Relevance of GASB No. 34 to Financial Reporting by Municipal Governments

2012 ◽  
Vol 27 (2) ◽  
pp. 175-204 ◽  
Author(s):  
Annette K. Pridgen ◽  
W. Mark Wilder
Keyword(s):  
Financial Reporting ◽  
Default Risk ◽  
Data Availability ◽  
Financial Indicators ◽  
Municipal Governments ◽  
Indicator Variable ◽  
Governmental Accounting ◽  
Fund Balances ◽  
Net Assets ◽  
The Government

SYNOPSIS The Governmental Accounting Standards Board issued Statement No. 34, creating a new accrual-based financial reporting model. This study examines whether information from this model is associated with the default risk (a proxy for fiscal distress) of municipal governments and whether this information is incremental to that provided by the fund-based, modified-accrual reporting model. Ordered logistic regressions are used to analyze financial data from 2005 for a sample of 409 municipalities that participated in the Government Finance Officers Association award program. This study extends the work of Plummer et al. (2007) to municipal governments. In addition to the financial position indicator variable (total net assets/total revenues) examined by Plummer et al. (2007), this study provides evidence of the relevance of three other financial indicators (change in net assets/total net assets; total liabilities/total assets; and current assets/current liabilities). We also find that these accrual-based indicators provide information incremental to the fund-based model and that one fund-based measure (total fund balances/total fund revenues) also provides information incremental to the accrual indicator. These results are consistent with perceptions of regulators and others who expect accrual accounting to be a better measure of the economic costs of running a government than the traditional fund-based model. Data Availability: Contact the authors.

GASB No. 34's Governmental Financial Reporting Model: Evidence on Its Information Relevance

2007 ◽  
Vol 82 (1) ◽  
pp. 205-240 ◽  
Author(s):  
Elizabeth Plummer ◽  
Paul D. Hutchison ◽  
Terry K. Patton
Keyword(s):  
School Districts ◽  
Financial Reporting ◽  
Default Risk ◽  
Balance Sheet ◽  
Cash Flows ◽  
Working Capital ◽  
Information Relevance ◽  
Net Assets ◽  
Accrual Basis ◽  
The Government

This study uses a sample of 530 Texas school districts to investigate the information relevance of governmental financial statements published under Governmental Accounting Standards Board Statement No. 34 (GASB No. 34). Specifically, we examine whether the new government-wide statements provide information relevant for assessing a government's default risk, and if this information is incremental to that provided by the governmental funds statements. GASB No. 34 requires governments to publish governmental funds statements prepared on a modified accrual basis, and government-wide statements prepared on an accrual basis. We find that GASB No. 34's Statement of Net Assets (similar to a corporation's balance sheet) provides information relevant for assessing default risk, and this information is incremental to that provided by the governmental funds statements. However, GASB No. 34's Statement of Activities (similar to a corporation's income statement) does not provide information relevant for assessing default risk. The accrual “earnings” measure is not more informative than the modified-accrual “earnings” measure. A government's modified accrual earnings measure can be thought of as a type of measure of changes in working capital. Therefore, our results are consistent with research on corporate entities that attributes the superiority of earnings over cash flows primarily to working capital accruals and not long-term accruals. For our sample of school districts, evidence suggests that total net assets from the government-wide Statement of Net Assets, along with a measure of modified-accrual “earnings” from the governmental funds statement, provide the best information for explaining default risk.

scholarly journals Impact of COVID-19 pandemic on assessment of companies activity within international standards of financial reporting

2021 ◽  
Vol 11/3 (-) ◽  
pp. 32-36
Author(s):  
Raisa TSYHAN ◽  
Oksana ONYSHCHENKO ◽  
Denys SOLODKOV
Keyword(s):  
Financial Reporting ◽  
Default Risk ◽  
Traditional Approach ◽  
Cash Flows ◽  
International Standards ◽  
Global Pandemic ◽  
Net Profit ◽  
Net Assets ◽  
Credit Losses ◽  
A Company

Introduction. During crises like the current one, induced by a global pandemic of the COVID-19, the most relevant aspects for the majority of businesses are a continuity of their operating, assessment for impairment and assessment of expected credit losses. These factors impact accounting and financial reporting which, in turn, impact decision-making. A business survival in such conditions is highly dependent on how efficiently managers assess these aspects. The purpose of the paper is to determine particular actions management should undertake in order to prevent business bankruptcy as a result of the pandemic and the pandemic-related restrictions. Results. It terms of assessment of continuity of business operating, the main issue is the fact that the budgets approved in 2019 for the year 2020 turned to be irrelevant in the context of expected prices, sales volumes, total net profit, working capital and the effects of exchange difference, whereas the key solution is an estimation of a company’s liquidity to be able to cover liabilities within the deadlines. In terms of assessment for impairment, there two indicators of the impairment: external changes with significant impact on a company or its environment and a situation when a book value of net assets exceeds company’s market capitalization whereas a solution is to determine amount of expected compensation either with a traditional approach or with an approach based on expected cash flows. In terms of credit losses assessment, among the factors that should be accounted there are, for instance, additional economic scenarios that address high uncertainty, an impact on particular groups of clients, industries or regions and actions taken by governments and central banks whereas among the targets of the assessment there are, for instance, an ability to include changes of a default risk into evaluation of default probability in time. Conclusions. COVID-19 pandemic and the risks related to it caused a significant impact on accounting and financial reporting, regardless of a company’s industry, size and region where it is located which is expressed in the dynamic of the Global SEMs bankruptcy index and PMI.

HISTORICAL DEVELOPMENT OF THE FINANCIAL REPORTING MODEL FOR STATE AND LOCAL GOVERNMENTS IN THE UNITED STATES FROM LATE 1800s TO 1999

2013 ◽  
Vol 40 (2) ◽  
pp. 21-53 ◽  
Author(s):  
Terry K. Patton ◽  
Paul D. Hutchison
Keyword(s):  
United States ◽  
Financial Reporting ◽  
Local Governments ◽  
Historical Development ◽  
The United States ◽  
Historical Study ◽  
Reporting Standard ◽  
Governmental Accounting ◽  
Fund Balances ◽  
State And Local

This study examines the historical development of the financial reporting model for state and local governments in the United States from the late 1800s through the issuance by the Governmental Accounting Standards Board (GASB) of Statement No. 34 in 1999. This research shows how the current governmental reporting standard evolved over time to meet diverse user needs by presenting both government-wide and fund statements, and requiring three governmental operating statements with potentially three different measurement focuses: the Statement of Activities; the Statement of Revenues, Expenditures, and Changes in Fund Balances; and the Budgetary Comparison Schedule. Overall, this historical study provides unique insights about the development of the governmental reporting model and an appreciation for the reporting requirements of GASB Statement No. 34.

scholarly journals The Application of Accounting Standards in Government Accounting Accrual Basis: Health Laboratory Center for Makassar

2019 ◽  
Vol 9 (4) ◽  
pp. 231
Author(s):  
Andi Asirah ◽  
Andi Ratna Sari
Keyword(s):  
Financial Reporting ◽  
Government Regulation ◽  
Accounting Standards ◽  
Financial Statements ◽  
Accounting System ◽  
Governmental Accounting ◽  
Government Accounting ◽  
Accrual Basis ◽  
The Republic ◽  
The Government

The purpose of this study was to analyze the constraints in the implementation of Government Accounting Standards (SAP) based on the accrual basis as well as to analyze the efforts made to overcome the existing obstacles in the implementation of Government Accounting Standards (SAP) based on the accrual basis. The Indonesian Governmental Accounting Standards Committee (KSAP) has compiled the Government Accounting Standards (SAP) accrual established by Government Regulation Number. 64 of 2013 replacing by the Government Regulation Number 71 of 2010. With the enactment of Government Regulation No. 64 of 2013, the application of accrual-based government accounting standards already have a legal basis. The enactment of Government Regulation No. 64 Year 2013 on Government Accounting Standards (SAP) based on the accrual basis brought major changes in the financial reporting system in Indonesia, which is a change from Cash Basis Accrual Basis Full towards the recognition of government financial transactions. Health laboratory center for Makassar has implemented Cash to Accrual (CTA) in 2011 until 2013.Implemented government accounting standards (SAP) based on the accrual basis in the accrual-based financial statements in 2014 is a qualified opinion (WDP ) acquired by the Health laboratory center for Makassar on The Audit Board of The Republic Indonesia (BPK) audit report on the financial statements 2016 illustrate unmet reasonable levels of information presented for a particular item. From the research will be found two (2) factors; Regional Working Unit (SKPD) Health Laboratory Center for Makassar obstacles encountered in implementing accrual-based government accounting system (SAP), human resources financial managers, and human resource asset managers who often alternated. In this study, researchers found the effort / solution by the Health Laboratory Center for Makassar on obstacles in implementing accrual-based SAP in the preparation of financial statements, namely: education and training.

scholarly journals Response to the GASB Invitation to Comment on Financial Reporting Model Improvements—Governmental Funds (Project No. 3-25I)

2018 ◽  
Vol 7 (1) ◽  
pp. 87-96 ◽  
Author(s):  
Dara Marshall ◽  
Mary L. Fischer ◽  
Renee Flasher ◽  
Amy Foshee Holmes ◽  
Carol M. Jessup ◽  
...  
Keyword(s):  
Financial Reporting ◽  
Current Model ◽  
Data Availability ◽  
Time Dimension ◽  
Operating Cycle ◽  
Financial Reports ◽  
Governmental Accounting ◽  
Term Model ◽  
Near Term ◽  
One Year

ABSTRACT The Governmental Accounting Standards Board (GASB) has been actively engaged in the process of making improvements to the financial reporting model to provide more useful information to the users of the financial reports of governmental entities. The GASB proposed three recognition approaches to replace the current financial resources reporting model for governmental funds. The three approaches vary along a time dimension. The “near-term” model is the most similar to the current model with a specified reporting period of 60–90 days. A “short-term” model extends the transaction reporting to be the government's one-year operating cycle. Finally, a “long-term” model would report both current and noncurrent assets and liabilities for governmental funds. Data Availability: Details regarding the GASB project can be found on its website at: https://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176168729663&acceptedDisclaimer=true.

scholarly journals Response to the GASB's Invitation to Comment on Revenue and Expense Recognition: Project No. 4-6I

2018 ◽  
Vol 7 (1) ◽  
pp. 97-103
Author(s):  
Dara Marshall ◽  
Nancy Chun Feng; ◽  
Mary L. Fischer; ◽  
Renee Flasher; ◽  
Amy Foshee Holmes; ◽  
...  
Keyword(s):  
Decision Making ◽  
Conceptual Framework ◽  
Financial Reporting ◽  
Task Force ◽  
Accounting Standards ◽  
Data Availability ◽  
Future Research ◽  
Comprehensive Model ◽  
Governmental Accounting ◽  
Subsequent Phase

ABSTRACT The objective of the Governmental Accounting Standards Board's (GASB) Revenue and Expense Recognition Project is to develop a comprehensive model for classification, recognition, and measurement of revenues and expenses for governmental entities. A conceptual framework would provide a basis for evaluating revenue and expense recognition, provide guidance regarding exchange and exchange-like transactions that have not been specifically addressed, and improve the consistency of financial reporting for decision making and the assessment of accountability. The GASB issued an Invitation to Comment (ITC No. 4-6I) in January 2018 to seek feedback regarding the classification and recognition of revenue and expense transactions, excluding the issue of measurement as it will be addressed in a subsequent phase of the project. The GASB proposed two models developed by a task force at an earlier stage in the project: an exchange/nonexchange model and a performance obligation/no performance obligation model. This commentary provides the response submitted to the GASB from the Accounting and Auditing Standards Committee of the Governmental and Nonprofit Accounting Section of the American Accounting Association. In addition, directions for future research are discussed. Data Availability: Details regarding the GASB project can be found on its website at: https://www.gasb.org/jsp/GASB/Document_C/DocumentPage?cid=1176169978401&acceptedDisclaimer=true

Tax Effects of Book-Tax Conformity, Financial Reporting Incentives, and Firm Size

2013 ◽  
Vol 12 (2) ◽  
pp. 1-25 ◽  
Author(s):  
K. Hung Chan ◽  
Kenny Z. Lin ◽  
Feng Tang
Keyword(s):  
Financial Reporting ◽  
Small Firms ◽  
Reporting Quality ◽  
Unintended Consequences ◽  
Data Availability ◽  
Policy Position ◽  
Cross Sectional ◽  
Tax Effects ◽  
Reporting Incentives ◽  
The Government

ABSTRACT This study employs a natural experiment to examine the tax effects of a change in the level of conformity between tax and financial reporting in China for firms with different financial reporting incentives. We find that in a full book-tax conformity system, firms with incentives to report higher book income pay significantly higher income tax (per dollar of sales) than do firms without the same incentives. Although we do not find similar evidence in a non-conformed system, we observe cross-sectional variation in taxes paid by firms of varying sizes: by exploiting non-conforming financial reporting rules to a greater extent, large firms pay proportionately lower taxes than do small firms. To improve financial reporting quality, many countries have adopted International Financial Reporting Standards (IFRS) that may affect book-tax reporting differences. Our results suggest that this policy alternative is less desirable from a tax perspective. Therefore, accounting standard setters and securities regulators around the world should consider not only how such a change is intended to benefit capital markets, but also what unintended consequences this policy choice might have for government revenue. Our results also strengthen the government policy position on giving more tax relief to small firms. Data Availability: All data are available from public sources.

scholarly journals Government Reporting Timeliness and Municipal Credit Market Implications

2016 ◽  
Vol 5 (1) ◽  
pp. 1-24 ◽  
Author(s):  
Trent S. Henke ◽  
John J. Maher
Keyword(s):  
Financial Reporting ◽  
Credit Market ◽  
Financial Statements ◽  
Data Availability ◽  
Publicly Traded ◽  
Bond Ratings ◽  
Municipal Governments ◽  
Market Effects ◽  
Negative Capital ◽  
Market Consequences

ABSTRACT Municipal governments are often very slow in producing and disclosing financial statements, with the average time for filing compulsory statements taking over twice as long as the SEC-mandated time for publicly traded corporations. There are typically no governmental rules or explicit penalties connected with extended financial reporting. We propose this delay in reporting is likely to have negative capital market effects for the municipality and we investigate the credit market consequences of delayed reporting. Our empirical results are consistent with delayed reporting resulting in lower bond ratings for municipalities indicating a negative interpretation by bond rating analysts. Furthermore, we also find a higher yield for the government's bonds consistent with bond market investors also viewing this delay as a negative signal with respect to the particular government entity. Our results add to the literature on government reporting as well as the literature regarding the determinants of government bond pricing. JEL Classifications: G12; G18; H11; H74; H83. Data Availability: Data are available from sources identified in the article.

Enterprise Performance Analysis of the Selected Service Sector by Applying Modern Methods with an Emphasis on the Creation and Application of the Modified Creditworthy Model (MCWM)

2018 ◽  
Vol 9 (17) ◽  
Author(s):  
Erika Onuferová ◽  
Veronika Čabinová
Keyword(s):  
Service Sector ◽  
Prediction Models ◽  
Economic Value ◽  
Value Added ◽  
Financial Indicators ◽  
Tourism Sector ◽  
Future Success ◽  
Financial Growth ◽  
Net Assets ◽  
Third Dimension

The aim of presented paper was to create and subsequently apply the Modified 3D Creditworthy Model (MCWM) of performance reflecting sectoral characteristics and financial specificities of the selected sample of Slovak tour operators over the years 2013 – 2017. The intention of this research study was to implement the key financial indicators and appropriate prediction models into both dimensions of the traditional 2D Creditworthy Model of performance and to supplement its third dimension applying the selected modern assessment methods – the Economic Value Added and the Return On Net Assets as we consider them to be one of the most important indicators of future success and company's financial growth. This modification will help to better identify the current financial position of tour operators and more accurately identify causes that hinder the development of financial performance of the selected sample of enterprises. However, after adjusting the upper and lower quartile averages of a particular industry, this methodology is applicable in the wider context of enterprises, not only those operating in the tourism sector.

Does the Mandatory Adoption of IFRS Improve the Association between Accruals and Cash Flows? Evidence from Accounting Estimates

2018 ◽  
Vol 33 (1) ◽  
pp. 39-59
Author(s):  
Jimmy F. Downes ◽  
Tony Kang ◽  
Sohyung Kim ◽  
Cheol Lee
Keyword(s):  
Financial Reporting ◽  
Cash Flows ◽  
Data Availability ◽  
The European Union ◽  
Accounting Quality ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Accounting Estimates ◽  
Accounting Accruals ◽  
Future Cash Flows

SYNOPSIS We investigate the effect of mandatory International Financial Reporting Standards (IFRS) adoption in the European Union on the association between accounting estimates and future cash flows, a key concept of accounting quality within the International Accounting Standard Board conceptual framework. We find that the predictive value of accounting estimates improves after IFRS adoption. This improvement is largely driven by specific types of accounting estimates, such as accounts receivable, depreciation, and amortization expense. We also find that the improvement is concentrated in countries with larger differences between pre-IFRS domestic GAAP and IFRS. Our findings suggest that IFRS allow managers to exercise their judgment to provide information about future cash flows through the more subjective/judgmental portion of accounting accruals. JEL Classifications: M16; M49; O52. Data Availability: The data used in this study are from public sources identified in the study.

Sign in / Sign up

Export Citation Format

Share Document