Accounting Standards

The Federal Government, State and Local Governments (SLG), and Not-for-profit organizations (NFP) all have unique objectives and assets under their control. As a result it may not be feasible to develop a single set of accounting standards that accurately represents all of their financial activity in a manner that is useful to concerned parties. To resolve these discrepancies three separate standard setting bodies have been tasked with developing Generally Accepted Accounting Principles (GAAP) for these different organizations: The Federal Accounting Standards Advisory Board (FASAB) for federal accounting, the Governmental Accounting Standards Board (GASB) for SLG, and the Financial Accounting Standards Board (FASB) for NFPs. The different standards created by these organizations all achieve their goals with varying strengths and weaknesses.

Federal Government Accounting

FASAB faces many unique challenges when developing accounting standards for the federal government. The federal government's shear size, ability to manipulate the money supply, and complex issues such as accounting for social security all complicate the task of developing a single standard for representing the government's financial activity. In spite of these obstacles FASAB has managed to provide a standard requiring all agencies to provide similar reports, which can is then consolidated into an individual report. This allows the reader to analyze the whole as well as the contributions of the individual parts.

The greatest strength of FASAB, in my opinion, is its use of performance and accountability reports. These reports require federal organizations to provide logical outcome based metrics that measure the entities ability to achieve its desired effect on society rather than simple outputs of goods or services provided. I believe that this standard, though difficult to properly implement, serves to close the loop between business and government/NFP accounting. FASB applied to businesses has always served to provide a useful metric for the business to achieve its intended objective, maximization of profits. Performance and Accountability Reports, when properly applied, can provide this same service to federal organizations.

At the same time, the federal governments actual implementation of performance standards and report consolidation standards may be one of its weaknesses. A potential difficulty with consolidation of the financial reports and performance metrics of several unique and distinct federal agencies may be an oversimplification of the big picture. This oversimplification can lead to a competition that shifts emphasis from big picture concerns to more trivial matters. This phenomenon can be viewed in the implementation of the "Executive Branch Management Scorecard" which compares specific areas of different federal organizations and assigns colors to them based on their ability to meet given performance standards. This has resulted in organizations applying their efforts to reach the "lowest hanging fruit" instead of focusing on their most pressing issues. It is crucial that the federal government maintain their focus on addressing major issues for FASAB to provide its intended purpose.

State and Local Government Accounting

In my opinion, the most significant strength of the Comprehensive Annual Financial Report (CAFR) required for SLG by GASB is that it is very much a comprehensive report. An individual with little knowledge of a government, who is familiar with the format, can pick up a CAFR and develop of a detailed picture of a SLG. Management's discussion and analysis (MD&A) provides the uniformed reader with a summary of pressing issues facing the SLG for the year. The Financial Section is very standardized between all governments and supporting information can be found in the required supplementary information, the notes, and the statistical section.

Another strong suit of SLG reporting is the division of assets between specific types of funds provides a clear understanding of the government's intent for resources. Government assets are divided between governmental, proprietary, and fiduciary assets based off the type of services provided or source of money. These funds are further subdivided by other criteria. Additionally, large governmental funds meeting certain criteria for size are segregated as "major funds" to allow tracking of major expenditures. This system allows the uniformed reader to quickly identify priorities for a given SLG as well as to assess the health of different areas of government common to most SLGs.

The utility of this segregation of assets is hindered by the prevalent use of transfers between funds. In my opinion transfers between funds muddy the waters when performing analysis of the governmental expenditures. Although transfers are required to be documented the RSI, the explanations are often superficial and do not necessarily make clear the true reason behind the transfer. Additionally, although the discerning CAFR reader can easily identify the use of fund transfers to supply efforts that are over budget or enterprises which are not performing up to expectation the majority of the public does not read the CAFR. Documentation of fund transfers does not prevent public servants from using transfers to make struggling programs seem successful and then passing those flawed viewpoints on the public. It seems to me that greater requirements should be placed by GASB on explanations for fund transfers, and that GASB should provide readers with a clearer