Section 1 - Ch1

Question 1

Differences between Government and Private Sector

Answer 1

1. Established by legal means (Constitution)
2. Laws set forth the manner by which private sector corps are organized
3. Goals and Objectives differ — governments have “no profit motive” because they exist to provide services.
4. Resources of gov’t are derived from taxes primarily.
5. Governments are “legally bound” by the budget.Budget specifies spending authorizations and places restrictions on use of resources.Budget = primary control device in government.Private sector = budget is a guide to operations.

Question 2

Accountability in Government: Cornerstone of Financial Reporting

Answer 2

• Public has a “right to know” and the “ultimate power belongs to the people” (exercised thru voting, initiatives, referendums) (Gov’t accountable to the people).
• Taxpayers (with the exception of initiative petitions) do NOT have a “direct” voice in allocation of resources

Question 3

Types of Accountability

Answer 3

• Legal Accountability:need to comply with laws, rules, regulations… public officials are accountable for establishment of processes (Legislative branch gives authority to gov’t to spend money through bills & appropriations)
• Fiscal Accountability:Legislative Branch resp: raising resources and the allocation of resources to accomplish objectives. Accountable for imposing taxes to provides services, public protection, and enhance quality of life. Financial reporting is important method of demonstrating fiscal accountability.
• Operational Accountability: The Executive Branch is accountable to the legislative branch and the public for Stewardship of public resources: Operating in an efficient & effective manner & using resources in accordance with laws and mandates (addressed through use of performance measures and performance reporting).
• Performance Accountability: gov’ts must act in an efficient & effective manner (ensure goals/obj’s met)

Question 4

Interperiod Equity

Answer 4

Interperiod Equity: the current generation of citizens should not be able to shift the burden of paying for current year services to future year taxpayers (“the deficit issue”). Interperiod Equity is a significant part of accountability and is fundamental to public administration. Current year services “SHOULD” be financed with current year revenues. ***CASH BASIS à cannot be used to demonstrate interperiod equity (easy to manipulate).

Question 5

Users and Uses of Financial Reports

Answer 5

• Legislators
  
  • Budgetary Appropriations: Established by legislative body which uses financial reports to see if actual expenditures are within the authorized level
• Citizens: Concentrate on government’s accountability for the management of tax dollars (concerned with operating results)
• Investors/creditors: Use financial reports to determine compliance with agreements related to debt issues
• Media: provides communication
• Managers (financial & program): Day to day ops/delivery of services

Question 6

The Need for Financial Reporting

Answer 6

Financial Reporting provides information to assist in:

1. Assessing Accountability: Gov’t financial reporting = primary communication device for assessing accountability
2. Helping make economic, social, and political decisions
   
   • Raising resources (Legislative Branch)
   • Using resources (Executive Branch)
3. Evaluating Financial Condition (Statement of Financial Condition)
4. Evaluating Results of Operations (Report of Net Cost = Results of Operations over 12 months)

Question 7

Public Officials Responsibility: Enactment of the Budget (effective and efficient manner)

Answer 7

Public Officials responsibility: enactment of the budget (effective and efficient manner)

• Effective -> Outcomes/results/impact
• Efficient -> Lower cost/output (cost effectiveness)

Question 8

Reporting in Government

Answer 8

*Reporting in Government

• Types of Reports
  
  • General purpose external financial reports (GPEFR):consists of audited financial statements and notes/supplemental information
  • Special purpose financial reports:budget, budget comparison, offering statements (for gov’ts issuing debt), popular reports (citizen centric reports).
• Reporting characteristics:to be effective, reports must have:
  
  • Understandability (simple)
  • Reliability
  • Relevance (capable of making a difference to readers opinion)
  • Timeliness (Federal financial reports due Nov 15^th)
  • Consistency
  • Comparability
    
    • Federal uses FASAB Stds, OMB A-136 & USSGL)
    • State/local uses GASAB Stds, State/local laws
• Report Limitations
  
  • Estimates, judgment, provide only financial information (no accomplishment information)

Question 9

Point in Time reports and Period Reports

Answer 9

• Point in Time reports: provides current information as of the date of the report (balance sheet)
• Period reports (flow): covers the entire year

Question 10

Open Government Reporting

Answer 10

Open Gov’t Financial Rpting:

• ↑ Openness: Transparent, participatory, collaborative
• Digital Accountability and Transparency Act (DATA Act): Fin data sts
• ↑ Avail, accuracy, usefulness of Federal spending info

Question 11

The need for Financial Reporting Standards

(FASB, GASB, FASAB)

Answer 11

*The Need for Financial Reporting Standards

FASB = private sector accounting and financial reporting standards (incl non-profits)

National Council on Governmental Accounting (NCGA): formed in 1948. Issued:

Governmental Accounting, Auditing, and Financial Reporting (GAAFR — “Blue Book”) in 1968.

Audits of State & Local Governments Units (ASLGU): audit guide issued by AICPA for state/local gov’ts in 1974.

GASB: 1984, Governmental Accounting Standards Board à state and local gov’ts (set & improve stds of state and lcl accounting and fin rpting)

FASAB: 1990, OMB. Federal Accounting Standards Advisory Board à federal government

Question 12

*Standards-Setting

Answer 12

*Standards-Setting

• General principles of standard setting
  
  • Be objective and neutral in decision-making (free from bias)
  • Views of Constituents:should be considered in developing standards
  • Benefits should be expected to exceed costs
  • Consistency: minimize changes to accounting and financial reporting processes
  • Applicability
  • Replace when appropriate

Question 13

*Due Process: Permit timely, thorough, & open study of accounting & FR issues

Answer 13

*Due Process: Permit timely, thorough, & open study of accounting & FR issues

• Meetings are open to the public and announced in advance
• Documents
• • “Get Ready”
    * Discussion Memorandum (DM): outlines research results/ solicits constituents opinions
    * Invitations to Comment (ITC): respondents asked to comment
    
    • “Get Set”
      
      • Preliminary Views (PV): board’s initial proposal for a standard
      • Exposure Draft (ED): last due process document published before the standard is issued (constituents can react and comment)
    • “Go!”
      
      • “The Statement” (The final document. The Accounting Standard.)