Unrest in Government Accounting

CPA Journal, The, Mar 2008 by Foltin, Craig

At the federal level, several governmental agencies, such as the General Services Administration (GSA), issue performance and accountability reports. GSA administrator Lurita Doan has stated: "I am committed to developing sound metrics that demonstrate our performance." Doan's report can be found at www.gsa.gov.

Despite some displeasure about SEA, GASB continued to move forward in promulgating governmental accounting and financial reporting. Things seemed somewhat quiet. Just as disputes from GASB 34 had settled down, the Enron and WorldCom scandals occurred and the Sarbanes-Oxley Act of 2002 (SOX) was passed. Issues of governance, internal controls, risk management, and performance measurement received considerable attention in private-sector accounting regulation. Discussion of these issues spilled into the government arena. Talk of these issues in relation to government financial reporting coincided with GASB concluding its experimentation and assessment phases of SEA reporting, bringing even more attention to the SEA challenge.

The GFOA Objects to Potential Requirement of SEA Reporting

Although there had been some animosity between GASB and GFOA in the wake of GASB 34, such as GFOA's opposition to GASB's derivatives hedge accounting proposal, tempers were relaxed until talk of required SEA reporting resurfaced. GASB had planned to officially add SEA reporting to its technical agenda. The GFOA tried to block the move with strong protests directly to FAF officials. (See "GASB Cleared to Proceed on Performance Measurement," GFOA Newsletter, December 8, 2006.) On November 28, 2006, the FAF confirmed that GASB had jurisdictional authority to include SEA in its standards settings if it so chooses, essentially giving the board the green light it wanted.

After the FAF confirmation, when it became evident that GASB was moving forward with SEA, the GFOA called for a reassessment of GASB and in March 2007 issued a position statement with questions and answers. This did not deter GASB; SEA was officially added to its technical agenda on April 6, 2007. Adding it to the technical agenda means GASB will begin actively deliberating the issue.

The GFOA warned: "GASB's plans will inevitably prove both counterproductive and a waste of scarce taxpayer resources." Furthermore, "the move amounted to a unilateral and unwarranted expansion of the GASB's authority ... and thus constituted a major violation of the 1984 agreement that established the GASB."

GASB tried to curtail criticism by saying: "GASB does not intend to require governments to report SEA information." GASB says that any guidance is only to help entities that wish to voluntarily report information. GFOA Executive Director Jeff Esser responded skeptically to such claims: "They are a standard-setting body and when they put their rubber stamp on something, it carries weight."

The GFOA says it is trying to gamer support for reassessment from other government interest groups. One specific alternative that the GFOA espouses is transferring standardssetting responsibility to FASB. Another is to have GASB go into a maintenance mode, and promulgate standards on a demand basis only. The GFOA thinks GASB is simply looking for issues to set standards on, even if no need exists, which could lead to an endless list of projects that will only complicate financial reporting. The bottom line, GFOA says, is that "GASB's time has now come and gone, and some other vehicle would better meet the need."