JUST WHAT IS GASB 34 AND HOW DOES IT AFFECT ME?
What Is GASB 34?
In 1999, the Governmental Accounting Standards Board (GASB) issued its Statement No. 34, Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Governments. This statement establishes new and more comprehensive accounting and financial reporting standards for government entities that issue annual financial statements. The new standard basically changes the way financial condition and results of operation for a government are reported through changing the format and content of the annual financial statements. GASB 34 is one of the accounting principles that makes up generally accepted accounting principles (GAAP).
There is no federal or state law at the current time that requires an Oklahoma municipality to present their annual financial statements in accordance with GAAP. However if a municipality wants comprehensive and comparable annual financial statements in accordance with GAAP or an other comprehensive basis of accounting, andit intends to issue a complete set of financial statements, the applicable provisions of GASB 34should be implemented.However, there is no legal requirement to implement GASB 34 or other GAAP. If not implemented, the auditor’s opinion on the financial statements will be qualified to inform the readers that the financial statements are not presented in accordance with the appropriate principles.
The most significant changes arising from GASB 34 are in the form of financial reporting changes, not internal accounting changes. While the new provisions of GASB 34 can have an impact on several parties, including the municipality, its outside accounting firm and its financial statement auditor, the primary impact will be on the party that prepares the annual financial statements.
How Does GASB 34 Impact Municipalities?
In Oklahoma at the present time, only a handful of municipalities (such as Oklahoma City, Tulsa, Lawton, and Stillwater) prepare their own annual financial statements with City employees. In the remaining municipalities, the annual financial statements are prepared by an external accountant or accounting firm. As a result, in these remaining municipalities,the most significant impact of GASB 34 will be on the accountant or firm hired to prepare the municipality’s annual financial statements.
In the past, the financial statements have been prepared by the same accountant or firm that audits the statements. In most small governments, considering the new post-Enron independence requirements for auditors, this preparation process will likely be separated, and one accountant or firm will be required to draft the financial statements, while another accountant or firm conducts the audit of those statements.
The GASB 34 impact on the municipality will be minimized if it continues to hire an outside accountant or firm to prepare the annual financial statements.Considering the new complexities of GASB 34, most municipalities will have to continue to have an external accountant or firm prepare its financial statements. As a result, the municipality will likely have to make only a few changes to implement the new standard.
The following is a summary of the impact GASB 34 will have on a municipality that hires an external accountant or firm to prepare its annual financial statements:
- If the municipality reports capital assets, such as land, buildings, equipment and the like, GASB 34 now requires general infrastructure (such as streets, roads, bridges, drainage systems, and traffic signal systems to be reported). However, this requirement only applies to infrastructure acquired after 1980 and this accounting requirement can be phased in over a four–year period from the date GASB 34 must be implemented.
- The municipality must now add a Management’s Discussion and Analysis (MD&A) to the annual financial statements. The MD&A is a narrative summary of the financial condition and changes therein that facilitates better understanding of the annual report. If the municipality hires an external accountant or firm to prepare the financial statements, the MD&A can also be prepared by them.
- Finally, the municipality should expect an increase in the financial statement preparation fees from either the external accountant or firm hired to prepare the statements or their auditor (ranging from 20-30%) and an increase in the time it takes to prepare the annual financial statements in the year of implementation of GASB 34.
How Does GASB 34 Impact Municipal Auditors?
If the municipality’s financial statement auditor also prepares the financial statements, GASB 34 will increase their time and cost to prepare the statements at year end. If the financial statements are prepared by in-house by municipal employees or by another accountant or firm hired by the municipality, the auditor will not bear this increase in time or cost.
The auditor will have some new audit responsibilities when auditing GASB 34 financial statements, primarily involving the added audit tasks over general infrastructure assets as reported, auditing the various financial statement reconciliations within the new statements, auditing the major fund determinations, and in performing certain limited procedures over the new MD&A.
Even assuming the auditor is not the financial statement preparer as previously discussed, audit fees are still likely to increaseas a result of these new audit responsibilities.
When Should It Be Implemented?
If the municipality elects to implement GASB 34, the requirements are to be phased in over a three-year period beginning the fiscal year that ends June 30, 2002.
- For large governments like the State of Oklahoma, the City of Oklahoma City and others that reported more than $100,000,000, in governmental and enterprise fund revenue combined in the June 30, 1999 fiscal year, GASB 34 was required to be implemented for the fiscal year from July 1, 2001 throughJune 30, 2002.
- For medium-size municipalities such as the City of Edmond, Stillwater and others with FY 99 applicable combined revenues of between$10,000,000 and $100,000,000, GASB 34 was required to be implemented for the fiscal year from July 1, 2002 through June 30, 2003.
- For smaller municipalities such as the City of Walters, the Town of Hennessey and others with FY 99 applicable combined revenues of under$10,000,000, GASB 34 is required to be implemented for the fiscal year from July 1, 2003 through June 30, 2004.
Should you need more information about GASB 34 or have specific questions, feel free to visit the GASB 34 section of the website of Crawford & Associates, P. C. at or the web site of the Governmental Accounting Standards Board at .