Definition and Elements of Financial Reporting

Introduction to chapter I of Financial Reporting in Government
By Dr. John Sacco , George Mason University
Revised

Purpose

The purpose of this chapter is to define and provide a basic understanding of financial reporting in government. Financial reporting is largely an effort to assess financial performance , that is, how well or how poorly the government did with money entrusted to it. Financial reporting is considered a part of governmental accountability.

In developing an understanding of financial reporting in government, it is important to appreciate that the assessment of financial achievement not only involves technical issues, but also political issues. What constitutes or what is financial accomplishment is not always an area of agreement. Participants involved in financial reporting may be motivated to expose or hide poor financial performance.

It is also important to appreciate that while there many different types of financial reports, this text focuses on what are called the financial statements. These are designed to convey information, generally to users outside the government, about the operating success, financial health, and compliance. In state and local government, the financial statements highlight separate categories of activities (funds) not the government as a whole, although this narrow orientation may change so that both perspectives are included in the financial statements.

Learning Objectives

  1. Be able to define financial reporting.
  2. Be able to show how community, government, and economic decision making is influenced by financial reporting.
  3. Be familiar with the definition of individual characteristics of financial reporting, such as external users, liquid assets, and fixed assets.
  4. Know what GAAP, GASB and FASB mean.
  5. Know what CAFR and GPFS mean.
  6. Know the difference between financial reports and financial statements.
  7. Know there are five different types of financial statements required by GAAP.
  8. Know the assessment goals of financial statements, including financial success, health, and compliance.
  9. Understand the role of the conceptual framework in governmental accounting and financial reporting standards and know the relationship between accounting and financial reporting.
  10. Be able to identify the professional organizations or associations involved in governmental accounting standards.
  11. Know what the blue book, or GAAFR, is.
  12. Know the definition of a fund and be able to identify the different types of so-called " government funds ".
  13. Know that financial statements report on subunits including funds and entities and not the government as a whole.
  14. Be able to read and create simple financial statements.
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