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GOVERNMENTAL ACCOUNTING What's wrong with the status quo? vices have expanded, so has the need for information that can help internal and external users judge the effectiveness of governmental operations. Finally, even the current standards are not uniformly adhered to. As a result, the reporting system of a given governmental unit may be poor, leading to the kind of problems faced in Cleveland and New York. In addition to these issues, there are four changes now taking place in our nation that have complicated government financial planning and created an urgent need for improved reporting. These four developments are: Growth of government. The importance of state and local government grows in direct proportion to the numbers and diversity of the people they serve. The estimated revenues of these 39,000 units exceeded $181 billion in 1975, not counting federal monies of more than $59 billion. Increasing inflation. Citizens already feel the effects of inflation and do not wish to carry the burden of additional taxes. Thus, the dilemma of either raising taxes or cutting services. Inflation will not allow us to stay where we are. Aging of America. The proportion of elderly people in the American population is increasing. This is going to affect not only the economy— and the need for improved reporting —but also the resources that will be needed to meet pension obligations. Sale of Government Obligations. The bond buyer does not look for a return on that bond in the immediate future; he ordinarily buys for a longer period of time. And so, while it is true that financial statements covering one year provide some assurance that next year's interest payments will be met, the longer term prospects of payment are not addressed in the financial information ordinarily available to the bond holder. Search for Principles Perhaps the difficulty of developing financial information to meet the needs of taxpayers and creditors starts with the lack of a coordinated effort. Thus, the search for principles is conducted on two distinct levels: on the one hand by state and local governments, and on the other by professional organizations. Efforts by Governments There has been no real agreement to date by those inside government on how to communicate an overall understanding of the activities of any particular governmental unit. A number of attempts are being made to achieve this. One is by presenting financial information that combines a number of interrelated governmental activities, thus providing the external user with an annual financial overview. The information could be presented either in the annual financial statements or in a separate presentation. This approach has certain benefits: (1) It allows the information to be prepared that is useful to external users while retaining the information needed for internal users. Thus, continuity is achieved with financial information provided in the past. (2) It provides a method of obtaining the views of external users on what information was useful. However, this combined financial information must be carefully prepared. Otherwise, it will confuse rather than enlighten readers of financial statements. What are the methods being used to develop such financial information? Three different approaches have been taken. Compilation. As the name implies, this adds together existing fund based financial information. While the compilation gives some idea of the magnitude of the total operations, using different bases of accounting makes compilation the most confusing method of presenting combined financial information. Particular care must be taken to disclose that the information has been prepared on different accounting bases. Aggregation. This method also provides a sum of fund balances. However, when appropriately done, certain funds can be grouped on the same accounting basis. Additionally, inter-fund transactions are eliminated to prevent the inflating of fund balances. Comprehensive. This approach uses one accounting basis for all material items appearing in the financial statements. Such a presentation is valuable to taxpayers and others because it puts all activities of state and local governmental units on the same footing. Efforts by Professional Organizations A number of professional organizations are working on accounting proposals in answer to the needs for improved financial reporting, with a particular emphasis on external reporting. The two most prominent efforts are those by the National Council on Governmental Accounting and by the Financial Accounting Standards Board. The NCGA is completing its revision of the existing reporting standards (essentially compliance reporting). It is also developing a reporting 24
Governmental accounting: What's wrong with the status quo?
Mullarkey, John F.
Belluomini, Frank S.
Finance, public -- Accounting
Touche Ross. Executive Office
Touche Ross. San Jose Office
Tempo, Vol. 25, no. 1 (1979), p. 23-25
|Source||Originally published by: Touche Ross, & Co.|
|Rights||Copyright and permission to republish held by: Deloitte|
|Format||PDF page image with corrected OCR scanned at 400 dpi|
|Collection||Deloitte Digital Collection|
|Digital Publisher||University of Mississippi Library. Accounting Collection|