For the past two years I have had the pleasure of representing ICMA on the Governmental Accounting Standards Advisory Council, the advisory committee to the Governmental Accounting Standards Board (GASB) concerning changes to accounting standards that impact government in the United States.

The following provides a brief overview of recent proposals and standards issued by the GASB that are of particular interest to members of ICMA. Additional information about these and other GASB projects and activities is available at www.gasb.org.

Fund Balance Reporting and Governmental Fund Type Definitions

In early 2009, the GASB issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, which establishes new fund balance classifications that better communicate the financial flexibility of a government. This pronouncement sets forth a new hierarchy of new fund balance classifications primarily based on the extent to which governments are bound to observe constraints imposed upon how they can spend their resources. Statement 54 was designed to improve clarity in the information provided and consistency in how governments interpret and implement the reporting requirements, and should lead to the resulting information being more consistent and comparable across governments.

This statement may have a positive impact on the budgeting process because it will make more readily apparent to governments the constraints that have been imposed on the purposes for which resources can be spent. Because Statement 54 introduces new fund balance classifications into financial  reporting, governments may wish to consider amending existing laws and regulations to adopt the new terminology. Since Statement 54 is effective for periods beginning after June 15, 2010, many governments will soon be implementing the pronouncement for the first time. The GASB is offering implementation guidance to assist governments in this process, in the form of almost 50 questions and answers included in the 2010-11 edition of the Comprehensive Implementation Guide, which will be available in September.

Pension Accounting and Financial Reporting

The comment period on the GASB Preliminary Views on Pension Accounting and Financial Reporting by Employers ends in mid-September. This due process document, which was released in June 2010, is the second issued in the reexamination of the GASB’s pension standards. The board received almost 120 responses to the Invitation to Comment document it issued in the spring of 2009. The GASB’s principal guidance on pensions—Statements No. 25, Financial Reporting for Defined Benefits Pension Plans and Note Disclosures for Defined Contribution Plans,and No. 27, Accounting for Pensions by State and Local Governmental Employers—has been in place for more than a decade.

After studying the existing pension model, the board determined that reexamination was appropriate because it was clear that there were areas in which significant improvements were possible—particularly with respect to transparency in financial reporting, the decision usefulness of pension information, and assisting financial statement users to assess the accountability of state and local governments regarding the commitments made to their employees related to pension benefits.

The preliminary views emphasize that how governments fund their pension plans and how they account for and report the related costs and obligations in their financial reports are separate issues. Governments would not be required to mirror any potential accounting changes in their funding approach. The information that would result from these potential changes should, however, be useful to governments when making compensation decisions.

In October, the Board is holding a series of public hearings to obtain feedback on issues discussed in the preliminary views. Soon afterward, the board will begin discussion of comments received in response to the document. In addition, the board is also deliberating project issues, including plan reporting, disclosures by employers and plans, and defined contribution arrangements.

Service Concession Arrangements

In the summer of 2009, the GASB issued an Exposure Draft, Accounting and Reporting for Service Concession Arrangements, which would establish financial reporting guidance for service concession arrangements (SCAs), which are a type of public-private (or public-public) partnership between governments and private entities (or other governments) for provision of services to the public. Under an SCA, the government conveys the rights and obligations to the private or public entity to provide services through the use of infrastructure and other capital assets—the operation of a toll road, for example—which then collects fees from third party users.

The GASB issued a revised exposure draft in June 2010. The board decided it would be appropriate to issue a revised proposal considering the extent of the changes made to the original exposure draft based on the feedback received from governments and other constituents.

In the original exposure draft, for example, the board proposed that either the government or the public entity would report the revenues and expenses for the service provided in a public-public SCA, depending on which was accountable for the services.

Based on comments received, however, the board reconsidered its original decision, and in the revised exposure draft proposed that the public entity would be required to report all revenues and expenses associated with the operation of the facility, and the government would recognize only its portion of any shared revenues.

While governments may enter into a SCA as a short-term solution that provides a needed infusion of cash, the accounting and financial reporting ramifications can carry well into the future. Though upfront payments may be received in a lump sum, they would not be recognized as revenue right away, but rather spread over the entire life of the agreement.

The comment period on the revised exposure draft ended in August. Redeliberation of issues raised by respondents is scheduled to continue through October. A final statement is expected in November.

Service Efforts and Accomplishments Reporting

In June, after more than twenty years of research and constituent outreach, the GASB issued its Suggested Guidelines for Voluntary Reporting, SEA Performance Information. The Suggested Guidelines for Voluntary Reporting, which was approved unanimously by the board, was developed to assist state and local governments that choose to report service efforts and accomplishments (SEA) performance information to users of governmental financial information. SEA reporting is an important form of general purpose external financial reporting. It communicates information about the results of governmental programs and services to citizen groups, state legislators, city council members, and other users of governmental financial information.

The document provides a common framework for the effective external communication of SEA performance information that is designed to help users assess governmental accountability and make economic, social, and political decisions. At the same time, it is also designed to help governments demonstrate their stewardship over the scarce resources entrusted to them in a more explicit manner.

The Suggested Guidelines are composed of four essential components of an effective SEA report and six qualitative characteristics representing the attributes SEA performance information needs to possess. The document also addresses how to effectively communicate SEA performance information.

The expected goal of SEA reporting itself is to assist users of governmental financial information to evaluate the operational efficiency of the services governments provide and to offer the means to assess governments’ effectiveness in achieving their goals and objectives.

The Financial Reporting Entity (Reexamination of Statement 14)

In March, the GASB issued the exposure draft, The Financial Reporting Entity, an amendment of GASB Statements No. 14 and No. 34. The proposal is designed to improve financial reporting for governmental financial entities to better meet user needs and address reporting entity issues that have come to light since the issuance of those statements in 1991 and 1999, respectively. The comment deadline on the proposal ended in June.

The requirements contained in the proposal are intended to lead to greater relevance in financial statements issued by financial reporting entities by improving the related guidance for including, presenting, and disclosing information about component units and equity interest transactions.

If ultimately adopted, the proposal has significant potential to bring about enhanced consistency in practice and greater comparability across governmental financial statements. There would be greater emphasis on the existence of a financial benefit/burden relationship when considering whether to include component units under the “financial dependency” criteria. It should also be clearer what “misleading to exclude” a component unit from the reporting entity means.

After redeliberation of due process comments, the board is expected to issue a final statement by year-end.

Thank you, and I have enjoyed serving ICMA through this appointment.