¶ … GASB No.34's government financial reporting model: Evidence on its information relevance, published in The Accounting Review. This article looks at a government accounting regulation, GASB No. 34, which requires lower level governments to provide "consolidated, government-wide financial statements.," which of course will require reconciliation between the different entities and the overall government financial statements. The authors examine this regulation from the perspective of its main objective, which is to provide better quality information to stakeholders about government budgets, both on an organization level but also on a government-wide level. This rule was passed in the interest of improving transparency, thus the authors sought to test the rule's effectiveness at providing information relevant to assessing a government's default risk. The authors argue that this is the case. The null hypothesis is that GASB No. 34 would be found to have improved information quality, and that it did so. They found that the gains were incremental, however, to that provided by government funds statements. Thus, while information quality increased, it did not increase by that much. The authors further found that the financial performance of government entities was typically related to the accrual of working capital, as opposed...

It is important for regulators as well because they can understand better if their regulations are having the intended effect, with respect to improving the quality of information regarding government financial statements.
The first comment is that the study plays an important role in understand the financial position of state and local governments. In an era where many such governments face declines in tax base, and where many also have balanced budget provisions, it is important that stakeholders are able to work with transparent financial statements. These of course need to be on the government-wide level, but they also need to be at the agency fund level. The latter helps government officials to identify the areas where there is the greatest need for improvement, and thus allows them to shore up funds that are weak.

The second comment is that while members of the public typically do not see government financial statements, having that extra level of transparency is important. Working with guidelines like GASB No. 34 can give the public greater confidence in…