State and local governments should adopt full accrual accounting for budgeting and financial reporting, rather than the insufficient standards set by the Governmental Accounting Standards Board (GASB). We have coined the term FACT-based accounting, which stands for Full Accrual Calculations Technique.
For context, the IRS requires C corporations with average annual gross receipts exceeding the inflation-adjusted threshold (≈$32 million for 2026) to use the accrual method of accounting. This aligns with IRC §446, which requires a method that clearly reflects income by properly recognizing revenues and expenses.
The change to FACT-based or accrual accounting is recommended by many other organizations, accounting bodies, economists, and policymakers worldwide. The vast majority of state and local governments are required to balance their budgets, yet many face persistent shortfalls due to unfunded pension and retiree health care promises, as well as short-sighted cash-accounting tricks that make budgets appear balanced by changing the timing of the cash transactions.
Full accrual accounting goes beyond traditional cash-based methods by accounting for all expenses on an accrued basis, limiting manipulation.
It records revenues and expenses in the period when revenues are generated, liabilities are increased, and resources are consumed, regardless of when cash is actually received or paid. This approach is especially useful for long-term obligations, such as promised benefits earned in a current year but paid in future years.
Tracking accounts payable/receivable and changes in assets/liabilities gives a real-time economic picture of what a government truly owns and owes.
See Pew’s research on infrastructure liabilities, another example of poor reporting standards.
Key Benefits of Full Accrual Accounting
(Aligned with the International Monetary Fund (IMF), International Federation of Accountants (IFAC), Organization for Economic Cooperation and Development countries, U.S. experts like former Comptroller General David Walker, and others advocating accrual reforms):
Presents a complete picture of financial obligations, especially long-term commitments.
Illuminates the long-term effects of current decisions and promotes intergenerational fairness.
Recognizes all costs and revenues (including retirement benefits) regardless of cash timing.
Facilitates evaluation of budgeted vs. actual results using familiar, business-like financial statements.
Enhances accountability, consistency, and decision-making while being harder to manipulate through timing.
This FACT-based approach helps produce more truthful budgets and better information for decision-making, a goal echoed across international standards and U.S. reform efforts.
Founded in 2002, Truth in Accounting believes that full accrual accounting is the key to helping citizens, legislators, and the press understand the truth about government finances. To be knowledgeable participants in the government's financial decisions, citizens need accurate and complete financial information. Our work has focused on encouraging public entities to produce comprehensive, clear, and transparent financial reports, while our research shows the public the true numbers behind political spin.
If the government can’t count, we can’t count on the government!