Archive for December, 2008

The reader might encounter the names of several other organizations that might lend some confusion as to what organization sets the accounting rules for governments and governmental entities. The National Council on Governmental Accounting (NCGA) was the name of the organization that set accounting principles for governments prior to the creation of the GASB. Some of its accounting principles resulting from its “municipal accounting standards” and other standards are still in use today. The NCGA, which no longer exists, was sponsored by the Government Finance Officers Association (GFOA). The GFOA is still in (more…)

Generally accepted accounting principles for governments are basically set by the Governmental Accounting Standards Board, or as it is commonly called, the GASB. The GASB is a private organization that is financially controlled by the Financial Accounting Foundation (FAF), which is a not-for-profit organization. Readers with some familiarity with commercial accounting or not-for-profit accounting might be somewhat familiar with the Financial Accounting Standards Board, or as it is commonly called, the FASB. The GASB does for governments what the FASB does for commercial and not-for-profit organizations. The GASB was created in (more…)

Accountants and independent auditors have attempted to provide quantitative measurements to determine when a misstatement of the financial statements would be considered material to those statements. For example, a common measure for determining whether a misstatement was material to the statement of financial position was to determine whether the amount of the misstatement was more than ten percent of total assets. Similarly, a common measure for determining whether a misstatement was material to the statement of income was to determine whether the amount of the misstatement was more than five percent of the net income. (more…)

Another feature of GAAP that needs to be understood is that in a number of instances there is more than one acceptable way to account for a specific type of transaction. For example, later chapters will describe the accounting for capital assets that are depreciated by governments. Depreciation expense can be calculated using any of several accepted methods. One method charges depreciation expense in equal amounts each year over the life of the asset—this is called straight-line depreciation. Another method charges more depreciation expense each year in the early years of a capital asset’s life and less depreciation expense each year in the later years of a capital asset’s life—this is called accelerated depreciation. Both of (more…)

More often than not, GAAP consists of accounting principles rather than specific rules for accounting for specific types of transactions. Recent accounting scandals that have grabbed national attention have generated a debate as to whether GAAP needs to be even more principle-based and less rule-based. The reason supporting more principle-based GAAP is that, in some instances, the accounting scandals involved transactions that were accounted for technically within the letter of the law known as GAAP. In other words, transactions were structured in ways that met the technical requirements of GAAP, but were accounted for in (more…)

This chapter sets the stage for understanding governmental accounting by explaining some of the important concepts that comprise the framework of governmental accounting and financial reporting.

Specifically, this chapter will discuss the following:

• What are generally accepted accounting principles?
• Who sets generally accepted accounting principles?
• Do governments need to comply with generally accepted accounting principles? (more…)