Public corporations are created for the administration of public affairs and include instrumentalities created by the state, formed and owned in the public interest, supported in whole or in part by public funds, and governed by managers deriving their authority from the state. Other organizations are governmental organizations under the Guide’s definition if they have one or more of the following three characteristics:

• Popular election of officers or appointment (or approval) of a controlling majority of the members of the organization’s governing body by officials in one or more state or local government
• The potential for unilateral dissolution by a government with net assets reverting to the government
• The power to enact or enforce a tax levy

Using the economic development corporation example mentioned earlier, in a common scenario, the mayor appoints the majority of the corporation’s board of directors, meeting the first criterion described. Similarly, if the city decided to dissolve this economic development corporation and received all of the corporation’s net assets upon dissolution, the second criterion would be met. Accordingly, the hypothetical economic development organization should follow GAAP for governments.

SUMMARY

The purpose of this chapter is to describe a broad framework and context about accounting principles used by governments so that more specific information about accounting principles can be understood. Governments are unique entities and the accounting principles applied by these entities need to be reflective of the environment and types of activities in which these organizations engage.

Taken From : Governmental Accounting Made Easy

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