Accounting standards for state and local governments are developed by the Governmental Accounting Standards Board (GASB). As part of the standard setting process, GASB conducts various research and consultative projects. One such project GASB currently has underway is evaluating the treatment of the “going concern” principle as it relates to government financial reporting.
In the private sector, enterprises are assumed to be “going concerns” (e.g. they will stay in business) unless there is “substantial doubt.” If an auditor issues a going concern opinion, questioning the ability of the enterprise to continue operating, that can trigger significant changes in financial reporting.
Of course, accountants and auditors aren’t the only ones evaluating whether enterprises can remain “going concerns.” Financial markets are continuously monitoring and pricing the risk a firm might go out of business. And those market determinations often drive the bus, with accountants and other third-party certifiers like credit rating agencies playing the role of “going out into the battlefield after the battle, to shoot the wounded.”
But what about governments? Do they ever go out of business?
Well, every year, on July 4, we celebrate a relevant example.
At the state and local government level, GASB initiated its recent going concern project after hearing from interested unspecified parties that it should reexamine the relevance of its going concern guidance, given that “governments rarely go out of existence.”
But can they?
In Illinois, here’s a very interesting provision of the Illinois Municipal Code.
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DIVISION 6. DISSOLUTION |
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(65 ILCS 5/7-6-1) (from Ch. 24, par. 7-6-1) |