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The configuration and content of financial reporting
and accounting in government is affected in large
measure by one major issue: should government
use its own model and set of principles or follow the model
used by business? This
issue is explored in detail in this chapter and throughout
the entire text. The two different
models are defined and presented in this chapter. One model is
called the compliance and liquidity model. It
assumes governmental information needs are different
than those of business and thus there is a need for
a separate and distinct model. It focuses on making sure that the
administration follows the legal directives of the legislature and trying to assure that enough
money is generated to pay the annual cost of government. The other, the
accrual and consolidation model, is essentially the
model used by business. Many of those who see no
basic
difference between the information needs of government and business regard the
accrual and consolidation model as the best and thus
the one that should be used in government. It trys to match all expenses
and promises with revenue collected so that costs are not pushed on to future generations. The
issue over appropriate model is presumed to be
important since the assessment of financial
performance can differ depending on which model is
adopted. The battle over the models is both technical and
political; technical in finding factual grounds for the choice and
political in using power to settle the issue. In
fact, the battle continues as the Governmental Accounting Standards Board
(GASB) for state and local accounting and reporting
considers whether to add an accrual and consolidation perspective (called the entity wide
perspective by GASB) to the compliance and liquidity model (which the board refers to as the fund
model). If GASB decides to require reporting under both models, the board will call the approach the
dual perspective.
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