205 THE ACCOUNTING REVIEW Vol. 82, No. 1 2007 pp. 205–240 GASB No. 34’s Governmental Financial Reporting Model: Evidence on Its Information Relevance Elizabeth Plummer University of North Texas Paul D. Hutchison University of North Texas Terry K. Patton Governmental Accounting Standards Board ABSTRACT: This study uses a sample of 530 Texas school districts to investigate the information relevance of governmental financial statements published under Govern- mental Accounting Standards Board Statement No. 34 (GASB No. 34). Specifically, we examine whether the new government-wide statements provide information relevant for assessing a government’s default risk, and if this information is incremental to that provided by the governmental funds statements. GASB No. 34 requires governments to publish governmental funds statements prepared on a modified accrual basis, and government-wide statements prepared on an accrual basis. We find that GASB No. 34’s Statement of Net Assets (similar to a corporation’s balance sheet) provides infor- mation relevant for assessing default risk, and this information is incremental to that provided by the governmental funds statements. However, GASB No. 34’s Statement of Activities (similar to a corporation’s income statement) does not provide information relevant for assessing default risk. The accrual ‘‘earnings’’ measure is not more infor- mative than the modified-accrual ‘‘earnings’’ measure. A government’s modified- accrual earnings measure can be thought of as a type of measure of changes in work- ing capital. Therefore, our results are consistent with research on corporate entities that attributes the superiority of earnings over cash flows primarily to working capital ac- cruals and not long-term accruals. For our sample of school districts, evidence sug- gests that total net assets from the government-wide Statement of Net Assets, along We appreciate the comments and suggestions of Linda Bamber, David Bean (GASB Director of Research and Technical Activities), Dan Dhaliwal (editor), Robert J. Freeman (former GASB board member), Ken Gaver, Robert Pavur, Terry Shevlin, Douglas Ziegenfuss, two anonymous reviewers, and workshop participants at the 2005 Amer- ican Accounting Association Annual Meeting. Expressions of individual views of members of the GASB and its staff are encouraged. The views expressed in this article are those of the authors alone. Official positions of the GASB on accounting matters are determined only after extensive due process and deliberation. Editor’s note: This paper was accepted by Dan Dhaliwal. Submitted February 2005 Accepted August 2006