New Statements for Governmental Entities

By Carrie Benedict

In June of 1999, the Governmental Accounting Standards Board introduced the single most important change to ever occur in governmental accounting. This event was the passing of Statement 34, the new financial reporting model for state and local governments. This statement requires that the new financial reporting model replace the general purpose financial statements currently used by governments. As simple as this may sound, the change is expected to be a difficult and expensive one for governmental entities.

The Current Reporting Standards

Governmental entities currently issue general purpose financial statements. These statements are contested to have several weaknesses, which GASB 34 looks to correct. The Statement of Revenues, Expenditures, and Changes in Fund Balances is currently the operating statement of governmental entities. However, this statement is essentially nothing more than a statement of cash flows. There is presently not an effective operating statement for governmental activities presented in the financial statements.1 With the current reporting standards, governments are able to avoid true accountability. As stated before, there is effectively no operating statement. In addition, entities are not required to show budget comparisons of the original and final budgets. These are just a few of the weakness that Statement 34 is expected to improve.

What is the New Reporting Model?

The new reporting model is comprised of three major components: Management's Discussion and Analysis (MD&A), the basic financial statements, and Required Supplementary Information (RSI). The basic financial statements include government-wide financial statements and fund financial statements as well as the notes to these statements.2

Management's Discussion and Analysis is presented before the basic financial statements. It introduces these statements and gives an overview of the government's financial position. The government-wide statements consist of a statement of activities and a statement of net assets. The fund financial statements focus on the major governmental and enterprise funds. Lastly, the Required Supplementary Information provides budgetary information by showing the original and final budget of the entity.3

Infrastructure Reporting

One of the major controversies over Statement No. 34 is that of reporting for capital assets. Capital assets include land, improvements of land, easements, buildings, building improvements, vehicles, machinery, equipment, works of art and historical treasures, infrastructure, and all other tangible or intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period. Infrastructure may include roads, bridges, water and sewer systems, and dams. These assets are stationary and can be kept for a significantly longer amount of time than other capital assets.4

In the statement of net assets, capital assets that are currently being depreciated or have been depreciated in the past should be reported net of accumulated depreciation. If the government has a significant amount of capital assets not being depreciated, such as land or infrastructure that is reported under the modified approach (which will be explained shortly), these assets should be reported separately. Entities may also report their assets by class, such as buildings and equipment, vehicles, or infrastructure.5 Capital assets are expected to be depreciated over their estimated useful lives. There are two exceptions to this rule. If an asset is inexhaustible, it should not be depreciated.6 An inexhaustible capital asset is an asset whose life is extraordinarily long, because its economic benefit or service potential is used up so slowly. Land and land improvements are examples of inexhaustible capital assets.7 The other exception to the depreciation rule applies to those infrastructure assets that are reported using the modified approach. Infrastructure assets that are part of a network (assets that provide a particular type of service to a government) do not have to be depreciated if the following requirements are met. The governmental entity must use an asset management system that:

  • has an up-to-date inventory of eligible infrastructure assets
  • performs "condition assessments" of these assets and summarizes these results using a measurement scale
  • estimates the annual amount needed to maintain and preserve these infrastructure assets to the condition level desired by the government.

The condition assessments that are completed must be documented in a proper way. The documentation should be understandable so as two different individuals using the same method to measure should be able to reach similar results. The government must also establish the condition level that is desired for the infrastructure assets and document that these assets are being preserved at this level.8 When the infrastructure asset fails to meet the requirements stated above, the government may no longer use the modified approach.9

Those infrastructure assets that do not meet the above requirements need to be capitalized at their historical cost or estimated historical cost. This applies retroactively to infrastructure assets that were acquired or significantly renovated or improved in fiscal years beginning after June 15, 1980.10 This is expected to be one of the most difficult parts of Statement 34 for governments to complete. However, the GASB feels that reporting infrastructure is necessary for users to assess the financial position and changes in the financial position. In order to make this task a little easier, the asset cost may be estimated by using the replacement cost and deflating it by a price-level index.11

Tips for Implementation

Planning for implementation of Statement 34 is a big job for governments. Government officers will need to become knowledgeable of the requirements under the new reporting model. There are several steps that governments should take in order to prepare for implementation. These planning steps are as follows:

  1. Form a Task Force-At least two people from the entity should be appointed to lead the implementation effort. It is beneficial if one person has a knowledge of the government's activities and the accounting of these activities. The other member should have detailed knowledge about the entity's infrastructure.
  2. Get Plugged In-All governmental entities will be dealing with the issue of implementation soon if they are not already. The government should make use of the expertise of others and of professional associations, such as the Association of Government Accountants, the American Institute of Certified Public Accountants, and the Government Finance Officers Association.
  3. Train and Educate-The task force leaders should attend conferences and workshops and also study the statement individually. These members should have training on every aspect of the statement.
  4. Meet with System Providers-Governments may encounter problems when they try to use their current system to produce a new reporting model. Entities should discuss the prospect of generating the information in a new format.
  5. Know Your Options-Statement 34 allows entities to make choices on certain items. Infrastructure is one example of this. Governments can report and depreciate infrastructure assets or they can use the modified approach. By knowing the options available, governments can make the choice that is best for them.
  6. Identify Budget Issues-Implementation costs will need to be included in the budget. Governments should plan ahead and consider the budgetary impact of the implementation process.
  7. Plan for Consolidation and Accrual Accounting-Because these requirements are new, it is recommended that entities try a "dry run" consolidation at least one year before the actual implementation. The systems provider should be included in assisting with this trial run to see how everything goes.
  8. Practice Your MD&A-This section provides an in-depth analysis that government officers have never had to complete before. The government officer should become familiar with the MD&A requirements and write an MD&A section for an old set of financial statements to critique the writing style, informativeness, and objectivity.
  9. Chart Your Course-There are project management tools and techniques that can aid in a large project such as this. Several of these include GANTT charts and PERT charts, which "help to outline the specific tasks to be accomplished, the time each task should take and the sequence."
  10. Expect Sales Pitches-There will be auditors, lawyers, and consultants offering their assistance during the implementation process. It may be a good decision for entities to invest in some of these services.12


There is much uncertainty about the future of GASB 34. Statement 34 is new for everyone: auditors, accountants, and government officers. The one thing that is clear is that governments need to prepare ahead of time for this large project. Those governments that don't learn the statement and plan for the implementation process will find themselves overwhelmed. By following the suggestions listed above, governments can ease the burden that may be felt by entities around the country, and the implementation process can go as smoothly as possible.


  1. Mori, J., & Pahler, A. (2000). Advanced Accounting. New York: Dryden Press.
  2. Governmental Accounting Standards Board. (1999). Statement No. 34 of the Governmental Accounting Standards Board.
  3. Ibid 2
  4. Ibid 2
  5. Ibid 2
  6. Ibid 2
  7. Governmental Accounting Standards Board. (2000). Guide to Implementation of GASB Statement 34 on Basic Financial Statements.
  8. Ibid 2
  9. Ibid 7
  10. Government Finance Officers Association. (2000). GFOA Technical Bulletin: The GASB's New Financial Reporting Model.
  11. Bean, D., & Johnson, L. (1999, December). GASB Statement 34: the dawn of a new governmental financial reporting model. The CPA Journal, 14-20. Cote, J., & Herron, T. (2000, Spring). A primer for planning for GASB 34 implementation. The Government Accountants Journal, 30-36.