Financial Reporting for Governmental

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Chapter
Financial Reporting for Governmental and
Not-for-Profit Entities
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Learning Objectives

• After studying Chapter 1, you should be able to
• Identify and explain the characteristics that
  distinguish governmental and not-for-profit
  entities from for-profit entities.
• Identify the authoritative bodies responsible for
  setting GAAP and financial reporting standards
  for all governmental and not-for-profit entities.
• Contrast and compare the objectives of financial
  reporting for SLG, the federal government, and
  not-for-profit organizations.

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Learning Objectives (Contd)

• Explain how managements discussion and analysis
  (MDA), basic financial statements, and required
  supplementary information (RSI) of SLG relate to
  their comprehensive annual financial reports.
• Explain the different objectives, measurement
  focus, and basis of accounting of the
  government-wide financial statements and fund
  financial statements of SLG.

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Key Terms

• Accountability GASB
• Basic financial statements Government-wide
  financial statements
• CAFR Interperiod Equity
• FASAB Major fund
• FASB MDA
• Fiscal accountability Operational accountability
• Fund accounting Required supplementary
  information
• Fund financial statements SEA
• General purpose governments Special purpose
  governments
• GAAP

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How Do Governmental and Not-For-Profit
Organizations DifferFrom Business Organizations?

• Benefits are not proportional to resources
  provided
• Lack of a profit motive
• Absence of transferable ownership rights

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How Do Governmental Entities Differ From
Not-For-Profit Organizations?

• 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

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Sources of GAAP andFinancial Reporting Standards

• FASB
• Business organizations
• Nongovernmental not-for-profits
• GASB
• Governmental organizations
• Governmental not-for-profits
• FASAB
• Federal Government and its agencies

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Criteria for Determining Whether an NPO is
Governmental

• Public corporations and bodies corporate and
  politic
• Other organizations with one or more of following
  characteristics
• Popular election of officers, or appointment of a
  controlling majority of the governing body by
  officials of another government
• Potential dissolution by a government with net
  assets reverting to a government
• Power to enact and enforce a tax levy

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Objectives of Financial ReportingState and
Local Governments (SLG)

• 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
• Assist in evaluating efficiency and effectiveness

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Objectives of Financial Reporting SLG (Contd)

• ACCOUNTABILITY is the cornerstone of all
  financial reporting in government (GASB
  Concepts Statement No. 1, par. 56)
• What do we mean by accountability?
• How does interperiod equity
• relate to accountability?

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Objectives of Financial Reporting SLG (Contd)

• Q What do we mean by accountability?
• A Accountability arises from the citizens
  right to know? It imposes a duty on public
  officials to be accountable to citizens for
  raising public monies and how they are spent.

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Objectives of Financial ReportingSLG (Contd)

• Q How does interperiod equity relate to
  accountability?
• A Interperiod equity is a governments
  obligation to disclose whether current-year
  revenues were sufficient to pay for current-year
  benefitsor did current citizens defer payments
  to future taxpayers?

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Objectives of Financial ReportingFederal
Government

• Accountability is also the foundation of federal
  government financial reporting
• Federal Accounting Standards Advisory Board
  (FASAB)s standards are targeted at both
• internal users (management), and
• external users

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General Purpose External Financial Reports

• Managements discussion and analysis
• Government-wide Fund financial
• financial statements statements
• Notes to the financial statements
• Required supplementary information
• (other than MDA)

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Comprehensive Annual Financial Report (CAFR)

• Introductory section
• Financial section
• Statistical section

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CAFR - Introductory Section

• Title page
• Contents page
• Letter of transmittal
• Other (as desired by management)

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CAFR - Financial Section (GASBS 34)

• Auditors report
• MDA
• Basic Financial Statements
• Required Supplementary Information RSI (Other
  than MDA)
• Combining and individual fund statements and
  schedules

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Managements Discussion and Analysis (MDA)

• Brief objective narrative providing
  managements analysis of the governments
  financial performance

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Basic Financial Statements

• Government-wide Financial Statements
• Statement of Net Assets (Ill. 1-4)
• Statement of Activities (Ill. 1-5)
• Fund Financial Statements (see next slide)
• Notes to the Financial Statements

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Fund Financial Statements

• Balance Sheet (Ill. 1-6)
• Statement of Revenues, Expenditures, and Changes
  in Fund Balances - Governmental Funds (Ill. 1-7)
  with reconciliation (Ill. 1-8)
• Statement of Net Assets - Proprietary Funds (Ill.
  1-9)
• Statement of Revenues, Expenses, and Changes in
  Fund Net Assets - Proprietary Funds (Ill. 1-10)

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Fund Financial Statements (Contd)

• Statement of Cash Flows - Proprietary Funds (Ill.
  1-11)
• Statement of Fiduciary Net Assets (Ill. 1-12)
• Statement of Changes in Fiduciary Net Assets
  (Ill. 1-13)

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CAFR - Statistical Section

• Tables and charts showing multiple-year trends in
  financial and socioeconomic information

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Fund Accounting

• Fund accounting reports financial information for
  separate self-balancing sets of accounts,
  segregated for separate purposes or to account
  for resources restricted as to use by donors or
  grantors
• Funds are separate accounting and fiscal entities
  (see Chapter 2-9 for more detail)

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Concluding Comments

• In this course you will become familiar with
  current GASB, FASB, and FASAB standards relative
  to governmental and not-for-profit organizations
  (NPOs).
• Accounting and reporting for governmental and
  not-for-profit entities differ from those of
  for-profit entities because each type of entity
  has different purposes and reporting objectives.

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A Quote from the Original Author

• ...Even when developed to the ultimate stage of
  perfection, governmental accounting cannot
  become a guaranty of good government. At best,
  it can never be more than a valuable tool for
  promotion of sound financial management...
• Professor R. M. Mikesell, 1951