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Local Governments, Efficient Markets and GASB Rules Revisions

By Jay D. Dean

The September 17 deadline looms for submission of responses to the Government Accounting Standards Board's proposed changes in pension accounting in government financial reporting.

The proposed changes in government accounting standards are significant.  State and local governments now recognize an "annual required contribution" to pension plans as an expense, which becomes a liability if unfunded.  Under the proposed new rules, governments would be required to recognize in their financial statements a "Net Pension Liability." "Net pension liability" is a new term meaning essentially "the unfunded actuarial accrued liability using the market value of assets," according to The Segal Company, an actuarial consulting firm, http://www.segalco.com/publications-and-resources/public-sector-publications/bulletins/.

An interesting research memo by Paul Zorn of Gabriel Roeder Smith & Company, modeling the possibly unexpected effects of the proposed GASB changes as if implemented beginning in 1983, is accessible at: http://www.gabrielroeder.com/ ("Potential Effects of GASB's Preliminary Views," Aug. 30, 2010).

Moreover, if the government accounting rules are revised as GASB intends, efficient capital markets and market integrity will become critically important to the financial health of state and local governments as presented in financial statements prepared according to GASB standards.

 
The GASB Preliminary Views and the "Plain Language Supplement" are accessible at: http://www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1175804830991 <http://www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1175804830991> .

Public hearings are scheduled on October 13 in Dallas, October 14 in San Francisco and October 27, 2010 in New York.

Full post as published by PomTalk on September 14, 2010 (boomark / email).