Question

A governmental entity reports its utility services provided to the citizens in a proprietary fund. Which of the following best represents an acceptable election of accounting standards for the proprietary fund?

A. unless the fasb pronouncement conflicts with or contradicts a gasb pronouncement, a propriety fund must adhere to all fasb pronouncements.
B. all fasb pronouncements issued prior to november 30, 1989, as well as any post-november 30, 1989 pronouncements specifically adopted by gasb.
C. it must apply only gasb standards.
D. it may elect either (a) or (b).

Answer 1

The acceptable election of accounting standards for a governmental entity's proprietary fund that reports utility services is to follow GASB standards, including all pre-1989 FASB standards and any post-1989 FASB standards that GASB has adopted.

Step-by-step explanation:

The most appropriate accounting standard for a governmental entity's proprietary fund, which reports utility services provided to citizens, is to adhere to the Governmental Accounting Standards Board (GASB) pronouncements. This includes all Financial Accounting Standards Board (FASB) pronouncements issued prior to November 30, 1989, as well as any FASB pronouncements issued after that date that the GASB has specifically adopted. Therefore, the entity must apply both pre-1989 FASB standards and any FASB standards post-1989 that the GASB has endorsed.

To clarify, the FASB pronouncements applicable to the proprietary funds are those that have not been superseded by GASB pronouncements, because the GASB is the authoritative standard-setting body for state and local government accounting. Since FASB standards were initially used as a baseline for governmental accounting practices, pre-1989 FASB standards are generally accepted, but any changes after this date need to be specifically ratified by the GASB to be applicable for governmental entities.