Government Accountability and Financial Reporting: Are Two Reporting Models Better Than One?

Posted: 6 Mar 2020

See all articles by Won Jung Kim

Won Jung Kim

California State Unversity, Sacramento

Date Written: February 21, 2020


The primary goals of financial reporting for U.S. state governments are to provide useful information for assessing whether governments’ fiscal performance over the short term and the operational effectiveness of governmental activities with a longer-term perspective are met. To meet these dual objectives, the Governmental Accounting Standards Board (GASB) requires state governments to prepare two sets of financial statements: one prepared under a full-accrual-basis accounting and the other prepared using a modified-accrual-basis. The GASB contends that providing both sets of statements increases the overall informativeness of governmental reports. Using hand-collected data from the 50 U.S. state governments from 2002 to 2015, this paper provides empirical evidence on the contexts under which the two financial reporting models provide information that is either redundant or incrementally useful. I show that, on average, (1) both full- and modified-accrual-basis financial statements similarly explain current outcomes and predict future outcomes associated with the welfare of citizens (measured as gross state product, personal disposable income, and unemployment), and (2) full-accrual-basis financial statements better explain and predict current and future credit risk. These findings support the GASB’s conjecture that full-accrual-basis financial statements provide more useful information to creditors. They do not, however, support the conjecture that modified-accrual-basis financial statements provide incrementally useful information about either credit risk or citizens’ welfare.

Keywords: public accountability, GASB Statement No. 34, state governments, accrual accounting, modified accrual accounting

JEL Classification: H71, H72, H83, M48

Suggested Citation

Kim, Won Jung, Government Accountability and Financial Reporting: Are Two Reporting Models Better Than One? (February 21, 2020). Available at SSRN:

Won Jung Kim (Contact Author)

California State Unversity, Sacramento ( email )

6000 J Street
Sacramento, CA 95819-6082
United States
8015168851 (Phone)
95819-6088 (Fax)

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