Legislation aimed at helping municipalities save taxpayer dollars by offering a different option for municipalities when they file their annual audit with the Comptroller’s Office is being sponsored by State Sen. Dale Righter.
Senate Bill 2258 would allow municipalities to prepare their annual financial audit through either an accrual basis or cash basis accounting practices. In June, the Comptroller’s Office sent a letter requiring municipalities use only the accrual basis accounting practice, a method that is more complicated, time-consuming, and costly.
“What the Comptroller is mandating is the equivalent to someone having to hire a Certified Public Accountant with 30 years’ experience to do their college kid’s taxes,” Righter said. “Municipalities in my district have told me that following the Comptroller’s mandate, which has the effect of creating a ‘one-size fits all’ remedy, will cause them to incur considerable expenses.”
Righter says in his rural district, dozens of municipalities use cash basis accounting because their budgets are basic, small, and don’t justify them using accrual basis accounting.
“The accrual basis accounting method is complex,” Righter said. “It is appropriate for larger units of local government, but considering the budgets of many rural municipalities are quite small, paying say $4,000 to an accounting firm to put together an annual audit would severely and negatively affect the budgets of many municipalities. Offering them the option of the cash basis method of accounting is much simpler and it wouldn’t require an accounting firm to get involved, thereby saving local taxpayer dollars.”
Under the accrual basis method of accounting, revenues are reported on the income statement when they are earned and expenses are matched with the related revenues and/or are reported when the expense occurs, not when the cash is paid. Under the cash basis method of accounting, revenues are reported on the income statement when the cash is received.[i]