GASB 34

The Governmental Accounting Standards Board  (GASB) is an independent, not-for-profit  organization that was organized in 1984 as an operating entity of the Financial Accounting  Foundation (FAF). The GASB’s role is to  establish standards of financial accounting and  reporting for state and local governmental  entities. While the GASB technically has no  legislative authority, its standards are widely  recognized as the guide for preparing external financial reports for state and local governments.

In June 1999, the GASB adopted GASB  Statement 34, which contained sweeping changes  for financial reporting. Known as Statement No.  34: Basic Financial Statements—and  Management’s Discussion and Analysis—for  State and Local Governments, these changes represented a fundamental revision of the financial reporting model which had been in place since 1979. While there were a number of significant changes in financial  reporting under GASB Statement 34, probably the most major one was the presentation of government-wide financial statements.

Government-wide statements are consolidated financial statements for all of a county’s operations on a full accrual basis of accounting—accounting that is similar  to what is used by many businesses and not-for-profits. The intent of these statements is to provide the “big picture” of a county’s financial position and  operations as a whole.

Under GASB Statement 34 the statements are not presented on a fund basis. Instead, fiscal operations are organized into two major activities: governmental and business-type. The statements have a “net asset” focus and exclude fiduciary funds and interfund transactions (such as internal service funds). Expenses are shown both  gross and net of related revenues (such as fees and grants). Sample government-wide financial statements.  

Financial statements also are presented on a fund basis, in a similar way as they  were before GASB Statement 34. Emphasis is given to “major” (i.e. larger)  funds. Governmental funds do not use the same basis of accounting as the  government-wide statements (i.e. modified accrual or current financial basis). Sample fund financial statements.  

Because there are differences in the basis of accounting and scope of  transactions, there are significant differences between the fund and  government-wide financial statements. For this reason, a detailed reconciliation between these two types of statements is required as part of the basic financial  statements. In Tennessee, the county’s independent, external auditor typically  prepares this reconciliation as well as the draft financial statements. This service is purely technical in nature as the financial statements are derived from financial data prepared and provided by county accounting personnel. The appropriate county  officials also must take responsibility for the accuracy of the prepared financial  statements.

The independent auditor, as in the past, typically prepares the financial statements from a county’s current accounting records. However, county  management is required to prepare and maintain additional financial information. Without this additional information, it is impossible to prepare  financial statements that comply with GASB Statement 34.

While GASB encouraged early implementation, it required even the smallest  Tennessee county to comply with Statement 34 (except for retroactive capitalization  of infrastructure assets) by the end of the fiscal year that ended June 30, 2004.  After this date, any Tennessee county that was not compliant with GASB Statement  34 received an adverse audit opinion on their financial statement audit for failure to  comply with Generally Accepted Accounting Principles (GAAP). In May 2005, the  Tennessee General Assembly passed into law the Local Government Modernization  Act of 2005. This act allowed financial penalties to be imposed on county governments that were not in compliance with GASB Statement 34 by June 30, 2008. For additional information, see Local Government Modernization Act of 2005 under Financial Structure of County Government.