WHAT LIES AT THE CORE OF GOVERNMENTAL FINANCIAL REPORTING?
Aug 15, 2017 Vipul Mittal, CPA
What lies at the core of governmental financial reporting? This is an interesting and important question and the answer to this question is not that hard to guess. It is accountability.
So, accountability lies at the core of governmental financial reporting. Infact, the most important objective of governmental financial reporting is accountability.
In this blog, I will discuss two types of accountability - fiscal accountability for governmental activities and operational accountability for business-type and certain fiduciary activities.
Fiscal accountability refers to reporting on whether the current financial resources were raised from authorized sources and spent only for authorized purposes in the short term. So, this focuses on how the resources are raised and how they are spent in the short-term. Short-term here generally refers to one budgetary cycle or one year. This reporting objective is achieved by using the modified accrual basis of accounting and the flow of current financial resources measurement focus. So, the governmental fund financial statements use the modified accrual basis of accounting and provide a detailed short-term view as to whether there are sufficient financial resources that can be spent in the near future.
Operational accountability refers to reporting on (a) whether the operating objectives have been met efficiently and effectively, using all resources available for that purpose, and (b) whether the objectives will be met in the future. So, the focus here is long term and the focus is on operating objectives – how they are met and how they will be met in future. This is in contrast to the fiscal accountability where the focus is on raising resources from authorized sources and spending resources for authorized purposes. Reporting on operational accounting can be achieved by using the accrual basis of accounting and flow of economic resources measurement focus. So, government wide financial statements, proprietary funds financial statements and fiduciary funds financial statements use the accrual basis of accounting and provide a long-term focus.