Chapter 4: Governmental Accounting — Measurement Focus and Basis of Accounting

Traditionally, the majority of governmental financial information has been maintained and reported in fund financial statements on the modified accrual basis of accounting (or the accrual basis for business-type activities). GASB Statement 34 established additional reporting (the government-wide statements) that represented a major shift in the focus and content of governmental financial statements. Collecting and reporting the additional financial information required by the government-wide statements added to the complexity of financial reporting activities and had significant implications for the traditional focus and basis of accounting used in governmental financial statements.

The government-wide financial statements consist of a statement of net position and a statement of activities and are prepared using the economic resources measurement focus and the accrual basis of accounting. Thus, revenues are recognized in the accounting period in which they are earned and become measurable without regard to availability, and expenses are recognized in the period incurred, if measurable.

Governmental fund financial statements are prepared using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized in the accounting period in which they become available and measurable, and expenditures are recognized in the period in which the fund liability is incurred, if measurable, except for unmatured interest on general long-term debt, which should be recognized when due (GASB 2010). Both proprietary fund financial statements and fiduciary fund financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting.

Exhibit 1 summarizes the measurement focus and basis of accounting for each reporting element and type of fund.

GASB Statement 20, as amended by Statement 34, allowed a government the option of applying all FASB Statements and Interpretations issued after November 30, 1989—except those that conflict with or contradict GASB pronouncements—to enterprise funds and government-wide financial statements. This election was effectively eliminated by GASB Statement 62, although entities may continue to apply, per other accounting literature, such guidance.