Accounting
The state of GAAP: Government financial reporting and the road ahead under the FDTA
A landmark research study by the Governmental Accounting Standards Board has provided one of the most detailed examinations to date of how state and local governments in the United States use GAAP.
The findings, published in the March 2025 staff working paper “
The study confirms that all
One of the key contributions of the study is its categorization of state-level financial reporting requirements. Each state has the authority to determine whether and how GAAP is mandated. The researchers placed states into five categories: those that require GAAP with no exceptions; those that require it with exceptions; those that prescribe a non-GAAP framework with or without exceptions; and those that do not specify a framework at all. While GAAP is universally required at the state level, the requirements for counties, municipalities and special districts are far more variable. The lack of a uniform mandate at the local level has created a fragmented reporting environment, especially for smaller jurisdictions.
To better understand why some governments adopt GAAP even when it’s not required, the study analyzed a sample of 1,372 counties, municipalities and special districts in seven states that offer flexibility in choosing their reporting framework. Several statistically significant factors were found to influence GAAP adoption. Larger governments, measured by total revenue, are more likely to utilize GAAP. The same is true for governments carrying higher levels of outstanding debt, particularly those that issue public debt requiring continuing disclosures to the Municipal Securities Rulemaking Board. Additionally, governments subject to a federal Single Audit — triggered by the receipt of $750,000 or more in federal funding — were more inclined to adopt GAAP, likely because of the audit standards and federal oversight such funding entails.
The most striking finding of the study was the impact of state-supported alternative financial reporting frameworks. In states like Indiana, Kansas and Washington, which offer comprehensive non-GAAP frameworks complete with manuals, templates and technical support, governments were up to 12 times less likely to use GAAP. Among governments subject to a Single Audit, those without a state-supported alternative were 36 times more likely to follow GAAP. This dramatic disparity illustrates the powerful role that institutional support — and not just regulation — can play in shaping accounting practices.
The researchers also contextualize these patterns using institutional theory, which posits that governments adopt certain practices not merely for technical reasons, but to signal legitimacy to stakeholders. Engagement in professional associations and the need to demonstrate transparency to voters, creditors and oversight agencies all serve as pressures toward GAAP adoption. In some cases, political scrutiny or financial mismanagement has led to legislative reforms mandating GAAP compliance, underscoring the symbolic as well as practical importance of standardized reporting.
These findings are especially relevant as governments prepare for the implementation of the Financial Data Transparency Act, passed in 2022. The FDTA requires municipal securities issuers to submit their financial disclosures in machine-readable, standardized formats using open data standards. Although the act does not mandate GAAP, it requires structured financial reporting that may more easily align with GAAP-based formats.
For governments already reporting under GAAP, this transition to digital reporting is expected to be seamless. Their financial statements follow a consistent structure that can be more readily mapped to the taxonomies being developed for FDTA compliance. On the other hand, governments using non-GAAP frameworks may face significant challenges. These governments will need to map their existing reports to new standardized formats, which could require updated accounting systems, training for staff or outside technical assistance. The availability of well-supported alternative frameworks — an asset in the past — may now become a hurdle to compliance if those frameworks do not translate cleanly into the new data requirements.
As a result, FDTA could become a catalyst for broader GAAP adoption. Governments may conclude that aligning their reporting with GAAP will make FDTA compliance easier and reduce the cost and complexity of converting financial data into the required digital formats. Midsized governments and those on the margins of GAAP adoption may be especially susceptible to this shift. At the same time, the pressure to comply with FDTA may expose the limitations of existing alternative frameworks, potentially prompting states to revisit their support structures or consider standardization strategies that better align with federal expectations.
GASB’s working paper serves as a valuable foundation for monitoring how these dynamics play out. It not only provides updated estimates of GAAP usage but also introduces a replicable model for assessing changes over time. This is particularly critical in the coming years, as the federal push for data transparency, technological modernization and fiscal accountability converges with longstanding debates over accounting standards in the public sector.
In summary, the GASB study reveals a nuanced picture of financial reporting across U.S. governments, shaped by institutional pressures, state mandates, organizational capacity and market incentives. As the FDTA begins to take effect, it is poised to influence these patterns — potentially accelerating the shift toward GAAP or, alternatively, driving efforts to modernize and standardize non-GAAP reporting systems. Either path will require careful coordination among governments, regulators and professional organizations to ensure the goal of the FDTA — clear, comparable, and accessible financial information — is achieved.
The top accounting firms lost a piece of market share for public company audits in 2024.
The 10 firms with the most Securities and Exchange Commission audit clients accounted for 65% of the total market (excluding special-purpose acquisition companies), down from 70% in 2023, according to Ideagen Audit Analytics’ annual “Who Audits Public Companies”
Deloitte overtook Ernst & Young for the top spot, auditing 901 clients compared to EY’s 869 clients. EY, which had 971 clients
There were 6,285 SEC registrants in 2024, down roughly 300 from the previous year and down roughly 600 from 2022. The number of SPACs also dropped to 150, down from 300 SPACs the prior year. This trend is unsurprising as SPACs that went public during the boom of 2021 have mostly completed their lifecycles.
By jurisdiction, mid-tier firms (defined as the 10 firms with the highest audit fees, excluding the Big Four) lost two points of their U.S. market share, with 18% of market share in 2024 versus 20% in 2023. However, mid-tier firms ate up 26% of foreign market share, up 14 points from the previous year.
Market shares by U.S. region remained largely unchanged year-to-year, with the Big Four holding the largest share of New England (68%) and holding their smallest share in the Southeast (47%).
By industry, the Big Four lost considerable market share in energy and transportation, from 71% in 2023 to 58% in 2024; their share was eaten up by other firms.
Ideagen’s report includes any registrants that filed a periodic report with the U.S. Securities and Exchange Commission after Jan. 1, 2024. The auditor market share figures were as of Jan. 31, 2025.
External auditors have long been tasked with ensuring financial integrity, detecting fraud and providing an independent opinion on a company’s financial statements.
Now, with the rise of continuous auditing, this role is evolving. Should auditors be involved in real-time financial monitoring? Will continuous auditing enhance audit quality or introduce new risks? And will AI and automation result in continuous audits that are more efficient, or will it drive up complexity and costs?
These questions go beyond technology — they redefine the audit function, independence and financial reporting expectations. The potential is huge, but so are the challenges that come with it.
What is continuous auditing?
Think of a traditional audit like an annual medical check-up — you go in once a year, the doctor reviews your health and gives you an assessment based on that visit. Continuous auditing? That’s more like wearing a smartwatch that tracks your health 24/7, constantly looking for issues as they happen. It uses AI, automation and analytics to monitor transactions in real time. Instead of waiting until the end of the reporting cycle, risks, anomalies and possible control issues are flagged as they happen.
At first glance, continuous auditing seems like a clear win — faster fraud detection, stronger financial oversight and fewer year-end surprises. But it also raises a critical question: If auditors are reviewing financial data year-round, are they expected to report findings externally in real time? And if they are not, could that expose them to greater liability?
The shift from traditional audits to continuous audits
Auditors traditionally provide independent opinions after management closes the books, but continuous auditing challenges this boundary. When auditors monitor financials year-round, the distinction between independent oversight and management’s control function can become blurred — at least in perception.
Flagging issues at many touchpoints during the year may also introduce concerns about their accountability for financial outcomes before the final opinion is issued.
Independence will always be a core pillar of auditing, both in fact and perception. As auditors engage in real-time monitoring, the challenge becomes ensuring they remain objective third parties rather than part of management’s oversight process. Regulators must then establish clear safeguards to uphold auditor independence while leveraging continuous auditing’s benefits.
AI and automation
This shift isn’t just happening because companies want it — it’s happening because AI and automation have made it possible. And let’s be honest: this technology is a game-changer. AI is transforming auditing by enabling real-time anomaly detection, predictive risk assessment and full population testing with greater accuracy than traditional sampling.
For audit firms, this means a fundamental shift in how audits are conducted. AI isn’t just making audits faster — it’s enabling full population analysis to catch risks that sampling might miss, automating repetitive tasks to give auditors more time for complex judgment calls, and strengthening fraud detection with continuous monitoring that builds investor confidence. How ready are firms to embrace this transformation?
What about the cost of continuous auditing?
Cost is another part of this debate around continuous auditing. Continuous auditing smooths workloads year-round, optimizing firm resources and specialists. AI handles routine transactions, freeing auditors to focus on complex, high-risk (high value) areas requiring expert judgment. It also allows management to have visibility of the audit fee build-up — distinguishing between tasks that can be automated with AI and the specialized work that demands deeper professional judgement.
While continuous auditing offers those advantages, one could argue this may lead to higher audit fees if auditors are “on the ground” 24/7, the cost of upfront investment in AI tools, and added complexity in maintaining compliance with new regulations. The final answer depends on how firms adopt it — but in the long run, efficiency gains and stronger risk detection (i.e., preventing costly year-end financial restatements) may strongly justify the investment.
Will auditors fully embrace continuous auditing?
The demand for faster financial assurance is already here. Shareholders want more transparency and faster reporting, regulators want better oversight, and companies see AI-driven monitoring as an advantage. For this to happen, regulatory standards will need to evolve to address real-time assurance and how it aligns with auditor independence. Audit firms will need to balance technology investment with governance structures that ensure objectivity, transparency and liability-mitigation.
As companies (and internal audit practitioners) adopt rolling and periodic assurance models with AI-driven monitoring, the shift to a fully continuous audit model for external audit is not just a possibility — it’s within reach. But getting there requires more than just technology; it demands clear regulatory frameworks, strategic investment, and strong legal protection and independence safeguards to maintain trust in the audit process.
AI and automation will rewrite the playbook, shifting audit expectations from a single annual opinion to rolling, real-time insights. With historical audits losing their shine, more stakeholders are asking for a better solution.
Continuous auditing is no longer theoretical — it’s happening now. The challenge is ensuring it enhances audit quality while maintaining independence. With AI redefining expectations, are audit firms, regulators and businesses ready to embrace this shift? The conversation is just beginning — where do you stand?
Senate Republicans unveiled a budget blueprint designed to fast-track a renewal of President Donald Trump’s tax cuts and an increase to the nation’s borrowing limit, ahead of a planned vote on the resolution later this week.
The Senate
Republicans say they are assuming that the cost of extending the expiring 2017 Trump tax cuts will cost zero dollars.
The draft is a sign that divisions within the Senate GOP over the size and scope of spending cuts to offset tax reductions are closer to being resolved.
Lawmakers, however, have yet to face some of the most difficult decisions, including which spending to cut and which tax reductions to prioritize. That will be negotiated in the coming weeks after both chambers approve identical budget resolutions unlocking the process.
The Senate budget plan would also increase the debt ceiling by up to $5 trillion, compared with the $4 trillion hike in the House plan. Senate Republicans say they want to ensure that Congress does not need to vote on the debt ceiling again before the 2026 midterm elections.
“This budget resolution unlocks the process to permanently extend proven, pro-growth tax policy,” Senate Finance Chairman Mike Crapo, an Idaho Republican, said.
The blueprint is the latest in a multi-step legislative process for Republicans to pass a renewal of Trump’s tax cuts through Congress. The bill will renew the president’s 2017 reductions set to expire at the end of this year, which include lower rates for households and deductions for privately held businesses.
Republicans are also hoping to include additional tax measures to the bill, including raising the state and local tax deduction cap and some of Trump’s campaign pledges to eliminate taxes on certain categories of income, including tips and overtime pay.
The plan would allow for the debt ceiling hike to be vote on separately from the rest of the tax and spending package. That gives lawmakers flexibility to move more quickly on the debt ceiling piece if a federal default looms before lawmakers can agree on the tax package.
Political realities
Senate Majority Leader John Thune told reporters on Wednesday, after meeting with Trump at the White House to discuss the tax blueprint, that he’s not sure yet if he has the votes to pass the measure.
Thune in a statement said the budget has been blessed by the top Senate ruleskeeper but Democrats said that it is still vulnerable to being challenged later.
The biggest differences in the Senate budget from the competing House plan are in the directives for spending cuts, a reflection of divisions among lawmakers over reductions to benefit programs, including Medicaid and food stamps.
The Senate plan pares back a House measure that calls for at least $2 trillion in spending reductions over a decade, a massive reduction that would likely mean curbing popular entitlement programs.
The Senate GOP budget grants significantly more flexibility. It instructs key committees that oversee entitlement programs to come up with at least $4 billion in cuts. Republicans say they expect the final tax package to contain much larger curbs on spending.
The Senate budget would also allow $150 billion in new spending for the military and $175 billion for border and immigration enforcement.
If the minimum spending cuts are achieved along with the maximum tax cuts, the plan would add $5.8 trillion in new deficits over 10 years, according to the Committee for a Responsible Federal Budget.
The Senate is planning a vote on the plan in the coming days. Then it goes to the House for a vote as soon as next week. There, it could face opposition from spending hawks like South Carolina’s Ralph Norman, who are signaling they want more aggressive cuts.
House Speaker Mike Johnson can likely afford just two or three defections on the budget vote given his slim majority and unified Democratic opposition.
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