Accounting Notes Ch 1

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Section 1

Question Answer
Explain how general purpose governments differ from special purpose governments and give a few examples of each type of government.General purpose governments differ from special purpose governments primarily in terms of the scope of their legal powers and the range of services provided. General purpose governments typically have much more power over citizens and provide a much greater range of services than do special purpose governments. Examples of general purpose governments include states, counties, townships, cities, and villages. Special purpose governments typically include such special districts as those for police and fire protection, sanitation, and water, and organizations such as school districts and public colleges and universities.
"Governmental and not-for-profit organizations do not differ significantly from for-profit organizations and therefore should follow for-profit accounting and reporting standards." Do you agree or disagree with this statement? Why or Why not?Disagree. As discussed in this chapter, government and not-for-profit organizations serve different functions in society than do business organizations. Not surprising, then, the objectives of financial reporting for these organizations, as shown in Illustration 1-2, are quite different from the objectives of business reporting. The most striking difference is the need for government and not-for-profit organizations to report on accountability, in addition to financial performance. The different functions served and different reporting objectives lead to different accounting and reporting practices.
Which standard setting bodies have responsiblity for establishing accounting and reporting standards for (1) state and local governments, (2) business organizations, (3) not-for-profit organizations, and (4) the federal government and its agencies and departments?Illustration 1-1 depicts the standard-setting jurisdiction of the FASB, GASB and FASAB. As shown, the FASB has responsibility for setting accounting and financial reporting standards for business enterprises and nongovernmental not-for-profit organizations. The GASB has responsibility for setting standards for state and local governments and governmental not-for-profit organizations. The FASAB has responsibility for setting accounting and reporting standards for federal agencies and departments.
How should one determine whether FASB or GASB standards should be followed by any particular not-for-profit organization?One should apply the criteria discussed in the section headed Determining Whether a Not-for-Profit Organization is Governmental. Essentially if an organization is a public corporation or body corporate and politic or has certain government-like characteristics described in this section, then it should be treated as a governmental organization and GASB standards should be followed. Otherwise, one would follow FASB standards.
Distinguish between accountability and interperiod equity.Interperiod equity, whether current period revenues were sufficient to pay for current period services, is an important component of accountability. But, as noted in Chapter 1, accountability is the cornerstone of governmental financial reporting and is a broader concept than interperiod equity. See, for example, the discussion of fiscal and operational accountability in the answer to Question 1-6.
"GASB financial reporting standards assist users in assessing the operational accountability of a government's business type activities and the fiscal accountability of its governmental activities." Do you agree or disagree with this statement. Why or why not?1-6. Disagree. The statement is incomplete. While it is true that GASB standards assist in assessing operational accountability of business-type activities, those standards assist in assessing both fiscal accountability and operational accountability of governmental activities. Specifically, governmental fund reporting standards promote fiscal accountability reporting by helping elected officials demonstrate that they have complied with spending restrictions related to the legally approved budget. Government-wide reporting standards for governmental activities help officials report on operational accountability—whether the government’s resources were utilized efficiently and effectively in meeting operating objectives.
Why do governmental fund financial statements use a different basis of accounting and measurement focus than the governmental activities column of the Govt. wide finan statement? Also, which basis of accountnig and which measurement focus applies to each?1-7. Financial information related to governmental activities is reported in two different ways to meet two different reporting objectives. The government-wide financial statements are intended to report on the government’s operational accountability and therefore governmental activities are reported in those statements using accrual accounting with an economic resources measurement focus—similar to commercial accounting. In the governmental fund financial statements, the reporting objective is fiscal accountability, leading to the use of modified accrual and a focus on the flow of current financial resources. As a result, the same underlying transactions result in different amounts being reported in the government-wide and governmental fund financial statements. These differences must be reconciled so that readers can understand how the statements relate to each other.
How does the modified accrual basis of accounting differ from the accrual basis?1-8. Modified accrual accounting is used for preparing governmental fund financial statements since those statements focus on the flow of current (i.e., expendable) financial resources and whether resources were raised and expended in conformity with budget and other fiscal constraints. Revenues that will not be collected in time to pay current period obligations cannot be used to meet the current year budget. Similarly, obligations that will not be paid from currently available financial resources do not affect current period fiscal performance. Thus, under modified accrual only revenues that will be collected in time to pay for current obligations and only expenditures that will be paid in the current period or shortly thereafter are recognized in the current period. By contrast, the government-wide financial statements, as well as proprietary and fiduciary fund financial statements, focus on the flow of economic resources, both current and noncurrent. Consequently, the use of the accrual basis of accounting, similar to that used by business entities, is appropriate for these statements
What are the three sections of a comprehensive annual financial report (CAFR)? What information is contained in each serction? How do the minimm requirements for general purpose external financial reporting in scope and CAFR?A CAFR should have an introductory section, financial section, and statistical section, the contents of which are discussed in this chapter. The basic financial statements required under GASBS 34 are the government-wide financial statements and fund financial statements with accompanying notes. The basic financial statements, along with the Management Discussion & Analysis, and other required supplementary information (RSI), comprise only part of the financial section of a typical CAFR. The contents of each section are described briefly in the section headed Comprehensive Annual Financial Report.
Why does the GASB encourage state and local governments to report service efforts and accomplishments information in additiona to CAFR?1-10. The GASB recognizes that while financial information is helpful in assessing operational accountability, additional information about an organization’s service efforts and accomplishments is essential for a complete understanding of whether a government’s resources have been utilized efficiently and effectively. Information about service efforts includes indicators of nonmonetary resource inputs as well as monetary. Information about service accomplishments includes indicators of output measures (i.e., units of work accomplished) and outcome measures (i.e., impact of work on achieving goals and objectives). To date the GASB has conducted significant research on SEA measures and continues to encourage governments to experiment with SEA reporting.

Section 2

Question Answer
Special purpose governments differ from general purpose governments in that special purpose governements:Provide a single function or limited range of functions
A true statement about the accounting standard setting bodies?The FASB and GASB are administratively supported by the Financial Accounting Foundation; the FASB draws its support from the federal government.
A distinguishing difference between governments and not-for-profit organizations is: Taxation as a significant source of funding.
Which would most likely meet the criteria to be classified as a governmental not-for-profit organization?A city-administered community service agency.
The concept of interperiod equity refers to whether:Current year revenues were sufficient to pay for current year services.
Which of the following is (are) included in the minimum requirements for general purpose external financial reporting of a government?MD&A (Management's Discussion and Analysis and basic financial statements.
The basic financial statements of a state or local government include all of the following.An MD&A, government-wide financial statements and fund financial statements
The modified accrual basis of accounting is used to account for revenues and expenditures reported in the financial statements of:Governmental funds
Separate columns for individual major funds should be provided in which of the following financial statements?Balance sheets-governmental funds; statement of net assets-proprietary funds
Under GASBS 34, financial information is reported in which financial statements?Not the Government-wide Financial Statements but on the Fund Financial Statements