Introduction
Governmental accounting entails the accounting procedures and principles for state, local, and even federal government units, whereby the National Council on Governmental accounting establishes specific rules. Their fundamental differences from the normal profit-oriented businesses are what necessitate their different financial and accounting standards for reporting. This is meant to guarantee the provision of information that is capable of meeting the needs of stakeholders in assessing the government’s responsibility in making economic, social, and political advancements (Temel, 2001).
Main text
The main stakeholder in governmental accounting is the public which is also the main source of government funds. Two fundamental reports are normally issued by the government units namely the comprehensive annual financial report and the annual operating budget. Essentially, the comprehensive reports are the annual audits whereas the operating budgets are the annual budgets. The annual audit is prepared by an auditing firm and is a report on the previous year while the annual budget is prepared by the finance director and is a report on the following year. In both reports, the balance sheet, income, and cash flow statements are presented (Policepay Inc, 2009).
The main operating fund is the general fund, usually used for any legal purpose. The principal factor in local government accounting is the two presentations employed for presenting governmental funds which are the Generally Accepted Accounting principles and the budgetary method. Policepay Inc, in exploring this fund, indicates that the rules of the latter vary in different cities while the former applies to every state and local government. Due to the unreliable nature of the budgetary system, it is only used in the budget discussion, leaving the Generally Accepted Accounting Principles to be used in all functions. The significant number in the General Fund is the Change in Fund Balance which is the indicator of profit or loss. While profits are generally good, losses may not necessarily be considered as bad. In addition, one year is never considered enough to make a true judgment of the earning of the General Fund.
The Governmental Accounting Standards Board stipulates that the statement of net assets should be formulated to have the assets of the local or state government calculated by deducting the sum of liabilities from total assets. It recommends that an asset’s liquidity or that of liability should be established through assessment of average liquidity of the category of asset or liability where it belongs. An alternative is to have the presentation based on a classification of assets and liabilities based on current or long term (Madray, 2008).
Fairlie (2009) observes that despite challenges and inefficiencies in governmental accounting, there have been improvements with Minnesota being a good example. It has installed an effective system of control and supervision over the accounts in local governments. As a result of this, disclosed inappropriate methods have gotten corrected and similar supervisory structures over Municipal accounts have also been entrenched.
Conclusion
In conclusion, the state and local governments are given the responsibility of ensuring that all governmental accounting is presented in the most professional and transparent of ways. The accounting information presented is essential to the public in assessing the effectiveness of their governments. The state and local governments also use the information to make informed decisions in the running of government affairs. To ensure that the goals are coherently achieved, it is prudent to apply principles and methods that are sound and all aimed at producing results that satisfy all stakeholders.
References
Fairlie, J. (2009). Local Government in Counties, Towns and Villages. Charleston: Biblio Bazaar.
Madray, J. (2009). Compilations & Reviews 2008-2009. Toronto: CCH.
Policepay Inc. (2009). Understanding Governmental Accounting.
Temel, J. (2009). The fundamentals of municipal bonds. New York: John Wiley and Sons.