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,” or GASBCS 1) in 1987 that addressed what the objectives of governmental accounting and financial reporting should be. In examining this, the GASB identified various characteristics of the environment in which governments and governmental entities operate and distinguished this environment from those of other types of organizations. The following paragraphs describe these distinguishing characteristics:

• The primary characteristics of a government’s structure and the services it provides. Governments derive their authority from the citizenry and are commonly based on a separation of power from three branches (i.e., the executive, legislative and judiciary). There are also various layers of government and there are usually substantial amounts of resources that flow between the layers. For example, there are three basic layers of government that consist of the federal government, state governments, and local governments. Local governments may consist of further layers, such as cities, towns, or villages that are part of a county, which has its own government. Finally, there are distinguishing characteristics as to the relationship between a government’s taxpayers and the government as
  well as the relationship with the services that they receive. GASBCS 1 highlights these differences
  • Taxpayers are involuntary resource providers. They cannot choose whether to pay their taxes.
  • Taxes paid are generally based on factors such as property values or income, rather than the value of services received by individual taxpayers.

Taken From : Governmental Accounting Made Easy

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