The Governmental Accounting Standards Board released a study Monday on utilization of GAAP among state and local governments and found all the states are using GAAP, but only about three-quarters of localities.

The study and an accompanying graphical summary found that 100% of states are using GAAP, but only 74% of audited counties studies by GASB are using GAAP and 71% of audited municipalities studied are using GAAP. For the study, GASB used auditor opinion letters of all 50 states, 435 counties, and 890 municipalities included in the 2021 U.S. Census Bureau Census of Governments to determine the financial reporting framework they used.

GASB also studied special districts in the 30 states where it could locate a single statute or administrative code that specifies the financial reporting framework. Financial statements for many of these special districts were difficult to locate, but for the 884 districts whose financial statements could be found, 89% (785) were using GAAP. 

As far as the factors associated with GAAP utilization, GASB found that larger governments (i.e., those with more revenue), those with more debt, and those subject to a single audit are more likely to use GAAP. In contrast, those governments in states with a well-developed alternative financial reporting framework (with supporting manuals and templates) are less likely to use GAAP.

The study will provide a foundation for GASB’s future assessments of GAAP utilization. The identification and categorization of state financial reporting requirements will enable GASB to periodically evaluate whether those changing requirements result from changes in state law. GASB will be able to use its statistical model to predict the likelihood of a single government or groups of governments utilizing GAAP and can update the model for additional factors that may affect GAAP utilization. Its regression model is designed for replicability, allowing for future assessment of GAAP utilization.

“This is particularly important as the rulemaking associated with the Financial Data Transparency Act of 2022 may require an assessment of whether and how a taxonomy can accommodate GAAP, as well as non-GAAP, financial reporting frameworks,” said the report. “Additionally, our results underscore the need for future work concentrated on monitoring changes in state financial reporting requirements and assessments of GAAP utilization among smaller governments for which financial statements are less readily available.”