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Government Financial Reporting

Standard-setting structure for financial reporting & accounting

Financial Accounting Foundation (FAF)

Financial Accounting Financial Accounting Government Governmental
Standards Advisory Standards Board Accounting Accounting
Council (FASB) Standards Standards
(FASAC) Board Advisory
(GASB) Council
(GASAC)

Figure 1

cers Association and began to promulgate formal stan- advise the GASB of its members’ views and the views of
dards. It issued the first “blue book” in 1936, Bulletin No. the organizations they represent. The GASAC assists the
6, Municipal Accounting Statements. From that point, gov- FAF in approving appointments of GASB members. Fig-
ernment financial reporting, along with government ure 1 illustrates the relationships among these bodies.
accounting and auditing, began to develop into what it is
in the early twenty-first century. FINANCIAL REPORTING AT
The National Council on Governmental Accounting PRESENT
(NCGA), which succeeded the NCMA, initiated the basic Generally, government financial reporting is the process of
format of the current blue book, which was later officially communicating information concerning a government’s
titled Governmental Accounting, Auditing and Financial financial position and activities. Government financial
Reporting (GAAFR). In 1968 generally accepted account- reports have several practical uses: They can be used to
ing principles (GAAP) for government were established in compare actual financial results against the legally adopted
GAAFR. Government accountants and financial managers budget; assess financial condition and results of opera-
use the blue book to this day as a reference for current tions; assist in determining compliance with finance-
standards and practices in government financial reporting. related laws, rules, and regulations; and assist in evaluating
In the past, some confusion existed concerning who efficiency and effectiveness. Although government finan-
set the standards that constituted GAAP for governments. cial reports cannot meet the needs of every user, they can
This issue became prominent when the American Insti- be used in many ways to assess accountability and to make
tute of Certified Public Accountants (AICPA) issued an effective decisions.
industry audit guide in 1974 that, while endorsing most, At the federal level, the Office of Management and
modified principles set forth by the NCGA. The AICPA Budget (OMB) promulgates reporting standards. The
later recognized NCGA Statement No. 1, Governmental office responsible for this function within the OMB is the
Accounting and Financial Reporting Principles. Even after Office of Federal Financial Management. Pursuant to the
this statement was recognized, questions still arose. Con- Chief Financial Officers Act of 1990, a deputy director for
flicts with the standards set by the NCGA generally were management was established within the OMB to coordi-
associated with pronouncements issued by the Financial nate financial management functions with the various fed-
Accounting Standards Board. These conflicts were not eral agencies. Moreover, each agency of the federal
resolved until the Governmental Accounting Standards government is required to specify a chief financial officer
Board (GASB) was established in 1984. From then on, who is responsible for financial reporting, as well as all
the GASB was clearly established as the primary authority other financial management functions.
for setting government standards. Each executive agency is required to prepare and sub-
The GASB was created as a five-member board under mit audited financial statements to OMB after each fiscal
the Financial Accounting Foundation (FAF). In addition year. One such report is a combined Performance and
to the GASB, the FAF also established the Governmental Accountability Report, which is designed to obtain a more
Accounting Standards Advisory Council (GASAC) to accurate picture of agency performance in terms of both

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 349