Purpose of Government Accounting and Financial Reporting

Government accounting and financial reporting serve a unique purpose compared to commercial business enterprises. The primary objective of government accounting is to provide information that demonstrates accountability to the public, elected officials, investors, creditors, and other stakeholders. This accountability is crucial as government agencies are responsible for managing and using public resources, often funded through taxes or grants.

Accountability and Transparency

Governments are accountable for the management and use of public resources. The majority of government agencies are funded at some level by funds received from various taxes or grants. Because government agencies serve as stewards of taxpayer money, using the money to provide valuable services and goods to the public, there is a need for both uniformity and transparency in the way that financial data is reported.

Budgetary Control

Budgets play a crucial role in governmental accounting as they express public policy priorities and serve as a control mechanism to hold government management financially accountable. A key objective of financial reporting is demonstrating accountability with budget authority.

Relevance and Reliability

Financial reports must provide relevant and reliable information to reasonably informed users. They should satisfy various needs and objectives, including short-term financial position, budgetary compliance, long-term focus on capital budgeting, and maintenance.

Governmentwide Financial Statements

The introduction of governmentwide financial statements, as mandated by GASB Statement 34, provides a comprehensive view of the public entity’s financial position and activities. This enhances the understandability and usefulness of annual financial reports for decision-making.

Measurement Focus and Basis of Accounting

Government accounting uses different measurement focuses and bases of accounting depending on the type of financial statement. For example, governmentwide financial statements use the economic resources measurement focus and accrual basis, while governmental funds financial statements use the current financial resources measurement focus and modified accrual basis.

References

1. California Department of General Services: https://www.dgs.ca.gov/en/Resources/SAM/TOC/7200/7210
2. National Center for Education Statistics: https://nces.ed.gov/pubs2004/h2r2/ch_4.asp
3. Governmental Accounting Standards Board: https://www.gasb.org/st/concepts/gconsum1.html

FAQs

What is the primary purpose of government accounting and financial reporting?

The primary purpose of government accounting and financial reporting is to provide information that demonstrates accountability to the public, elected officials, investors, creditors, and other stakeholders.

Why is accountability important in government accounting?

Accountability is important in government accounting because government agencies are responsible for managing and using public resources, often funded through taxes or grants. Transparent and accurate financial reporting helps ensure that these resources are used efficiently and effectively.

What role do budgets play in government accounting?

Budgets play a crucial role in government accounting as they express public policy priorities and serve as a control mechanism to hold government management financially accountable. Financial reporting should demonstrate accountability with budget authority.

What are governmentwide financial statements?

Governmentwide financial statements provide a comprehensive view of the public entity’s financial position and activities. They are prepared using the economic resources measurement focus and accrual basis of accounting.

What is the difference between the measurement focus and basis of accounting used in governmentwide financial statements and governmental funds financial statements?

Governmentwide financial statements use the economic resources measurement focus and accrual basis of accounting, while governmental funds financial statements use the current financial resources measurement focus and modified accrual basis of accounting.

What are some of the key differences between government accounting and financial reporting and commercial business accounting and financial reporting?

Some key differences include the purpose of the organization (public service vs. profit-making), the users of the financial reports, the sources of revenue, the potential for longevity, the relationship with stakeholders, and the role of the budget.

Who sets the standards for government accounting and financial reporting?

The Governmental Accounting Standards Board (GASB) sets financial accounting and reporting standards, known as Generally Accepted Accounting Principles (GAAP), for state and local government.