Introduction
Government reporting is done through a Comprehensive Annual Financial Report (CAFR). According to Ruppel (2011), “the CAFR is built by three main sections which include: an introductory section, a financial section, and a statistical section.”On the same note, Delaney (2009) explains that, “the introductory section should have a transmittal letter, a chart showing the organization as well as the list of key officials while the financial section should have a report from the editor, and other necessary information.” Delaney (2009) also explains that, “the statistical section should consist of changes in net assets, net assets by components, economic statistics, debt capacity, demographic as well as revenue capacity.”
Reporting Entity
Delaney (2009) notes that “according to GASB, reporting entity includes all the agencies, boards, and commissions that are concerned.” Ruppel (2011) further notes that “the GASB defines a primary government to either be: a state government, a special purpose local government or a general-purpose local government.” Ruppel (2011) notes that “the GASB defines a primary government to be either: a state government, a special purpose local government or a general-purpose local government.”
According to Ruppel (2011), special-purpose governments include organizations involved in governmental activities, organizations dealing with fiduciary activities, organizations dealing with business-type activities and finally organizations that deal with mixed government and business activities.” Delaney (2009) lists some special governments to include; “school districts, sanitation districts and tollway authorities.”
It’s important to note that the special governments make distinct statements. To start with, Delaney (2009) notes that, “special purpose governments that are only involved in one type of business activities or fiduciary activities are not expected to make government-wide statements but only statements of the fiduciary or proprietary fund.” Secondly, Delaney notes that, “special purpose governments that are involved in business-type and government type activities as well as those that are only involved in a single government activity may combine both the government-wide and the financial statements.” Ruppell (2011) adds that, “other non profit government organizations like public colleges and universities are allowed to make their reports either as special-purpose governments involved solely in government activities or involved in both government and business.” Despite all this, there is a special requirement that is expected of all these governments. Delaney (2009) states that, “all governments must include the Required Supplementary information (RDI) and the Management Discussion and Analysis (MD & A).”
Delaney (2009) further notes that “there exists a unit called component unit which acts as a distinct organization and to which the key primary government officials are accountable.”
According to Engstrom & Copler (2001), “it is common to find component units reported in a separate column, in the government-wide financial statements or to the right column of information including the primary government.” Delaney (2009) explains that “those components with activities that are very similar to the primary government can have their figures merged with those of the primary government.” In other words, a reporting entity can comprise the primary government and components (Ruppel, 2011). Delaney (2009) notes that, “so as to get to know those organizations that may be termed as component units, a similar organization and a fund raising foundation need to be reported as a component unit of the government concerned.”
Management’s Discussion and Analysis (MD & A)
According to Delaney (2009), “the Management’s Discussion and Analysis (MD & A) summarizes the financial activities of a government in simple English.” According to Ruppel (2011), “the MD & A seeks to make an in-depth comparison between the report of the previous year with the present report, though much emphasis is laid on the previous year.” The MD & A process involves several steps.
To begin with, Delaney (2009) notes that, “there will be a brief discussion of the financial statements.” The financial statements of the current year will be compared to those of the previous year. Secondly, Delaney (2009) notes that “information from the government-wide and individual fund statements will be discussed.” This will be done in consideration of the type of government that yielded the statements. Moreover, Delaney (2009) notes that “the original budget that was planned for the year will be compared to the current results and analysis will be done.” This will give information on whether the acquired results were the expected results. In addition, Delaney (2009) notes that, “there will be a long- term debt and capital assets description as well as a discussion by those governments that make use of the modified approach in reporting infrastructure assets in relation to capital assets and changes from the prior year.” This is a very critical area of the report and is widely discussed. Finally, Delaney (2009) explains that, “a description of any known facts, decisions or conditions that would have a significant effect on the government’s financial position or results of operation is made.”This is done so as to suggest ways in which the government can improve its financial position.
Governmental Accounting versus For-Profit Accounting
Government businesses and organizations are usually nonprofit ventures. According to Fischer (2008), “a government acquires assets through money paid involuntarily by through tax and through financing by creditors.” Fischer (2008) also notes that, “these assets are usually used during the operating processes which produce goods and services dispensed to those who are legally entitled to receiving them.” In these processes, all that is done is not expected to yield profits to the government but instead it’s intended to improve the lives of the citizens. According to Fischer (2008), “left over resources at the end of a fiscal period merely lessen the need for revenue in the next period and results of an operation for an accounting period are summarized in the statement of revenues.”
Moreover, Fischer (2008) notes that, “the expenditures are not usually related to the amount of taxes people pay.” This for instance is seen in a case whereby a child is taken to the hospital and is treated free of charge. Despite the fact that this child cannot pay taxes, the child still receives the required health care. According to Fischer (2008), “the government raises revenue legally and these revenues act as increases to financial resources that flow from outside the government whereas expenditures follow from budget appropriations and are decreases in financial resources that flow to entities outside the government.”
On the other hand, the for-profit organizations function with the entire goal of realizing profits at the end. Fischer (2008) notes that, “assets of a business enterprises are supplied voluntarily by proprietors, stockholders, bond holders, and other creditors as the sales generate revenue for the organization.” According to Delaney (2009), ‘this differs with the government accounting, whereby assets are acquired by money from tax and through creditors finance.”Fischer (2008) also notes that, “the income statement measures the attainment of the net income by matching revenues earned with expenses incurred using accrual accounting.”This also differs with government accounting in that in government accounting, there is only statement of revenues but not income statements. Finally, according to Fischer (2008), “a separate cash flow statement is usually prepared in for-profit organizations so as to show the cash consequences of the period’s operating, financing and investing activities.” Such a cash flow statement is not present in government accounting.
Conclusion
In conclusion, government reporting is done through a Comprehensive Annual Financial Report (CAFR). According to Ruppel (2011), “the CAFR is built by three main sections which include: an introductory section, a financial section and a statistical section.” Delaney (2009) notes that, “according to GASB, reporting entity includes all the agencies, boards, and commissions that are concerned.” Ruppel (2011) further notes that, “the GASB defines a primary government to either be: a state government, a special purpose local government or a general purpose local government.”According to Delaney (2009), “there exists a unit called component unit which acts as a distinct organization and to which the key primary government officials are accountable.” Delaney (2009) also notes that, “the Management’s Discussion and Analysis (MD & A) summarizes the financial activities of a government in simple English.”Ruppel (2011) adds that, “the MD & A seeks to make an in depth comparison between the report of the previous year with the present report, though much emphasis is laid on the previous year.” Finally, government accounting differs from for-profit accounting in many ways.
References
Delaney, P. (2009). Wiley CPA exam review: financial accounting and reporting. New York: John Wiley & Sons.
Engstrom, J. & Copler, P. (2001). Essentials of accounting for governmental and nonprofit organizations. New York: McGraw-Hill.
Fischer, P. (2008). Advanced Accounting. New York: Cengage Learning.
Ruppler, W. (2011). Wiley GAAP for governments 2011: interpretation and application of generally accounting principles for state and local governments. New York: John Wiley & Sons.