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Fair value reporting of investments in the financial statements of commercial enterprises is required under FASB Statement No. 115. The standard created much controversy when issued due to provisions that changes in fair values of certain investments were recognized in the operating statement. A major concern to many organizations was the volatility these recognized, but unrealized, changes in fair value would create in reported earnings. When the GASB issued Statement No. 31 requiring fair value reporting of investments there was little controversy concerning volatility to reported earnings of governmental entities, even though the standard required much broader application of fair value reporting. This study examined a possible explanation for the lack of controversy surrounding fair value reporting in the public sector. An analysis of the financial reports of the major U.S. municipalities provided empirical evidence of the significance of investments earnings to municipal revenues, investment assets to total assets, and the significance of changes in fair values of investments to investment earnings and total revenues. Financial reports and accompanying notes for fiscal years 1994 to 1998 were examined. Results indicate that overall, investments earnings were not a significant component of governmental fund revenues. However, investment earnings were significant for certain governmental fund types. The difference between costs and fair market values of investments also did not appear to be material to most governmental funds. The minimal impact of the fair value reporting on earnings offers a partial explanation for the lack of debate surrounding adoption of fair value reporting of investment by governmental entities.



Hunt, G. L. (2009). GASB Statement No. 31: Why No Controversy?. Journal of Business & Economics Research (JBER), 7(7).

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