Government Accounting Standard Board (GASB) has been keen to adapt the Generally Accepted Accounting Principles to make the nonprofit making financial statements similar to those of the private business organizations. This is the reason it constantly revises the accounting principles towards such a direction. This is evidenced by the adoption of external reporting requirements (GASB Statement no. 34). The aim of this research paper is to evaluate the importance of these reporting requirements.
The first part of the GASB statement number 34 is the management discussion and analysis. This part requires that the management briefly describes the financial statements, the relationship between the various statements as well as the changes that have changed significantly. The discussion should tell whether the performance of the government entity has improved or deteriorated from the previous financial year.
This part is very important for the citizens in the country considering that many of them do not have the accounting knowledge. Many of the citizens in a country may not understand the analyzed data unless it is interpreted for them. The management discussion and analysis is crucial in ensuring that more people in the society understand the performance of the government bodies (Crawford, 2008). Additionally, this part summarizes the performance of the government and individuals do not have to go through the whole of the report to understand the basic issues that relate to the report if the management discussion and analysis is well presented.
The management discussion and analysis part is also important in that it gives answers to the many questions that the members of the public may be willing to ask. The part requires that the management explains the reasons for the adverse variations in performance of the company. If this is well addressed, the final report to the public does not leave with many questions.
Government-wide statements are another important part of the statement No. 34. This provision requires that the government-wide statements give a summary of all the government activities at a glance. The statements to be prepared should differentiate the government activities and the business activities that the body engages in. The important statements under this section include the statement of net assets that shows the various assets that the government has at the end of the financial year.
Statement of activities, on the other hand, shows the costs incurred in the provision of government services to the members of the public. It shows the costs incurred in paying the various civil servants. It also shows the other costs that are incurred in the provision of services to the members of the public.
The government-wide statements are important in various ways. It is prepared using the accrual basis of accounting hence shows the actual financial position of the government in a given time. It tells whether the government worth has increased or decreased within a given financial year. The statements also show the extraordinary activities that have improved the performance of the government situation. The statements show the proportion of expenses by the government financed through taxes collected by the government and the extent to which loans have been used in financing government activities. This is crucial in telling whether the government is increasing the debt burden of the future generation.
Fiduciary fund financial statements are another requirement by statement no. 34. According to this requirement, there is a need to report the funds that are held in trust and cannot be used by the government for the development purposes (Crawford, 2008). The government holds the funds as an agent on behalf of other parties. Such funds include the retirement benefits of the employees. The requirement is that the government should report the current financial trust fund assets. Additionally, there is a need to report the changes in the current trust fund assets.
It is very important that the fiduciary funds are reported separately. First, reporting fiduciary funds ensures that the financial situation of government organizations is not exaggerated by the presence of fiduciary assets that do not belong to the government organizations. Additionally, reporting fiduciary funds shows whether the government is managing the assets well for the benefit of the owners as well as for its own benefit. This is considering that the fiduciary funds can be invested in short-term activities to generate revenues that can be useful by the government agency.
The fiduciary fund reports helps tell whether the management is making maximum use of the funds it holds on behalf of the others for its benefit while ensuring that the funds are always readily available to the owners whenever such owners need them. Such report can help agencies determine whether their funds are safe, or they should find alternative ways of keeping the funds on behalf of its members.
Statement no. 34 requires the reporting of the proprietary fund by the government agencies. The proprietary funds can be likened to a business activity by the government since the government agencies offer services and charge a fee for the services they offer. The requirements are that the government agency should prepare a statement of net position, statement of revenues and expenses as well as the statement of changes in net position. Statement of cash flows is also important for such government agencies.
The expectations are that the government agencies manage their expenses well and charge reasonable revenues to ensure that they do not depend on the government financing. Though the government agencies are not after making profits, it is recommendable that they manage their expenses in such a way that the fees they charge for the services and goods they offer can meet their expenses (Crawford, 2008). When the net change in assets is positive, then it can be said that the agency is doing well.
The preparation of proprietary fund statements is necessary for that it helps in evaluating whether the agencies are doing well in providing the services to the citizens. It is used by policy makers in deciding whether there is a need to change the management or even allow the public sector to provide the services more efficiently. The citizens are keen to know whether the fees they pay are used well, and the service delivery to them will continue to improve. It helps them understand whether there is mismanagement of funds which necessitates further tax activities to finance such agencies. It also helps tell areas where needs to be corrected to achieve better performance in the provision of services to the members of the public.
Reporting Government fund financial statements is also another important requirement of GASB Statement 34. The requirements are that the balance sheet relating to the funds is prepared. Statement of revenues, expenses, and fund balances are also required under the provision. The preparation is based on the fact that the government provides funds to its agencies to spend for the benefit of the public. There are various sources of such funds including special funds, general fund, permanent fund and debt service fund. The reports are expected to show sources of funds, the opening balance and the closing balance of the fund.
The preparation of government statements is necessary for finding out whether the government agency is managing the allocated funds well. It is possible to monitor how the funds available are utilized by the agency, and this is crucial in deciding whether funds are used for the maximum benefit to the public.
The government uses the statements in deciding a number of funds to be allocated to the government agent in the following financial year. If the agent has used and exhausted the funds allocated to it, the government can consider increasing the amount of funds that is to be allocated in the following financial year. If a government agent has not exhausted the funds allocated to them meaning that they have a positive fund balance, then the government allocates funds to such agent with the consideration that it has a balance of unused funds in their accounts.
The statements also help tell how the government agents have financed their deficits to ensure that their activities are not interrupted. The understanding is that government agents should use creative and cheap sources of financing.
Statement No. 34 requires the reporting of no major funds that are available in a government organization. Initially, the standards required the preparation of various funds separately. However, the current requirements are that the nonmajor funds should be consolidated in one page. The major funds are however prepared separately and not consolidated.
The preparation of financial statements in this way ensures that time is saved since the nonmajor funds are in small quantities and are not likely to be misused. Compiling them together ensures that confusion in the financial statements is eliminated. This is because the funds in this sector are presented in a simple way such that there is no confusion as individuals read through the financial statements. Whatever is presented in this section is important for the readers (Ruppel, 2013). This does not mean that the government can misuse the nonmajor funds. They are expected to report the nonmajor funds in a way that the public can understand how the funds have been utilized.
Reporting of enhanced budget and the actual budgets is required under statement 34. In every financial year, the government at the various levels, as well as ministries under the government, prepares the budgets for the year. It includes the proposed expenditure for that year as well as the sources of financing for the year. The government and its agencies are expected to use the budget are a regulatory tool to avoid misuse of funds. They should always check for any deviations and rectify them with time such that they remain within the target expenditure (Ruppel, 2013). The most important thing is that the government should achieve the set objective within the estimated budget.
The circumstances in government change with time such that the following budget strictly is impossible. Adjustments are made for the benefit of the society. At the end of the financial year, there is a requirement to prepare the actual budget that shows the actual revenues generated and the actual expenditure in the year (Ruppel, 2013). A deficit or a surplus in such a budget should be well explained.
The importance of such budgets is that they help understand the performance of the government and its agents. Performance is based on whether the relevant bodies have achieved the set objective and if yes, whether they have done so within the target budget. The budgets help tell whether there was a misuse of funds allocated to various government agencies (Ruppel, 2013). The responsible individuals can be held accountable for their failures. The citizens use such budgets to vote in their leaders considering that budgets affect the living standers of the people in the society.
The actual budgets help tell how the deficits in the budgets were financed without compromising on the goals set at the beginning of the financial year. Such budgets are also used in projecting the future budgets to avoid inconveniences associated with a shortage of funds in implementing policies (Ruppel, 2013).
In conclusion, GASB Statement 34 was designed to bridge the gaps that existed in the public sector accounting. The intention was to ensure that the financial statements by government agencies are similar in a way to those of profit making organizations. This is why various specific statements are required and are prepared base...
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