FORT LAUDERDALE, Fla. The outgoing president of the Government Finance Officers Association strongly denounced attempts by individual states to create their own accounting standards, emphasizing the issuer group's embrace of generally accepted accounting principles for states and localities that are set by the Government Accounting Standards Board.
Speaking at the GFOA's annual conference here, Charles Cox, who steps down as the group's president today, argued that attempts to create state-level GAAP standards in order to avoid "unpleasant" budget implications of having to comply with certain GAAP standards particularly GASB Statement 45 on retiree health care benefits would result in so-called qualified audit opinions, which can mean that the accounting standards used to craft the financial document are subpar.
"This trend of setting accounting standards at the state level is a major step backwards and unravels decades of effort to implement national and international-based standards," said Cox, who is the director of Farmers Branch, a suburb of Dallas. "GFOA does not support this effort."
Cox added that non-GAAP compliant statements will not be eligible for GFOA's certificate award program, which recognizes outstanding financial statements.
Currently, only Texas has passed a law that gives the state and local governments the option of following GAAP or the state's own accounting standards. Legislation in Connecticut that would have allowed the state to follow standards prescribed by its comptroller was vetoed by Gov. M. Jodi Rell last summer.
Cox's remarks were noteworthy because while they emphasized GFOA's strong support for GAAP standards, they fell far short of an endorsement of GASB, which GFOA officials argue has strayed well beyond its accounting-standards setting mandate.
In fact, Cox only mentioned GASB once by name, as part of a list of "challenges" that issuer officials have confronted in the past year: "pensions, post-employment benefits, unfunded federal mandates, and the Governmental Accounting Standards Board."
Tensions between GFOA and GASB have been high since March 2007, when the issuer group began publicly urging state and local groups to transfer governmental accounting-standards setting from GASB to the Financial Accounting Standards Board, which establishes accounting standards for corporations and nonprofit organizations.
Earlier this year, GFOA abandoned that effort, in part because of doubts about the FASB's long-term existence following a decision by the Securities and Exchange Commission to allow foreign companies to use international accounting standards without having to reconcile their financial statements to U.S. GAAP standards. The GFOA also expects that American-based corporations will eventually be given the option of selecting international standards over U.S. GAAP standards.
Much of the friction stems from GASB's establishment of a formal project on non-financial performance measurement reporting called "Service Efforts and Accomplishments Reporting," or SEA, which the accounting standard-setter contends replicates a similar one already established by GFOA and nine state and local entities.
Cox said that GFOA would continue to work to ensure that issuers have the benefits of accounting and financial reporting standards "of the highest quality set by a national and independent body committed to accounting, not accountability, standards setting."
A spokesman for GASB said yesterday that it encourages GFOA to go forward with its own SEA effort and looks forward to working with them on it. GASB believes the GFOA effort could complement its own project, the spokesman said.