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.
Pamela Au/wingedwolf – Fotolia
The Internal Revenue Service has released
An “automatic change” is a change in method of accounting for which the taxpayer is eligible under Section 5.01(1) of
The 430-plus pages of changes cover: gross income, commodity credit loans, trade or business expenses, bad debts, interest expense and amortizable bond premium, depreciation or amortization, research or experimental expenditures, elective expensing provisions, computer software expenditures, start-up expenditures and organizational fees, capital expenditures, and uniform capitalization methods.
Changes also cover losses, expenses and interest in transactions between related taxpayers; deferred compensation; cash-to-accrual methods of accounting; taxable years of inclusion; discounted obligations; prepaid subscription income; long-term contracts; taxable years incurred; rent; inventories (including LIFO inventories); mark-to-market accounting; bank reserves for bad debts; insurance companies; discounted unpaid losses; and REMICs.
Examples are given for many of the changes.
Rev. Proc. 2025-23 was slated to be in IRB 2025-24 dated June 9.
Many CPA firms struggle to raise pricing and remove problematic clients. It may get brushed off as “no big deal,” but ignoring pricing and client mix harms the firm in significant ways: less revenue equals less growth and lower ability to pay staff well, lower profits for partners or capital to reinvest in the business, and unwieldy clients who burn out staff and partners alike for a paltry financial return.
After helping many firms in this area during strategic planning and retreats, here’s what I’ve seen the successful ones do.
Don’t shock the system
When we talk about increasing prices, many partners imagine an abrupt, across-the-board 20% fee increase and clients pouring out the doors as a result. I’ve seen firms be very successful using an incremental and client-specific approach. Segment your client list by service line and total fees. Consider the 80/20 rule: how many clients do you need to generate 80% of your revenue? It’s likely not as many as you think. Then have each partner recommend appropriate pricing adjustments for each client. If there’s a big gap between current fees and market rates, it may take a few years to get there (unless you’re OK with the possibility of losing them, which sometimes is advisable). Some clients may need only a 5% bump to get to market; some may need 150%. Do what makes sense for each client and total firm revenue.
Communication is the key
Often, partners relax once they grasp the reasons why pricing or client acceptance criteria need to improve: staffing crisis, wage increases, tech costs going up, inflation, undercharged for years, not enough hours to serve all the clients well, etc. Pull a Wall Street Journal article on any given day about the accounting industry, and you’ll have another reason your firm needs to evolve. Then explain that to your clients with empathy and sincerity. Almost all of them will understand.
You can keep some personal favorite clients
Many partners get skittish about changing pricing and client acceptance because they have a stable of long-time clients who have been way under market for years but have strong sentimental value. Whoever they are for you, you are allowed to keep them on one condition: accept that they may not be 20% (or some other meaningful amount) of your total book of business. I have great hope for the accounting industry because of the great care I’ve seen partners take of their clients. We don’t want to diminish that. We do want to run a sustainable business.
You’re worth it and so is your staff
Firms have reported gleeful results when they let their staff give input on clients. The staff know who the ungrateful, late, messy clients are. They also know the appreciative, clean, fun-to-work-with clients. It’s uncanny how some of the lowest-profit clients often fall into the first category. Economics aside, when you protect your staff from problematic clients through higher pricing (enough budget to do quality work) or firing clients who can’t work well with the firm, you send a strong message that you care. The same goes for partners. Firms that have a lot of A and B clients and aren’t afraid to shape up or ship out their lowest clients seem to have much higher enjoyment and peace of mind at work. Your team works hard for your clients, and the reciprocity of fair fees and behavior from them is only right.
If you want to join the firms that are finding success in fees and client mix, here are four ways to start:
1. Grade your clients: Rank them A through F, based on criteria like total fees, realization, growth potential, and how fun or hard it is to work with them.
2. Segment the list: Analyze your now graded client list. Who needs more attention? Who needs to get off the bus?
3. Make an action plan that is specific to each client: Granularity is your friend. By partner, by client, make next steps to improve fees or client behavior to meet current standards.
4. Keep meeting about it regularly: This is the most important step! Just making a list doesn’t count. Partners who regularly meet and act on their lists make big progress.
I know the journey can be uncomfortable, but firms on the other side prove it’s well worth it. Good luck!
Senate Majority Leader John Thune said Republicans in his chamber expect to deliver on President Donald Trump’s campaign promises to exempt tips, overtime pay, Social Security and auto loan interest from taxes.
“I think that the president as you know campaigned hard on no tax on tips, no tax on overtime, Social Security, interest on car loans — those were all things that are priorities for the administration and they were addressed in the House bill and I expect they will be in the Senate as well,” Thune told reporters.
The House bill, in lieu of a direct tax cut on Social Security, which would violate Senate budget rules, provided a $4,000 bonus deduction for per taxpayer age 65 and older with incomes up to $75,000 for individuals and $150,000 for married couples. The House provisions on tips, overtime, the elderly and car loans would all expire in 2029.
Thune’s comments come as Senate negotiators tweak the House-passed version of Trump’s giant tax package ahead of a self-imposed deadline to pass the measure before the July 4th holiday, with Thune saying Tuesday the Senate is very close to finishing its draft of the legislation.
Earlier Tuesday, House Ways and Means Chair Jason Smith, whose committee is responsible for tax legislation, warned that any Senate version of the tax package that doesn’t include the tips and overtime breaks would be “dead on arrival” in the House.
Several Republican senators including Thom Tillis of North Carolina and Lindsey Graham of South Carolina have expressed skepticism about the cost and economic wisdom of including the tax exemptions on tips and overtime pay. Senators have instead called for funds to be used to make temporary business tax breaks permanent.
Such a change would be a “no go” for House Republicans, Smith told Bloomberg TV.
The Senate is now considering the massive tax and spending package after it passed the House by a single vote last month. If the Senate changes the legislation, the House must approve the revised version.
Senator Josh Hawley, a populist Republican, said Trump told him Tuesday morning that tax-exempt tips and overtime, as well as a tax cut for the elderly, are the most important provisions in the bill.
House Speaker Mike Johnson also has urged senators not to remove or scale back provisions in the legislation that exempt tips and overtime pay from income tax through 2028.
“This is an important promise for us to keep,” Johnson told reporters earlier Tuesday.
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