NEWS RELEASE 03/16/06

Users of Governmental Financial Reports Require Substantially Different Information than Users of Business Financial Reports

GASB White Paper Identifies Key Differences between Financial Reporting for Governments and For-Profit Business Entities

Norwalk, CT, March 16, 2006—According to a white paper released today by the Governmental Accounting Standards Board (GASB), individuals and organizations who are interested in the financial performance of state and local governments have substantially different information needs than those who follow the financial performance of for-profit entities.

These different and more diverse needs result from basic environmental differences between governments and businesses. According to the paper, the primary purpose of governments is to enhance or maintain the well-being of citizens by providing services in accordance with public policy goals. In contrast, for-profit business enterprises focus primarily on wealth creation, interacting principally with those segments of society that fulfill their mission of generating a financial return on investment for shareholders.

The white paper cites several other crucial differences that generate user demand for unique information:

  • Governments serve a broader group of stakeholders, including taxpayers, citizens, elected representatives, oversight groups, bondholders, and others in the financial community.
     
  • Most government revenues are raised through involuntary taxes rather than a willing exchange of comparable value between two parties in a typical business transaction.
     
  • Monitoring actual compliance with budgeted public policy priorities is central to government public accountability reporting.
     
  • Governments exist longer than for-profit businesses and are not typically subject to bankruptcy and dissolution.

“These significant differences, coupled with the sizable role that state and local governments play in the U.S. economy, are the primary reasons why separate accounting and financial reporting standards for governments are neccessary,” said Robert E. Denham, chairman of the Financial Accounting Foundation Board of Trustees. “The information such standards foster protects the interests of citizens and other key stakeholders by enhancing their ability to hold governments accountable and make better political, social, and economic decisions.”

According to Federal data presented in this new white paper, revenue collected by state and local governments totaled $1.8 trillion(1) or 20 percent of the 2002 U.S. gross domestic product, while state and local governments account for 12 percent of total U.S. employment(2).

“The standards that guide financial reporting for state and local governments reflect the unique environment of government, including different organizational purposes and special legal powers,” said Robert Attmore, GASB Chairman. “They also effectively address public accountability issues inherently related to the unique aspects of the government environment.”
 

About the Financial Accounting Foundation

The Trustees of the Financial Accounting Foundation (FAF) are responsible for the oversight, administration, and finances of both the Financial Accounting Standards Board (FASB) and its counterpart for state and local government, the Governmental Accounting Standards Board (GASB). For more information on the organizations it oversees, visit the Foundation’s websites at www.fasb.org and www.gasb.org.

About the Governmental Accounting Standards Board

The GASB is the independent, not-for-profit organization formed in 1984 that establishes and improves financial accounting and reporting standards for state and local governments. Its seven members are drawn from the Board’s diverse constituency, including preparers and auditors of government financial statements, users of those statements and members of the academic community. More information about the GASB can be found at its website www.gasb.org.


(1) 2002 Census of Governments
(2) Bureau of Labor Statistics of the U.S. Department of Labor for 2002.