An Analysis of the Historical Development of Accounting Standards for State and Local Government

Date of Submission


Document Type


Degree Name

Master of Science in Accounting




Michael Rolleri


Finance, Public--United States--States--Accounting--History, Local finance--Accounting--History

Call No. at the Univ. of New Haven Library

AS 36 .N29 Acc. 1986 no.3


This paper traces and compares the historical development of accounting and financial reporting standards for business enterprises and state and local governments. Environmental factors which influenced the chronology of and direction followed in the development of the standards are analyzed with emphasis on the fundamental differences between governmental and profit oriented entities.

It was a basic hypothesis of this research that state and local governments differ essentially from business enterprises and that this essential difference was and is the prime determinant of differences in the accounting standards under which the two sectors operate.

The research revealed that there were striking, parallels in many of the basic phases through which the development of the two sets of standards passed. It was equally clear, however, that the forces motivating the evolutionary paths of the accounting standards were fundamentally dissimilar. For business enterprises, the need for uniformity and, thus, standardization, first became evident with the advent of the corporate form of business ownership. This, in turn, demonstrated the need for a body of viable accounting theory upon which those standards could rest. The "crash" of the Stock Market in 1929 made it readily apparent that a formal standard-setting mechanism was necessary. Under the threat of governmental intervention, the accounting profession itself established a structure which changed form twice until the formation of the Financial Accounting Standards Board in 1973.

Accounting standards for state and local governments have their origin in the municipal reform movement of the late nineteenth and early twentieth centuries. Here, uniformity was also a motivating factor. In 1934 a formal accounting standard-setting organization was created with the formation of the National Committee on Municipal Accounting. This structure changed form three times and culminated with the formation of the Governmental Accounting Standards Board in 1984.

It is a major conclusion of this thesis that governmental accounting standards will change substantially in the near future. They will resemble business accounting and reporting standards with some modifications to accommodate the requirements of fund accounting which will not be abandoned. The chief obstacle to the wholesale adoption of business accounting and reporting standards will remain the absence of the "earning" process in government upon which full accrual based accounting is founded.