GASB have stipulated rules that require the local and state governments to present their financial reports with fund based modified accrual and full accrual information. The management discussion and analysis (MD&A) is a body that critically analyses of the financial statements before they are presented for public view. The objective of their analysis is to ensure that the date is readable by the normal citizens; it may therefore simplify the data by using graphs and charts to provide some critical information. The MD&A compares the current financial statements with the previous ones to show clearly the economic status of the country.
It only aims at providing specific information that is deemed necessary. The financial reports of the accrued expenses is analyzed and divided to identify which of the expenses are being catered for by the taxpayers’ money and those that are paid by the users of government facilities. The equity of the government is usually displayed as net assets and not as stockholders equity (Gauthier 2005). The financial activities of the government are summarized into two reports namely; the statement of activities and the statement of net assets.
The net assets statement gives the general information of governments resources. It gives a general assessment of the governments’ long term, medium term and short-term operations. It is a plan that assists the government to know how to locate the available finances for effective use. When entering the figures in the financial statements separate columns are used to distinguish the business activities of the government and financial data. All this are compiled together into total government expenditures. Equity is usually calculated by subtracting liabilities from assets to get net assets.
Assets are arranged according to their capability to bring in cash and liabilities in accordance to their possibility of draining cash. Assets in a financial statement of the government are presented as three components namely; capital assets, which represent a total of accumulated depreciation and debt, restricted net assets and unrestricted net assets. The statement of activities is a report that analyses the expenditures accrued by each program of the government. The report gives a clear view of how much of the governments resources are consumed by such a program and the main source of funds that may be used to cater for such expenditures.
State and local governments are also required to show their financial statements fund based accrual basis that is modified. In this accounting method, revenues are identified only after they have been proved to be available to cater for the expenses incurred during a certain fiscal year. This enables the government to plan on how to cater for them instead of relying on incomes that may not be forth coming. Expenditures on the other hand are budgeted for only after they have accrued. Fund based financial statements are usually used by the government in assessing expenditures on short-term basis during the fiscal year (Gauthier 2005).
Such funds are located on such basis to show the governments restriction on how it uses its resources. The fund activity is displayed in the financial reports in accordance with the codification of GASB. In preparing the three fund groups, a balance sheet and a statement of revenues and expenditures is required, this is mainly due to the accrual method that requires reconciliation statements to distinguish the net changes in fund balance and net assets of the various financial activities of the government.
Cash flows are also presented in fund flows but slightly defer from the corporate cash flows. Cash flows presented in propriety funds are prepared with a direct method, it is divided into four distinct categories, capital and non-capital financing, operating and investing activities. The main difference between state and local government accounting is that federal government account for their apportionments on a quarterly basis while the local governments do not emphasize the procedure (Gauthier 2005).
The head of the executive branch facilitate the conformity of the government records in accordance to the federal accounting standards. Governmental accounting is an important tool that keeps a check on the governments’ expenditures and ensures that the available resources are effectively used. It helps the government to invest in assets that will generate more income to the government and reduce the burden imposed on taxpayers.
When the government is made accountable for expenditure, it will enhance trust between them and the people and thus promoting coordination. Financial reports assist the citizens in making federal decisions through various comparisons of the statements that shows the economic progress of the country. It generally reveals economical weaknesses and strengths of political leaders through the decisions they implement for the country. REFERENCE Gauthier J. (2005): Governmental Accounting, Auditing, and Financial Reporting, GFOA: Chicago pp15-25