[Updated original post from April 16. Update is at the bottom of this article.] So I’m originally from Wisconsin, and other than my tendency to store extra fat in the winter and an unfortunate affinity for drawing out my vowels in words like “mom” and “bagel,” you wouldn’t really know it. I moved to California […]
Joel Black, partner in charge of the audit practice at Atlanta-based Mauldin & Jenkins, will be the next chair of the GASB, and he eats, sleeps, and breathes governmental accounting. “I am very excited to take on this new professional challenge,” said Mr. Black. “I have been immersed my entire adult life in the important, […]
After news broke last week that Leslie Seidman would be closing her spreadsheets at the FASB for good, the Financial Accounting Foundation has announced that its other little bundle of joy, the GASB, is also on the hunt for a new Chair. The chairman of the U.S. board that sets accounting standards for state and local […]
As you may have heard, many states in our union have budget troubles; one of the biggest problems being underfunded pensions. Reuters reports that estimates put the gap in the range of $700 to $3 trillion. Despite the range being akin to saying, “I’m somewhere between Ohio and Nevada” the shortfall has gotten a whole host of people bent out of shape. It’s gotten so bad that Bill Gates has chimed in, evoking Enron for crying out loud (and here we thought that was only for journalists who cover accounting once every decade).
All this has the GASB to going back to the drawing board as David Bean, the GASB’S Director of research and technical activities, announced that the more disclosures will be proposed this summer. There are plenty of areas that up for debate but Mr. Bean mentioned that certain topics get especially contentious, apparently to the point that it comes to blows.
“Where the fistfights occur is with the discount rate,” Bean said about returns on pension funds’ investments, which affect how well a government can cover those liabilities. The board would require governments to disclose their long-term expected rate of return on plan investments as determined by actuaries, Bean said. “This is the actual expected rate of return as recommended by the actuaries,” he said. “We’re going to make very clear this is not a number that is pulled out of the air. This is based on solid science.”
It’s pretty clear that this problem will only get worse. If you were suddenly told that you had to use science rather than a dartboard, wouldn’t you want to punch someone’s lights out?
If we still care about financial reform, we should especially care about proposed changes to the Government Accounting Standards Board because, let’s face it, government accounting could really use a helping hand. Were government pensions forced to use the same reporting rules as every other pension, a $3 trillion hole would open up and we would see immediately that rules in desperate need of repair have remained broken because the current system allows the truth to be buried in the footnotes.
As is, GASB is funded by voluntary contributions given by state and local governments out of the goodness of their hearts (yeah right) and through sales of its publications.
The concern is that should GASB be unable to pay the bills, the federal government may be forced to swoop in and babysit. The potential for conflicts of interest should not escape dear reader as this would be akin to investors owning the SEC or Fed-regulated banks owning the Federal Reserve (oh wait, they already do). Is that any worse than what we’ve got now?
How bad is their financial situation? GASB reported a $3.83 million budget shortfall in 2009 and projected a $4.46 million shortfall for 2010.
So why, if we’re still talking about financial reform, are we not talking about its potential impact on GASB?
Under new financial reform rules, the GAO would be forced to evaluate GASB’s role (read: usefulness) in standards setting within 180 days of the proposal’s passage. How likely would it be for the GAO to call an issuer-funded agency that’s allowed government pensions to conceal $3 trillion in liabilities a blaring and obvious failure? The SEC could then direct FINRA to collect assessments from dealers that would go towards funding GASB. Obviously this piece of legislation has been written by Congressmen who don’t know how to do anything without making it as complicated as possible.
Financial reform has already cleared the House while the Senate is expected to vote within the next two weeks after returning from recess.