On June 30, 1999 the GASB passed statement number 34. Statement 34
establishes new accounting requirements for state and local governments that are
scheduled to begin on June 15, 2002. There are three phases scheduled for the
implementation of statement 34, each depending on the size of the government.
The largest governments must meet the requirement first while the smaller
governments have more time to comply with the statement. Statement 34 will
improve the governmental accounting system in many ways. First, statement 34
will create easier to understand financial statements.
This will allow people other than accountants to understand the information
within a government financial statement. Secondly, statement 34 will help city
officials keep track of fixed assets that need to be replaced or improved. This
addition is important because city officials often forget that assets have been
in use for too long, resulting in costly improvements that could be avoided.
Furthermore, statement 34 will allow readers to determine whether the government
has improved since the last fiscal year.
These goals will be accomplished in several ways. First, a management
discussion and analysis (MD&A) statement will be required. Within this
statement, managers will discuss the financial achievements of the governmental
entity during the fiscal year. In this discussion, managers will compare the
current and previous years-financial statements, and inform the reader if there
has been an improvement or deterioration financially. The managers preparing the
MD&A must also explain any significant fluctuation within any major accounts, as
well as, any future event expected to have a major impact upon the said
government.
Another notable change made by statement 34 is the adoption of the full
accrual method. This will greatly change the bottom line of many governmental
entities. Under this system, governments will report all revenues earned in a
given period. This change will give financial statement readers a better idea of
the actual financial position of the government, because all revenues earned
within a given period will be reported. The full accrual method will help
government officials determine if citizens have paid for the benefits that have
been received and if the government’s financial position has changed since the
previous year.
A third important change that statement 34 will usher in is the way
governments report activity in their major funds. Governments will no longer
report their funds in aggregate form. The new model will reclassify funds into
more specific individual fund listings. This change will make it easier to track
specific expenditures while increasing government accountability.
Another substantial change brought about by statement 34 is asset management.
Governments currently record assets at the time of purchase as expenditures. The
new accounting model will force governments to monitor their assets cost and
value on an annual basis. This could prevent major damage to government assets
that could otherwise be neglected, such as sewers and drainpipes.
