Section 1, Chapter 1/2- General/Cost Acctg Flashcards
What is the purpose of government?
- To address public policy issues and provide services effectively
- service-focused, not profit-driven
What are some unique characteristics of the government environment?
- The goals and objectives of government entities differ from the private sector
- Governments are not formed to make money; they exist to provide services
- goals and objectives are established with input from the public
- Resources are derived primarily from taxes, Grant and shared revenues, user fees, licenses, and permits
- There’s no ability to match the taxes provided by the constituent to the services received by the constituent
What are some ways that the government is legally bound by the budget?
- The budget establishes spending authorizations, outlines programs, and services to be provided, and defines sources of revenue that will be used to fund them
- The budget may specify restrictions on the use of resources
- It’s the primary control device in government
What do government financial reports show?
- how much was raised?
- How much was spent
- Following the spending was following the budget
What do government performance reports show?
Inform users about how well a government is operating and whether it is achieving its goals in effective and efficient manner
What does the 10th amendment to the US Constitution do?
- establishes two levels of government (federal and state)
- “ powers delegated to the US states by the constitution nor prohibited by it to the states, are reserved to the states, respectively or the people”
What’s the primary authority of the federal government? What Powers go to the states?
- National and international affairs
- Can impose certain requirements on the management of state governments if its provided the authority in the constitution.
- all other Powers not set forth in the US Constitution are left to the states
What are some aspects of state constitutions?
- Every state has a constitution
- The constitution sets how the state will function
- No two state constitutions are identical, but there are common requirements
- sets how executive branch will function and establish the offices, terms and requirements for holding Office
- sets the requirements for the legislative branch, detailing how laws are to be introduced and enacted
- How local government entities can be formed
Do federal state laws set for how private corporations can be organized?
Yes, but they do not detail what offices are required, what functions they can perform, or how they should go about making money
That’s left to the corporations Board of Directors
What did the GASB white paper on why government or county and financial reporting is and should be different, appendix, a state, or the characteristics that were different between a government and private sector?
- organizational purposes
- Sources of revenue
- Potential for longevity
- Relationship with stakeholders
- Role of the budget
How do you organizational purposes differ from the government versus business entities?
Government: enhances, or maintains the well-being of citizens
Businesses: generate a financial return on investment
How do sources of revenue differ from the government versus business entities?
Government: taxes and grants, derived from non-exchange transactions
Businesses: voluntary exchange transactions
How does the potential for longevity differ from the government versus business entities?
Government: some states/local governments remain around for a long time. Governments do combines/merge, but provide basic services. As of 2020, 161 local governments filed for bankruptcy, including two local governments declared bankruptcy twice.
Businesses: have higher risk of business failure due to ability to generate revenues, changes, and market, technology, and many other factors. 593,000 businesses filed for bankruptcy from 2001 to 2016.
How do relationships with stakeholders differ from the government versus business entities?
Government: our representative democracies. Citizens delegate powers for most decision-making. a separate power exist among executive, legislative, judicial branches for checks and balances. Citizens can elect different leaders. Accountability is also present through inter-equity and present in the access to information on the government’s operations
Businesses: Shareholders exercise, powers of ownership by proxy, unless they accumulate a controlling interest in the enterprise. Shareholders can sell their interest to the highest Bitter at any time. Accountability is supported through buying/selling interests.
How does the role of the budget differ from the government versus business entities?
Government: the budget is illegal document, providing authorization to collect resources and use them to fund operations, pay obligations, provide services
Businesses: budgets are internal documents
What belief is government accountability based on?
- I accountability is the cornerstone of financial reporting
- Public officials must be accountable to citizens to justify raising a public resources in the purposes for which they are used
- The government has a responsibility to report
- The public has the right to know
- The ultimate power belongs to the people
How can people exercise their power?
Through the ballot boxes, and other means such as initiatives and referendums
What types of accountability are there?
- legal accountability
- Performance accountability
- Fiscal accountability
- Operational accountability
FLOP
What is legal accountability?
- The need to comply with various laws, rules and regulations
- Public officials are accountable for the establishment of processes— the controls that are in place to ensure that transactions are processed. Properly, payroll are calculated accurately, payment for goods and services are properly authorized, and services are provided only to eligible recipients.
What is performance accountability?
- Ensuring governments act in and efficient, effective or economic manner
- Insurance goals and objectives are met
What is fiscal accountability?
- associated with raising a resources in the allocation of these resources to accomplish of objectives
- Public officials use their power to impose taxes on citizens, and then use these resources to provide goods and services, such as public protection, and enhancing the quality of life
- Officials are accountable for the resources raised and how they are used
What is an important method for demonstrating fiscal accountability?
Financial reporting
What is operational accountability?
- associated with the stewardship of public resources
- Public officials must ensure the resources they raise are used appropriately
- Addressed with performance measures and performance reporting
Who is the executive branch accountable to?
- Legislative branch (for using resources, according with legislative mandates within fiscal constraints imposed by the legislative branch)
- The public (for operating in effective in efficient manner, and for collecting and using using resources)
** they’re also accountable for using resources in accordance with grant requirements and restrictions, imposed by the grant making entity
Who is the legislative branch accountable to?
The public for raising resources, and for determining how those resources are to be used
How do you both executive and legislative branch demonstrate accountability?
Through financial reporting
What is interperiod or intergenerational equity?
- Goods and services received by current year. Taxpayers should not be a burden on taxpayers in future years.
- It’s a significant part of accountability and is fundamental to public administration
** GASB believes that a major reason for financial reporting by state/local governments is to enable users to assess whether future your tax payers will be required to pay for services received by current your taxpayers
What are some ways governments can manipulate the end balances to give the appearance of breaking him even?
- not paying bills when they are due
- move the required payment date for some taxes prior to the end of the fiscal year to give a one time pick up revenue
What is an accountability mechanism that Congress can use to monitor the financial effects of spending and tax policies?
- The debt ceiling
The debt ceiling can be adjusted by an acting amendments to earlier laws. It requires an affirmative action by Congress and the president to authorize the treasury department to borrow additional funds
What is the debt ceiling?
Limits on the amount of public debt that can be outstanding
What are some of state/local governments balanced budget laws?
- enacting fines and penalties when spending is more than revenue
- debt limitations based on the tax base, population, estimated personal income in the jurisdiction, and/or other elements
What is the difference between financial reporting at the state and local level versus federal level?
- State/local financial reporting enter. Equity needs to be considered when established financial reporting objectives. Financial reporting should help users assess whether current revenues were adequate to pay for the services provided that year, and whether future taxpayers will be required to assume a burden for services previously provided.
- Federal financial reporting is intended to help readers, assess both long-term fiscal, sustainability and intergenerational equity
Who are the users of government financial reports?
- Oversight organizations
- Citizens
- Investors
- Creditors
- Media
- Financial managers
- Program managers
How do legislators use financial statements information?
- they’ll look for info about available resources, operating results, and compliance with laws and regulations
- The focus on a component of government such as a department but they also direct their attention to the government as a whole
- they establish budgetary appropriations, so use financial reports to see if actual expenditures were within the authorized levels
How do investors and creditors use financial reports?
- to determine compliance with contractual agreements related to debt issues
- to evaluate the government financial position with complex analytical tools to ensure monies are being treated in the manner consistent with the governments commitments
- To determine if they wish to purchase government debt instruments
How do financial and program managers use financial reports?
- review compliance issues to ensure the government is operating with budgetary perimeters, restrictions of laws and regulations, and public policy
- some managers are only interested in in a program what others evaluate the financial position of the entire government
Financial reporting in government provide information to assist users in doing what?
- Assessing accountability.
- Helping make economic, social, and political decisions.
Also:
- determine if the resources raised were enough to cover the services provided during the operating period
- determine if taxpayers of the future are required to pay for services provided in the current year
What does GASB concepts statement 1, paragraph 77 through 79 identify as the broad objectives of financial reporting there are applicable to state and local governments?
- Assist in fulfilling governments, duty to be publicly accountable and enable users to assess that accountability.
- Assist users in the evaluating and operating results of the government for the year.
- Assist users in assessing the level of services that can be provided by the governmental entity and its ability to meet its obligations as they become due.
What does GASB concepts statement 1, paragraph 77 through 79 identify as the component objectives of financial reporting there are applicable to state and local governments?
- Sufficiency of current year revenue
- Compliance with budget and finance related and contractual requirements
- Assessment of governmental service efforts, cost and accomplishments
- Sources and uses of financial resources
- Financing of activities and sources of cash
- Effect of current operations on financial position
- Financial position and condition
- Information related to physical and other non-financial resources
- Legal or contractual restrictions on resources and risk of loss of resources
What does GASB concept statement number one, paragraph 76 state?
Governmental financial reporting to provide information to assist users in 1. Assessing accountability, and 2. Making economic, social, and political decisions. The duty to be publicly accountable is more significant and government financial reporting than in business enterprise financial reporting
What are the responsibilities of public officials?
- enactment of the budget
- ensuring that resources are used in equitable, effective, and efficient manner 
How do grantors rely on financial reports when intergovernmental revenues are involved?
- To compile consolidated program reports
- evaluate the effectiveness of resource allocation
- Monitor compliance with grant restrictions
What supplements financial reports to determine whether programs are producing results or operating effectively and efficiently?
- supplemental financial reports with programmatic information and performance measurements (often non-financial in nature)
** financial reports alone are not enough to determine whether programs are producing results or operating effectively and efficiency
What questions does supplemental financial information with performance information answer?
- did the program/service accomplish what it was supposed to do efficiently and effectively?
- The types of financial resources raised, and how they were used?
- were the Inflows sufficient to meet required outflows? What action taken, if not?
- did gov play bills on time?
- was there enough cash to meet operating requirements?
- is the gov better or worse off because of operations?
- how did the gov address an economic downturn? What programs were cut? Was additional revenue raised?
What are two types of financial reports?
- Point in time reports (a.k.a. position statements)
- Period Reports (also known as operating statements or flow reports)
What point in time reports provide? What is an example of a point in time report?
- Current information as of the day of the report
Example: balance sheet
What does a balance sheet provide?
Information about the financial position of an entity “ as of” a certain date (normally the last day of the entities fiscal year)
What does the period report cover? What’s an example?
The entire fiscal year
Example: operating statement and statement of cash flows
What does an operating statement present?
The results of operation from the first day of the fiscal year until the last day of the fiscal year
What does the statement of cash flows present?
Inflows and outflows of cash during the fiscal year
What do general purpose external financial reports (GPEFR) consist of?
- audited financial statements (a.k.a. basic or principal financial statements)
- Notes to the financial statements
- Required supplementary information
- Other accompanying information (not required by the standards— management provides voluntarily)
What are some special purpose financial reports that may or may not be provided to external users?
- Budget comparison reports
- Reports disclose specific aspects of the government condition or operations, such as reports on cash, receivables, outstanding, or revenues generated
- Offering statements (for governments issuing debt)
- Project reports
- Reports to grantor agencies, bond holders, and other oversight bodies
What are summary reports or popular reports? What is an example of one?
Reports that are shorter, and contain narrative, pictures, and graphs that are easier for stakeholders to understand than financial statements
Example: citizen centric report (encouraged by AGA)
What characteristics must information in financial reports have to be effective?
- understandability
- Reliability
- Relevance
- Timeliness
- Consistency
- Comparability
What are some aspects of understandability?
- expressed as simply as possible
- include explanations and interpretations to help users understand the information provided
** financial reports do not have to be understandable to users
What is reliability?
- verifiable, free from bias and faithfully represent what it purports to represent
- comprehensive
- Nothing material should be omitted
What is relevance? We can help with if it’s relevant?
Timely and reliable
Information is relevant if it can make a difference in the users assessment of a condition, event or problem
What are some aspects of timeliness?
- info should be reported in a timeframe that enables users to base decisions on it
- to be timely, precision or detail might have to be sacrificed
- A timely estimate is more useful than a precise amount if the time to produce the precise amount is overly long and estimate is based reliable data, reasonable assumptions, and valid algorithms
What are some aspects of consistency?
- The same accounting principles or methods should be used
- the nature and reason for the change should be disclosed as well as the effect of the change if it’s necessary to change a method or principle
What are some aspects of comparability?
- Financial statements should be comparable (entities should report the same information, the same way)
** There could be differences among government. However, the differences should be due to substantive differences in the underlying transaction or governmental structure
What are some limitations of financial statements?
- Information is sometimes based on approximate measures of past defense, especially if information is not really available or firm data does not exist or is costly to produce
- info is often based on judgments or estimates
- they’re only one source of info needed by user (budget and project or performance reports may also be needed)
- info on what was accomplished is not included in financial statements)
What did the American Recovery and Reinvestment Act of 2009 require?
It required federal, state, and local governments to inform the public on how these funds were being spent
What does the recovery.gov website provide?
- Information for citizens to monitor progress and awarding funds intended to stimulate the economy and create jobs
- Expanded access access to disaggregated government financial information
What is the Open Government Initiative?
- An effort by the federal government to create a level of openness in the government
- a philosophy that the government should be transparent, participatory, and collaborative
What are some agencies that participate in the Open Government Initiative?
- nearly all have webpages providing info on key initiatives and ask the public for ideas and suggestions
- State Department, Justice Department, HHS, NASA, Treasury, EPA, defense, SSA
What did the Connected Government Acted amended title 44 of U.S.Constitution section 44 U.S.C. 3559 require?
-Federal websites should be global friendly
- Must be viewed and access on smart phone, tablet computer, or similar mobile device
What did the Digital Accountability and Transparency Act (enacted May 9, 2014) do?
- expanded the federal funding, accountability and transparency act of 2006 to enable taxpayers and policy makers to track financial spending more effectively
- Established wide, standard financial data provide consistent, reliable and searchable wide spending data that is displayed accurately for taxpayers and policy makers on US spending.gov
- Simplified reporting for entities receiving streamlining reporting requirements and reducing compliance costs
- quality of data submitted to US spending.gov by holding federal agencies accountable for the completeness/accuracy of data submitted
- Applied approaches develop by the recovery, accountability and transparency board spending across the federal government
Who maintains USASpending.gov? What information does it have?
- treasury
- Offers access to data on contracts, grants and loans by agency, fiscal year, object class and more
- users can filter and view data in table format or with a geographic map presentation and can also download the data and multiple formats for personal analysis and manipulation
- can track of funds based on the disaster emergency fund codes find the budgetary resources made available by the catalog of federal domestic system program codes
When was the SEC established and what does it have the power to do?
- 1934
- Has the power to regulate securities markets
What does the SEC require publicly traded companies?
To disclose certain information (there’s a belief that investors should have access information about potential investments before making the investment)
Who did the SEC grant the authority to make an accounting and reporting standards?
The Financial Accounting Foundation (FAF) which intern appoints the members of the FASB
Who has the authority to establish an accounting of financial reporting standards for private sector companies, including nonprofit organizations?
FASB
When did recommended accounting reporting standards for state and local governments begin? Who recommended them?
- 1934
- The national committee on municipal accounting, public interest organizations led by the municipal finance officers association (MFOA)
When was the National Council on Government Accounting (NCGA) established by whom?
- 1948
- Established by several public interest groups, lead by the MFOA (which later became the government finance officers association (GFOA))
When was the Government Accounting, Auditing, and Financial Reporting (GAAFR) (a.k.a. bluebook) issued and by whom?
- 1968
- Issued NCGA (national council on governmental accounting)
What does bluebook/GAAFR do/contain?
- Consolidated principles and standards issued prior to 1968
- indicated the requirements of a state or local government would assume primacy over the principles and GAAFR
When was GASB created? And why?
- 1984
- when FAF determined a new board other than FASB recognized standards for accounting and reporting by state and local local governments was needed
To state and local governments have to comply with standards issued by GASB?
- no because they are sovereign entities; however, many recognize its authority to standards with good public policy enacted legislation, excepting and requiring GASB standards for accounting and reporting local government entities with states. Local governments also enacted charter and ordinance provisions requiring the following of GAAP prescribed by GASB
- Many complied with reporting requirements after external pressures (creditors wanted audited financial statements)
What guidance do recognized tribal nations follow?
GASB pronouncements but also apply FASB announcements to business type activities such as gaming and other activities
However, GASB convened a tribal government accounting working group in late 2018 to consider alternatives to address the unique nature of tribal governments and investments in business activities
What do municipal utilities and other public entity risk pools follow?
Special purpose frameworks
What do special purpose frameworks encompass for the basis of accounting?
- Cash basis
- Regulatory basis
- Contractual basis (May be used in grant accounting)
- another basis, containing a defined set of criteria items that are disclosed in the notes of the financial statements. This basis may also include reporting in accordance with the budget or statue.
What determines which basis of accounting must be followed?
Laws, regulations, ordinances, management practices, debt compliance, and other factors
What are the primary standard setting organizations for government entities?
- GASB
- FASB
- FASAB
- International Public Sector Accounting Standards Board (IPSASB)
What is the mission of GASB?
- Set and improve standards of state and local accounting and financial reporting that will result in useful information for users of financial reporting
- Guide and educate public, including issuers, auditors and users of financial reports.
What are the rules of procedure GASP established to guide its activities?
- establishment of an advisory task force of experts to provide feedback on an issue
- Publishing documents for public comment
- broadly distributing an exposure draft of a proposed issue for public comment
- conducting public hearings and forums on due process documents
- Issuing a final standard
What is the mission FASAB?
Serve the public interest by improving federal financial reports through issuing federal financial accounting standards, and providing guidance after considering the needs of external and internal users of federal financial information
What are the steps FASAB uses to establish rules of procedure?
- identify accounting issues and decide on agenda items
- Prepare initial documents
- Release preliminary documents, convene public hearings, and consider comments
- conducted further deliberations, release exposure draft and consider comments
- vote
- issue final pronouncement
What is the mission of FASB?
Set and improve financial accounting and reporting standards, and provide decision-useful information to investors and other users of financial statements
What are the steps the FASP follows to establish rules of a procedure?
- Identify issues based on requests/recommendations from stakeholders or through other matters
- Decide whether to add an item to the technical agenda based on staff analysis
- Deliberate issues at public meetings
- Issue an exposure to solicit input
- hold a public round table meeting on the exposure draft if necessary
- Staff analyze comments and the board proposed and issues the pronouncements
- Board issues an update to the accounting standards codification
What does the international public sector accounting standards board (IPSASB) do?
Develops international public sector accounting standards for use by public sector entities around the world for preparation of general purpose financial statements.
What does the IPSASP board consist of?
18 volunteer members— 15 from the international Federation of accountants (IFAC) member bodies and three public members
What are the two major activities that IPSASB follows?
- Issuing a consultation paper that explores the subject in detail and provides the basis for further discussion, development, and policy formation.
- Issuing an exposure draft.
What are the three organizations invested with the authority to set set accounting and reporting standards?
- FASB — private sector and not for profit.
- GASB — state and local governments
- FASAB — federal government.
Can a governmental entity apply FASB standards?
in rare circumstances. Especially when there’s an absence of guidance in GASB or FASAB Standards in governmental entities applying other literature such as FASB
What are some general principles that apply to all three standard setting bodies?
- Each board tries to be objective and neutral in decision-making, and tries to assure as much as possible information resulting from standards representation of the effects of activities of the appropriate entities
- they carefully weigh the views of the constituents in developing concepts and standards so they will meet the accountability and decision-making needs of the users of financial reports and gain acceptance among preparers of financial reports
- standards benefits exceed cost; address significant need
- being change that minimizes disruptions
- keep communication open, due process procedures
