What distinguishes government and not-for-profit entities from for-profit entities?
They serve distinct societal functions, have a special accountability duty, and are funded by providers who do not expect proportional benefits.
Who sets financial reporting standards for state and local governments?
Authoritative bodies such as GASB (Governmental Accounting Standards Board).
Who sets financial reporting standards for the federal government?
The Federal Accounting Standards Advisory Board (FASAB).
Who sets financial reporting standards for not-for-profit organizations?
The Financial Accounting Standards Board (FASB).
What are the objectives of financial reporting for state and local governments?
- Compare actual results with legally adopted budgets
- Assess financial conditions and results of operations
- Assist in determining compliance with finance-related laws
- Evaluate efficiency and effectiveness
What is the cornerstone of all financial reporting in government?
Accountability.
What does ‘interperiod equity’ refer to in financial reporting?
Disclosure of whether current revenues can cover current benefits or if future taxpayers will bear the costs.
What is the purpose of Management’s Discussion and Analysis (MD&A)?
Offers a narrative of the government’s financial performance.
What are the two categories of financial statements required for general purpose external financial reporting?
- Government-wide financial statements
- Fund financial statements
What do governmental fund statements focus on?
Fiscal accountability and use modified accrual basis for revenue recognition.
What is the purpose of the Annual Comprehensive Financial Report (ACFR)?
Provides more detail than minimum reporting requirements for general purpose external financial reports.
What are the sections of the ACFR?
- Introductory Section
- Financial Section
- Statistical Section
What must the financial section of the ACFR include?
- Auditor’s report
- MD&A
- Basic financial statements
What are the two levels of financial reporting for the federal government?
- Government-wide by U.S. Treasury
- Agency-level by major agencies following OMB guidelines
What is the purpose of financial reporting for not-for-profit organizations?
To provide useful financial information for resource providers (donors, members).
What are the three main financial statements required for nongovernmental not-for-profit organizations?
- Statement of financial position
- Statement of activities
- Statement of cash flows
Fill in the blank: Providers of resources in government and not-for-profit organizations do not expect _______.
repayment or proportional benefits.
True or False: Government and not-for-profit organizations operate with a profit motive.
False.
What is a characteristic of ownership in government and not-for-profit organizations?
No transferable ownership rights.
What are the challenges faced by the federal government in financial reporting?
Ongoing financial management issues prevent the issuance of a clean audit opinion.
What does the government-wide consolidated report include?
- MD&A
- Performance information
- Basic financial statements
- Supplemental information reporting both budgetary & proprietary activities
