NO.

099-C  JUNE 1993

Governmental
Accounting Standards Series

Statement No. 17 of the

Governmental Accounting
Standards Board

Measurement Focus and Basis of

Accounting—Governmental Fund
Operating Statements: Amendment of
the Effective Dates of GASB Statement
No. 11 and Related Statements

an amendment of GASB Statements No. 10, 11, and 13

Governmental Accounting Standards Board

of the Financial Accounting Foundation
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 Summary

This Statement amends GASB Statements No. 10, Accounting and Financial
Reporting for Risk Financing and Related Insurance Issues, No. 11, Measurement Focus
and Basis of Accounting—Governmental Fund Operating Statements, and No. 13,
Accounting for Operating Leases with Scheduled Rent Increases. It defers the effective
date of Statement 11 to periods beginning approximately two years after an
implementation standard is issued and modifies the Statement 13 reference to Statement
11’s effective date. It also establishes an effective date for Statement 10, for entities other
than pools, using the modified accrual basis of accounting in governmental and similar
trust funds, that is independent of the effective date of Statement 11.

Unless otherwise specified, pronouncements of the GASB apply to financial reports of

all state and local governmental entities, including public benefit corporations and
authorities, public employee retirement systems, governmental utilities, governmental
hospitals and other healthcare providers, and governmental colleges and universities.

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 Statement No. 17 of the
Governmental Accounting
Standards Board

Measurement Focus and Basis of

Accounting—Governmental Fund
Operating Statements: Amendment of
the Effective Dates of GASB Statement
No. 11 and Related Statements

an amendment of GASB Statements No. 10, 11, and 13

June 1993

Governmental Accounting Standards Board

of the Financial Accounting Foundation
401 Merritt 7, PO Box 5116, Norwalk, Connecticut 06856-5116

ii
Copyright © 1993 by Financial Accounting Foundation. All rights reserved. Content
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retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior written permission of the
Financial Accounting Foundation.

iii
Statement No. 17 of the Governmental Accounting Standards Board

Measurement Focus and Basis of Accounting—Governmental Fund Operating

Statements: Amendment of the Effective Dates of GASB Statement No. 11 and
Related Statements

an amendment of GASB Statements No. 10, 11, and 13

June 1993

CONTENTS

Paragraph
Numbers

Introduction .....................................................................................................................1– 4
Standards of Governmental Accounting and Financial Reporting .................................5– 7
Amendment to GASB Statement 11 ............................................................................. 5
Amendment to GASB Statement 10 .............................................................................6
Amendment to GASB Statement 13 ..............................................................................7
Effective Date ......................................................................................................................8
Appendix A: Background Information ..........................................................................9–12
Appendix B: Basis for Conclusions .............................................................................13–21
Appendix C: Codification Instructions ..............................................................................22

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Statement No. 17 of the Governmental Accounting Standards Board

Measurement Focus and Basis of Accounting—Governmental Fund Operating

Statements: Amendment of the Effective Dates of GASB Statement No. 11 and
Related Statements

an amendment of GASB Statements No. 10, 11, and 13

June 1993

INTRODUCTION

1. GASB Statement No. 11, Measurement Focus and Basis of Accounting—

Governmental Fund Operating Statements, issued in May 1990, establishes flow of
financial resources measurement focus and accrual basis of accounting standards for
governmental and expendable trust fund operating statements. As issued, Statement 11
was intended to be effective for financial statements for periods beginning after June 15,
1994. Early application is not permitted because of a Board decision to require
simultaneous implementation with GASB pronouncements on financial reporting, capital
reporting, pension accounting, risk financing and insurance, and the types of nonrecurring
projects and activities that have long-term economic benefit and for which debt meets the
definition of general long-term capital debt.

2. In April 1992, the Board issued a Preliminary Views (PV) document on major
display issues related to the implementation of Statement 11. The PV presented the
Board’s preliminary view and an alternative view on the balance sheet display issues that
had been deferred from the measurement focus and basis of accounting (MFBA) project
and certain operating statement issues. The Board believed that timely resolution of the
issues presented in the PV would allow for the implementation of Statement 11 at its
intended effective date.

3. The PV also presented a Notice to Recipients that included timetables for Statement
11 implementation and the financial reporting model projects. Recipients were invited to
comment on the GASB’s plan not to defer the effective date of Statement 11 until the
financial reporting model project was completed.

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4. GASB Statement No. 10, Accounting and Financial Reporting for Risk Financing
and Related Insurance Issues, provides that its effective date for entities other than pools
will be based on a future GASB standard on financial reporting, with the intention that it
will be implemented simultaneously with standards resulting from the Board’s MFBA
project (Statement 11) and the financial reporting project. As issued, GASB Statement No.
13, Accounting for Operating Leases with Scheduled Rent Increases, requires that
operating lease transactions be measured based on the provisions of that Statement for
leases with terms beginning after June 30, 1990. However, under Statement 13, accrual
recognition of operating lease revenue and expenditures in governmental and similar trust
funds was scheduled to begin in periods beginning after June 15, 1994, based on the
effective date of GASB Statement 11.

STANDARDS OF GOVERNMENTAL ACCOUNTING AND FINANCIAL

REPORTING

Amendment to GASB Statement 11

5. Paragraph 100 of GASB Statement 11 is superseded by the following:

The effective date for the application of the requirements of this Statement is
deferred to periods beginning approximately two years after an implementation
standard is issued. Early application is not permitted because of the need for
simultaneous implementation with GASB pronouncements on financial reporting,
capital reporting, pension accounting, and the types of nonrecurring projects and
activities that have long-term economic benefit and for which debt meets the
definition of general long-term capital debt. The new effective date and transition
requirements for this Statement will be established by a future Statement on
financial reporting.

Amendment to GASB Statement 10

6. Paragraph 82 of GASB Statement 10 is superseded by these two paragraphs:

82. For entities other than pools, the provisions of this Statement are effective for
periods beginning after June 15, 1994. Early application is encouraged. Entities
that report risk financing activities (claims and judgments) in governmental and

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 similar trust funds should recognize related expenditures and liabilities using the
modified accrual basis of accounting. That is, the amount calculated in
accordance with the provisions of paragraphs 52 through 75 of this Statement
should be recognized as expenditures and fund liabilities to the extent that the
amounts are payable with expendable available financial resources. Any
remaining accrued liabilities calculated in accordance with those paragraphs
should be reported in the General Long-Term Debt Account Group (GLTDAG).
Entities should report the total amount calculated for the year, in accordance with
paragraphs 52 through 75, by disclosure in the notes to financial statements or
parenthetical display on the operating statement as follows:

Expenditures:
Claims and judgments [$XX,XXX (total amount determined for the year under
GASB Statement 10) less (plus) $XXX change in GLTDAG liability]
$XX,XXX

On implementation, entities that elect to report their risk management activities in

an internal service fund should report long-term claims liabilities previously
reported in the GLTDAG as liabilities of the internal service fund. The equity
effect of these liabilities should be deducted from contributed capital. To the
extent that these liabilities exceed contributed capital, beginning retained earnings
should be restated.

82A. GASB Statement No. 11, Measurement Focus and Basis of Accounting—
Governmental Fund Operating Statements, will require amounts calculated in
accordance with paragraphs 52 through 75 of this Statement to be recognized on
an accrual basis in governmental fund operating statements. The effective date of
that Statement will be established by a future GASB pronouncement.

Amendment to GASB Statement 13

7. The second sentence of paragraph 9 of GASB Statement 13 is superseded by the

following:

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 The provisions of paragraph 7 are effective for those leases when GASB
Statement No. 11, Measurement Focus and Basis of Accounting—Governmental
Fund Operating Statements, becomes effective.

EFFECTIVE DATE

8. This Statement is effective upon issuance.

The provisions of this Statement need

not be applied to immaterial items.

This Statement was adopted by the affirmative votes of three members of the
Governmental Accounting Standards Board. Messrs. Antonio and Ives dissented.

Messrs. Antonio and Ives dissent from this Statement because it indefinitely delays
implementation of the most significant standard issued by the GASB in the nine years of
its existence—the introduction of accrual-basis operating statements for general
governmental activities. They believe the current accounting model, intended to be
improved by Statement 11, is ―broken‖ because it has the potential for reporting
significantly misleading operating results and therefore fails to meet the needs of users of
governmental financial reports. They suggest that the current cash-oriented model is most
likely to understate expenditures at the very time that accurate financial reporting is most
needed—in a time of fiscal stress, as governments seek ways to maximize services and
reduce cash outflows.
Specifically, they believe that the current accounting model is flawed because it fails
to recognize in the operating statement significant unpaid expenditures that result from
current-period transactions and events. These include items such as claims, wage deferrals,
unfunded pension and other employee benefits, and similar items related to the current
period but not requiring cash outflows until future periods. The accounting model also
results in reporting long-term debt issued to finance current operating expenditures as an
operating inflow rather than as a fund liability. In these instances, instead of producing a
straightforward statement of operating results, the accounting model produces operating
statements likely to confound all but the most sophisticated of users.
Messrs. Antonio and Ives also dissent because they believe the delay in requiring
implementation of Statement 11 is likely to raise questions in the minds of constituents
concerning (a) the commitment of the Board to achieve major improvement in

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governmental accounting and (b) the credibility of a process that will result in a complete
reversal of direction in a short period of time. They note that the GASB undertook the
project leading to Statement 11 nine years ago in response to numerous constituent
requests, including major representational organizations (GFOA, NASACT, and AICPA)
and many individual state and local governments and CPA firms. Statement 11 was
unanimously approved by the Board in 1990 after six years of concentrated research and
deliberation and extensive compromise, based on a Discussion Memorandum, two
Exposure Drafts, and nine public hearings held throughout the country. Now, just three
years later, the majority of the Board has indefinitely delayed its implementation.
Statement 11 includes a commitment to implement accrual accounting
simultaneously with the financial reporting model and other projects. The implementation
date established in Statement 11 (periods beginning after June 15, 1994) was, of course,
based on an assessment by the 1990 Board of the time needed to complete those projects.
In April 1992, the Board issued a Preliminary Views (PV) document presenting two
approaches to resolving a major open item for implementing Statement 11. Three Board
members prefer delay to adopting either of those approaches. Thus, the issue can be
expressed best as follows: ―Should Statement 11 be delayed for several more years in
order to meet the reporting model commitment, or are accountability and user needs best
served by moving forward with Statement 11 based on an interim reporting solution?‖
Messrs. Antonio and Ives believe that the lack of accrual-basis operating statements is so
serious, as noted earlier in this dissent, that further delay in implementing Statement 11
would be far more damaging to the public administration process than would failing to
meet the commitment for simultaneously developing a new reporting model. Accordingly,
Messrs. Antonio and Ives would support either approach in the PV document rather than
see Statement 11 delayed.
Messrs. Antonio and Ives also dissent because delay is contrary to the strong interest
expressed by user groups (notably bond insurers, investment bankers, buyers, raters, and
others in the investor community) in the prompt implementation of Statement 11. Those
respondents to the December 1992 Exposure Draft stated, among other things, that
implementation of Statement 11 will contribute to a more efficient marketplace for
municipal debt and conceivably could benefit taxpayers by ultimately lowering the cost of
capital. Messrs. Antonio and Ives note that the response from the user community on this
document was far greater than its response on any other GASB due process document.
They believe that adherence to the spirit of the GASB’s mission statement (which
emphasizes user needs) and the benefits of significantly improved financial reporting
demand prompt implementation of Statement 11.

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 Finally, Messrs. Antonio and Ives note that the past eight months of concentrated
effort by the Board and staff have yet to result in even one substantive decision about the
new model. In fact, no decisions have yet been made about how to define what constitutes
sufficient progress on the financial reporting model project, and therefore what decisions
the Board must make before issuing the contemplated 1994 and 1995 due process
documents.

Members of the Governmental Accounting Standards Board:

James F. Antonio, Chairman

Martin Ives, Vice-Chairman
Robert J. Freeman
Barbara A. Henderson
Edward M. Klasny

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Appendix A

BACKGROUND INFORMATION

9. GASB Statement 11 was issued in May 1990. It establishes measurement focus and
basis of accounting (MFBA) standards for governmental and expendable trust fund
operating statements. Statement 11 also provides guidance for balance sheet reporting of
general long-term capital debt—liabilities that result from capital asset acquisitions or debt
financing of certain nonrecurring projects or activities that have long-term economic
benefit. It does not, however, provide guidance for balance sheet reporting of debt issued
to finance operations or deficits (operating debt) or the long-term liabilities that arise from
the accrual of governmental fund expenditures. That guidance was expected to be
provided in a subsequent Statement on financial reporting.

10. After the issuance of Statement 11, the Board deliberated on a variety of financial
reporting model issues, including those referred to in paragraph 9 that were deferred from
the MFBA project. However, because of the contentiousness of the issues involved, the
overall reporting model project did not progress as expected. As a result, the Board
reevaluated its priorities. The Board concluded at that time that a narrow-scope project
that would address the balance sheet display issues deferred from Statement 11 and certain
operating statement issues could be completed in time to implement Statement 11 by its
intended effective date.

11. The Board issued a PV document on the narrow-scope project issues in April 1992.
Over 200 responses to the PV were received. The majority of the respondents preferred
that the effective date of Statement 11 be delayed until the financial reporting model
project is completed or at least until substantial progress is made in determining the
direction that the Board will follow in completing that project.

12. An Exposure Draft (ED), Measurement Focus and Basis of Accounting—

Governmental Fund Operating Statements: Amendment of the Effective Dates of GASB
Statement No. 11 and Related Statements, was issued on December 18, 1992 proposing to
delay the effective date of Statement 11 until issues related to the Statement were resolved
and more definitive progress on the financial reporting model was achieved by the Board.
Eighty responses were received.

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Appendix B

BASIS FOR CONCLUSIONS

13. The Board believes that the key to the general acceptance of broader-based accrual
standards is to implement them within a framework established as part of the financial
reporting model project. This position was first expressed in Statement 11 on
measurement focus and basis of accounting (MFBA) standards for governmental funds. In
Statement 11, the Board provided an extended effective date that was intended to allow for
simultaneous implementation with several related projects, including the financial
reporting model project. The Board believes that this commitment should be retained.

14. The Board continues to believe that the connection between the MFBA standards and
the financial reporting model is essential, and that events that have occurred during the
project’s history further support this position. For example, the first MFBA ED, issued in
1987, provided limited reporting model guidance and was overwhelmingly rejected by
respondents. This negative reaction was primarily a result of the financial reporting model
guidance offered.

15. When Statement 11 was issued in 1990, guidance on several of the more
controversial reporting model issues from the original ED had been omitted. After
spending a short period of time analyzing financial reporting model issues in 1990, the
Board determined that a subproject should be added to the technical agenda in order to
implement Statement 11 on a timely basis. During the next two years, nearly all of the
Board’s reporting model resources were devoted to the Statement 11 implementation
subproject. This subproject resulted in the issuance of a PV document in 1992. Again, a
large majority of the respondents rejected the Board’s proposals and requested that the
Board return to its commitment to implement Statement 11 simultaneously with the
reporting model and related projects.

16. After two unsuccessful attempts to implement the new MFBA standards, the Board
believes that another attempt without an overall reexamination of the reporting model
would not be successful and would seriously damage the GASB’s reputation and
credibility. This view has been strongly endorsed by a majority of the respondents to the
deferral ED.

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17. The Board understands both the strengths and the weaknesses of the current financial
reporting model. It provides the essential information needed to fairly present the financial
position and results of operations of the governmental funds. However, the effect of
certain long-term liabilities (for example, compensated absences) is not reported
immediately in the operating statements of governmental funds. These liabilities are
displayed on the face of the combined balance sheet, and changes in these liabilities are
disclosed in notes to the financial statements. The Board therefore believes the level and
extent of aggregation of financial statement displays should be explored to determine what
improvements may be possible to increase their usefulness. Moreover, the Board believes
that needed improvements go well beyond MFBA and can only be appropriately
developed within the context of the overall financial reporting model framework.

18. Some respondents have encouraged the GASB to either require or allow governments
the option to immediately implement Statement 11 using the alternative view display
proposal outlined in the PV document. The Board believes that even in a best-case
scenario the financial reporting model would be prejudged without adequate research and
field testing. The worst-case scenarios have more severe implications. First, the Board
could be subjecting governments to more than one change in resolving fundamental issues
(MFBA and the financial reporting model). Board resolution of model issues could result
in changing MFBA implementation standards after a relatively short period of time. This
type of piecemeal standards setting with the potential for possible contradictions could
impair the credibility of preparers of state and local government financial statements with
legislative bodies and the citizenry. Moreover, implementation of MFBA standards
without a complete reexamination of the reporting model could lead to financial statement
displays that do not adequately convey governments’ financial position or results of
operation. Misinterpretation of these data could cause market inefficiencies that far
outweigh any that are related to the current financial reporting model. Because of these
concerns, the Board chose not to allow immediate implementation of Statement 11.

19. The Board remains committed to the principles of accrual accounting and the guiding
principles of its mission statement. Significant resources are being devoted to the financial
reporting model project. In keeping with past projects of this magnitude (including the
MFBA project), the Board is moving forward with all deliberate speed. To date, the
Board’s progress on the financial reporting model has resulted in developing a framework
of reporting information categories and their objectives that will be a useful guide for
developing future financial reporting standards. Within this framework, progress also has

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been made in developing some of the new basic governmental financial statement
approaches and formats.

20. Due process documents on the conceptual framework for the model and reporting
model standards for the basic financial statements are scheduled to be released in 1994
and 1995, respectively. Paragraph 5 provides approximately a two-year period for the
implementation of Statement 11 after a final implementing standard is issued.
Respondents to both the PV document and the ED indicated that an adequate period of
time should be allowed for education, training, and systems changes that would be
necessary to implement that Statement. The Board believes that this time period should be
sufficient to allow for the implementation of accounting systems changes and the
development of educational and training programs for preparers and other interested
parties. The Board also believes that with the focused efforts of all Board members, these
goals can be achieved.

Statement 10 Implementation

21. Current authoritative standards for recognition of claims and judgments are presented
in GASB Codification Section C50, ―Claims and Judgments.‖ That section requires
entities to recognize loss liabilities and related expenditures/expenses in conformity with
FASB Statement No. 5, Accounting for Contingencies, using the modified accrual basis of
accounting for governmental and similar trust funds. Although the provisions of GASB
Statement 10 for entities other than pools are based principally on FASB Statement 5,
GASB Statement 10 clarifies reporting of incurred but not reported claims and
transactions with internal service funds and also provides disclosure requirements that
extend beyond those required by FASB Statement 5. For this reason, the Board concluded
that it should establish an effective date for GASB Statement 10 prior to the effective date
of Statement 11, noting that expenditure and liability recognition within governmental and
similar trust funds could be implemented using the modified accrual basis of accounting.

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Appendix C

CODIFICATION INSTRUCTIONS

22. The sections that follow update the Codification of Governmental Accounting and
Financial Reporting Standards as of June 30, 1992 for the effects of this Statement. Only
the paragraph number of this Statement is listed if the paragraph will be cited in full in the
Codification.

***

CLAIMS AND JUDGMENTS SECTION C50

[Revise the Note as follows:] [Note: The requirements of this section will be modified
by GASB Statement No. 10, Accounting and Financial Reporting for Risk Financing and
Related Insurance Issues, effective for financial statements for periods beginning after
June 15, 1994. Early application is encouraged. Statement 10 is reproduced in Appendix A
of this Codification.]

***

LEASES SECTION L20

Sources: [Add the following:] GASB Statement 17

[Revise footnote 3 to paragraph .113 as follows:]

3Governmental and similar trust funds are required to recognize operating lease revenue and expenditures
using the accrual basis of accounting when GASB Statement No. 11, Measurement Focus and Basis of
Accounting—Governmental Fund Operating Statements, becomes effective. Statement 11 is reproduced in
Appendix A of this Codification. [GASBS 13, ¶9, as amended by GASBS 17, ¶7]

***

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COLLEGES AND UNIVERSITIES SECTION Co5

[Delete footnote 1 and renumber the other footnotes.]

***

GASB STATEMENTS THAT ARE NOT YET IN EFFECT APPENDIX A

GASB Statement No. 10

[Revise paragraph 82 and add a new paragraph 82A, as follows:]

82. For entities other than pools, the provisions of this Statement are effective for periods
beginning after June 15, 1994. Early application is encouraged. Entities that report risk
financing activities (claims and judgments) in governmental and similar trust funds should
recognize related expenditures and liabilities using the modified accrual basis of
accounting. That is, the amount calculated in accordance with the provisions of paragraphs
52 through 75 of this Statement should be recognized as expenditures and fund liabilities
to the extent that the amounts are payable with expendable available financial resources.
Any remaining accrued liabilities calculated in accordance with those paragraphs should
be reported in the general long-term debt account group. Entities should report the total
amount calculated for the year, in accordance with paragraphs 52 through 75, by
disclosure in the notes to financial statements or parenthetical display on the operating
statement as follows:

Expenditures:
Claims and judgments [$XX,XXX (total amount determined for the year under
GASB Statement 10) less (plus) $XXX change in GLTDAG liability]
$XX,XXX

On implementation, entities that report their risk management activities in an internal

service fund should report long-term claims liabilities previously reported in the
GLTDAG as liabilities of the internal service fund. The equity effect of these liabilities
should be deducted from contributed capital. To the extent that these liabilities exceed
contributed capital, beginning retained earnings should be restated.

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82A.GASB Statement No. 11, Measurement Focus and Basis of Accounting—
Governmental Fund Operating Statements, will require recognition of amounts calculated
in accordance with paragraphs 52 through 75 of this Statement to be recognized on an
accrual basis in governmental fund operating statements. The effective date of that
Statement will be established by a future GASB pronouncement.

GASB Statement No. 11

[Revise paragraph 100 as follows:]

100. The effective date for the application of the requirements of this Statement is deferred
to periods beginning approximately two years after an implementation standard is issued.
Early application is not permitted because of the need for simultaneous implementation
with GASB pronouncements on financial reporting, capital reporting, pension accounting,
and the types of nonrecurring projects and activities that have long-term economic benefit
and for which debt meets the definition of general long-term capital debt. The new
effective date and transition requirements for this Statement will be established by a future
Statement on financial reporting.

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