Indiana now requires some cities, towns, and counties to publish financial statements in accordance with GAAP (Generally Accepted Accounting Principles).
IC 5-11-1-4 now requires GAAP financial reporting for counties, cities, and towns that issue bonds, on the following schedule:
CITIES AND TOWNS:
Calendar year 2016 (reports filed in 2017) for cities & towns over 250,000 population
Calendar year 2018 (reports filed in 2019) for cities & towns over 100,000 population
Calendar year 2019 (reports filed in 2020) for cities & towns over 75,000 population
Calendar year 2016 (reports filed in 2017) for counties over 250,000 population
Calendar year 2018 (reports filed in 2019) for counties over 175,000 population
Calendar year 2019 (reports filed in 2020) for counties over 100,000 population
How does GAAP differ from the standard Indiana accounting practices developed over the years by fiscal officers and the State Board of Accounts? The standard system focuses on budgets just one year at a time. Little attention is directed at the future. GAAP builds on that system by recognizing transactions, especially liabilities, affecting future years.
Old accounting practices fail to report huge liabilities, such as retiree benefits. That is detrimental to the holders of municipal bonds, who may not be paid if cash runs short. It is also detrimental to taxpayers, who will ultimately pay the bills. GAAP reporting forces units to report liabilities fairly. Units with too many liabilities may lose their favorable credit ratings and find themselves unable to borrow more.
However, GAAP is costly. Most Indiana units do not have staff with the expertise to prepare them. They will need to beef up their staffing or hire consulting accountants to perform the work. Many people believe the cost will be offset by more favorable credit terms on bonds. That is why several Indiana units have issued GAAP statements for years, even when it was not required.
Most units with audited GAAP statements will probably opt to submit a comprehensive annual financial report (CAFR) to the Government Finance Officers Association (GFOA) for evaluation. A CAFR includes the GAAP statements along with several pages of other information. The Indiana law does not require a CAFR, but they are favored by bond rating agencies like Standard & Poor’s. For units issuing bonds, the hope of a better rating could be a motivation to spend the additional money to prepare a complete CAFR and submit it to GFOA.
Our firm is especially well suited to answer questions and assist counties, cities and towns interested in GAAP financial statements. Our principal accountant is a former assistant national director of government accounting for a national CPA firm. He spent years supervising the preparation of GAAP statements – Click his name to view Curt Coonrod.
If you have questions or would like further information, please contact us at: Coonrod@Coonrodcpa.com
This article is intended to provide information of general interest to local government officials in Indiana. The information is not guaranteed to be applicable or appropriate in particular circumstances. Local officials should consult competent professionals before acting on any information contained in this article. We are not attorneys. Advice of a legal nature should be sought only from qualified attorneys.
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