1-14: Research Case- Comparing Financial Reporting Objectives, accounting homework help

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Review Ch. 1. Case 1-14, Research Case-GASB.

Write a 175- to 350-word response.

Compare the financial reporting needs of the resource providers of government/not-for-profit organizations to the financial reporting needs of the resource providers of for-profit organizations.

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1-14Research Case—Comparing Financial Reporting Objectives. GASB Concepts Statement No. 1, “Objectives of Financial Reporting,” states that “Accountability is the cornerstone of all financial reporting in government.” FASB Statements of Financial Accounting Concepts Statement No. 8, “Conceptual Framework for Financial Reporting,” states that “The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.” However, the FASB has acknowledged through Statement of Financial Accounting Concepts No. 4, “Objectives of Financial Reporting by Nonbusiness Organizations,” that users of business and not-for-profit entities differ.

Required

Compare the financial reporting needs of the resource providers of government/not-for-profit organizations to the financial reporting needs of the resource providers of for-profit organizations.

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6/6/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Page 1 Chapter One Introduction to Accounting and Financial Reporting for Governmental and Not­for­Profit Entities Learning Objectives After studying this chapter, you should be able to: 1­1 1­2 1­3 1­4 Identify and explain the characteristics that distinguish government and not­for­profit entities from for­profit entities. Identify the authoritative bodies responsible for setting financial reporting standards for (1) state and local governments, (2) the federal government, and (3) not­for­profit organizations. Contrast and compare the objectives of financial reporting for (1) state and local governments, (2) the federal government, and (3) not­for­profit organizations. Explain the minimum requirements for general purpose external financial reporting for state and local governments and how they relate to comprehensive annual financial reports. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/24!/4/172/6/8@0:48.2 1/22 6/6/2017 1­5 University of Phoenix: Accounting for Governmental & Nonprofit Entities Identify and describe the required financial statements for the federal government and not­for­profit organizations. WELCOME TO GOVERNMENTAL AND NOT­FOR­PROFIT ACCOUNTING Welcome to the new world of accounting for governmental and not­for­profit organizations! Initially, you may find it challenging to understand the many new terms and concepts you will need to learn. Moreover, if you are like most readers, you will question at the outset why governmental and not­for­profit organizations use accounting and financial reporting practices that are different from those used by for­profit entities. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/24!/4/172/6/8@0:48.2 2/22 6/6/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. As you read this first chapter of the text, the reasons for the differences between governmental and not­for­profit accounting and for­profit accounting should become apparent. Specifically, Page 2 government and not­for­profit organizations serve entirely different purposes in society than do business entities. Because such organizations are largely financed by taxpayers, donors, and others who do not expect benefits proportional to the resources they provide, management has a special duty to be accountable for how those resources are used in providing services. Thus, the need for managers to be accountable to citizens, creditors, oversight bodies, and others has played a central role in shaping the accounting and reporting practices of governmental and not­for­profit organizations. This first chapter will give you a basic conceptual understanding of the unique characteristics of governmental and not­for­profit organizations and how their accounting and financial reporting concepts and practices differ from those of for­profit organizations. By the time you finish subsequent chapters assigned for your course, you should have an in­depth practical knowledge of government and not­for­profit accounting and financial reporting. WHAT ARE GOVERNMENTAL AND NOT­FOR­PROFIT ORGANIZATIONS? Governmental and not­for­profit organizations are vast in number and range of services provided. In the United States, governments exist at the federal, state, and local levels and serve a wide variety of functions. The most recent census of governments reports that there are 90,056 local governments, in addition to the federal government and 50 state governments. These 90,056 local governments consist of 3,031 counties, 19,519 municipalities, 16,360 towns and townships, 12,880 independent school districts, and 38,266 special district governments that derive their power from state governments.1 States, counties, municipalities (for example, cities, towns, and villages), and townships are general purpose governments—governments that provide a wide range of services to their residents (such as police and fire protection; sanitation; construction and maintenance of streets, roads, and bridges; and culture and recreation). Independent school districts, public colleges and universities, and special districts are special purpose governments—governments that provide only a single function or a limited number of functions (such as education, drainage and flood control, irrigation, soil and water conservation, fire protection, and water supply). Special purpose governments have the power to levy and collect taxes and to raise revenues from other sources as provided by state laws to finance the services they provide. Not­for­profit organizations also exist in many forms and serve many different functions in society. These include private colleges and universities, various kinds of community service and health care organizations, certain libraries and museums, professional and trade associations, fraternal and social organizations, and religious organizations. Currently, there are nearly 2.3 million not­for­profit organizations in the U.S.2 https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/24!/4/172/6/8@0:48.2 3/22 6/6/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. DISTINGUISHING CHARACTERISTICS OF GOVERNMENTAL AND NOT­FOR­PROFIT ORGANIZATIONS Page 3 Governmental and not­for­profit organizations differ in important ways from business organizations. An understanding of how these organizations differ from business organizations is essential to understanding the unique accounting and financial reporting principles that have evolved for governmental and not­for­profit organizations. In its Statement of Financial Accounting Concepts No. 4, the Financial Accounting Standards Board (FASB) noted the following characteristics that it felt distinguished governmental and not­for­profit entities from business organizations: a. Receipts of significant amounts of resources from resource providers who do not expect to receive either repayment or economic benefits proportionate to the resources provided. b. Operating purposes that are other than to provide goods or services at a profit or profit equivalent. c. Absence 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.3 The Governmental Accounting Standards Board (GASB) distinguishes government entities in the United States from both not­for­profit and business entities by stressing that governments exist in an environment in which the power ultimately rests in the hands of the people. Voters delegate that power to public officials through the election process. The power is divided among the executive, legislative, and judicial branches of the government, so that the actions, financial and otherwise, of government executives are constrained by legislative actions, and executive and legislative actions are subject to judicial review. Further constraints are imposed on state and local governments by the federal government. In the United States higher levels of government encourage or dictate activities of lower level governments. Higher levels of government finance the activities (partially, at least) by an extensive system of intergovernmental grants and subsidies that require the lower levels to be accountable to the entity providing the resources, as well as to the citizenry. Revenues raised by each level of government come, ultimately, from taxpayers. Taxpayers are required to provide resources to governments even though they often have little choice about which government services they receive and the extent to which they receive them.4 This relative lack of taxpayer choice is also identified in a GASB white paper that notes that “most governments do not operate in a competitive marketplace, face https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/24!/4/172/6/8@0:48.2 4/22 6/6/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. virtually no threat of liquidation, and do not have equity owners.”5 The white paper further states: Page 4 Governmental accounting and financial reporting standards aim to address [the] need for public accountability information by helping stakeholders assess how public resources were acquired and either used during the period or are expected to be used. Such reporting also helps users to assess whether current resources were sufficient to meet current service costs (or whether some costs were shifted to future taxpayers) and whether the government's ability to provide services improved or declined from the previous year.6 SOURCES OF FINANCIAL REPORTING STANDARDS As shown in Illustration 1­1, Rule 203 of the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct formally designates the FASB, GASB, and FASAB as the authoritative bodies to establish generally accepted accounting principles (GAAP) for state and local governments, the federal government, and business organizations and nongovernmental not­for­profit organizations, respectively. In practice, the “authority to establish accounting principles” means the “authority to establish accounting and financial reporting standards.” In addition, for publicly held business organizations, FASB standards are officially recognized as authoritative by the Securities and Exchange Commission (SEC) (Financial Reporting Release No. 1, Section 101, and reaffirmed in its April 2003 Policy Statement). Authority to establish accounting and reporting standards for not­for­profit organizations is split between the FASB and the GASB because a sizable number of not­for­profit organizations are governmental in nature, particularly public colleges and universities and government hospitals. The FASB is responsible for setting accounting and reporting standards for not­for­profit organizations that are independent of governments. Governmental not­for­profit organizations follow standards established by the GASB. ILLUSTRATION 1­1 Primary Sources of Accounting and Financial Reporting Standards for Businesses, Governments, and Not­for­Profit Organizations https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/24!/4/172/6/8@0:48.2 5/22 6/6/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. The GASB and the FASB are parallel bodies under the oversight of the Financial Accounting Foundation. The foundation appoints the members of the two boards and supports the boards’ Page 5 operations. The federal Sarbanes­Oxley Act greatly enhanced financial support for the FASB by mandating an assessed fee on corporate security offerings. The Dodd­Frank Wall Street Reform and Consumer Protection Act (2010) required the establishment of an accounting support fee to fund the GASB. In February 2012 the Financial Industry Regulatory Authority (FINRA) established such a fee.7 Because of the method of support and the lack of ties to any single organization or government, the GASB and the FASB are referred to as “independent standards­setting boards in the private sector.” Before the creation of the GASB and the FASB, financial reporting standards were set by groups sponsored by professional organizations: The forerunners of the GASB (formed in 1984) were the National Council on Governmental Accounting (1973–84), the National Committee on Governmental Accounting (1948–73), and the National Committee on Municipal Accounting (1934–41). The forerunners of the FASB (formed in 1973) were the Accounting Principles Board (1959–73) and the Committee on Accounting Procedure (1938–59) of the American Institute of Certified Public Accountants. Federal statutes assign responsibility for establishing and maintaining a sound financial structure for the federal government to three officials: the Comptroller General, the Director of the Office of Management and Budget, and the Secretary of the Treasury. In 1990, these three officials created the Federal Accounting Standards Advisory Board (FASAB) to recommend accounting principles and standards for the federal government and its agencies. It is understood that, to the maximum extent possible, federal accounting and financial reporting standards should be consistent with those established by the GASB and, where applicable, by the FASB. OBJECTIVES OF FINANCIAL REPORTING GASB Concepts Statement No. 1, “Objectives of Financial Reporting,” states that “Accountability is the cornerstone of all financial reporting in government…. Accountability requires governments to answer to the citizenry—to justify the raising of public resources and the purposes for which they are used.”8 The board elaborated: Governmental accountability is based on the belief that the citizenry has a “right to know,” a right to receive openly declared facts that may lead to public debate by the citizens and their elected representatives. Financial reporting plays a major role in fulfilling government's duty to be publicly accountable in a democratic society.9 Illustration 1­2 shows several ways that state and local government financial reporting is used in making economic, social, and political decisions and assessing accountability. Closely related to the concept of accountability as the cornerstone of governmental financial reporting is the concept the GASB refers to as interperiod equity. This concept and its importance are explained as follows: https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/24!/4/172/6/8@0:48.2 6/22 6/6/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. ILLUSTRATION 1­2 Comparison of Financial Reporting Objectives—State and Local Governments, Page 6 Federal Government, and Not­for­Profit Organizations The Board believes that interperiod equity is a significant part of accountability and is fundamental to public administration. It therefore needs to be considered when establishing financial reporting objectives. In short, financial reporting should help users assess whether current­year revenues are sufficient to pay for services provided that year and whether future taxpayers will be required to assume burdens for services previously provided. (Emphasis added.)10 Accountability is also the foundation for the financial reporting objectives the FASAB has established for the federal government. The FASAB's Statement of Accounting and Reporting Concepts Statement No. 1 identifies four objectives of federal financial reporting (see Illustration 1­2) focused on evaluating budgetary integrity, operating performance, stewardship, and adequacy of systems and controls. Unlike the FASB and the GASB, which focus their standards on external financial reporting, the FASAB and its sponsors in the federal government are concerned with both internal and external financial reporting. Accordingly, the FASAB has identified four major groups of users of federal financial reports: citizens, Congress, executives, and program managers. Given the broad role the FASAB has been assigned, its standards focus on cost accounting and service efforts and accomplishment measures, as well as on financial accounting and reporting. Financial reports of not­for­profit organizations—voluntary health and welfare organizations, private colleges and universities, private health care institutions, religious organizations, and others—have similar uses. However, as Illustration 1­2 shows, the reporting objectives for not­for­profit organizations emphasize decision usefulness over financial accountability needs. The FASB Statement of Financial Accounting Concepts No. 4 indicates that not­for­profit and business enterprises are similar in many ways and thus the emphasis on decision usefulness in reporting objectives. https://phoenix.vitalsource.com/#/books/1259751120/cfi/6/24!/4/172/6/8@0:48.2 7/22 6/6/2017 University of Phoenix: Accounting for Governmental & Nonprofit Entities PRINTED BY: enkhan@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Note that the objectives of financial reporting for governments and not­for­profit entities stress the need for the public to understand and evaluate the financial activities and management of these Page 7 organizations. Readers will recognize the impact on their lives, and on their bank accounts, of the activities of the layers of government they are obligated to support and of the not­for­profit organizations they voluntarily support. Since each of us is significantly affected, it is important that we be able to read intelligently the financial reports of governmental and not­for­profit organizations. In order to make informed decisions as citizens, taxpayers, creditors, and donors, readers should make the effort to learn the accounting and financial reporting standards developed by the authoritative bodies. The standards are further explained and illustrated throughout the remainder of the text. OVERVIEW OF FINANCIAL REPORTING FOR STATE AND LOCAL GOVERNMENTS, THE FEDERAL GOVERNMENT, AND NOT­FOR­PROFIT ORGANIZATIONS Financial Reporting of State and Local Governments Like the FASB, the GASB continues to develop concepts statements that communicate the framework within which the Board strives to establish consistent financial reporting standards for entities within its jurisdiction. The GASB, as well as the FASB, is concerned with establishing standards for financial reporting to external users—those who lack the authority to prescribe the information they want and who must rely on the information management communicates to them. The Board does not intend to set standards for reporting to managers and administrators or others deemed to have the ability to enforce their demands for information. General Purpose External Financial Reporting Illustration 1­3 displays the minimum requirements for general purpose external financial reporting under the governmental financial reporting model specified by the GASB.11 Central to the model is the management's discussion and analysis (MD&A). The MD&A is required supplementary information (RSI) designed to communicate in narrative, easily readable form the purpose of the basic financial statements and the government's current financial position and results of financial activities compared with those of the prior year. ILLUSTRATION 1­3 Minimum Requirements for General Purpose External Financial Reporting https://phoenix.vitalsource.com/#/bo ...
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Comparing the Objectives of Financial Reporting the For-Profit Organizations and Government
Not-For-Profit Organizations
The fundamental aim of financial reporting is to maintain accountability in the way funds are
spent and utilized (University of Phoenix, 6). If not kept accountable, the government and ...

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