Archive for December, 2008

WHY IS GOVERNMENTAL ACCOUNTING AND FINANCIAL REPORTING DIFFERENT FROM COMMERCIAL AND NOTFOR-PROFIT ACCOUNTING AND FINANCIAL REPORTING?

• Significant investment in non-revenue-producing capital assets. Capital assets of a government usually include its buildings, equipment, vehicles, and so on. Capital assets also include infrastructure, such as roads, bridges, parks, piers, and so on. Governments do not purchase or construct capital assets because they expect a direct monetary return on their investment. Building a new school building will not directly generate revenue from its use. Rebuilding Main Street will not (more…)

WHY IS GOVERNMENTAL ACCOUNTING AND FINANCIAL REPORTING DIFFERENT FROM COMMERCIAL AND NOTFOR-PROFIT ACCOUNTING AND FINANCIAL REPORTING?

• Use of fund accounting for control purposes. Users of governmental financial statements are accustomed to the government reporting information about its funds, particularly the major (or more important, larger) funds. As we will see later in this book, sometimes governments are legally required to set up separate funds for certain sets of transactions, whereas other times governments set up funds for their own control and financial reporting purposes. Regardless of the reason, (more…)

WHY IS GOVERNMENTAL ACCOUNTING AND FINANCIAL REPORTING DIFFERENT FROM COMMERCIAL AND NOTFOR-PROFIT ACCOUNTING AND FINANCIAL REPORTING?

• There is generally no exchange relationship between resources provided and services received. Most individuals do not pay for specific services.
• The government generally has a monopoly on the services provided.
• It is difficult to measure the optimal quality or quantity for many services provided by governments. Those receiving services generally cannot decide the quantity or quality of a particular service of a government. (more…)

WHY IS GOVERNMENTAL ACCOUNTING AND FINANCIAL REPORTING DIFFERENT FROM COMMERCIAL AND NOTFOR-PROFIT ACCOUNTING AND FINANCIAL REPORTING?

This is an important question for someone trying to understand the basic concepts that underlie the accounting used by governments and governmental entities. In fact, it was one of the earliest questions addressed by the GASB soon after its creation in 1984. The newly formed GASB undertook a project and issued a resulting Concepts Statement (GASB Concepts Statement No. 1, “Objectives of Financial Reporting,” (more…)

In the absence of legal requirements to prepare GAAP financial statements, there may well be practical requirements that would cause governments to prepare GAAP financial statements. The best example would be the issuance of debt. Governments that sell debt to finance operations, capital projects, or other resource needs may find it necessary to issue GAAP financial statements in order to facilitate the sale and marketing of the debt. In some cases, debt covenants may require periodic reporting of financial statements in accordance with GAAP. (more…)

There are both legal and practical answers to this question. There is virtually no way that it can be answered on a global basis for all governments and governmental entities in the United States because there is no national requirement for state, local, and other governmental entities to issue financial statements in accordance with generally accepted accounting principles. Unlike publicly traded corporations that are subject to SEC requirements that require audited, GAAP financial statements on an annual basis, there is no (more…)

Level A

• GASB Statements (currently numbered 1 through 45)
• GASB Interpretations (issued by the GASB to provide an interpretation of accounting guidance for an accounting standard that already exists)
• Any AICPA or FASB pronouncements that a GASB Statement or Interpretation specifically makes applicable to governments (more…)