Chapter 4: Governmental Accounting, Financial Accounting for Local and State School Systems, 2003 Edition
Content
Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions should be recognized when the exchange takes place. Revenues, expenses, assets, and liabilities resulting from nonexchange transactions should be recognized in accordance with the GASB Statements 24 and 33. By this law, provisions relating to government accounting and government financial statistics have been arranged between 49 and 54 articles of the fourth part of the law entitled “Government Accounts and Financial Statistics” [57].
The GASB is also advised by the Governmental Accounting Standards Advisory Council (GASAC), an organization that was established by the FAF’s Board of Trustees to advise the GASB on its agenda, priorities and procedural matters. Importantly, the GASAC doesn’t vote on board matters or make decisions about standards. Instead, it provides the GASB with contextual information about the diverse individuals that GASB may impact. This empowers the GASB to understand diverse views and make informed decisions accordingly.
Deferred Outflows/Inflows of Resources
Thus, GASB is the acting body that enforces and updates GAAP, which are all different accounting principles that are constantly changing. Each one has a name that starts with “GASB” followed by a number indicating which accounting principle it is. The GASB is shouldered with the responsibility of setting the highest-quality of standards, and to do so they utilize a process called the “Rule of Procedure”. The procedure is designed to encourage broad public participation in the standard-setting process, as these wide-reaching financial matters affect everyone. The GASB gets funding from publishing revenue, investment income, and accounting support fees paid by dealers who trade in municipal bonds. Expenditures should be classified by fund, function (or program), organization unit, activity, character, and principal classes of objects.
The Governmental Accounting Standards Board (GASB) is the organization that determines and updates generally accepted accounting principles (GAAP) for government entities. (1) Activities accounted for in governmental funds by function, to coincide with the level of detail required in the governmental fund statement of revenues, expenditures, and changes in fund balances. Proprietary fund revenues should be reported by major sources, and expenses should be classified in essentially the same manner as those of similar business organizations, functions, or activities.
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However, GASB Statement 34 permits a government to designate a particular fund that is of interest to users as a major fund and to individually present its information in the basic financial statements, even if it does not meet the criteria. However, a government does not have the option to not report a fund as major if it meets the criteria above. Government accounting refers to the process of recording and the management of all financial transactions incurred by the government which includes its income and expenditures. Financial accounting recognizes certain types of assets and liabilities over periods of several years, such as capital expenditures and depreciation. Those sorts of items are absent from government accounting, which recognizes items in a single fiscal year.
What are the government accounting standards?
The Governmental Accounting Standards Board has been around for 25 years, and in those years of operation they have released 98 standards of lease accounting that contain rules and regulations for lease accounting practices today. A recent GASB standard is GASB 87, which drastically changed lease accounting for the entities who must follow the rules and regulations of the Government Accounting Standards Board. Check out our guide to GASB 87 implementation here for more information on best practices to avoid an audit. It is worth noting that these standards were developed based off of the standards defined in GASB 87 for lease accounting.
Ways Fund Accounting Solutions Benefit the Public Sector
When implemented, it will create new information and will restructure much of the information that governments have presented in the past. We developed these new requirements to make annual reports more comprehensive and easier to understand https://www.bookstime.com/ and use. Government accounting is different from the private sector because the government is considered a steward of taxpayer funds and as such, it is subjected to extensive monitoring to ensure funds are spent correctly.
- To demonstrate whether resources were obtained and used in accordance with the government's legally adopted budget, RSI should include budgetary comparison schedules for the general fund and for each major special revenue fund that has a legally adopted annual budget.
- This is also called fund accounting, where government allocates funds for tight control over the resources and closely monitors the inflows and outflows.
- Successful results as a result of pilot applications have shown that accrual-based accounting and reporting system could be implemented.
- International developments in government financial management and accounting caused countries to review their financial management and accounting systems.
- Issues which are handled based on the definition of government accounting are of high importance for the institutions and organizations which are included in government accounting.
Government accounting aims at preventing waste in government services and establishing a balance between optimal expenditure and services by managing government assets and government sources in the most efficient way. This balance can be established only by obtaining complete and accurate information from government accounting system on time. Since the users have a low level of knowledge needs in government accounting system, it has been recorded for long years in a cash basis manner. However, as the government’s area of operation expanded and the needs increased, it became obvious that cash basis system had lacking parts. These lacking parts in the accounting system tried to be overcome through a new regulation by focusing on the areas where cash basis accounting system was insufficient; and a change was experienced with regard to applying the accrual basis in the areas of government accounting and financial reporting.
Schneider accounting system is a more developed cameral system applied in order to remove these lacking parts [9]. In the new cameral accounting system, cash book and detailed book of revenues and expenses are kept by different people, which is something that facilitates audit of the accounts, and it can indicate the account balance of revenues and expenses. The only thing that makes the system insufficient is that it does not show the changes in assets of the government just as in cameral system [7].
The accrual principle of accounting requires the revenues and expenses to be recorded in the entity’s financial statements when they are incurred, regardless of when the actual cash flows for the transaction are received or paid. Funds that focus on total economic resources employ the accrual basis of accounting. The concept of major fund reporting was introduced and defined by GASB Statement 34 to simplify the presentation of fund information and to focus attention on the major activities of the reporting entity.
The basis of accounting determines when the economic consequences of transactions and financial events should be entered into financial statements. The GASB Statement 63 provides guidance on the timing of recording a certain financial event. The ultimate purpose of the standards set by the GASB is to ensure that financial reporting is transparent and consistent from one organization to another so that the financial reports reaching the public, government officials, and investors are reliable and authentic. The detailed authoritative standards established by this Statement are presented in paragraphs 3 through 166. Appendix C provides nonauthoritative illustrations of MD&A; the basic financial statements required for a variety of types of governments, such as towns, school districts, fire districts, and utilities; notes to those financial statements required by this Statement; and RSI other than MD&A.
Required proprietary fund statements are a statement of net assets; a statement of revenues, expenses, and changes in fund net assets; and a statement of cash flows. To allow users to assess the relationship between fund and government-wide financial statements, governments should present a summary reconciliation to the government-wide financial statements at the bottom of the fund financial statements or in an accompanying schedule. Measurement focus identifies what financial transactions and activities will be documented in the financial statements. The flow of economic resource focus examines all assets available for goods and services and ensures both long-term and current assets and liabilities are accurately documented in the fund and that as a charge of operations, depreciation is recorded.
Differences between Government Accounting and Commercial Accounting
And so, the measurement focus and the basis of accounting are pretty much interrelated. The GASB board includes seven diverse board members, including a chairman and a vice chairman. The board members are expected to deeply understand governmental accounting and finance. The FAF governmental accounting definition Board of Trustees appoints each board member for a 5-year term, and the chairman is the only full-time member of this board. Accounting and financial reporting are important for government entities and agencies, but for different reasons than for commercial business enterprises.
They also promote transparency so that readers such as public officials and taxpayers can access and understand relevant information. If auditing uncovers evidence of possible financial crimes, forensic accountants step in. Forensic accounting uses analytic techniques, such as identifying assets and tracing funds, to identify and document crimes like fraud and embezzlement. The path to a government accounting career depends on which job area you want to pursue.
