Chapter 01D - Environment& Characteristics...

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Unformatted text preview: Environment & Characteristics Characteristics Chapter 1 Welcome Welcome Contrary to what you may have heard, Contrary governmental and nonprofit accounting is not a “whole new ball game” not However, it is a game played by slightly However, different rules different The purpose of this chapter is to lay the The groundwork for those rules groundwork The rest of the chapters will examine The those rules more closely those Learning Objectives Learning Unique characteristics Types of G&NP organizations Similarities & differences between profit-seeking Similarities and G&NP organizations and Characteristics, concepts, & objectives of GNP Characteristics, accounting & financial reporting accounting Users and uses of financial information Determining what GAAP to apply GAAP hierarchy Characteristics of G&NP Organizations Organizations Absence of profit motive Owned by constituents – no stock Contributors of resources do not receive Contributors proportional share of benefits proportional Decisions made – directly or indirectly – Decisions by voters by Meetings where decisions are made Meetings usually open to the public usually Types of G&NP Organizations Types Governments: Federal, state, county, city, township, Governments: village, and special districts village, Education: kindergartens, elementary & secondary Education: schools, vocational & technical schools, and colleges & universities universities Health and welfare: hospitals, nursing homes, American Health Red Cross, and United Service Organizations (USO) Red Religious: YMCA, YWCA, Salvation Army, and churchrelated organizations Charities: United Way, Community Chest, & other fundraising organizations Foundations: Private trust that operate religious, Foundations: educational, or charitable organizations educational, Similarities to the Private Sector Similarities Operate in the same economy and compete for Operate same resources: financial, capital, and human same Acquire & convert scarce resources into goods & Acquire services services Use of accounting & other information systems Need to operate economically, effectively, & Need efficiently efficiently Provide goods and services, many of which may Provide be similar be Differences from the Private Sector Differences Organizational objectives Sources of financial resources Methods of evaluating performance and Methods operating results operating Organizational Objectives Businesses Operating Motive: maximize income from revenues and other resources other Operational Focus: Operational report quarterly but look to the long-tem as well as G&NPs Operating Motive: maximize services provided from revenues and other resources resources Operational Focus: operate on annual budget, so current year is of primary importance importance Sources of Financial Resources Sources Businesses raise resources from sales or Businesses from capital stock & debt transactions – must account for different sources separately separately Governments raise resources from sales Governments or debt transactions – typically no distinction made in sources distinction Unique G&NP Sources Unique Involuntary contributions – taxes! Donations Appropriations and grants from other Appropriations governmental entities governmental Evaluating Performance & Operating Results Operating In business, continuing a product or In service determined by success in marketplace marketplace In G&NP organizations: – Profit not a motive and frequently cannot be Profit measured measured – Services not found elsewhere so there is no Services competition competition – Face rules and regulations not found in Face private sector private Special Regulations & Controls Applied to Governments Applied Organization structure – form; board Organization composition; number & duties of personnel personnel Personnel policies & procedures – who Personnel has power to appoint or hire personnel; tenure; termination policies; promotion policies policies Sources of financial resources – types and Sources amounts of taxes, licenses, fines or fees; procedure for setting user charges procedure Special Regulations (continued) (continued) Use of financial resources – purposes, Use including legal restrictions; purchasing procedures; budgeting methods procedures; Accounting Financial reporting – type & frequency of Financial reports; format; recipients reports; Auditing – frequency; who performs; Auditing scope & type; time & place scope Development of GAAP Development Private Sector Public Sector 1934 Committee on Accounting Procedure 1951 Accounting Principles Board FASB 1975 1984 National Committee on Municipal Accounting National Committee on Governmental Accounting 1959 1973 GASB National Council on Governmental Accounting Other Organizations That Assisted in G&NP GAAP Development in Municipal Finance Officers Association (MFOA) / Municipal Government Finance Officers Association (GFOA) (GFOA) American Institute of CPAs (AICPA) and American Auditing Standards Board (ASB) Auditing National Association of State Auditors, National Controllers, & Treasurers (NASACT) Controllers, National Association of College & University National Business Officers (NACUBO) Business American Hospital Association (AHA) and American Healthcare Financial Management Association (HFMA) (HFMA) Defining a “Government” Defining Overall characteristics: Public corporations – “an instrumentality of Public the state, founded and owned in the public interest, supported by public funds, and governed by those deriving their authority from the state from Bodies corporate and politic Other Characteristics of a “Government” “Government” Popular election of officers or appointment Popular (or approval) of a controlling majority of members of governing body by one or more SLGs more Potential for unilateral dissolution by a Potential government with net assets reverting to government government Power to enact and enforce a tax levy Ability to issue tax exempt debt Financial Reporting Financial Standards-Setting Process Financial Accounting Foundation (FAF) Financial Accounting Standards Advisory Council (FASAC) Financial Accounting Standards Board (FASB) Governmetntal Accounting Standards Board (GASB) Governmental Accounting Standards Advisory Council (GASAC) SLG GAAP Hierarchy SLG A. GASB Statements & Interpretations, which are GASB B. C. D. E. periodically incorporated into the Codification Codification GASB Technical Bulletins and AICPA Audit Guides and GASB SOPs if made applicable to SLGs and cleared by GASB GASB Positions of GASB EITF (does not currently exist) and Positions AICPA Practice Bulletins if made applicable to SLGs and cleared by GASB and GASB staff Implementation Guides (Q&As) and widely GASB accepted practice accepted Other accounting literature Typical Activities of a SLG Typical Governmental activities – unique to SLGs – – – – Police and fire protection Education Social Services Courts Business-type activities – similar to private Business-type sector operations sector – Utilities – Golf Courses – Airports Purpose of Governmental Activities Purpose Provide goods and services that all Provide constituents need regardless of ability to pay for goods and services pay Sources of Financial Resources Sources (not found in private sector) Taxes: property taxes, sales taxes, and Taxes: income taxes income Intergovernmental revenues: from other Intergovernmental governments governments Licenses & permits Fines & forfeitures Debt proceeds (typically not used for Debt not operations) operations) Resource Allocation Mechanisms Resource Restrictions placed by providers: typical of Restrictions grantors, taxes for specific purposes, & debt proceeds debt Budget – allocates resources to functions Holding public officials accountable for Holding actions actions Reporting Issues & Problems Reporting Demonstrate compliance with restrictions on use Demonstrate of financial resources of Budgetary reporting Impact of restrictions on revenue recognition Difficulty in measuring effectiveness and Difficulty efficiency of operations efficiency Opportunity to hide or disguise availability of Opportunity resources resources Tax and debt limits Impact of materiality of reporting certain actions Financial Report Users Financial The citizenry Legislative and oversight bodies Investors and creditors Financial Report Uses Financial Comparing results with legally adopted Comparing budgets budgets Assessing financial condition and results Assessing of operations of Assisting in determining compliance with Assisting finance-related laws, rules & regulations finance-related Assisting in evaluating efficiency & Assisting effectiveness effectiveness Purposes of Business-Type Activities Purposes Provide same types of services as found Provide in private sector in Charge fee for services received Separate, self-sufficient operations Issues in Business-Type Activities Issues Relationship between services received Relationship and resources provided by consumer and Revenue-producing capital assets Similarly designated activities Nature of political process Budgets and fund accounting Financial Reporting Objectives of Business-Type Activities Business-Type Enable users to assess accountability Provide information about operating Provide results for the period results Provide information to assess level of Provide services provided services Characteristics of SLG Characteristics Accounting & Reporting Use of fund accounting Budgets and appropriations ...
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