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<br />. <br /> <br />. <br /> <br />Equally abhorrent to some of them is a project to develop governmental accounting <br />concepts by the Financial Accounting Standards Board, which makes rules for corporations <br />and non-business entities. Many fear this could lead to domination by the F ASB which <br />allegedly lacks experience in the public sector. <br /> <br />As a compromise, a Governmental Accounting Standards Board has been proposed. This <br />non-federal body would set standards and seek compliance under the aegis of state and local <br />governments, the accounting profession, municipal securities dealers, and users of financial <br />statements. <br /> <br />There is no shortage of existing accounting rules. The industry bible is Governmental <br />." Accounting, Auditing and Financial Reporting (GAAFR), written by the National Council of <br />Governmental Accounting and published by the Municipal Finance Officers Association. <br />Statement No.1 restated GAAFR last year. An implementation of it soon will be released <br />by MFOA. There's also the industry audit guide by the American Institute of Certified <br />Public. Accountants, pronouncements by F ASB, state legal codes and academic texts. <br /> <br />S&P's Accounting Policy <br /> <br />A bond rating implies the existence of adequate information to make a credit judgment. <br />While S&P does not and cannot perform an audit function, the quality of financial reporting <br />and accounting has long been considered in analyzing applications for bond ratings. <br /> <br />S&P has rejected applications and lowered or withdrawn ratings where reporting was <br />inadequate. Last spring, that practice was formalized with publication of an S&P statement <br />on municipal accounting and financial reporting. (Seeback page.) Accounting is one of many <br />factors to be evaluated in the rating process on a case-by-case basis. The policy requests that <br />financials: <br /> <br />-Conform to generally accepted accounting principles <br /> <br />-Be independently audited within six months of the fiscal year end <br /> <br />-Be stated on a modified accrual, rather than cash basis, so that revenues are reported <br />when they become measurable and available to pay expenses <br /> <br />-Contain an auditor's opinion and disclosure ,notes, and cite any variance from GAAP <br />which impact the results. <br /> <br />A cash-basis system shows revenues and expenditures only when cash is received or <br />. spent. Since many transactions may go unreported until payments are made, a cash system <br />"may not accurately represent a government's true financial condition. <br /> <br />Earlier this year, San Francisco's bond rating was withdrawn because of the lack <br />of.timely financial reporting. Bonds may be downgraded because of poor accounting plus <br />deteriorating fiscal or economic factors, as with Massachusetts last May, and Toledo, Ohio, <br />in June. Elsewhere, reporting weaknesses may be cited while bond ratings are maintained, as <br />with New York State and Puerto Rico this year. Both say they are converting to GAAP. <br /> <br />. As each issuer applies for a bond rating, compliance with S&P's accounting policy is <br />evaluated and entered into a data bank. Ultimately, a substantial body of information will be <br />available through this source. <br /> <br />S&P currently has a project team studying the question of whether S&P should simply <br />withdraw from the business of rating issuers that utilize cash-basis accounting. <br /> <br />Markel Penalties <br /> <br />This fall, S&P asked the research firm of Goldstein/Krall Marketing Resources Inc. to do <br />a market survey on municipal accounting. Interviews were conducted among 200N <br />2 <br />