Governmental Accounting Standards Board

This paper seeks to compare and contrast governmental (GASB) and proprietary (FASB) accounting by explaining the objectives of the two standard boards and as well as their similarities and differences. In addition, this paper will also describe how the modified accrual basis of accounting differs from full accrual accounting.

Both standard boards have the same objectives of the making the financial statements understandable, relevant and useful to users of financials statements by prescribing the generally accepted accounting principles (GAAP) to be used as guides in the preparation of financial statements (Business Editors, 2002). Both standard boards are not government entities and both are coming from private sources such as the Financial Accounting Foundation (Strayhorn, 2003). They however differ on entities covered.

While GASB issues GAAP to local and state governments, FASB prescribes GAAP to the private and public entities. Since the primary objective of governments entities is service rather than profit, GAAP for local and state governments focus on fiscal and operational accountability (Stephen, 1997) while private and public entities primary objective is profit, thus FASB’s GAAP focus on fair presentation of the financial statements. The users of government reports are normally legislators, oversight bodies, investors, creditors and the general public (Strayhorn, 2003).

On the other hand the users of private and public companies are stockholders, investors, creditors, labor unions, taxing authorities and the customers. As could be seen, information users from entities covered by both standards board include investors and creditors. As such, it could be inferred that the entities desire to have unqualified or ‘clean’ audit opinions and good credit ratings. The entities covered differ however in auditors. Those under the GASB jurisdiction are subject to audit by government auditors while those under FASB are subject to audit by certified public accountants or independent auditors (Horngren, et.

al, 1999). The modified accrual basis of accounting differs from full accrual accounting in some respects. The first effectively recognizes revenues when they become available and can be measures and recognizes expenditures when the latter are made while second allows expenses rather than to be recorded the moment products or services are ordered (Strayhorn, 2003) even if not yet paid and revenues to recognized at the time of earning regardless when the money is collected.

References: Business Editors (2002), Government Accounting Standards Board Issues Exposure Draft on Budgetary Comparisons That…, Business Wire, Norwalk, CT, USA. Horngren, et. al (1999) Introduction to Financial Accounting, Prentice Hall, USA Stephen (1997), GASB Reporting Model Exposure Draft, Government Finance Review Strayhorn (2003) GASB 34 Implementation Review, Financial Management Review, Texas, USA