Government Accounting Chapter 1
Different missionsImplication on financial reporting? • Budgets, not the market place governFactors of market place? • Expenditures may drive revenuesAccording on how budgets are prepared. Businesses? Governments?Does this mean governments can raise revenues without regard? • The budget is the most significant financial document, not the annual report.Budget is the culmination of the political process.Does the GASB has the authority over a government’s budget? • Budgets drive accounting & financial reportingImplication on F. R.? Extent of adherence, Alarm system, Evaluate Accomplishments.
Need to ensure inter-period equity. • Revenues may not be linked to constituent demand or satisfaction. • No direct link between revenues and expenses. • Capital assets may neither produce revenues nor save costs. Implications on Capital Budgeting? • Resources of government may be restricted.Implications on F. R.? • No distinguished ownership interests.Absence of transferable ownership rights. Implications on F. R.?Collective ownership by constituents • Less distinction between internal and external accounting and reporting.
No direct and proportional relationship between resources provided and the benefits received • Policy-setting process • Power ultimately rests in the hands of the people • People vote and delegate that power to public officials • Created by and accountable to a higher level government. • Power to tax citizens for revenue
Other characteristics that have accounting implications • Many different types of governments. • Short-term focus of managers and officials. • Governments engage in business-type activities.
Overall purposes of financial reporting Financial reports are used primarily to: • Compare actual financial results with legally adopted budget • Assess financial condition and results of operations • Assist in determining compliance with finance-related laws, rules, and regulations of the government • Assist in evaluating efficiency and effectiveness of management, its resources and programs
Users of financial reports • Governing boards • Investors & creditors • Citizens & organizational members • Donors & grantors • Regulatory agencies • Employees
GASB Objectives Of Financial Reporting • Accountability Meaning? Sub-objectives? • Example Page 18; “Clash among reporting objectives”
Basic Financial Statements • Government-wide Financial Statements • Statement of Net Assets • Statement of Activities • Fund Financial Statements • Balance Sheet • Statement of Revenues, Expenditures, and Changes in Fund Balances • Notes to the Financial Statements