Proposed Technical Amendments to GASB Statement No. 34.

In late December 2000, the Governmental Accounting Standards Board (GASB) issued an exposure draft (ED) of a proposed statement that would amend GASB Statement No. 34, Basic Financial Statements--and Management's Discussion and Analysis--for State and Local Governments. The scope of the proposed new standard is strictly limited to technical corrections and to the clarification of certain provisions of GASB Statement No. 34 that have been unclear to some of the board's constituents. Indeed, most of the issues under consideration in the ED have already been addressed less formally in the GASB's Implementation Guide to Statement No. 34.

Management's Discussion and Analysis (MD&A). One of the most distinctive features of the new governmental financial reporting model is the introduction of MD&A. GASB Statement No. 34 provides a list of issues to be addressed in MD&A (paragraph 11). The text of GASB Statement No. 34 as written (i.e., "At a minimum, MD&A should include...") suggests that this list was not intended to be exhaustive. However, it is the GASB's intent that governments confine their discussion in MD&A to the topics listed. Accordingly, the ED proposes to amend the text of GASB Statement No. 34 to clarify the board's intent in this regard (i.e., "The information presented should be confined to the topics discussed...below").

Government-wide Financial Statements. The ED proposes several changes and clarifications involving the government-wide financial statements.

* Interest capitalization. GASB Statement No. 34 presumed that interest capitalization would apply to all qualifying capital assets reported in the government-wide statement of net assets. Upon further reflection, the board has concluded that interest capitalization on general government capital assets is inconsistent with the premise that interest expense normally should not be allocated to particular functional categories of governmental activities. Accordingly, the ED proposes to amend GASB Statement No. 34 so that interest expense incurred in connection with the acquisition of capital assets of the general government would not be capitalized.

* Subsequent adoption of the modified approach. The GASB indicated that if a government that had been using the modified approach for infrastructure were subsequently to convert to depreciation accounting for infrastructure assets, the conversion should be treated as a change in estimate (i.e., the government would depreciate the full book value of the asset prospectively). The ED proposes to clarify that a similar approach should be taken as well in the case of a conversion from depreciation accounting to the modified approach.

* Definition of a segment. GASB Statement No. 34 defines a segment as "a specific identifiable revenue stream pledged in support of revenue bonds or other revenue-backed debt and has related expenses, gains, losses, assets, and liabilities that can be identified" [emphasis added]. The GASB proposes in the ED to clarify that this definition is intended to apply only to situations where governments are already required to account for such information separately (e.g., in conformity with bond covenants). That is, the GASB is not requiring governments to gather information that has not already been gathered for some other purpose.

* Minimum level of detail for business-type activities. GASB Statement No. 34 set the segment level as the minimum level of detail for presenting information on business-type activities in the government-wide statement of activities. There are two potential problems with this approach. First, not all business-type activities qualify as segments. Therefore, it is possible that a government might ...