Dodd-Frank Wall Street Reform Act: Role of the Governmental Accounting Standards Board in the Municipal Securities Markets and Its Past Funding

This letter formally transmits the documents used for an oral briefing we gave to Congress on January 12-13, 2011, in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act. GAO was directed to study the role and importance of the Governmental Accounting Standards Board (GASB) in the municipal securities markets as well as the manner and level at which GASB has been funded. GASB establishes standards of accounting and financial reporting for U.S. state and local governments. Established in 1984 as an operating component of the Financial Accounting Foundation (the Foundation), GASB is recognized by the American Institute of Certified Public Accountants as the body that sets generally accepted accounting principles (GAAP) for state and local governments. In conducting this study, GAO was to consult with the principal organizations representing state governors, legislators, local elected officials, and state and local finance officers. Specifically, in accordance with the mandate and discussions with Congress, our objectives were to address the following key questions: (1) What are key stakeholder views on the role and relevance of GASB in the municipal securities markets? and ( 2) What is the manner and the level at which GASB has been funded? Publicly traded companies are required by the Securities and Exchange Commission (SEC) to prepare and issue financial statements based on GAAP; however, municipal issuers are not subject to this requirement. State requirements regarding the use of GAAP by local governments vary, but institutional investors and rating agencies generally agreed that most municipal issuers use GAAP.