Analysis of Government Accounting

Analyzing the government account is a course which as essentially notable importance in the modern public accounting and governance. The accounting journal article adopted in line to the assignment requirements was done by Ken Tysiac, on 23rd December 2015. Titled Government moves to reduce confusion for external investment pools. Available online at this link http://www.journalofaccountancy.com/news/2015/dec/gasb-external-investment-pool-guidance-201513605.html#sthash.xt1zZ5M3.dpuf

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Government Accounting Standard Board (GASB) is the regulatory authority with an exclusive mandate to streamline the government accounting standards to meet the desired level of disclosure to all potential stakeholders and to represent the true and fair value. Government accounts are prepared in full light of the proposed standards and amendments issued by GASB and approved by SEC.

The article used here is on amendment standard issued to replace standard 79, reference rule SEC 2a7; the above-named statement provides the criteria of cost accounting for the investment pools. The previous rule reference SEC 2a7, ambiguously allowed varies cost accounting criteria which caused confusion to the accountants and allowed room for a biased selection of the investment pool cost accounting criteria. The rule, however, calls for further disclosure while accounting for the investment pools, which have become a common public investment recently.

Most of the government accounting standards are provided by the SEC rules of public investment accounting. In 2014, SEC made the amendment requiring that all investment pools that will use the amortized cost will have to meet certain minimum qualification. After a year of since effecting the pooled investment SEC rule 2a7, GASB conducted a monitoring and follow-up procedure to respond to pool participants increased complains.

The research reviewed that most of the pool participants merely met the requirement minimum threshold, and, therefore, blended the confusion for investment pool cost accounting criteria. GASB reviewed the minimum requirement; it was found out that the requirement causes asymmetry and unfairness in the cost accounting for investment pools. Therefore, GASB reissued am an amendment to replace the SEC 2a7 rules, to relegate the money market players rules specifically the investment pools.

Alternatives to the Amortized cost of pricing the fund price.

Amortized cost or Matrix pricing conventionally (Wall Street) named shadow pricing. It is marked on the marginal utility. It is a cost-based fund share valuation, sometimes tied to the production cost of the extra unit.

1. Penny-rounded pricing refers to the market valuation of the fund. It is marked on a commodity.

2. Market valuation of the investment pool based on the discounted net cash inflows.

The amortized cost valued money market securities enjoy an extra level of autonomy from the Board regulations, to protect the new and existing investors, according to the old 2010 and 2014 SEC rule 2a7. However, the threshold was higher for most investment funds to qualify and, some already qualified could opt to use other share valuation methods, which blend confusion.

The implication of the Government Financial Reporting about used Article.

i. The amendment called for additional relevant disclosure, which is the primary essence of the financial reporting.

ii. The amendment reduced the routine duties of the Board in the regulation of money market.

iii. The reporting allows further financial analysis to evaluate the performance of the fund.

iv. The new reporting standard facilitates the investment pool with more liquidity and shorter maturity all in a row.

v. The rule made the US Treasury and USA agency debt to be rated among the most liquid money market instruments, this causes institutional primes to increase their USA Treasury holdings, and this demand surge steepens the yield to maturity curve in the general money market.

vi. The new reporting standard prompts other investment participants to manage the money market funds in a conservative approach; this reduces the liquidity charges or the redemption gate where the weekly liquid assets fall below the threshold of 30%.

vii. The regulation revert the adverse implication of the banks regulation which incapacitated the repurchase agreements deals by the fund managers with the commercial banks.

Third party implications of the GASB amendment of the SEC 2a7.

i. Necessitates that third-party guarantors have acknowledged a rating from at minimum one NRSRO.

ii. Restrictions money market securities underlying a conditional demand nature to those rated by the obligatory NRSROs in their respective two uppermost long or short-term rating sets as valid, or unrated securities indomitable to be of similar quality inter alia.

iii. Requires written and timely notice prior to the substitution of a new guarantee (third party).

iv. Call for a fair and timely determination of the minimal risk of any event that would terminate a conditional demand of the underlying money market security and that such events can be readily monitored by the pool investment manager in the best interest of the third party.

Personal recommendation (opinion)

The GASB move to ament the SEC 2a7 is material and relevant. There was a need to have a uniform financial reporting standard of the governmental investment pool. Restricting all governmental investment pools to value the securities at the matrix scenario weeds out confusion and facilitates further fair and true analysis of the presented reports.