According to GAAP, what should the financial statements disclose regarding internal service funds?

Internal service funds are unique governmental accounting entities that provide services to other departments or agencies within the same governmental unit. According to Generally Accepted Accounting Principles (GAAP), it is important to provide clear disclosure regarding the resources and potential obligations associated with these funds.

The correct disclosure requirement is that the financial statements should indicate the designation of resources for future catastrophe losses. This is crucial because it represents an anticipated financial obligation that the government may face. By disclosing this designation, users of the financial statements can better understand the potential future financial impact on the fund and make informed decisions.

Disclosure about the designation of resources for future catastrophe losses ensures transparency and accountability in financial reporting. This information helps stakeholders, including internal and external users, to appreciate how a government entity is preparing for unexpected events that might require significant financial resources. It is a key component for evaluating the fund's long-term sustainability and risk management practices.

Overall, providing this specific information aligns with the overarching principles of transparency and full disclosure inherent in GAAP.