Is Orange County Headed for Bankruptcy Again? And Why is this an Accounting Story?

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CPA John Moorlach, the whistle blower of the original OC bankruptcy back in 1994, has written an article for the Orange County Register in which he explains that Orange County could face another bankruptcy because of how the Governmental Accounting Standards Board (GASB) is changing how municipalities report pension debt and liabilities.  Under the new system, the county is $3.8 billion in the red.

"Had municipalities been required to report benefit increases that immediately generated unfunded liabilities, it’s highly unlikely that elected officials would have approved them," he writes.

He goes on further to explain some of the intricacies of the accounting standards as follows:

“The accounting profession has two rule-making bodies that provide generally accepted accounting principles and auditing standards for reporting financial statements. The Financial Accounting Standards Board (FASB) provides rules and promulgations for the private sector. Municipalities follow the rules established by the Government Accounting Standards Board (GASB).

FASB has required companies for 25 years to report unfunded liabilities for defined-benefit pension plans on balance sheets. GASB has not. However, GASB is finally addressing this oversight. Regrettably, it’s too late. The abuse of public employee defined-benefit plans has already been done, and the damage may be irreparable.”

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