Financial Statements in Government: A Compliance and
Liquidity Approach
Lessons in
chapter III
of
Financial Reporting in Government
By
Dr. John Sacco
,
George Mason University
Revised
Saturday, April 12, 1997
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This and the next two chapters cover traditional
governmental accounting and financial reporting.
Technically, the coverage is largely of governmental
funds and related account groups. Subsequent chapters
will examine business methods of accounting governments
can currently use and possible changes to a total
business accounting approach.
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In a broad sense the financial statements are suppose to
assess the financial success, conditions, and compliance
of government activities. Financial statements are
prepared at the end of the period; for government, the
end of the fiscal year. As a result, they should be
important documents for judging government financial
performance. Of course, as with any documents that make
judgments, they can be open to orchestration. Also,
remember that statements are prepared for funds, not the
government as a whole. The physical presentation in an
actual statement with all the fund in columns right next
to each and a memorandum total column does not change
the fact the statements are really for each type of
fund.
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Thus far the discussion has been about the different
financial statements without any detailed discussion of
the funds that go into the statements. Recall that
funds are used to make sure that money designated for a
specific purpose by the legislature is raised and spent
for that purpose and only that purpose. As noted, this
concern about adhering to legislative mandates is a
carry over from the reformers of the turn of the 20th
century. That reform followed on the heals of the
corruption of the spoils system and tried to correct it,
often with detailed rules. Funds were part of these
detailed rules.
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Financial statements should speak to the financial
performance of the government. At the end of the year,
the financial statements should help determine whether
the government had a good or poor year in terms of
handling and spending money. Historically, in both
government and business, considerable emphasis has been
placed on the details, that is, who owes us, whom do we
owe, and what is left over at the end of the period?
This approach is often referred to as a custodial or
stewardship of resources approach. More recently,
greater attention has been given to a bigger picture of
financial performance. In business it is separating the
winners from the loser and thus who should receive
favored treatment in access to future resources. In
government, several goals, including intergenerational
equity and service efficacy have emerged as ways to
capture the big picture of financial performance.
See Also: the
introduction
, a
pretest
, a
discussion
, the
study aides
, a
test
, and your
progress evaluation