Rethinking Financial Reporting: Top Questions Answered

The primary goal of Rethinking Financial Reporting (RtFR) is to reach a new state of financial reporting that provides much better value to the users of the report and that does so at an acceptable cost to preparers. We hope that GASB will utilize our research and conclusions in its standards setting.  GFOA will pursue our goal regardless and will develop and follow the strategies needed. RtFR is reaching the end of our first phase which is to “define the problem”. You can see our findings here. We are now starting to design and develop solutions. Nonetheless, GFOA is committed to the accountability, consistency and comparability that GAAP reporting currently provides to state and local governments.  GFOA also supports financial reporting that is efficient and addresses the information needs of citizens, elected officials and other community stakeholders, and recognizes that current GAAP may not achieve these objectives.

We have many thoughts. First, RtFR positions the audit as a form of “trusted third party validation”. The auditor is a trusted third party that provides assurances that the basic financial statements are a fair presentation of financial condition. Second, that validation plus the long length and detailed information in an ACFR sends a signal that due diligence has been performed. The signal is treated as a shortcut around the need for deeper understanding of financial condition. We might call this the “Signal Theory of Financial Stewardship."  We agree that it is possible to do much better than treating the ACFR as a signal. 

First, see our answer to Q2. Second, our report Next Gen Financial Reporting document identifies freeing up finance officer time to provide context specific interpretation as an important benefit of RtFR. So, we agree wholeheartedly.

To be determined.

We agree the document must become much more accessible to the average user. RtFR proposes to go much deeper than terminology changes. Next Gen Financial Reporting describes one approach to how we can make financial reporting more accessible.

Though many or most of the people in the room at the conference session did seem to agree, we must recognize that many people outside the room do not. For example, many users experience the benefits of financial reporting but do not bear any of the costs. Therefore, the focus of RtFR so far has gone into defining the problem so that we can make the best possible case for rethinking. That said, our first report does define important principles that can become the basis for a solution to overload from ALL work associated with financial reporting (GASB or otherwise). Now that our first report is done we will turn our efforts to developing, piloting, and incubating solutions. 

See our Next Gen Financial Reporting document for more details on what we propose. Notably, we have published this as a Word document and invite others to add their thoughts to the document. Also, we already have our first volunteer local governments to pilot Next Gen Financial Reporting and work has commenced on the pilot. 

Next Gen Financial Reporting is focused on that, but you might also check out GFOA’s Fiscal Fluency Made Easy, which is about how to communicate numbers and financial data, generally.

We have not focused specifically on the single audit yet, but nothing is out of bounds. For example, the RtFR team has discussed doing a cost benefit on substantially raising the dollar threshold for the Single Audit. 

The GFOA Code of Ethics describes trust as the finance officer’s most valuable asset. The Code of Ethics site provides several resources to help the finance officer increase their reputation for trustworthiness.

Yes! Check out this article. 

COA award criteria include the issuance of an annual comprehensive financial report (ACFR) that complies with both GAAP and with GFOA’s best practices. There is no current plan to change the criteria, including conformity with GAAP.  Nonetheless, we hope and expect that the results of the RtFR project may affect either or both sources of criteria. 

GFOA members appear to be divided on who the most important audience is, exactly. However, it is clear that GFOA members do NOT think it is solely, or even primarily, bond holders. Hence, the RtFR initiative will approach the research to understand the most important needs of all the major stakeholders.  

GFOA supports popular reports. However, we are cognizant popular annual financial reports and other popular reporting is a solution the requires “layering on” a new type of report in addition to the ACFR. The work done to produce the ACFR should produce value for all audiences. Next Gen Financial Reporting further explores this idea.

At the 2024 California Society of Municipal Finance Officers meeting audience participation suggested that the most important opportunity cost of the current approach to financial reporting was that it detracted from staff ability to build new skills and engage in meaningful work. Clearly, this will not help with recruitment or retention.