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.

• Control characteristics resulting from a government’s structure. Governments usually prepare a budget for the “general” or main operating fund. This budget is an expression of public policy as well as a control mechanism for operating the government. Underspending the budget in a particular area might be considered a good thing, if the expected level of service was provided to constituents. However, underspending a budgeted amount for a particular area when service levels are below the expected levels might indicate that the “public policy” features of the budget were not adhered to. Another unique aspect of budgets in the government environment is that when a budget is recommended by a government’s executive branch and adopted by the legislative branch, a legal authority for spending the government’s resources is established. In this case, the government may legally spend only what is authorized in the budget. In the commercial environment, budgets are more often targets rather than legal spending authorizations.

Taken From : Governmental Accounting Made Easy

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