Qualitative Characteristics of SEA Reports

Spring 2010

By Khaled Abdel Ghany, CPA, PhD, CIGA

The objective of service efforts and accomplishments (SEA) reporting is to assist citizens, elected officials, and other interested parties in evaluating the performance of state and local governments. SEA reporting provides more information about a government’s performance than traditional financial statements. 

Recently, the Government Accounting Standards Board (GASB) issued a proposal for a conceptual framework, philosophy, and guidelines to develop higher quality SEA reports. This proposal provides four essential components for an effective SEA report and six qualitative characteristics that SEA performance information should possess to effectively communicate performance.

This column highlights the major issues in the proposal and suggests that GASB consider adding two constraints to the qualitative characteristics framework: materiality and cost-benefit analysis. These two constraints were originally presented in Financial Accounting Standards Board (FASB) Concept Statement No. 2, Qualitative Characteristics of Accounting Information.  

SEA in Concept Statements
In 1994, GASB issued Concept Statement No. 2, Service Efforts and Accomplishments Reporting, and developed the objectives and elements of SEA reporting. It stated that the assessment of a governmental entity’s performance requires information not only about the acquisition and use of resources, but also about the outputs and outcomes of services provided.  The statement was superseded by Concept Statement No. 5, which specifically detailed that the elements of SEA performance measurement for reporting purposes should focus on three different types of SEA measures: service effort, service accomplishments, and the relationship between service effort and service accomplishment. 

SEA Exposure Draft
In June 2009, GASB issued a proposal for suggested guidelines for voluntary SEA reporting. The purpose was to provide a common framework for external communication of SEA performance information that would assist users in assessing governmental accountability and economic, social, and political decisions, and assist governments in demonstrating their accountability and stewardship over resources.

The proposal specified four components that are essential to an effective SEA report. These four components are purpose and scope, major goals and objectives, key measures of SEA performance, and discussion and analysis of results and challenges.

The GASB proposal also presents six qualitative characteristics that the information contained in an SEA report needs to possess to effectively communicate performance. These qualitative characteristics are as follows:

Relevance – SEA information should have a close logical relationship to the purpose for which it is intended to be used.

Understandability – SEA information should be expressed simply and clearly. In addition, governments should communicate SEA performance information in different forms and at different levels of detail.

Comparability – SEA comparative performance information should include time series comparisons and comparisons with targets. 

Timeliness – An SEA report should be issued soon enough after the reported events to affect decisions or assessments of accountability. 

Consistency – Consistency in SEA reports means measuring and reporting in the same way from period to period.

Reliability – SEA information should be verifiable to provide assurance that the information in a report would be replicated by independent evaluators using the same measurement methods. 

Conclusion
For more than 15 years, GASB has been attempting to present a conceptual framework, philosophy, and theory of SEA reporting for state and local governments. Although it is beyond the scope of GASB to establish nonfinancial measures or indicators on service performance for SEA reports, GASB’s recent proposal for voluntary SEA reporting represents a significant step toward comprehensive standardized SEA reporting. Although the six qualitative characteristics that SEA information should possess were originally presented in FASB Concept Statement No. 2, the more recent GASB proposal does not include FASB’s two constraints on information quality: materiality and costs and benefits.

State and local governments should take the materiality and cost-benefit analytics into consideration when preparing SEA reports, because that information is significant to the government and the users. In addition, the expected benefits from the SEA information should exceed the cost of preparing, obtaining, and using this information.

Materiality is a complicated issue, so a government should have highly trained personnel who can determine what is material to the government and its citizens and what should be included in SEA reports.  

Khaled Abdel Ghany, CPA, PhD, CIGA, is an auditor in the Office of the Inspector General in Washington, D.C. He can be reached at drabdelghany@yahoo.com.

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