2003 financial statements.

Following a one and a half year investigation, a report was issued by the Audit Committee on 8 August 2006. According to the report (Dahlberg et al., 2006), ‘Many branches of City government contributed to the City's repeated issuance of false and misleading statements to the investing public. No office, however, failed the City and its investors more than the Office of the City Auditor and Comptroller. Worse, the conduct of City Auditor and Comptroller Ed Ryan and his second-in-command, Terri Webster, cannot be written off to incompetence. The evidence suggests that Mr. Ryan and Ms. Webster acted deliberately: they both knew of the City's looming pension crisis . . . As the heads of the Office, Mr. Ryan and Ms. Webster, were ultimately responsible for the preparation, review, and final approval of the CAFRs. Mr. Ryan and Ms. Webster, were at the centre of the decisions to underfund the pension system . . . Year after year, Mr. Ryan and Ms. Webster approved CAFRs containing false and misleading statements and significant omissions concerning these matters  . . . Notwithstanding these false statements and material omissions, Ed Ryan signed each CAFR for the years ending June 30, 1996 through June 30, 2002’ (pp. 215–16).

According to the Audit Committee's report, among the laws violated were the California Constitution, the San Diego City Charter, the San Diego Municipal Code, and the federal securities laws. The report asserts that ‘the sheer magnitude of the City's presently known financial liabilities for such costs as pensions, retiree healthcare and deferred maintenance is staggering . . . This will have significant consequences as the City simultaneously grapples with a retirement system that is underfunded by as much as $1.4 billion, and a healthcare obligation to present and former employees of approximately $1 billion, according to recent estimates’ (Dahlberg et al., 2006, p. 254).33, 34

Special Assessments (GASBS No. 6)

GASBS No. 6: In January 1987, the Board issued GASBS No. 6 (Accounting and Financial Reporting for Special Assessments). It establishes accounting and financial reporting standards for capital improvements and services financed by special assessments. Transactions of a service-type special assessment should be reported in the fund type that best reflects the nature of the transactions, usually the general fund, a special revenue fund, or an enterprise fund, giving consideration to the ‘number of funds’ principle. Service-type special assessment revenues should be treated like user fees. Assessment revenues and expenditures/expenses for which the assessments were levied should be recognized on the same basis of accounting as that normally used for that fund type (GASB, 2003a).

Advanced Refundings Resulting in Defeasance of Debt (GASBS Nos 7 and 23)

GASBS No. 7: In March 1987, the Board issued GASBS No. 7 (Advance Refundings Resulting in Defeasance of Debt). It provides guidance on accounting for advance refundings resulting in defeasance of debt recorded in the general long-term debt account group. In an advance refunding transaction, new debt is issued to provide monies to pay interest on old, outstanding debt as it becomes due, and to pay the principal on the old debt either as it matures or at an earlier call date. An advance refunding occurs before the maturity or call date of the old debt, and the proceeds of the new debt are invested until the maturity or call date of the old debt. Most advance refundings result in defeasance of debt (legal or in-substance). A legal defeasance occurs when debt is legally satisfied based on certain provisions in the debt instrument even though the debt is not actually paid. An in-substance defeasance occurs when debt is considered defeased for accounting and financial reporting purposes, even though a legal defeasance has not occurred. When debt is defeased, it is no longer reported as a liability on the face of the balance sheet; only the new debt, if any, is reported as a liability. Among other things, the economic gain or loss on the refunding should be disclosed. The economic gain or loss is the difference between the present value of the old debt service requirements and the present value of the new debt service requirements, discounted at theeffective interest rate of the new debt and adjusted for additional cash paid (GASB, 2003a).

GASBS No. 23: In December 1993, the Board issued GASBS No. 23 (Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities). It makes disclosures required in GASBS No. 7 applicable to current refundings reported by proprietary activities. It establishes standards of accounting and reporting for current refundings and advance refundings resulting in defeasance of debt reported by proprietary fund activities. GASBS No. 23 requires that the difference between the reacquisition price and the net carrying amount of the old debt be deferred and amortized as a component of interest expense over the remaining life of the old debt or the new debt, whichever is shorter (GASB, 2003a).

Depreciation (GASBS No. 8)

GASBS No. 8: Depreciation was another topic which led to a dispute between the GASB and the FASB. The FASB issued its FASBS No. 93 (Recognition of Depreciation by Not-for-Profit Organizations) in August 1987, effective for fiscal years beginning after 15 May 1988, with earlier application encouraged. Without GASBS No. 8 (Applicability of FASB Statement No. 93, ‘Recognition of Depreciation by Not-for-Profit Organizations,’ to Certain State and Local Governmental Entities), those governmental entities, such as certain colleges and universities, that had adopted one of the AICPA specialized industry pronouncements would have been required to adopt FASBS No. 93. The GASB concluded that there was no compelling reason warranting implementation by governmental entities. In response, the Board issued GASBS No. 8 in January 1988, effective on issuance. GASBS No. 8 specified that governmental colleges and universities and other governmental entities which use certain specialized industry accounting and reporting principles and practices should not change their accounting and reporting for depreciation of capital assets as a result of FASBS No. 93. However, governmental colleges and universities were not precluded from depreciating their capital assets under an option permitted by the AICPA Industry Audit Guide (GASB, 2003a).

Statement of Cash Flows (GASBS No. 9)

GASBS No. 9: In November 1987, the FASB issued Statement No. 95 (Statement of Cash Flows), which superseded APB Opinion No. 19 (Reporting Changes in Financial Position). It required a statement of cash flows in lieu of a statement of changes in financial position. The release of FASB Statement No. 95 caused some to question whether its existence invalidated the GASB Codification reference to Opinion 19. The GASB concluded that if it took no action regarding FASB Statement No. 95, Opinion 19 would continue to apply to proprietary and trust funds. However, some preparers believed that proprietary funds were to be presented using a statement of cash flows. To resolve the confusion over the applicability of FASB Statement No. 95, the Board issued GASBS No. 9 (Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting) in September 1989. It required a statement of cash flows, instead of a statement of changes in financial position, as part of the statements for all proprietary and nonexpendable trust funds and governmental entities that use proprietary fund accounting. It exempted public employee retirement systems and pension trust funds from the requirement to present either a statement of cash flows or a statement of changes in financial position (GASB, 2003a).

Risk Financing (GASBS Nos 10 and 30)

GASBS No. 10: In November 1989, the Board issued GASBS No. 10 (Accounting and Financial Reporting for Risk Financing and Related Insurance Issues). It established accounting and reporting standards for risk financing and insurance-related activities of state and local governmental entities, including public entity risk pools.³⁵ The risks of loss included within the scope of GASBS No. 10 include torts; theft of, damage to, or destruction of assets; business interruption; errors or omissions; job-related illnesses or injuries to employees; acts of God; and any other risks of loss assumed under a policy or participation contract issued by a public entity risk pool. Also included are risks of loss that occur when an entity agrees to provide accident and health, dental, and other medical benefits to its employees (GASB, 2003a).

GASBS No. 30: In February 1996, the Board issued GASBS No. 30 (Risk Financing Omnibus—an amendment of GASB Statement No. 10). It amends GASBS No. 10 for public entity risk pools and for entities other than pools. For public entity risk pools, GASBS No. 30 modifies the method for calculating a premium deficiency, and it requires recognition of a premium deficiency liability and expense for the amount by which the premium deficiency exceeds unamortized acquisition costs. It also requires disclosure in the notes to the financial statements about the type of reinsurance or excess insurance coverage for certain claims costs, and requires presentation of gross, ceded, and net premiums and claims costs in the 10-year revenue and claims development information. For entities other than pools, GASBS No. 30 includes specific, incremental claim adjustment expenditures/expenses and estimated recoveries (such as salvage and subrogation) in the determination of the liability for unpaid claims (GASB, 2003a).

Financial Reporting Model Project (GASBS Nos 11, 14, 17, 34, 35, 37, 38, 39, 41, 42, 44, 46, 51, and 54)

The most ambitious project from the Board's original 1984 agenda was the financial reporting model (GASB, 1984). The financial report model was identified as Project No. 3 with five phases identified as 3-1 to 3-5 (GASB, 1984). The financial reporting model was a long-range project intended to result in standards that ultimately met the objectives of financial reporting. It took fifteen years to complete the financial report model project (1984–99).

The purpose of the first phase was to identify the users of governmental financial reports (3-1). To that end, the GASB commissioned a study, which was conducted by Jones et al. (1985); three primary user groups were identified—those to whom government is accountable (citizens), those who directly represent the citizens (legislative and oversight bodies) and those who lend funds to government or who participate in the lending process (investors and creditors).

The purpose of the second phase was to identify the financial reporting objectives for developing an appropriate conceptual framework for revising the reporting model (3-2); phase two was completed in May 1987 with the issuance of GASBCS No. 1 (Objectives of Financial Reporting). It states that ‘accountability is the cornerstone of all financial reporting in government’ (GASB, 2003a, p. 7018). GASBCS No. 1 is based on the transfer of responsibility for resources or actions from the citizenry to another party, such as the management of a governmental entity (GASB, 2003a).

The purpose of the third phase was the re-examination of NCGA Statements 3 and 7 and the establishment of standards for defining the financial reporting entity (3-3). It was completed in June 1991, with the issuance of GASBS No. 14 (The Financial Reporting Entity).

The purpose of the fourth, and most ambitious, phase of the financial reporting project (3-4) was the development of a comprehensive financial reporting model, but this phase of the project was not accomplished without some major setbacks (GASB, 2003a). It was realized in June 1999, with the issuance of GASBS No. 34 (Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments) and several subsequent pronouncements.

The purpose of the fifth (3-5) phase was to update the disclosure standards for service level and statistical data (GASB, 1984), which was addressed, in part, by several standards issued by the GASB, most notably GASBS No. 34 (GASB, 2003a) and GASBS No. 44.

GASBS No. 11: The founding Board believed that a measurement focus was fundamental to the overall re-examination of the governmental financial reporting model; thus, the thinking of the Board was that the reporting model phase of Project 3 should be addressed in two steps—establishing an accrual measurement focus and developing the reporting model. On 15 December 1987, the Board issued an Exposure Draft (E-10, Measurement Focus and Basis of Accounting—Governmental Funds) proposing that governmental funds use a flow of financial resources measurement focus for both the operating statement and the balance sheet. Because of unresolved issues in the financial reporting project and changes made in the 1987 Exposure Draft (E-10) for tax revenue recognition issues, the Board issued a ‘revised’ Exposure Draft (E-13, Revised, Measurement Focus and Basis of Accounting—Governmental Fund Operating Statements) on 14 August 1989.³⁶ The founding Board worked on the measurement project for six years. In May 1990, GASBS No. 11 (Measurement Focus and Basis of Accounting—Governmental Fund Operating Statements) was adopted, by unanimous vote.³⁷ Implementation was delayed until periods beginning after 14 June 1994 in order to complete the reporting model because of the need for simultaneous implementation with other pronouncements (GASB, 2003a).

GASBS No. 11 established the measurement focus (the what) and basis of accounting (the when) standards for governmental and expendable trust fund operating statements. Measurement focus refers to what is expressed in reporting financial performance and position. A particular measurement focus is accomplished by considering which resources are measured and when the effects of the transactions involving those resources are recognized (basis of accounting). GASBS No. 11 also established the basic principles needed to develop guidance in other projects, especially certain expenditure recognition and measurement standards that were to be implemented at the same time as GASBS No. 11, and specific guidance for government fund transactions, primarily revenues. It provided guidance for balance sheet reporting of general long-term capital debt—liabilities resulting from capital asset acquisitions or debt financing of certain nonrecurring activities that have long-term economic benefit (GASB, 2003a).

GASBS No. 14: In June 1991, the Board issued GASBS No. 14 (The Financial Reporting Entity). GASBS No. 14 establishes standards for defining and reporting on the financial reporting entity. It applies to financial reporting by primary governments, governmental joint ventures, jointly governed organizations, and other stand-alone governments; and it applies to the separately issued financial statements of governmental component units (GASB, 2003a).

The financial reporting entity consists of: (a) the primary government; (b) organizations for which the primary government is financially accountable; and (c) other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete (GASB, 2003a).

The definition of the reporting entity is based primarily on the notion of financial accountability. A primary government is financially accountable for the organizations that make up its legal entity. It is also financially accountable for legally separate organizations, if its officials appoint a voting majority of an organization's governing body and either it is able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or to impose specific financial burdens on, the primary government (GASB, 2003a).

Some organizations are included as component units because of their fiscal dependency on the primary government. An organization is fiscally dependent on the primary government if it is unable to adopt its budget, levy taxes or set rates or charges, or issued bonded debt without approval by the primary government. The statements of the reporting entity generally should allow the users to distinguish between the primary government and its component units. Most component units should be included in the financial reporting entity by discrete presentation (GASB, 2003a).

Some component units, despite being legally separate from the primary government are so intertwined with the primary government that they are, in substance, the same as the primary government and should be reported as part of the primary organizations. That is, the component unit's balances and transactions should be reported in a manner similar to the balances and transactions of the primary government itself. This method of inclusion is known as blending (GASB, 2003a).

GASBS No. 17: During its six-year tenure, the founding Board had been able to achieve consensus on 11 of its first 13 statements issued,³⁸ including GASBS No. 11; but a new board and a new era had arrived, and 1992 and 1993 proved to be a contentious period for the GASB. Whether the founding Board was able to achieve true consensus, or whether it suffered from group-think, or somewhere between the two extremes, the 1993 Board was unable to reach a consensus about the 1994 implementation of GASBS No. 11. Two schools of thought prevailed; new board members believed that GASBS No. 11 should not be implemented before the financial reporting model was complete, while the remaining founding board members believed that implementation of GASBS No. 11 was crucial. No doubt, the founding board members believed in their previous work, and from 1990 to 1992, ‘nearly all of the Board's reporting model resources were devoted to the GASBS 11 implementation project’ (GASB, 2003a, p. 672), but completing the comprehensive reporting model did not progress as expected. The issues surrounding GASBS No. 11 were controversial, so the Board was unable to come to a unanimous agreement about its implementation (GASB, 2003a).

In December 1992, an Exposure Draft (E-21, Measurement Focus and Basis of Accounting–Governmental Fund Operating Statements: Amendment of the Effective Dates of GASB Statement No. 11 and Related Statements) was issued proposing a delay for the implementation of GASBS No. 11, until more definitive progress on the reporting model was achieved; 80 public responses were received and the majority of the respondents felt that GASBS No. 11 should be implemented simultaneously with the reporting model (GASB, 2003a). An accrual measurement model would not be completed for another eight years; and before GASBS No. 11 was implemented, it was superseded in June 1993 with the issuance of GASBS No. 17 (Measurement Focus and Basis of Accounting-Governmental Fund Operating Statements: Amendment of the Effective Dates of GASB Statement No. 11 and Related Statements—an amendment of GASB Statements No. 10, 11 and 13) (GASB, 2003a). It was adopted by a 3–2 vote, with Messrs Freeman and Klasny and Ms Henderson casting affirmative votes and Messrs Antonio and Ives casting the dissenting votes. The affirming members believed that GASBS No. 11 was a piecemeal standard that did not appropriately serve the needs of its users (i.e., it would be appropriate to wait for the reporting model). Dissenting members strongly disagreed, with Messrs. Antonio and Ives arguing that the current measurement model was ‘flawed’ (GASB, 2003a, p. 570) because it failed to recognize significant unpaid expenditures from current-period transactions until future periods. GASBS No. 17 deferred the effective date of GASBS No. 11 to periods beginning approximately two years after an implementation standard was issued (GASB, 2003a).

GASBS No. 34: In January 1997, the GASB issued an Exposure Draft (GE40) on the reporting model. Fifteen years after the GASB was established, by unanimous vote, the Board issued GASBS No. 34 (Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments) in June 1999—the first comprehensive reporting model for state and local governments (GASB, 2003a). GASBS No. 34 requires the following components: (a) management's discussion and analysis (MD&A); (b) government-wide financial statements; (c) fund financial statements; (d) notes to the financial statements; and (e) other RSI (GASB, 2003a).

The reporting model provides an overall state of the government's financial health, not just its individual fund accounts. It changes governmental accounting from a modified accrual basis to an accrual base. In effect, it moves the presentation of financial reports toward the for-profit reporting model. The reporting model provides the most complete information ever available about the cost of delivering services to its citizens. State and local governments will report all capital assets, including information about a municipality's public infrastructure assets (i.e., bridges, roads, storm sewers), in the government-wide statement of net assets and depreciation expense will be recorded in the statement of activities. This is important because prior to GASBS No. 34, capitalization of assets was not required (GASB, 1999).

Implementation of GASBS No. 34 was based on total annual revenues, using a three-tier phase-in period: for larger governments having total annual revenues of $100 million or more, the reporting model must be used for periods beginning after 15 June 2001; for medium-sized governments having total annual revenues of $10 million or more but less than $100 million, the reporting model must be used for periods beginning after 15 June 2002; and for smaller governments having revenues less than $10 million, the reporting model must be used for periods beginning 15 June 2003. For purposes of GASBS No. 34, total annual revenues are defined as all revenues that are not from financing sources of the primary entity's governmental and enterprise funds, except for extraordinary items (GASB, 2003a).

The GASB's legitimacy may be measured by the use of the reporting model. By October 2003, ‘more than 1,500 governments in 43 states’ (GASB, 2003b) had issued early-implementation reports using the new reporting model. By 31 December 2004, ‘more than 3,000 governments had implemented Statement 34 earlier than required’ (FAF, 2005, p.18). The city of Orlando, Florida, implemented GASBS No. 34 for its fiscal year ended 30 September 1999—just three months after the standard was issued (GASB, 2001a). Despite the 9/11 disaster, New York City released its first annual financial report prepared using the new financial reporting model—for its fiscal year ended 30 June 2001—one year earlier than required. In fact, the financial report also included the implementation of the infrastructure reporting requirements of GASBS No. 34 five years earlier than required (GASB, 2001b).

The first state to implement GASBS No. 34 early was Oklahoma with the issuance of its financial report for the fiscal period ended 30 June 2001 (GASB, 2002a). When asked why the state of Oklahoma implemented Statement No. 34 early, the director of state finance, Tom Daxon, stated that ‘GASB 34 is a step toward better accountability to our citizens. Financial statements prepared under Statement 34 can give people a better understanding of the financial condition and operations of the government unit than what they previously may have had access to’ (GASB, 2002b, p. 2). Michigan was the second state to issue its annual report, including infrastructure reporting, for the fiscal period of 30 September 2001, based on early implementation of the new model (GASB, 2002c, 2002d). According to Michigan's state controller, Leon Hank, there were several reasons for implementing early (GASB, 2002d). The State of Michigan ‘brought in a full-time project manager to work on implementation of the Statement, in preparation for the standard's issuance. We also were working on a project to get an AAA credit rating on our bonds, so the implementation of this Statement helped us achieve this objective’ (GASB, 2002d, p. 1). Before GASBS No. 34, ‘analysts at credit rating agencies and bond investment firms were forced to merge the accounts of the separate funds—for example, a general fund, a special revenue fund, a capital projects fund and a debt service fund—to estimate the bottom-line health of the government entity—a task that could give a misleading picture’ (GASB, 2002e, p. 3). Preparers and users view the new reporting model as more relevant, useful and transparent; in short, constituents seem to approve of the new accrual-based financial reporting model.

GASBS No. 35: In November 1999, the Board issued GASBS No. 35 (Basic Financial Statements—and Management's Discussion and Analysis—for Public Colleges and Universities—an amendment of GASB Statement No. 34).³⁹ It amends GASBS No. 34 to include public colleges and universities in the new financial reporting model. It supersedes GASBS No. 15, thereby eliminating the dual reporting models available to public institutions. For the first time, the GASB has established a comprehensive model that will be applied consistently to both state and local governments and public colleges and universities (GASB, 2003a).

GASBS No. 37: In June 2001, the Board issued GASBS No. 37 (Basic Financial Statements—and Management's Discussion and Analysis—for State and local Governments: Omnibus). It amends GASBS No. 21 (Accounting for Escheat Property), which was necessary because of the changes to the fiduciary fund structure required by GASBS No. 34. Escheat property reported in an expendable trust fund in the previous model should now be reported in a private-purpose trust fund under GASBS 34 (GASB, 2003a).

GASBS No. 38: In June 2001, the Board issued GASBS No. 38 (Certain Financial Statement Note Disclosures). It was issued to modify disclosure requirements, establish four additional note disclosures, and rescind the requirement in NCGA No. 1 to disclose the accounting policy for encumbrances (GASB, 2003a).

GASBS No. 39: In May 2002, the Board issued GASBS No. 39 (Determining Whether Certain Organizations Are Component Units—an amendment of GASB Statement No. 14).⁴⁰ It amends GASBS No. 14 to provide additional guidance to determine whether certain organizations for which the primary government is not financially accountable should be reported as component units based on the nature and significance of their relationship with the primary government. Generally, it requires reporting, as a component unit, an organization that raises and holds economic resources for the direct benefit of a governmental unit. Organizations that are legally separate, tax-exempt entities and that meet all of the following criteria should be discretely presented as components units. These criteria are:

Professional judgment must be applied in determining whether the relationship between a primary government and other organizations for which the primary government is not financially accountable and that do not meet these criteria is such that exclusion of the organization would render the financial statements of the reporting entity misleading or incomplete. Those component units should be reported based on the existing blending and discrete presentation requirements of GASBS No. 14 (GASB, 2003a).

GASBS No. 41: In May 2003, the Board issued GASBS No. 41 (Budgetary Comparison Schedules—Perspective Differences). It amends GASBS No. 34 to clarify the presentation requirements for governments with significant budgetary perspective differences related to the general fund and major special revenue funds. These governments are required to present budgetary comparison schedules as RSI based on the fund, organization, or program structure used for its legally adopted budget (GASB, 2003a).

GASBS No. 42: For the first time, GASBS No. 34 requires capital assets, including infrastructure assets, to be reported in the statement of net assets and depreciated over their estimated useful lives. But current standards did not address accounting and reporting requirements should these assets become impaired. To that end, GASBS No. 42 (Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries) was issued in November 2003, effective for periods beginning after 15 December 2004. A capital asset is considered impaired when its service utility has declined significantly and unexpectedly. ‘Impaired capital assets no longer used by the government should be reported at the lower of carrying value or fair value’ (GASB, 2003c, p. 6). Impairment losses on assets that will continue to be used should be measured using one of three methods, which best reflects the diminished utility of the capital asset. The three methods for measuring impairment when capital assets are used by the government include: (a) restoration cost approach, (b) service units approach, and (c) deflated depreciated replacement cost approach (GASB, 2003c, pp. 5–6). ‘The impairment loss should be reported net of the associated insurance recovery when the recovery and loss occur in the same year. Insurance recoveries reported in subsequent years should be reported as a program revenue, nonoperating revenue, or extraordinary item, as appropriate. Insurance recoveries should be recognized only when realized or realizable’ (GASB, 2003c, p. 8).

GASBS No. 44: In May 2004, the Board issued GASBS No. 44 (Economic Condition Reporting: The Statistical Section—an Amendment of NCGA Statement 1), with implementation of statistical reporting for periods beginning after 15 June 2005. GASBS No. 44 is the first standard to address parts of the report other than the basic financial statements and the RSI. It provides guidance on the statistical section required in GASBS No. 34. The statistical section presents detailed information that will assist users with the basic financial statements, notes, and RSI to assess the economic condition of a government (GASB, 2004c). In December 2005, the GASB published an implementation guide to GASBS No. 44, which contains over 120 questions and answers on statistical reporting (GASB, 2005d).

GASBS No. 46: In December 2004, the Board issued GASBS No. 46 (Net Assets Restricted by Enabling Legislation—an amendment of GASB Statement No. 34). GASBS No. 34 required that limitations on the use of net assets imposed by enabling legislation be reported as ‘restricted net assets’. Some governments had difficulty interpreting the requirement that those restrictions be ‘legally enforceable’. GASBS No. 46 resolved this matter by clarifying that a legally enforceable enabling legislation restriction is one that an external party to a government can compel it to honour. It requires governments to disclose the portion of total net assets restricted by enabling legislation (GASB, 2004e).

GASBS No. 51: In June 2007, the Board issued GASBS No. 51 (Accounting and Financial Reporting for Intangible Assets), effective for periods beginning after 15 June 2009. GASBS No. 51 addresses whether and when intangible assets should be considered capital assets for financial reporting purposes and guidance on recognition. The provisions of GASBS No. 51 are required to be applied retroactively based on the implementation criteria specified in GASBS No. 34 (GASB, 2007c).

GASBS No. 51 requires that all intangible assets not specifically excluded by its scope be classified as capital assets.⁴¹ Examples of intangible assets in the governmental arena include easements (the right to use land for a specific purpose, such as building a highway), land use rights (such as the right to use a water source), computer software, patents, and trademarks. GASBS No. 51 identifies an intangible asset as having the following three required characteristics (GASB, 2007c):

GASBS No. 51 also establishes guidance specific to intangible assets related to amortization. Those intangible assets which have no legal, contractual, regulatory, technological, or other factors limiting their useful life should be considered to have an indefinite useful life. For example, a permanent right-of-way easement should be considered to have an indefinite useful life. An intangible asset with an indefinite useful life should not be amortized unless its useful life is subsequently determined to no longer be indefinite due to a change in circumstances (GASB, 2007c).

GASBS No. 54: In March 2008, the Board issued GASBS No. 54 (Fund Balance Reporting and Governmental Fund Type Definitions). GASBS No. 54 is intended to improve the usefulness of information provided about fund balance by providing clearer, more structured fund balance classifications, and by clarifying the definitions of existing governmental fund types. A fund balance is defined as the difference between assets and liabilities in the governmental fund financial statements. It is among the most widely and frequently used information in state and local government financial reports. The new statement establishes a hierarchy of fund balance classifications based primarily on the extent to which a government is bound to observe spending constraints imposed upon how resources reported in governmental funds may be used. It distinguishes fund balance between amounts that are considered nonspendable, such as fund balance associated with inventories, and other amounts that are classified based on the relative strength of the constraints that control the purposes for which specific amounts can be spent. Beginning with the most binding constraints, fund balance amounts will be reported in the following classifications: restricted, committed, assigned, and unassigned. GASBS No. 54 is effective for financial statements for periods beginning after 15 June 2010 (GASB, 2009g).

Other Postemployment Benefits (GASBS Nos 12, 26, 43, and 45)

GASBS No. 12: In May 1990, the Board issued GASBS No. 12 (Disclosure of Information on Postemployment Benefits Other Than Pension Benefits by State and Local Governmental Employers). On an interim basis, GASBS No. 12 required disclosures to be made by all state and local governmental employers that provided postemployment benefits other than pension benefits (OPEB): (a) a description of the benefits provided, employee groups covered, and the employer and participant obligations to contribute; (b) a description of the statutory, contractual, or other authority under which benefit provisions and obligations to contribute are established; (c) a description of the accounting and financing or funding polices followed for those benefits; and (d) the expenditures/expenses for those benefits recognized for the period and certain related data. Except for these disclosures, state and local governmental employers were not required to change their accounting and financial reporting of those benefits until the GASB completed its project on recognition and measurement of OPEB (GASB, 2003a).

GASBS No. 26: One of the most contentious topics addressed by the GASB was accounting and reporting requirements for postemployment healthcare. Demographic trends and rising health care costs have significant economic implications. According to David Walker, former Comptroller General of the General Accounting Office, the number of people who are 65 years or older will double between now and 2035 (Carozza, 2004); thus, the costs of these governmental policies and programs are substantial. In November 1994, the Board issued GASBS No. 26 (Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans), as an interim statement. It was issued at the same time as GASBS No. 25 because postemployment healthcare benefits usually are provided through the same plan as pension benefits. Both pronouncements require pensions and postemployment healthcare administered by the same defined benefit pension plan to be treated as separate plans, consistent with the distinction between pension benefits and OPEB established in GASBS No. 12 (GASB, 2003a).

GASBS No. 43: After addressing the reporting model, the Board issued GASBS No. 43 (Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans) in April 2004 (GASB, 2004b). GASBS No. 43 supersedes GASBS No. 26. Its purpose is to establish uniform financial reporting standards for OPEB plans. It incorporates the measurement and reporting of information by all defined benefit OPEB plans, whether they provide postemployment healthcare or other kinds of postemployment benefits and whether they are administered by a defined benefit pension plan or in some other manner. It attempts to balance the need for improved reporting of information about governmental OPEB plans with the cost of obtaining actuarial valuations in order to estimate accrued OPEB liabilities and annual expense. The approach taken in GASBS No. 43 is consistent with the approach adopted in GASBS No. 25 for pensions (GASB, 2004b).

GASBS No. 45: In June 2004, the Board issued GASBS No. 45 (Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions).⁴² It improves the relevance and usefulness of financial reporting by (a) requiring systematic, accrual-based measurement and recognition of OPEB costs over a period that approximates employees' years of service and (b) providing information about actuarial accrued liabilities associated with OPEB and whether and to what extent progress is being made in funding the plan.⁴³ The approach taken in GASBS No. 45 is consistent with the approach adopted in GASBS No. 27 for pensions (GASB, 2004d).

Operating Leases (GASBS No. 13)

GASBS No. 13: In May 1990, the Board issued GASBS No. 13 (Accounting for Operating Leases with Scheduled Rent Increases). It establishes standards of accounting and reporting by state and local governmental entities for operating leases with scheduled rent increases, regardless of the fund type used to report the lease transactions. Accounting is based on the terms of the lease contract when the pattern of the payment requirements is systematic and rational. The provisions of GASBS No. 13 are effective for leases with terms beginning after 30 June 1990. Entities should recognize operating lease revenue and expenditures/expense using an accrual basis of accounting. For pre-GASBS No. 13 leases, entities should recognize operating lease revenue and expenditures using a modified accrual basis of accounting (GASB, 2003a).

Governmental Colleges and Universities (GASBS Nos 15 and 19)

GASBS No. 15: The GASB also addressed reporting and disclosure issues for governmental colleges and universities in response to the hierarchy conflict with the FASB and the confusion that existed under the current GAAP hierarchy. Some governmental colleges and universities, contrary to the current hierarchy, believed that GASB disclosure requirements did not apply to entities that adopted the AICPA College Guide model. To resolve any confusion, GASBS No. 15 (Governmental College and University Accounting and Financial Reporting Models) was issued in October 1991. It provided guidance on the accounting and reporting models to be used for governmental colleges and universities. GASBS No. 15 specified that governmental colleges and universities should follow either (a) the AICPA College Guide model or (b) the Governmental model. The AICPA College Guide model—the accounting and financial reporting guidance recognized by the AICPA Audit Guide (SOP 74-8)—was modified by all applicable GASB pronouncements cited in Codification Section Co5 (Colleges and Universities of the GASB Codification of Governmental Accounting and Financial Reporting Standards). The Governmental model—the accounting and reporting standards established by NCGA Statement No. 1, as modified by subsequent NCGA and GASB pronouncements (GASB, 2003a).

Pre-GASBS No. 15, the GASB had not previously provided specific guidance on the accounting and reporting model for governmental colleges and universities. While most governmental institutions followed the AICPA College Guide model, the Board recognized that some colleges and universities did not conform completely to the Guide. Based on GASBS No. 15, governmental colleges and universities that did not completely follow the AICPA College Guide model would be required to make significant accounting and financial reporting changes to conform to the Guide's requirements (GASB, 2003a).

GASBS No. 19: After GASBS No. 15 was released, issues were raised regarding the reporting of Pell grants and risk financing activities accounted for in accordance with GASBS No. 10. To resolve these issues, GASBS No. 19 (Governmental College and University Omnibus Statement—an amendment of GASB Statements No. 10 and 15) was issued in September 1993. For Pell grants, GASBS No. 19 is effective for periods beginning after 15 June 1993, and for risk financing activities, it is effective for periods beginning after 15 June 1994. GASBS No. 19 requires governmental colleges and universities that follow the AICPA College Guide model to report Pell grants in a ‘restricted current fund’ and a single fund used to account for risk financing activities as an ‘unrestricted current fund’ (GASB, 2003a).

Other Employee-Related Issues (GASBS Nos 16 (Compensated Absences) and 47 (Termination Benefits))

GASBS No. 16: The Board addressed another employee-related issue in November 1992 with the issuance of GASBS No. 16 (Accounting for Compensated Absences). It provides guidance for the measurement of accrued compensated absences liabilities (i.e., vacation, sick leave, and sabbatical leave) by state and local governmental entities, regardless of the reporting model or fund type used to report the transactions. For governmental and similar trust funds, only the current portion of the liability should be reported in the funds; the remainder of the liability should be reported in the General Long-Term Debt Account Group and compensated absences expenditures should be recognized using a modified accrual basis of accounting (GASB, 2003a).

GASBS No. 47: In June 2005, the Board issued GASBS No. 47 (Accounting for Termination Benefits). GASBS No. 47 establishes accounting standards for termination benefits. It requires employers to recognize a liability and expense for voluntary termination benefits (i.e., early-retirement incentives) when an offer of termination is accepted and the amount can be estimated. A liability and expense of involuntary termination benefits (i.e., severance benefits) should be recognized when a plan of termination has been approved by an individual with appropriate authority and the amount can be estimated (GASB, 2005b).

Healthcare-related termination benefits that are provided as a result of a large-scale, age-related program should be measured at their discounted present values based on projected total claims costs for terminated employees. Employers that provide healthcare-related termination benefits that are not part of a large-scale, age-related termination program are permitted, but not required, to measure the cost of termination benefits based on projected claims costs (unadjusted premiums) for terminated employees (GASB, 2005b).

For termination benefits provided through an existing defined benefit OPEB plan, the provisions of GASBS No. 47 should be implemented simultaneously with the requirements of GASBS No 45. For all other termination benefits, GASBS No. 47 is effective for statement periods beginning after 15 June 2005. In the initial year of implementation, the requirements of GASBS No. 47 should be applied to any previous commitments of termination benefits that remain unpaid at the effective date of the Statement. The cumulative effect of applying termination benefits should be reported as a restatement of beginning net assets, but financial statements for prior periods are not required to be restated (GASB, 2005b).

Environmental Issues (GASBS Nos 18 (Solid Waste) and 49 (Pollution Remediation))

GASBS No. 18: In August 1993, the Board issued GASBS No. 18 (Accounting for Municipal Solid Waste Landfill Closure and Postclosure Care Costs), effective for periods beginning after 15 June 1993. It applies to state and local governmental entities that are required by federal, state, or local laws or regulations to incur closure and postclosure care costs. GASBS No. 18 is based on the 9 October 1991 U.S. Environmental Protection Agency (EPA) rule (Solid Waste Disposal Facility Criteria), which established closure requirements for all municipal solid waste landfills that receive solid waste after 9 October 1991. The EPA rule also established 30-year postclosure care requirements for solid waste received after 9 October 1993 (GASB, 2003a).

GASBS No. 49: Another environmental issue that the GASB tackled dealt with pollution remediation. In November 2006, the Board issued GASBS No. 49 (Accounting and Financial Reporting for Pollution Remediation Obligations), effective for periods beginning after 15 December 2007. It addresses accounting and financial reporting standards for pollution (including contamination) remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups. GASBS No. 49 excludes pollution prevention or control obligations with respect to current operations, and future pollution remediation activities that are required upon retirement of an asset, such as landfill closure and postclosure care and nuclear power plant decommissioning (GASB, 2006c). Once any one of five specified obligating events or circumstances occurs, a government is required to estimate the components of expected pollution remediation outlays and determine whether outlays for those components should be accrued as a liability or, if appropriate, capitalized when goods and services are acquired. Most pollution remediation outlays do not qualify for capitalization and should be accrued as a liability (subject to modified accrual provisions in governmental funds) and expense when a range of expected outlays is reasonably estimable or as an expenditure upon receipt of goods and services (GASB, 2006c).

Proprietary Funds (GASBS Nos 20 and 29)

GASBS No. 20: Another conflict with the FASB that arose concerned proprietary funds and other entities that use proprietary fund accounting. Specifically, the GASB was concerned about FASBS Nos 105 (Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk), 107 (Disclosures about Fair Value of Financial Instruments), and 115 (Accounting for Certain Investments in Debt and Equity Securities). FASBS Nos 105 and 107 required additional disclosures about financial instruments. At that time, if a government had a proprietary fund, it would be required to make FASBS Nos 105 and 107 disclosures about financial instruments. FASBS No. 115 required that certain securities be reported at market value and when it became effective, proprietary activities would be required to change the reported value for financial instruments in proprietary funds but not for similar financial instruments reported in any governmental fund. The GASB did not believe that it was beneficial to have these statements apply to all proprietary activities, but the Board wanted to avoid issuing another ‘negative standard’ (GASBS Nos 4 and 8). GASBS No. 20 (Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting) was issued in September 1993. It provided interim guidance on proprietary activities, pending further research that was expected to lead to the issuance of GASB pronouncements on the accounting and financial reporting model for proprietary activities (GASB, 2003a).

GASBS No. 20 applies to accounting and financial reporting for proprietary activities (proprietary funds and other governmental entities that use proprietary fund accounting, including public benefit corporations and authorities, governmental utilities, and governmental hospital and other healthcare providers). It provided that proprietary activities should apply all applicable GASB pronouncements issued on or before 30 November 1989. However, proprietary activities could elect to apply all FASB statements issued after 30 November 1989, but only by those proprietary activities that elected to apply all FASB pronouncements issued after 30 November 1989. In other words, a proprietary activity should apply none or all (unless they conflicted with or contradicted GASB pronouncements) of the FASB pronouncements issued after 30 November 1989. The Board neither encouraged nor precluded governments from changing accounting and financial reporting methods for proprietary activities; rather, the GASB wanted to prevent governments from ‘picking and choosing’ individual accounting standards (GASB, 2003a).

GASBS No. 29: In August 1995, the Board issued GASBS No. 29 (The Use of Not-for-Profit Accounting and Financial Reporting Principles by Governmental Entities). It further refined GASBS No. 20 and provided interim guidance for proprietary activities that applied the provisions of GASBS No. 20 (para. 7). Specifically, GASBS No. 29 provided that those activities should apply only those FASB statements issued after 30 November 1989 that were developed for business enterprises. They should not apply FASB statements whose provisions are limited to not-for-profit organizations or address issues concerning primarily such organizations (such as FASBS Nos 116 and 117) (GASB, 2003a).

Escheat Property (GASBS No. 21)

GASBS No. 21: In October 1993, the Board issued GASBS No. 21 (Accounting for Escheat Property). It establishes standards for the fund type to be used to report escheat property and for reporting liabilities and interfund transfers relating to escheat property. An escheat is the reversion of property to a governmental entity in the absence of legal claimants or heirs. GASBS No. 21 requires escheat property to be reported in either an expendable trust fund or the fund to which the property ultimately escheats (the ‘ultimate fund’). Escheat revenue should be reduced and a fund liability reported to the extent that it is probable that escheat property will be reclaimed and paid to claimants. Payments to claimants should reduce the liability (GASB, 2003a).

Taxpayer-Assessed Tax Revenues (GASBS No. 22)

GASBS No. 22: In December 1993, the Board issued GASBS No. 22 (Accounting for Taxpayer-Assessed Tax Revenues in Governmental Funds). It requires revenue from taxpayer-assessed taxes, such as sales and income taxes, net of estimated refunds, to be recognized in governmental funds in the accounting period in which they become susceptible to accrual—that is, when they become both measureable and available to finance expenditures (GASB, 2003a).

Grants and Other Financial Assistance (GASBS No. 24)

GASBS No. 24: In June 1994, the Board issued GASBS No. 24 (Accounting and Financial Reporting for Certain Grants and Other Financial Assistance), effective for periods beginning after 15 June 1995. It establishes accounting and reporting standards for pass-through grants, food stamps, and on-behalf payments for fringe benefits and salaries (GASB, 2003a).

Nonexchange Transactions (GASBS Nos 33 and 36)

GASBS No. 33: In December 1998, the Board issued GASBS No. 33 (Accounting and Financial Reporting for Nonexchange Transactions). It establishes accounting and reporting standards for nonexchange transactions involving financial or capital resources (i.e., most taxes, grants, and private donations). In a nonexchange transaction, a government gives (or receives) value without directly receiving (or giving) equal value in return. The principal issue addressed is the timing of recognition of nonexchange transactions—that is, when governments should recognize nonexchange transactions in their financial statements. It identifies four classes of nonexchange transactions: (a) derived taxes revenues, (b) imposed nonexchange revenues, (c) government-mandated nonexchange transactions, and (d) voluntary nonexchange transactions (GASB, 2003a).

GASBS No. 36: In April 2000, the Board issued GASBS No. 36 (Recipient Reporting for Certain Shared Nonexchange Revenues). GASBS No. 36 removed the exception to the accounting and financial reporting requirements of GASBS No. 33 (para. 28) for government-mandated and voluntary nonexchange transactions. It requires the recipient government to recognize the sharing of those revenues when the provider government recognized the revenues (when underlying exchange occurred). For shared revenues from imposed nonexchange transactions, the recipient government would recognize revenues in the period when resources were required to be used or the first period that use was permitted. The exception may have required the provider and recipient governments to recognize the sharing of revenues at different times. GASBS No. 36 requires governments that receive a portion of another government's derived tax revenues or imposed nonexchange revenues to follow the accounting guidance for government-mandated and voluntary nonexchange transactions. Thus, a government that receives a portion of another government's derived tax or imposed nonexchange revenues should record revenues, and the provider government should record expenditures/expenses, when all eligibility requirements have been met (GASB, 2003a).

Sales and Pledges of Receivables and Future Revenues (GASBS No. 48)

GASBS No. 48: In September 2006, the Board issued GASBS No. 48 (Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues). Governments may exchange an interest in their receivables or future revenues—generally, a single lump sum. Such transactions had become more common, but no single standard was available on how to account for and report these transactions. The reporting issue that needed to be addressed was whether such transactions should be regarded as a sale or as a collateralized borrowing resulting in a liability (GASB, 2006b).

A transaction will be reported as a collateralized borrowing unless the government is no longer actively involved with the receivables or future revenues it has transferred to the other party. GASBS No. 48 sets forth the criteria for determining whether a government continues to be involved. For instance (GASB, 2006b):

If a transaction does not meet the criteria to be a sale (a collateralized borrowing), the government pledging the receivables or future revenues should report the proceeds it receives as a liability, not as revenue. It continues to report pledged receivables as assets and pledged revenues as revenues, as appropriate under GAAP. When the other party to the transaction—the lender—also is a government, it reports a receivable in the amount of the proceeds it gave to the pledging government. The receivable is reduced as it receives the payments from the pledging government (GASB, 2006b).

For a sale of receivables, the government cannot substitute for or reacquire specific receivables without the buyer's consent nor is the government actively involved in the future generation of the revenues. If revenues are derived from grants or contributions, they cannot depend on the government subsequently submitting applications or meeting provisions to maintain eligibility to receive the revenues. Receivables that are sold should be removed from the assets in the selling government's financial statements. When a transaction involving receivables is to be reported as a sale, the difference between the carrying value of the receivables and the proceeds should be recognized as a gain or loss in accrual-based financial statements and as revenue in modified-accrual based governmental fund statements in the period of the sale in the change statements. When a transaction involving future revenues is to be reported as a sale, revenue should be deferred and amortized, except when specific criteria are met (GASB, 2006b).

GASBS No. 48 also provides guidance for sales of receivables and future revenues within the same financial reporting entity. It includes a provision which stipulates that governments should not revalue assets that are transferred between financial reporting entity components. Any assets (of future revenues) sold or donated within the same financial reporting entity should continue to be reported at their current carrying value when those assets or future revenues are transferred. In addition, guidance is provided for recognition of other assets and liabilities arising from a sale of specific receivables or future revenues, including residual interests and recourse provisions. The disclosures pertaining to future revenues that have been pledged or sold are intended to provide financial statement users with information about which revenues will be unavailable for other purposes and how long they will continue to be so (GASB, 2006b).