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Introduction to GASB 34

The Governmental Accounting Standards Board (GASB) is a private, nonprofit organization that is responsible for establishing and improving governmental accounting and financial reporting standards. GASB also establishes generally accepted accounting principles (GAAP) for state and local governmental entities, including publicly-owned water systems.

The standards and principles developed by GASB are strictly voluntary. However, some states may incorporate them into their laws and regulations and therefore make them mandatory for local governments and the water systems they operate.

In June 1999, GASB approved “Statement Number 34, Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments”. Statement Number 34 revised several accounting practices and established new standards for the annual financial reports required of state and local governments. The revisions were intended to make annual financial reports easier to understand and make the financial data more useful to decision makers.

GAAP and GASB 34 make good sense for publicly-owned water systems as these principles are often the best way to keep track of finances. Following them will help you form a better picture of your system’s financial health, forecast future shortfalls, and continue to deliver safe drinking water to your customers. In addition, following GASB standards is a must for obtaining a “clean opinion” (i.e., a good credit rating) from an auditor. Clean opinions are often necessary for loans, negotiating favorable interest rates, or issuing bonds.

GASB 34 requires:

  • An accounting of revenues and expenditures in the period in which they are earned or incurred.
    This is called accrual-based accounting. For example, if the water system provides water in December 2003 and receives payment in February 2004, the water system would report that the money was earned in 2003. This change will allow the system and its investors to understand the direct financial results of its investments.
  • A reporting of the value of infrastructure assets and the cost of deferred maintenance.
    These measures allow the public to evaluate how well the system is managing its assets. A current asset management plan is a valuable tool to help you meet this requirement if you are complying with Statement 34. In addition, reporting the true cost of deferred maintenance (i.e., unmade repairs that result in equipment or facility deterioration) may allow systems to more easily raise money for maintenance activities necessary to use facilities and equipment for their full expected lives.
  • Contributed capital (for example, federal grants) to be considered a form of income.
    This change will increase a system’s reported income. While reporting all forms of income is a necessary accounting principle, this method of reporting (which includes contributed capital) may make it more difficult to justify rate increases.

You will find more information at:

  • Your city clerk
  • A certified public accountant
  • Your State or Regional Tribal Capacity Development Coordinator
  • GASB’s website for Statement 34, as well as guidance documents, case studies of entities that have implemented Statement 34, and trainings.

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