GASB Statement 34 and Reporting of Expenditures

This report presents solutions to two questions which discuss major exceptions in reporting of government accounts. First solution discusses the exception regarding reporting of depreciation in infrastructure assets. Second solution presents a possible explanation to difference in interest reporting between two categories of government funds.

Running Head: REPORTING OF GOVERNMENTAL ACCOUNTS 1
GASB Statement 34 and
Reporting of Expenditures

REPORTING OF GOVERNMENTAL ACCOUNTS 2
Introduction
This report presents solutions to two questions which discuss major exceptions
in reporting of government accounts. First solution discusses the exception regarding
reporting of depreciation in infrastructure assets. Second solution presents a possible
explanation to difference in interest reporting between two categories of government
funds.
Question 1.
Although Statement No. 34 requires that infrastructure assets be accounted for similarly
to other capital assets, it allows for a major exception regarding depreciation. What is
that exception?
Solution
GASB 34 sets out guidelines for reporting of accounts of all local and state
governments in United States of America (GASB, 2018). In majority of cases, long lived
assets are required to be depreciated over their lives. This solution explains a major exception
in reporting of depreciation of infrastructure assets under GASB statement 34 guidelines.
Capital assets are assets that can be used in operations of the business for more than
one reporting period and are not intended for sale during normal operations of a company.
Long lived assets with useful lives significantly more than majority of capital assets and
immovable in nature are called as infrastructure assets. Normally all long lived assets are
required to be depreciated over their useful lives. Modified approach of depreciation is
applied to certain eligible infrastructure assets. These eligible assets are part of a network or
subsystem of network. Under modified approach these infrastructure assets are not
depreciated if two conditions are met (Ruppel, 2004).

REPORTING OF GOVERNMENTAL ACCOUNTS 3
First, these assets are managed by the government with help of an asset management
system that has following characteristics.
1. Inventory levels of these assets are maintained up to date by the system.
2. Conditional assessment of these assets is performed by the system and uses a
measurement scale by which results are summarised.
3. The system also calculates annual maintenance and preservation expenses of
the assets.
Secondly, the documentation process regarding maintenance of these assets at pre-
defined minimum level is carried out. Professional discretion is required to decide about
quantity of documentary evidence which required to be maintained by the system. GASB
Statement No 34 species things that are required to be documented, such as given below
1. Conditional assessment is conducted consistently at least once in three years
using statistical samples. This assessment is considered to be appropriate and
complete if carried out on a regular basis.
2. Observations from these assessments ensure that these assets are being
maintained at pre-defined minimum levels.
Therefore, modified approach is an exception for recording of depreciation of assets,
under it these assets are capitalized if above two conditions are met.
Question 2.
A government’s interest expenditure as reported in its debt service fund differs
significantly from its interest expense, as reported in its government-wide statements.
What is the most likely explanation for the difference?
Solution:

REPORTING OF GOVERNMENTAL ACCOUNTS 4
GASB 34 sets out condition for financial reporting of governmental accounts. Interest
associated with various long term liabilities is reported differently under different
circumstances. This solution provides for the possible explanation for difference in interest
reporting between debt service fund and government wide funds
Government wide statements are prepared using accrual basis of accounting and
report financial performance of the government. They report all expenditures, revenues,
losses, gains, assets and liabilities of the government. On the other hand governmental fund
financial statements are prepared using modified accrual basis of accounting (Crawford &
Loyd, 2008). Current financial resources are taken into consideration for preparation of these
statements. A cash reserve utilized for fulfilling interest and principal payments requirements
on a particular category of debt is referred to as debt service fund. The purpose of such
reserve is risk reduction for investors. Debt service fund also helps in reducing effective
interest rate. Debt service fund is a part of governmental fund financial statements.
Expenditures of debt service funds are reported under other expenditure classification. The
main difference between the interest expense reported in the debt service fund and that
reported in the government-wide statements is due to different accounting approaches being
followed. While reporting the interest in the debt service fund, only cash payment is taken
into consideration but the interest amount reported in the government-wide statements also
takes into account the accrued amounts. The interest amount reported in the government-wide
statements is inclusive of amortized amounts (Bogui, 2008).
Thus, there is significant difference between the reporting of interest expenditure
between government-wide funds and debt service fund. This solution provides the possible
explanation for this difference.
Conclusion

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GASB statement 34 sets the guidelines for reporting of accounts of government.
However, there are some exceptions in various reporting procedures. The above two solutions
discuss and throw light on the possible explanation of two such exceptions. In first solution, it
is concluded that long lived infra assets are not depreciated under certain conditions. Second
solution provides the explanation that due to different accounting approaches being followed,
there is difference in interest reporting between debt service fund and government-wide
funds.

REPORTING OF GOVERNMENTAL ACCOUNTS 6
References
Bogui, F. (2008). Handbook of governmental accounting. New York, USA: Crc Press.
Crawford, M. A., & Loyd, D. S. (2008). Governmental gaap practice manual. Chicago,
USA: Cch.
GASB. (2018). Summary of statement no 34. Retrieved from
http://www.gasb.org/st/summary/gstsm34.html
Ruppel, W. (2004). Governmental accounting made easy. New Jersey, USA: John Willey &
Sons.