An investigation of city financial statement readers' reaction to dual-basis reporting of general fund operating results: integration or emphasis?



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Texas Tech University


Generally accepted accounting principles require that a city present two "operating statements" for its General Fund when an operating budget for that Fund has been legally adopted. One statement must be prepared on the modified accrual basis of accounting, as defined. The other statement includes a budget-to-actual comparison of the Fund's financial activities during the fiscal year. The budgetary basis of accounting does not need to be the same as the modified accrual basis, hence, the two statements may present differing information.

The primary purpose of this study was to investigate the relative reliance on the two statements by readers of city financial reports, grouped as (1) citizens, (2) legislative and oversight officials, and (3) investors and creditors. The first two groups were predicted to rely primarily on the budgetary statement, while the third group was predicted to rely on the modified accrual-basis statement. The study's second purpose was to obtain information on the apparent helpfulness of four separate approaches to reconciling (identifying and explaining) the differences between the modified accrual operating statement and the budgetary statement when the latter is prepared on a basis of accounting different from the modified accrual basis.



Financial statements, Municipal budgets