WASHINGTON - The Government Finance Officers Association has abandoned its push to put the Governmental Accounting Standards Board out of business and will no longer seek to transfer governmental accounting standards-setting to the Financial Accounting Standards Board, which establishes accounting standards for corporations and nonprofit organizations.

GFOA's changed position, which appears on its Web site, comes as the National Federation of Municipal Analysts released a four-page position paper yesterday expressing strong support for GASB while urging the standards-setter to consider shoring up its limited resources by eliminating some "redundant" projects that replicate efforts by other market groups and that do not relate directly to accounting and financial reporting.

"In the current climate of heightened volatility in municipal finance, NFMA would not like to see ... GASB dilute its limited resources," the position paper says. "Rather, GASB should strengthen its role as arbiter of standards for municipal accounting and financial reporting - that is, setting standards for the accurate accounting and reporting of financial resources collected and spent in the state and local government sectors."

GFOA said its new stance on GASB is rooted in part by doubts about FASB's long-term existence following a recent 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. generally accepted accounting principles, the issuer group said. It also comes amid widespread expectations that American-based corporations will be given the option of selecting international standards over U.S. GAAP standards.

"In light of these developments, many are raising serious questions about the FASB's future as a standard-setting body," the GFOA said in a statement on its Web site, which notes that the GFOA "continues to believe that a reassessment of the GASB's role is needed."

Jeff Esser, GFOA's executive director, stressed that the policy change does not amount to a reversal, because the issuer group still believes that GASB has routinely overstepped its bounds.

"The role of FASB is going to radically change and ... we no longer felt that it would be the best place for government accounting and financial reporting standards to be set," Esser said. He added that GFOA believes there are too many instances where GASB issues standards that have already been set by FASB and that the Financial Accounting Foundation, the group that oversees GASB and FASB, should "exercise more oversight to avoid unnecessary duplication."

Kinney Poynter, executive director of the National Association of State Auditors, Comptrollers and Treasurers, said that GFOA's concerns over FASB's future "make sense."

GASB declined to comment on GFOA's new stance.

The policy shift also comes as the GFOA and NASACT are working with the FAF to establish a permanent funding source for the GASB, which currently receives voluntary contributions from issuers but is running a roughly $2 million annual budget shortfall.

The negotiations stem from a plan FAF announced in December to override a 1984 agreement that permits the GFOA and NASACT to elect three FAF trustees. Under the proposal, the GFOA and NASACT would still be able to nominate three trustees, as would other governmental groups, but the trustees would be elected by the existing board, the composition of which could fluctuate in size from 14 to 18 members, instead of at the fixed number of 16.

Last month, FAF's board approved aspects of that proposal, including a provision that would allow it to float in size. But FAF is still negotiating with GFOA and NASACT over other the plan's other components, including its call for a stable funding source for GASB.

Meanwhile, the NFMA's position paper references GASB's funding woes by repeatedly urging the accounting-standards setter to limit the scope of its projects. For instance, the NFMA paper expressed skepticism about GASB's formal project on non-financial performance measurement called "Service Efforts and Accomplishments Reporting," or SEA, which appears to replicate a similar effort already established by GFOA and comes as state-level governments are already implementing such procedures. GFOA has been opposed to the SEA project.

The NFMA paper notes that there are market participants who want to improve accountability with regard to the services provided by states and localities, and that the SEA program seeks to provide such accountability by reporting on the effectiveness of public expenditures.

Still, the NFMA paper suggests that the SEA program is not appropriate for GASB.

"While improved service reporting is desirable, it is unclear that GASB should be the entity developing these advisory guidelines," the NFMA paper said. "[F]rom the NFMA's perspective the SEA project is of limited value to the analyst community."

Overall, the NFMA paper is still highly supportive of GASB.

"The NFMA is in full support of the continued, separate existence of GASB as the independent arbiter of accounting standards and financial reporting guidelines for governmental entities," it says.

The paper was written by Ruth Levine, a principal and head of municipal research for Vanguard Group; Dick Larkin, director of research at Herbet J. Sims & Co.; and Anne Ross, senior vice president and manager of Roosevelt & Cross Inc. The paper included edits or additional contributions by Natalie Cohen, managing director at Financial Security Assurance; Erik Kimball, a shareholder at Akerman Senterfitt; and Tom Weyl, director of municipal research at Eaton Vance Management.

The paper is strongest in its rejection of any attempt to fold GASB into FASB.

"While the FASB fulfills its role of setting standards in the corporate arena, we believe that the markedly different revenue, expense asset and liability dynamics in the governmental sector present more than sufficient reason for the existence of a separate body to address governmental accounting and financial reporting standards," it says.

It notes that "legislative and regulatory actions have an overriding impact on the major revenue generated by, and the expenditure burdening, state and local governments," while corporate accounting and reporting serves a very different financial community primarily concerned with "solvency and liquidity matters."

"In addition to providing similar information for governmental entities, government reporting must also address the proper stewardship and budgeting of funds for the public purposes set out by elected bodies or by electoral fiat (such as might be the case with a constitutional amendment requiring specific expenditures or earmarked revenue allocation)," the paper said.

It also notes that for more over more than 40 years governmental accounting has evolved to reflect the segregation of general revenue, special revenue, enterprise and fiduciary operations of state and local governments, "thereby mimicking the governments' budgetary processes in a manner long accepted by its constituents."

"This process has no parallel in the corporate-directed standards and mandates addressed by ... FASB," the paper says.

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