Deloitte responds to GASB’s Invitation to Comment on Financial Reporting Model Improvements — Governmental Funds
Deloitte & Touche LLP comments on the GASB's invitation to comment on "Financial Reporting Model Improvements — Governmental Funds," which was issued in January 2017.
An excerpt from the comment letter is shown below:
We commend the GASB for its continued efforts to improve the reporting model by undertaking a multi-phase project to reexamine it. There are a number of topics for consideration in the project that we believe could improve financial reporting for government financial statement stakeholders.
Government-wide financial statements contain information that is important to users such as bond-rating agencies, creditors, grantors, citizens, and elected officials as well as to others such as management and auditors. Fund-level financial statements, however, contain information that is narrow in scope and is not comparable between governments. It is therefore our strong belief that such information should be excluded from the basic financial statements because it does not provide sufficient incremental benefit to the broad user community. Instead, it should be provided separately in response to specific requests or as supplemental information.
As we previously commented before the issuance of GASB Statement 34, we believe that presenting financial information for the same activities by using two different bases of accounting increases the complexity of the basic financial statements without providing sufficient benefit to users. In addition, fund-level statements were created to demonstrate compliance (e.g., to note whether resources were used for their intended purposes) and to meet the needs of specific groups, not for general-purpose external financial reporting and basic financial statements, as discussed in GASB Concepts Statement No. 3. Further, compliance and fund-level reporting structures (such as the use of fund types and the aggregation or disaggregation of activities into funds) differ between and within types of governments, leading to lack of comparability between them. Thus, we believe that fund-level financial statements should not be a part of the basic financial statements.
While we do not believe that fund-level financial statements are a necessary part of the basic financial statements, we recognize that the GASB may, on the basis of stakeholder feedback, decide that they should be retained or included as supplemental information. We have therefore evaluated the three recognition approaches proposed in the ITC for governmental funds and have concluded that the near-term approach has the most merit.
We appreciate the GASB’s efforts to align accounting for governmental funds with the more cohesive conceptual foundation. We agree with the GASB’s observation that certain accounting conventions under the current modified accrual model result in inconsistencies year over year and between entities. As the GASB acknowledges, none of the proposed approaches is perfect; however, since the near-term approach is most closely aligned with the current modified accrual reporting model, it would be the least disruptive and the most beneficial.
We encourage the GASB to consider making incremental revisions to the current model rather than adopting a new model. Doing so would retain familiar terminology and statement formatting as well as avoid unnecessary changes. Our recommendations are further discussed below and in the attached appendix, which contains our detailed responses to the ITC’s questions.
For more information, see the full text of the comment letter which is available below.