DO GOVERNMENTS NEED TO COMPLY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES? (2)
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.
Beyond a specific example such as selling debt, a government may find that it must provide accountability for its collection and use of resources by issuing financial statements. GAAP-based financial statements provide the fullest picture of a government’s financial position and the results of its activities, as well as in some instances, its compliance with certain financial requirements to which it may be subject. While not all government accountants agree with every aspect of GAAP for governments, by and large, GAAP financial statements are the most widely accepted means of conveying information about a government’s financial position and the results of its activities. In other words, if a government is going to issue annual financial
statements, it may simply make more sense to issue GAAP financial statements rather than justify why GAAP financial statements were not prepared.
Note that preparing GAAP-based financial statements does not mean that a government needs to prepare its budgets on a GAAP basis. As we will examine later in the book, a government’s general fund and certain other funds that legally adopt a budget are required to present budget-to-actual financial information along with the GAAP-based financial statements. The budget-to-actual financial information is presented using what ever accounting basis is used to prepare the budget, meaning that there is no accounting requirement that this information be prepared in accordance with GAAP.
Taken From : Governmental Accounting Made Easy
March 6th, 2009 at 2:50 am
[...] The introductory remarks that Peter Kline made in the lessons I visited, were completed by a videotape of one of the early Lozanov classes at his Institute in Sophia. The video was officially produced by UNESCO, who have welcomed the technique as an important advance in education. The following description of this film is taken verbatim from the North West Orient Magazine because it captures the flavour of the video tape so well. [...]