Information Relevance of GASB-34 Financial Statements

• In Event: Governmental Accounting Disclosures

Abstract

This study examines the relevance of information published in the government’s Comprehensive Annual Financial Reports (CAFRs) following promulgation of GASB Statement No. 34 Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments. Promulgation of GASB No. 34 fundamentally changed financial reporting for state and local governments in the United States. Governments are now required to prepare government-wide statements using an accrual basis accounting and at the same time continue to prepare the traditional fund statements using a modified accrual basis of accounting. Drawing data from the CAFRs prepared by 37 states for the period 2002 - 2012 our study finds rating agencies draw information from the government-wide statements as well as the fund statements in their assessment of default risk. Our findings are consistent with the existing literature (Marlowe, 2010; Plummer, Hutchison, & Patton, 2007; Pridgen & Wilder, Forthcoming) – i.e., rating agencies assessments have integrated long-term fiscal sustainability of governments using measures of total net assets reported in the government-wide statements and continue to monitor the liquidity position of the government in the budgetary period as reported in the fund statements – specifically the general fund.

Authors

• Sharon Kioko, Syracuse University

• Craig L Johnson, Indiana University