Governmental operating statements: An examination of understandability and usefulness
Patton, Terry K
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The Governmental Accounting Standards Board (GASB) issued Statement No. 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments, in June 1999. The GASB believes that the application of Statement No. 34 will increase the understandability and usefulness of governmental financial reports to their primary users: the citizenry, legislative and oversight officials, and investors and creditors. The primary purpose of this research was to test whether the three operating statements required by Statement No. 34—the Statement of Activities; the Statement of Revenues, Expenditures, and Changes in Fund Balances; and the Budgetary Comparison Statement—would be understandable and useful to the three user groups. Four research questions were asked. Did user groups (a) have different reasons for using governmental operating statements? (b) have different levels of understanding for portions of the statements? (c) use different elements within the statements to attempt to understand a city's operations? (d) value the statements differently? The statistical analysis of responses to a survey, which was sent to representatives of the user groups, indicated that significant differences did exist among the groups for each of these questions. A model of antecedents to user's choice of governmental operating statements was developed to attempt to link the reasons for using operating statements and the understandability of the operating statements to the user's choice of an operating statement. The model was designed to test some of the GASB's underlying assumptions and expected relationships between operating statements and user objectives that led the GASB to issue Statement No. 34. Overall, the results of testing the model did not provide support for the GASB's adoption of Statement No. 34. However, the results were mixed. The expected relationships were found between the reasons for using the Statement of Revenues, Expenditures, and Changes in Fund Balances and the value placed on it by respondents. The expected relationships were not found for the other statements. The relationship among the antecedents to understandability, an understandability test score, and the value placed on the operating statements also did not provide support for Statement No. 34. However, additional research needs to be conducted to validate these findings.