GOVERNMENTAL & NONPROFIT ENTITIES An Overview of Accounting & Reporting

DISTINGUISHING CHARACTERISTICS OF GOVERNMENTAL AND NOT-FOR- PROFIT ENTITIES Receipts of significant amounts of resources from resource providers who do not expect to receive either repayment or economic benefits propotionate to the resources provided; Operating purposes that are other than to provide goods or services at a profit or profit equivalent, and; Absense of defined ownership interests that can be sold, transferred, or redeemed, or that convey entitlement to a share of a residual distribution of resources in the event of liquidation of the organization.

DISTINCTION BETWEEN FOR- PROFIT AND NOTPROFIT ORGANZATIONS In case of profitable organizations performance is measured in terms of profitibility. In case of not- for-profit organizations, the performance measurement is more sujective. Number of reporting. Budget Audit

D EFINITION OF GOVERNMENT ACCOUNTING Government Accounting deals with the collection, measurement (classification and valuation), communication, control and stewardship of receipts, expenditures and related activities in the government sector.

P URPOSES OF GOVENRMENT ACCOUNTING To comply with the constitutional, statutory and other legal requirements of the country; Related to budget classifications; Identify the objects and purposes for which funds have been received and expended; Facilitate audit by audit by external review authorities; Permit effective administraive control of funds and operations, programme management and internal audit;

P URPOSES OF GOVENRMENT ACCOUNTING Effectively disclose the economic and financial results of programme operations; Capable of serving the basic financial information needs of development planning and programming, and the review and appraisal of performance in physical and financial terms; Provide financial data useful for economic analysis.

STANDARD SETTING IN THE GOVERNMENTAL & NONPROFIT SECTOR A committee was formed by the Municipal Finance Officers Association (MFOA) to follow up on earlier recommendations the MFOA had made Governmental Accounting, Auditing, and Financial Reporting (GAAFR). Served as the primary guide for accounting and financial reporting National Council on Governmental Accounting to update 1968 GAAFR Governmental Accounting Standards Board (GASB)

STANDARD SETTING IN THE GOVERNMENTAL & NONPROFIT SECTOR The GASB has the responsibility for establishing accounting and financial reporting standards for not-for-profit organizations which are considered to be governmentally related, and; The FASB has the responsibility for establishing accounting and financial reporting standards for nongovernmental not-for-profit organizations.

OBJECTIVES OF FINANCIAL REPORTING: CONCEPTS STATEMENT NO. 1

U NDERLYING CONCEPTS Accountability Interperiod equity

A CCOUNTABILITY “governmental financial repoting should provide information to assist users in (a) assessing accountability and (b) making economic, social and political decisions.” Accountability implies:  Providing infromation about decisions and actions taken during the course of operating an entity;  Having external parties review the informations;  Taking corrective action where necessary.

I NTERPERIOD EQUITY “extent to which the services which the constituency existing during a particular repoting period has paid for the services which the constituency used during the period.” It is considered by –  Requiring balanced budgets;  Requiring that any deficit generated in one period be made up in the subsequent year; or  Establishing limited time periods for debt issues, forcing a given generation to repay the debt incurred for the assets it uses.

U SES OF FINANCIAL REPORTS To compare actual financial results with the legally adopted budget; To assist in determining compliance with finance- related laws, rules, and regulations; To assess financial condition and results of operations, and; To assist in evaluating efficiency and effectiveness.

T HE G ASB O BJECTIVES Financial reporting should be assist in fulfilling government’s duty to be publicly accountable and should enable users to assess that accountability Financial reporting should assist users in evaluating the operating results of the governmental entity for the year Financial reporting should assist the 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.

F INANCIAL REPORTING SHOULD BE ASSIST IN FULFILLING GOVERNMENT ’ S DUTY TO BE PUBLICLY ACCOUNTABLE AND SHOULD ENABLE USERS TO ASSESS THAT ACCOUNTABILITY To determine whether current year revenues were sufficient to pay for current-year services. Whether resources were obtained and used in accordance with the entity’s legally adopted budget. Provide information to assist the users in assessing the service efforts, costs, and accomplishments of the governmental entity.

F INANCIAL REPORTING SHOULD ASSIST USERS IN EVALUATING THE OPERATING RESULTS OF THE GOVERNMENTAL ENTITY FOR THE YEAR Provide information  about sources and uses of financial resources.  about how the governmental entity financed its activities and met its cash requirements  to determine whether the entity’s financial position improved or deteriorated as a result of the year’s operations.

F INANCIAL REPORTING SHOULD ASSIST THE 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 Provide information about the financial position and condition of a governmental entity. Provide information about a governmental entity’s physical and other nonfinancial resources having useful lives that extend beyond the current year. Disclose legal or contractual restrictions on resources and risks of potential loss of resources.

C ONTEXT FOR THE GASB O BJECTIVES Citizens Governmental Entities Governmental entity’s budget Government’s services