A snapshot of the summary - Government accounting made easy
1 introduction and background
1.1 What are generally Accepted Accounting Principles?
Why should the reader of this book care whether GAAP is principle-based or rule-based?
- First, the reader should understand in learning about GAAP used by governments that GAAP usually does not specifically address every accounting situation that a financial statement preparer encounters.
- Second, in a number of instances there is more than one acceptable way to account for a specific type of transaction.
1.2 Who sets generally accepted accounting principles for governments
The GASB and the FASB perform similar functions in terms of establishing GAAP, but structurally and economically there has recently been a divergence between these two boards. What are the differences between the GASP en the FASB?
the FASB sets the accounting principles that are used by publicly traded companies.
The GASB has no legal type standing for its accounting principles, nor will it be funded from these fees charged to publicly traded companies.
While the quick answer to the question of who sets accounting principles for governments is “the GASB,” the GASB sets these accounting principles and provides interpretations and implementation guidance through several different mechanisms. What are these levels?
- Level A
- Level B
- Level C
- Level D
Level A - GASB mechanism for interpretations and statements.
- GASB Statements.
- GASB Interpretations - issued by the GASB to provide an interpretation of accounting guidance for an accounting standard that already exists.
- Any AICPA or FASB pronouncements that a GASB Statement or Interpretation specifically makes applicable to governments.
1.3 Do governments need to comply with generally accepted accounting principles?
Do governments need to comply with generally accepted accounting principles?
There is no national, legal requirement for governments to prepare GAAP-based financial statements.
In the absence of legal requirements to prepare GAAP financial statements, there may well be practical requirements that would cause governments to prepare GAAP financial statements. What are these practical reasons?
The best example would be the issuance of debt.
1.4 Why is governmental accounting and financial reporting different from commercial and not-for-profit accounting and financial reporting?
Control characteristics resulting from a governments structure.Governments usually prepare a budget for the "general" or main operating fund. The government may legally spend only what is authorized in the budget. In commercial, budgets are moreover targets rather than legal spending authorizations.
Significant investment in non-revenue-producing capital assets.Governments do not purchase or construct capital assets because they expect a direct monetary return on their investment. Commercial enterprises invest in many of their capital assets because they generate a rate of return.
Difference between government and other entities.
- The citizenry.
- Legislative and oversight officials.
- Investors and creditors.
1.5 To what entities do governmental generally accepted accounting principles apply?
To what entities do governmental generally accounting principles apply?
- State governments.
- Local governments, such as cities, countries, towns and villages.
- Public authorities, such as housing finance, water and other utilities, economic development, and airport authorities.
- Governmental colleges and universities.
- School districts.
- Public employee retirement systems.
- Public hospitals and other healths care providers.
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