Comparing Financial Reporting Objectives GASB: What are the three main objectives to financial reporting?
Research Case- Comparing Financial Reporting Objectives GASB
Write a 350-word response (one page).
Compare the financial reporting needs of the resource providers of government/not-for-profit organizations to the financial reporting needs of the resource providers of for-profit organizations.
Research Case—Comparing Financial Reporting Objectives. GASB Concepts Statement No. 1, “Objectives of Financial Reporting,” states that “Accountability is the cornerstone of all financial reporting in government.” FASB Statements of Financial Accounting Concepts Statement No. 8, “Conceptual Framework for Financial Reporting,” states that “The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.” However, the FASB has acknowledged through Statement of Financial Accounting Concepts No. 4, “Objectives of Financial Reporting by Nonbusiness Organizations,” that users of business and not-for-profit entities differ. Required Compare the financial reporting needs of the resource providers of government/not-for-profit organizations to the financial reporting needs of the resource providers of for-profit organizations.
Part 1 – DISCUSSION 150 words
- This is a great place to start. When we look at companies that generate a profit, they need funds to expand operations and they can get these funds from either prior period profits that were not distributed, other cash from investors, or lenders. In government, the main sources are either lenders or taxpayers. Needless to say, taxpayers often want everything for $0 cost.
What other differences are there between the audiences and their needs for financial reports?
- There are three categories for reporting and each is a little different. It should not surprise you that each has different reporting requirements.
Explain the nature of the three major activity categories of a state or local government: governmental activities, business-type activities, and fiduciary activities.
- In government accounting we too must follow GAAP. In fact, for things like Medicare, materiality is $0 so we need to be even more precise than we do in a for profit world. While there are similarities to management accounting, this is more like financial reporting. The CAFR is all about reporting budget adherence and there are no guesses in government. In fact, thanks to the 60 day rule, modified accrual reporting does not include estimates.
Why would we require stricter reporting in government?
- According to the Statements of Financial Accounting Concepts, Financial reports are meant for Knowledgeable Investors and Creditors. While this includes non-accountants, it is more limited than the general public.
Why would they limit the audience in this way? Why would the audience not care about profit, loss, or cash flows in government?
- I want to help you think differently. In government, other than business-type enterprises, there are no earnings. Taxes are approved by vote, and are imposed; they are not earned. In fact, if the police budget is $500,000 we make sure to enact a tax (usually a part of property taxes) to cover that. If we give more to police, we need to raise new taxes. On the other hand, if we reduce services, we can either re-appropriate or reduce taxes.
If a state has a large prison population, what does this mean for attracting business? Is there a line?
- What are the three main objectives to financial reporting?
- What is the Role of Nonprofit vs Government vs for Profit?
- Explain the distinction(s) between agency funds and trust funds. What financial statements are prepared for each?
- Identify the different types of trust funds and explain the purpose of each type.
- Describe the basic activities conducted by a tax agency fund. What are some of the issues that make tax agency fund accounting complex?