Government Reporting Entity - Assignment Example

Government Reporting Entity Governmental accounting is a system used by the public sector following the reporting systems set by the Federal Accounting Standards Advisory Board (FASAB) at the Federal level, and by the Government Accounting Standards Board (GASB). Following this paragraph is a discussion of government reporting and government reporting entity and the evaluation of the Management Discussion and Analysis (MD&A) of Davis School District in Utah. Government Reporting and Government Reporting Entity Government reporting entity is one of the most essential issues in accounting in verifying accounting entity due to the involvement of different organization. According to Copley (2008), the statement 14 of GASB, states that the financial reporting of each entity comes from the primary government, comprising its components such as states, counties, large cities, and school districts (Copley, 2008). The major features of government reporting are the summarized plans and programs, fiscal and economic policies capsulated in facts and figures. A government wide reporting is a reporting method that brings together the three types of government activities, such as governmental, business-type and other detached units. Each entity is required to report the activity in economic terms, describing the “flow of economic resources” that measures its impact, and follows the accrual basis of accounting (Klashy and Williams, 2000). Further, the report is historical since the report is compared with previous year’s performance to identify the financial and performance position of the entity. The Comprehensive Annual Financial Report (CAFR) of Davis School District in Utah has the same accounting reporting procedure; however, the state requires the School District to publish their report within five months of the close of each fiscal year in accordance with generally accepted accounting principles, which also required to present a report of financial activities to parents, taxpayers and citizen (Roberts, 2008). Furthermore, as differentiated from regular public accounting, Roberts (2008) said that the reason of preparing separate financial statements is to “support state or federal applications and a financial statement for use in an official statement for bond issuance purposes”. The school is supported by the County through the proceeds from bonds. The CAFR report of Davis School District is divided into three segments (Roberts, 2008): 1) Introduction of the report - Illustrates the description of the report including the transmittal letter, the lists of elected board and directors, the chart of the School District organizations, the model of the School District for its education, and excellence certificate of financial reporting. 2) Financial Report Section – This section is the information of the auditor’s report, the discussion analysis of the management, fundamental information of financial statements, fund statements, and schedules. 3) The Statistics of the operation – This report includes significant financial information, but provides tables that differentiate from financial statements that provide data that are non-accounting, which cover number of years, and are intended to reflect the data of social, economic, financial, and fiscal trends and capacity of the School District. Management Discussion and Analysis - MD&A An MD&A is an important section of the CAFR that provides a comparison of previous year’s operations and of the current year, and how the entity performed during the reported year. Usually, an MD&A provides information on future goals and projects and outlines ways to new projects (Copley and Engstrom, 2008). Both private and public sector provides an MD&A in financial statements, but the difference between the private and public sector’s MD&A, is that the latter is expressed in economic terms. The MD&A of David School District This part of the study presents an insight to an MD&A from the CAFR of Davis School District for Fiscal Year Ended June 30, 2008. As required, the MD&A of Davis School is done in narrative summary of activities which compares the current year against past year’s performances. In private sector, profits are reported as net profits, public sector reports it as Net Assets. The processes in school district is the same as it measures assets less liabilities and excess is Net Assets for the current year. The discussion and analysis of Davis School District include the overview of financial highlights of the school district’s operations. The discussion focuses on essential financial concerns, provides an indication of financial activity; emphasizes essential changes of the school district financial standing, and recognizes the material differences of the agreed budget and actual spending. MD&A explains the components of the Davis School financial statement which encompasses the following three elements (Roberts, 2008): 1) The government-wide financial statement. This report is prepared similar with the private sector. It has a statement of net assets that measures cost against revenue; that is profit and loss to private. The statement of activities is similar to the private sector’s balance sheet that shows how net assets have changed during the year. Further, the School District prepares three separate reporting. One is for governmental school activities that consist of maintenance and operating costs. Funding from these activities comes from property taxes, and from state and federal grants. Another one is a report coming from business-type activities. The MD&A reports that the District collects fees for special services such as the Food Services program and the Pioneer Adult Rehabilitation Center to cover the cost of services provided (Roberts, 2008). 2) Fund Financial Statements. The School District prepares fund statements similar to the government wide statements presented in “a government fund balance sheet, government statement of revenues, expenditures, and changes of fund balances, and a reconciliation to provide comparison between government funds and activities.” The District maintains a general fund for its appropriated budge similar to other entities. As a collection agent, the School puts in order a Proprietary Fund Statement for its business-like activities in two fund types, the “Enterprise Funds and the Internal Service Fund”. The District is allowed “to accumulate and allocate costs among several District’s function” .and reports this in the Proprietary Fund. A separate accounting is done for the Fiduciary Fund of the school but is not reflected in the government wide reporting This is a fund held in trust for another, and is not allowed to be spent for other purposes (Roberts, 2008). 3) Notes to the financial statement are essential element of the financial statements. The notes indicated additional disclosures that are significant to a full understanding of the information presented in the government-wide and fund financial statements (Roberts, 2008). Also included in the MD&A is a summary explanation of the financial statement that analyzes cost and revenues, changes in assets, and all financial activities accruing during the fiscal year. This is related to previous year for comparison of growth and position. An illustration of MD&A’s reporting in the financial statement is attached as an Annex (Roberts, 2008). Differences with public sector and private sector accounting 1. Goals. The distinction between the two is that their goals and environment are different. The main goal of the private entity is towards gaining profit while the public sector has different goals that are set on service. (Fischer, Mary. 2009) 2. Reporting responsibility. Government entity has the fiscal responsibility to report the use of resources in compliance with the budgetary appropriations, while in private accounting; the budget is only a tool for financial planning and is not mandated to be followed. (Fischer) Government entities must report to different groups and segments. These include school boards, elected officials, investors, creditors and to the people. Private sector is responsible to only a few, i.e. the stakeholders and creditors (Johnson, F. 2003) 3. Reportorial requirements. Company accounts include a Profit and Loss Statement Public sector presents this as Net Asset Statement. A company account has a Balance Sheet signed by a director in the company and an Auditor’s Report signed by an accredited Auditor. The government account is audited by Government Accounting Office. A company account has a Directors’ Report signed by the Director or the Head of the company explaining significant changes for the reported year. This is the counterpart of MD&A of government accounts that is signed by the Chief Financial Officer. The company account is accompanied by the Notes to the company accounts and the financial statements which are similar to the Supplemental and Stewardship Information of the government. Word count: 1522 Annex 1. Conclusion The government accounting and reporting essentially varies from each entities and business enterprises. Therefore, separate reporting of financials and government accounting standards are significant to meet the essential requirements of the users of governmental financial reports. A government standard should reflect the special atmosphere of government which includes different purposes of the organizations and unique legal powers, and to efficiently address the issues of public accountability related to the special environment of the government. References Copley, P.A. and Engstrom, J.H. (2008). Essentials of Accounting for Governmental and Not-for-Profit Organizations. Overview of Financial Reporting for State and Local Governments. (Chapter 2, 9th edition). The McGraw Hills Companies. Klashy, E. and Williams, J. (2000, January). Government Accounting Faces Overhaul. Journal of Accountancy. AICPA Corporate Finance Insider. Retrieved August 13, 2009 from http://www.journalofaccountancy.com/Issues/2000/Jan/GovernmentReportingFacesAnOverhaul.htm Roberts, R. J. (2003) Davis School District Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2002 . 2002 CAFR Workbook printer copy.xls. Retrieved August 25, 2009 from http://www.davis.k12.ut.us/acct/ Read More