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Business Officer Magazine
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A Time of Reevaluation

Along with plans to revisit Statement No. 34’s financial reporting guidelines, David A. Vaudt, the new chair of the Governmental Accounting Standards Board (GASB), envisions the chance to clarify issues that are significant to several specific stakeholder groups.

By Charles Tegen and Sue Menditto

*Financial Reporting and Management: Tell the Higher Education Story

Collective thinking, continuous feedback from stakeholders, and a search for common ground are the keys to the work of the Governmental Accounting Standards Board (GASB), says David A. Vaudt, who became chairman of the GASB on July 1, 2013.

Vaudt echoes the sentiment of Russell G. Golden, who became chair of the Financial Accounting Standards Board (FASB) on the same day. Vaudt and Golden join Jeffrey J. Diermeier, Financial Accounting Foundation (FAF) trustee chair, and Teresa S. Polley, FAF president and CEO, as a new leadership team that views both boards and the foundation as a single organization. (An interview with Golden appeared in the May 2014 issue of Business Officer.)

A self-professed "small-town Iowa guy," Vaudt values collaborative effort and is in frequent contact with Golden as they work together to bring congruence to GASB and FASB guidelines where possible.

David A. Vaudt, GASB Chairman
David A. Vaudt, GASB Chairman

Vaudt brings to his post decades of experience in governmental accounting. A native of Iowa, he worked for 25 years in the Des Moines office of KPMG, including 13 years as an audit partner, where he focused primarily on the government service practice. Elected as state auditor in November 2002 and in two successive elections, he served for 10 years, auditing the state of Iowa as well as more than 200 Iowa counties, cities, school districts, and other governmental subdivisions. He also served as president of the National State Auditors Association and chair of the National Association of State Boards of Accountancy.

The following interview concludes the Financial Reporting and Management Series that has appeared in Business Officer this year.

What were your objectives for your first 100 days as chair?

My primary focus has been to do stakeholder outreach. We need to make sure we're listening, and that we understand what we're hearing, since we have a variety of stakeholders with totally different perspectives. During my first year, I wanted to reach out to several dozen stakeholder organizations—including both those we work closely with and those whom we'd like to get to know better—going to their offices and meeting one-on-one with their executive directors to establish relationships. I want every stakeholder to feel comfortable picking up the phone and saying, "Dave, here's what I'm dealing with."

If we have good relationships and talk with each other, then when we run into disagreements, we can work through the issues on a very respectful basis. I look forward to many invitations to work with NACUBO, and to the things we can do together.

And your long-term objective?

I want to make sure we're addressing the issues that are most important to the stakeholders, as we work closely with the Governmental Accounting Standards Advisory Council [GASAC] and prioritize what our agenda is.

The only ideas off the table are the ones that no one has shared with us. I really believe that we will come to the best decisions if we lay all the alternatives on the table.

One of my concerns is that financial statements are constantly criticized as not being timely enough, being too complicated, or being too lengthy. So, I'm very excited that we're going to be taking a hard look at the GASB 34 reporting model-it's been out there long enough and it's time to take a look at it. Are there ways to reduce the complexity? Are there ways to positively impact timeliness by some of the changes we make?

For example, take the footnotes. We can deliberate as a board about what footnotes should be included with each standard, but shouldn't we step back and recognize that the overall volume of footnotes is overwhelming? I worked with multinational, multi-industry companies when I was with KPMG, and I can tell you their financial statements weren't nearly as lengthy as ours.

I'd like to explore ways to streamline reporting. It might even get to the point that we have different types of reports for different types of users. After all, in today's age of technology, you can get a lot of that information directly from the specific governmental unit. What truly needs to be in those audited financial statements, and how can we make them as meaningful as possible to various users?

What are the advantages of having new chairs for both the GASB and the FASB?

It's a very unique opportunity. This new leadership team is definitely looking at us as one organization-our new logos demonstrate that the FASB, the GASB, and the FAF are one organization. But it goes much deeper than that, as we all meet frequently to share ideas and concepts. Although there are variations between what's done on the private side and what's done on the government side, we need to work together to consider where there can be common ground, versus where differences need to exist.

Our staffs meet frequently and we talk about our agendas. Going forward, I could see us even planning our agendas to be more closely aligned so that we can be addressing some of the same issues at the same time, doing research together, and sharing our thoughts and ideas. Wherever we can bring common ground to our accounting standards, the better off we'll all be.

The FASB board is full time, but as chair you're the only full-time member of the GASB board. It seems that FASB board members often have more time to deliberate and discuss constituent comments. Now that GASB's funding has been shored up, could its board members be full time? Would a full-time board have more time to deliberate specifically or make a difference generally?

This has been brought up by other individuals I've spoken with during my travels. It may be something we consider in the future, but right now we think the part-time board has worked out well. As we get feedback from comment letters, I'm going to make sure the staff and the board continue to walk through all of them. I'm very much attuned to making sure we're not only hearing from constituents, but that we seriously consider and weigh all the input. Yes, the FASB board meets more frequently, but I think because our focus and the number of projects on our current technical agenda are more limited, we have a chance to dig deeper at each meeting.

I think it's important that every comment letter is taken seriously. The only ideas off the table are the ones that no one has shared with us. I really believe that we will come to the best decisions if we lay all the alternatives on the table.

Could you share with us some of the strategic direction of your process?

Organizationwide—that includes the FAF, the FASB, and the GASB—we're working through what we truly understand to be our mission and vision. I hope out of that process we'll also take a hard look at what we're doing internally. One of my focuses has been going through our research and technical activities manual and asking, what is it we do, why do we do what we do, and are there ways to improve what we do to have a positive impact on where we're heading?

Another of my focuses has been to make sure that for every research project or technical agenda project we work on, we take a hard look at what the FASB has done in that area, as well as what other standard-setting boards have done, and try to understand why they made certain decisions. I'm a big believer in not reinventing the wheel.

The whole process of all of us working together and developing an overall strategic plan allows us to better see all the integration we can do. Through the FAF, we're already sharing resources, but going forward, we'll have some unique opportunities. As we've gone through the fair value project on our side, we looked very closely at the FASB standards. You're going to see a lot of similarity to FASB. Stakeholders tell me, if there isn't a need for differences, please don't make them.

We picked up the leases project because of what the FASB was doing, since GASB standards piggyback on the FASB standards. Right now, we're looking at leases as a financing model. We'll probably have a preliminary views document first. I think it could be controversial enough that preliminary views will give us a chance to get much more solid stakeholder input before we move further.

It's interesting that GASB uses a preliminary views model before the exposure draft, but FASB might expose something three times. We know the GASB and the FASB are now trying to line up terminology. What changes might we see related to syncing up how due process works between both boards?

I believe the preliminary views route is the best way to go, because it allows you to see where the stakeholders are coming from before you start down a path and before the board starts to coalesce around a solution.

We have an opportunity to address concerns about whether Statement 34 is truly meeting the needs of the users of those financial statements.

When I arrived, I was surprised at the number of terminology differences between the FASB and the GASB. For example, a roundtable on the FASB side is totally different from what GASB considers a roundtable. So our first project is aligning our terminology to the extent possible. We have stakeholders that work with both boards, and we have a board of trustees at the foundation level that oversees both boards, so how are they going to know what we're talking about if we don't use a common terminology?

I think the processes are the next thing. Once we get through our review of the GASB research and technical activities manual, Russ [Golden] and I are going to sit down to look at the FASB manual and discuss how we determine best practices.

So if something is enough of a new idea and it's important to get it right first before an exposure draft, that would call for a preliminary views document?

As an example, one of our recent projects has been other post-employment benefits [OPEB]. Because OPEB follows pensions so closely, if we've made certain decisions related to pensions, we wouldn't change them for OPEB, so we're going straight to exposure drafts. But, in many other areas, I think the more ways we give stakeholders a chance to provide input, the more ideas we'll have laid on the table.

Even though the GASB's focus is on governmental organizations, you have very diverse user and preparer groups among them. How will you strategically find the balance where everybody feels they get a fair share, but it all meets the common good?

It really is a tough balance. One of the things I'm trying to do is to make sure we're not only looking at the broad general issues, but that we also pick some special-purpose entity projects that are very important even though they're not as broad-based—for example, business-type activities. It's important that we look at every stakeholder group, because there are some unique issues that are not addressed in current GAAP because they aren't prevalent in general-purpose governments.

When you revisit Statement No. 34, is it possible that stand-alone business-type activities [BTAs] can be put back on the agenda? Higher education sees a difference between stand-alone business-type activities and the enterprise fund notion, which is the approach that GASB 34 takes. This question is an important one for higher education because we're uniquely split down the middle—about half of NACUBO member institutions follow FASB and the other half GASB—yet many of our financial statement users are the same.

I'd like to see if we can come up with a model that's a little more flexible, that people can adapt for stand-alone reports. This is an area where we need convergence, to the extent possible, so that we have only the differences that truly need to be there. As board chair, I want to make sure we do a better job of asking and explaining why certain differences need to exist. 

At NACUBO we've had a volunteer council of members working on a Blank Slate Project, looking at how financial reporting would be different if we could start afresh. We're testing our concept now with a common operating statement, which is an income statement with a bottom line. Later we'd like to be able to talk with GASB and FASB about what we've learned. How do you suggest we do that?

We'll need to work with our staff to make sure they understand everything that's being done, and we want to make sure your ideas are on the table along with those of other experts. Then, Russ and I need to have conversations about how we both bring this concept to our boards.

We definitely want to reach out to all stakeholders who have great ideas to find out what you've thought about, what you have struggled with, and how we can pull it together and consider it like any other research we do. So contact me and I'll make sure it gets the right treatment.

That brings us back to Statement 34. Do you consider its reexamination a big project? And will it include business-type activities?

Statement 34 is a huge project. I hope we can get through it during my seven-year term. We'll be researching and collecting stakeholder input until June 2015, and that will be just the starting point of deciding whether we make it a project on the current technical agenda.

We will do BTA outreach. That's such a unique area of the reporting model that we want to make sure we gather all the data we can possibly gather—and that it is research-based—before we make a decision about whether it will be a current technical agenda project or not.

Statement 34 gives us a chance to step back and address a lot of different issues that we should take a hard look at. Just because a decision was made earlier under 34 to go a certain route, we might not be using the same method in the future. We have an opportunity to address concerns of many stakeholders about whether Statement 34 is truly meeting the needs of the users of those financial statements.

Disclosures, for example, have become burdensome, and they're much more voluminous on the governmental side. Speaking about leveraging what FASB has done—since FASB does have a disclosure framework project—if you were to tackle disclosures, is that an example of where you might begin with FASB's discoveries?

Without a doubt. We're watching what they find and what it might mean for the government side. I worry with you about the government complexity and length of footnotes-I worked on many public companies when I was at KPMG, and their footnotes were brief in comparison.

We need to ask ourselves, what's truly necessary to understand these financial statements? There's plenty of information that's nice to know, but is there a way to streamline some of those disclosures? We can overload people with information, and they can get lost in the footnotes. I think most preparers and auditors would say that we have tended to over-disclose.

You have a very full agenda. Do you anticipate that it will include the XBRL technology language, or will that stay on the back burner?

We'll be meeting with GASAC to determine what should be done regarding electronic reporting. Once we take a look at the financial reporting model, we'll need to keep in mind that whatever standards we're setting also need to be compatible with the technology we have today. In the future, we'll be able to distribute to users information that doesn't have to be audited-it will be information they want in order to do some of their analysis.

GASB has accomplished a lot since Statement No. 34, which was issued in 1999. So now you're reevaluating whether your accomplishments hit the mark, and if not, how to improve on them?

That's right. We say, just because we've been doing it one way, should we continue to do it that way? No, let's see if we can do it even better.

Bring many people to the table with a variety of thoughts and concepts, and listen to the overall discussion, and you start to look at things in new ways. If you put eight people together, they think of things differently. It's that collective thinking that will arrive at some of the solutions that none of us individually can come up with.

When I interviewed with the board of trustees, I said, "If you're looking for a person with all the answers, you're looking at the wrong one. But, I do know that if we put the right minds together in the same room, we'll come up with the best answers." That's really the solution that I look for.

CHARLES TEGEN is associate vice president for finance at Clemson University, Clemson, South Carolina. SUE MENDITTO is the director of accounting policy, NACUBO.