FREE ESSAY ON GASB STATE #34

GASB STATE #34

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. 
Governments are having mixed reactions concerning the implementation of GASB No. 34. Some
states, such as Wisconsin, have already implemented the statement while others, hardly
know it exists. The state controller of Wisconsin is sending out a strong message, urging
all states to get an early start. Other states, such as Michigan, already use procedures
similar to those of statement 34. As a result, Michigan plans to have met the
requirements of statement 34 sometime in 2001. The larger states are under the most
pressure, given they have the most to do and the least time to accomplish it. 
In most cases, in order to comply with statement 34 regulations, states will have to
create new accounting software. In addition, because of the new asset management methods
many states will have to value their existing assets. This will require governments to
create new data collection methods.
Many governments find the time constraints difficult, given the Y2K problem is still not
fixed in many states. Governments, especially the larger ones, must really be on top of
things to meet the time requirements of statement 34.
In conclusion, GASB statement No. 34 will improve financial reporting for state and local
governments in many ways. First, the reports will be easier to read and understand. The
management discussion and analysis will give people with little or no accounting
background a good idea of the financial position a government is in. Secondly, the
financial reports will be more accurate. Since the full accrual method will be used,
governments will report all revenues they have earned. Finally, it will be easier to
determine if government money is being spent properly. The new fund system will provide
specific information about where money is being spent. Statement 34 will be a
considerable improvement for state and local governmental accounting.