Project Pages

Electronic Financial Reporting—Project Plan

Project Description: This research project will monitor the effect of the electronic media on information delivery and user needs. Extensive research into the evolving state of the art in electronic financial reporting by state and local governments will provide the Board with a basis for evaluating the need to develop standards for financial reports intended for this medium.

Background: During the development of the Board’s initial strategic plan in 1997, and the succeeding plans in 2004 and 2007, the Board recognized the importance of staying abreast of the rapidly increasing use of electronic media in financial reporting applications. In the strategic plan, the Board acknowledges that it has the responsibility to ensure that its standards provide current and potential users with relevant information. It is that responsibility that led the Board to initiate a long-range project to monitor practice and determine how new media will be used by governments to provide electronic alternatives to traditional reports.

In accordance with the strategic plan initiative, the staff has been monitoring developments in the reporting of governmental financial statement information via electronic media. The staff has concentrated on two specific issues:

• The development of Extensible Business Reporting Language (XBRL), a standardized digital language for business financial reporting.

• The growth in governments’ use of electronic media to report their financial results in the absence of a standard format like XBRL.

The application of XBRL to governmental financial reporting is still is the early development phase; however, some individuals and national organizations have expressed an interest in an effort to develop a taxonomy framework for state and local governments. (A pilot project with the state of Oregon was undertaken in 2007, as discussed below.) The electronic financial reporting taking place in the interim raises a number of concerns that the Board may wish to explore in the short run.

Project History: The staff has an ongoing project (as time allows) to analyze state and local government websites. The first step in that research was to compile a comprehensive list of key information items to provide consistency and focus in the website searches. That database design has been completed and will be modified and updated, as time permits, as research progresses. The database includes information on the extent to which governments are reproducing their external financial reports on their websites, whether they present other financial information including financial condition measures and service efforts and accomplishments or performance items, and a variety of other information and statistics. The staff completed the website visits for all 50 states and made an initial analysis of the results of the research. Since that research was completed, staff commitments to other current agenda projects have severely limited the time available to conduct the website research.

In addition to understanding what is currently being done in electronic reporting, an important part of the research effort has been focused on gaining a better understanding of the implications of what can (and very likely will) be done in the near future. In that regard, the project staff has been involved (again, as time permits) in an additional phase of the project, which is to build a demonstration model that incorporates a level of sophistication and interactivity that goes beyond the status quo of presenting “pictures” of the published comprehensive annual financial report (CAFR) in Adobe (.PDF) formats, and perhaps even beyond what might be envisioned after widespread implementation of XBRL. The working prototype model features a multi-level linked design to allow site visitors (users) to access information in varying degrees of detail and from a variety of sources. Many government websites have this multi-level design now; however, financial information, if presented, is generally not incorporated into the linking system. There are several potential benefits to developing an in-house electronic reporting model prototype.

• It would help the GASB to be proactive, rather than reactive, in establishing financial reporting standards. The ability for hands-on application would allow the Board to evaluate alternatives in both a traditional and electronic reporting environment.

• It would enhance the Board’s responsiveness to real-world situations.

• Developing a model that governments may see as a “prototype” (and could use or emulate) would enhance experimentation. The Board would benefit by an increased awareness of what governments are actually doing.

In October 2004, a consulting firm indicated an interest in working with the GASB on the electronic reporting project. In November 2004, the GASB Chairman and staff met with representatives from that firm and discussed the possibility of working together on the project. In March 2005, the consultants arranged for a meeting between the GASB representatives and representatives of a business intelligence software development firm to discuss the possibility of leveraging their expertise and resources to help move the GASB’s effort forward. A proposed work plan and timetable was drafted. The software firm used the GASB’s working model and in early 2006, developed a limited-scope demo using their proprietary programs and processes to demonstrate how an electronic reporting model, such as the prototype developed by the staff, could become part of a comprehensive interactive web reporting package. Ultimately, a request for proposal may be developed to determine if other firms are interested in working with the GASB on this project. If that occurs, it is possible that a full-scope demonstration model could be developed. How much staff time will be needed as the model development progresses has yet to be determined. The latest effort by the project staff has been to search the web to determine the extent to which governments are currently using accounting and reporting software that interfaces with business intelligence products. The purpose of that research, at the request of the Software developers, is to avoid “reinventing the wheel” in developing an accounting and reporting package if the desired reporting can be accomplished with existing products. That research is ongoing, depending on time and staff availability.

Research Work Plan: As a basis for our website research, the staff has used CAFR links on the GASB’s website and the Site Directory compiled by MuniNet. Several hundred sites are available from those two sources. The website research has been an ongoing assignment for certain staff members and is done as time permits. However, over the past two years or so staff availability has been such that the information in the database is likely out of date, given the frequency with which governments update and modify their websites. Nevertheless, the links are still valid and the information in the database could be updated as the staff becomes available. During the past four months, there has been no activity in this part of the research project.

The development and testing of the electronic model is also a continuing assignment. As time permits, the GASB staff is investigating whether existing accounting and financial reporting software applications are, or may be, compatible with business intelligence software. Possible plans for moving the project forward include an approach that would make the capabilities of the prototype model available to all state and local governments. The GASB then could encourage governments to experiment with interactive web-based reporting package during an extended experimentation period. Again, time and resource constraints have relegated this aspect of the research project to a temporarily dormant status. Available staff time has been spent in connection with the XBRL pilot project discussed below.

The staff also plans to continue monitoring academic research pertaining to electronic reporting issues and use the results of those external studies, as appropriate. In addition, some state and local governments have begun to issue their annual reports in CD format. The staff is collecting those reports and examining their contents and structures.

The staff will continue to monitor the development of XBRL. The project staff attended an XBRL reporting seminar in New York in late June 2006. In December 2006, the GASB Chairman, Director of Research and project staff were invited to join a conference call with members of XBRL.US, the National Association of State Auditors, Comptrollers and Treasurers, and several financial reporting people from certain state governments to discuss the prospect of a “pilot” project to serve as a proof of concept for application of XBRL to state governments. However, during the conference call, several issues were discussed which led to the tabling of the project plans until further research into specific technical concerns raised by the GASB staff and the project’s scope and objective could be completed.

A second XBRL pilot project was initiated in June 2007 by the state of Oregon. That project, with outside funding assistance, involves creating XBRL financial statements for a statement of net assets and statement of activities using the state of Oregon’s CAFR. A multi-disciplinary team, including GASB staff members, was assembled to build a limited taxonomy for these two statements as a demonstration project. The GASB staff played an advisory role in the pilot project providing comments and suggestions to the other project team members as the experiment progressed. It is hoped that the products of the pilot will serve as a starting point for other governments to continue the development of an XBRL taxonomy and architecture for state and local governments. The staff will continue to monitor and participate in, as appropriate, the development of a governmental taxonomy framework with any groups, task forces, or committees that initiate such an effort.