What follows is the AAA-GNP response to an IFAC-PSC Government Finance Statistics Manual.

We are deeply indebted to Jesse Hughes for his invaluable service to our group for closely monitoring activities in the Federal arena.

We apologize for missing the deadline of March 2 for responding to the subject manual. We have been monitoring closely the accounting standard-setting work of the International Federation of Accountants' Public Sector Committee (IFAC-PSC) on International Public Sector Accounting Standards (IPSAS) and only recently learned of the existence of your manual. It would be helpful to us in academe and accounting system design work if the relationship between the two projects could be identified. The subject manual does have an annex on the relationship between the GFS and the System of National Accounts which is very good. We would suggest that there also be an annex on the relationship or differences between the GFS and the IPSAS. In this manner, we could design our accounting systems (especially in developing countries) to meet the objectives of all three systems from the same database.

Some specific comments are as follows:

1. Obligations for unfunded government-employee pension benefits (7.143) and Obligations for social security benefits (7.144)--We believe that these obligations are liabilities that should be recognized in the body of the financial statements rather than as memorandum items. These liabilities should be recognized when incurred rather than on a pay-as-you-go basis if we are to truly move toward an accrual basis of accounting. Otherwise, we will continue on a cash basis for these obligations and pass these costs on to future generations.
2. Uncapitalized military weapons and weapon-delivery systems (7.151)--We believe these assets should be capitalized for inclusion in the Balance Sheet and the consumption of these fixed assets should be recognized in the Statement of Government Operations. In this manner, those countries that invest more heavily in these military assets would recognize the extent of that investment in their financial statements rather than as memorandum items. Further, it would help identify the full cost of military operations in support of missions sponsored by the United Nations.
3. Consolidation (3.91-3.94)--We believe that the consolidated financial statements should be for the whole-of-government (including public corporations) in order to fully reflect the financial status of the government. Otherwise, the financial health of public corporations may never be disclosed to the readers of the financial reports for the government in question.

Thank you very much for the opportunity to comment on your draft manual. It is very well written and helps us move toward the full accrual basis of accounting that many of us are striving to accomplish. Please contact me if you have any comments that you would like for us to clarify.

Dr. Jesse Hughes, Chair
International Accounting Standards Subcommittee
Accounting Standards Committee
Government and Nonprofit Section
American Accounting Association