Government Accounting System Essay Research Paper On

Government Accounting System Essay, Research Paper On June 30, 1999 the GASB passed statement number 34. Statement 34 establishes new accounting requirements for state and local governments that

Government Accounting System Essay, Research Paper

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.