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 generate revenue from its use (unless, of course, it is a toll road). Commercial enterprises invest in many of their capital assets because they generate a rate of return, such as a new factory or a new retail store. While the new school and rebuilt Main Street may make a jurisdiction a more attractive place to live and work, resulting at some point in higher tax revenues, the resulting revenues are not directly related to these investments in capital assets made by this hypothetical government.
• Nature of the political process. There is an inherent conflict in governments between the citizens’ demand for services and the citizens’ willingness to pay for those services. There is a concept labeled in the government world as interperiod equity. This concept means that the current citizens should be paying for the services they are currently receiving. Governments can sometimes not live up to this principle, many times by borrowing money (which will be repaid by future citizens) to pay for the current operating expenses (whose benefit the current citizens are enjoying). GASBCS 1 concludes that to help fulfill a government’s duty to be accountable, government financial reporting should enable the financial statement user to assess the extent to which operations were funded by nonrecurring
  revenues or long-term liabilities were incurred to satisfy current operating needs.
• Users of financial reporting. The users of governmental financial reporting and financial statements are different from those of commercial enterprises. GASBCS 1 identifies three primary groups as the users of governmental financial reports.

Taken From : Governmental Accounting Made Easy

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