Kế toán, kiểm toán - Chapter 1: Introduction to accounting and financial reporting for governmental and not - For-profit entities

1-*JACQUELINE L. RECKSUZANNE L. LOWENSOHNEARL R. WILSON Accounting for Governmental & Nonprofit Entities16/eMcGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter1Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit EntitiesLearning ObjectivesAfter studying Chapter 1, you should be able to:Identify and explain the characteristics that distinguish governmental and not-for-profit entities from for-profit entitiesIdentify the authoritative bodies responsible for setting GAAP and financial reporting standards for all governmental and not-for-profit organizationsContrast and compare the objectives of financial reporting for state and local governments, the federal government, and not-for-profit organizationsLearning Objectives (Cont’d)Explain the minimum requirements for general purpose external financial reporting of state and local governments and how they relate to comprehensive annual financial reportsExplain and identify the required financial statements for state and local governments, the federal government, and not-for-profit organizationsWelcome to Accounting for Governmental and Not-for-Profit OrganizationsWelcome to the strange new world of accounting and financial reporting for governmental and not-for-profit (NFP) organizationsWhy are accounting practices for these organizations very different from those of business organizations?Different purposes in societyFinanced by resource providers who do not expect benefits proportional to the resources they provideManagement has a special duty to be accountable for how resources are used in providing services What are Governmental Organizations? General purpose governmentsProvide a broad array of servicesExamples: Federal government, state governments, cities, towns, townships, villages, counties, boroughs, and parishesSpecial purpose governmentsUsually provide only a single or just a few servicesExamples: Independent school systems, public colleges and universities, public hospitals, fire protection districts, sewer districts, transportation authorities, and many othersWhat are Not-for-Profit Organizations? Legally separate organizationsUsually exempt from federal, state, and local taxationReligious, community service, private educational and health care, museums, and fraternal and social organizations, among many other kinds of organizationsResource providers do not expect to receive proportional benefitsLack of a profit motiveAbsence of transferable ownership rights How Do Governmental and Not-For-Profit Organizations Differ from Business Organizations?Power ultimately rests in the hands of the people People delegate power to public officials through the election processEmpowered by and accountable to a higher level governmentTaxation powersHow Do Governmental Entities Differ From Not-For-Profit Organizations? FASBBusiness organizations Nongovernmental not-for-profits GASBState and local governmental organizationsGovernmental not-for-profits FASABFederal government and its agencies and departmentsSources of GAAP andFinancial Reporting StandardsDifferent financial report users with different needs Governmental financial reporting focuses on stewardship and accountability for how public resources are raised and used to provide servicesWhy Governmental Financial Reporting Must Differ from Business Financial Reporting?Governmental financial reports are used primarily to:Compare actual financial results with legally adopted budgetAssess financial condition and results of operations Assist in determining compliance with finance-related laws, rules, and regulationsAssist in evaluating efficiency and effectivenessObjectives of Financial Reporting—State and Local Governments (SLG) “ACCOUNTABILITY is the cornerstone of all financial reporting in government “ (GASB Concepts Statement No. 1, par. 56) Objectives of Financial Reporting—SLG (Cont’d)Q: What do we mean by accountability?A: Accountability arises from citizens’ “right to know” It imposes a duty on public officials to be accountable to citizens for raising public monies and how they are spentObjectives of Financial Reporting—SLG (Cont’d)Q: How does “interperiod equity” relate to accountability?A: Interperiod equity is a government’s obligation to disclose whether current-year revenues were sufficient to pay for current-year benefits—or did current citizens defer payments to future taxpayers? Objectives of Financial Reporting—SLG (Cont’d)Accountability is also the foundation of federal government financial reportingFederal Accounting Standards Advisory Board (FASAB) standards are targeted at both internal users (management) and external users Objectives of Financial Reporting—Federal Government Objectives of Financial Reporting—Federal Government (Cont’d)Federal government financial reporting should assistreport users in evaluating:Budgetary integrityOperating performanceStewardshipAdequacy of systems and controls Objectives of Financial Reporting—Not-for-Profit (NFP) OrganizationsNFP financial reporting should provide informationuseful in:Making resource allocation decisionsAssessing services and ability to provide servicesAssessing management stewardship and performanceAssessing economic resources, obligations, net resources, and changes in themMinimum Requirement for General Purpose External Financial ReportingManagement’s discussion and analysis Government-wide Fund financial financial statements statementsNotes to the financial statementsRequired supplementary information (other than MD&A)Government-wide Financial StatementsProvide an aggregated overview of the government’s net position and change in net position, reported for the government as a wholeAssist in assessing operational accountability—whether government has used its resources efficiently and effectively in meeting service objectivesFocused on flow of economic resources, recognized on the accrual basis—similar to business organizationsFor now you should view a fund as a separate set of accounts used to account for resources segregated for a particular purpose (see Chapter 2 for the formal definition of “fund”)Funds that focus on the flow of current financial resources are called governmental fundsFund Financial StatementsFund Financial Statements (Cont’d)Governmental fund financial statements assist in assessing fiscal accountability—whether the government raised and spent financial resources in accordance with budgetary, legal, and regulatory constraintsGovernmental fund revenues and expenditures are recognized on the modified accrual basis—revenues are recognized when measurable and available for spending; expenditures when an obligation is incurred that will be paid from currently available financial resourcesOther fund categories (see Chapter 2):Proprietary funds report on business-like activities of the government Fiduciary funds report on fiduciary (trust and agency) activities of the governmentBoth categories follow accounting principles similar to businesses Fund Financial Statements (Cont’d)Comprehensive Annual Financial Report (CAFR)Introductory sectionFinancial section Statistical sectionTitle pageContents pageLetter of transmittalOther (as desired by management) CAFR - Introductory Section Auditor’s reportManagement’s discussion and analysis (MD&A)Basic financial statements (and notes thereto)Required supplementary information (RSI)(other than MD&A)Combining and individual fund statements and schedulesCAFR - Financial SectionManagement’s Discussion and Analysis (MD&A) Brief objective narrative providing management’sanalysis of the government’s financial performanceBasic Financial StatementsGovernment-wide financial statementsFund financial statementsTables and charts showing multiple-year trends in financial and socio-economic information (discussed in detail in Chapter 9)CAFR - Statistical Section Overview of Federal Government Financial ReportingFederal financial reporting occurs at two levels:U.S. Government-wide Prepared by U.S. TreasuryMajor agencies and departments Prepared by each agency and department following requirements established in Office of Management and Budget (OMB) Circular A-136U.S. Government-wide Financial ReportingManagement and data deficiencies in some agencies and departments continue to preclude fully auditable government-wide financial statementsThe consolidated report includes:A “plain language” Citizen’s GuideA Management’s Discussion and Analysis (MD&A)Several financial statements (See Chapter 17)Supplemental information reporting on both budgetary and proprietary (operating) financial activities, as well as reconciliation of the two activitiesFederal Agency and Department Financial ReportingMajor federal agencies and departments must prepare a performance and accountability report (PAR)The PAR should include four sections:A Management’s Discussion and Analysis (MD&A) (e.g., overview of PAR and agency’s mission)Performance section containing the annual performance report (APR) (e.g., information about agency’s goals and performance)Basic financial statements (see names in the chapter)Other accompanying information (e.g., information about tax burden, tax gap, challenges facing management, and revenue forgone)Overview—Not-for-Profit (NFP) Organization Financial ReportingPrimary purpose of NFP financial statements is to provide decision-useful financial information to resource providers, such as donors, members, and creditorsResource providers share the need for information to assess:Services provided by the NFP and the ability to continue to provide those servicesManagement’s performance and stewardship of resourcesNot-for-Profit (NFP) Organization Financial Reporting (Cont’d)FASB standards require that NFPs provide the following financial statements (See Chapter 13):Statement of financial position (i.e., balance sheet)Statement of activities (i.e., income statement)Statement of cash flowsStatement of functional expenses (voluntary health and welfare organizations only)Not-for-Profit (NFP) Organization Financial Reporting (Cont’d)Reporting requirements unique to NFP organizationsDemonstrating accountability for donor-imposed restrictions by reporting net assets and changes in net assets in the three categories of (1) permanently restricted, (2) temporarily restricted, and (3) unrestrictedReporting program service expenses separately from supporting service expenses. The latter include overhead (such as, non-program management and general expenses) and fund-raising expensesConcluding CommentsIn this course you will become familiar with current GASB, FASAB, and FASB standards relative to governmental and not-for-profit organizationsAccounting and reporting for governmental and not-for-profit entities differ from those of for-profit entities because each type of entity has different purposes and reporting objectives“...Even when developed to the ultimate stage of perfection, governmental accounting cannot become a guaranty of good government. At best, it can never be more than a valuable tool for promotion of sound financial management...” Professor R. M. Mikesell, 1951 ENDA Quote from the Original Author