How Do Governmental and Not-For-Profit Organizations Differ From

Financial Reporting for
and Not-for-Profit
What types of Governmental and Not-ForProfit Organizations do you think of?
o 87,500 local governments exist in US
o One million not-for-profit organizations
How do they get revenue?
What do they spend money on?
How Do Governmental and
Not-For-Profit Organizations Differ
From Business Organizations?
Benefits are not proportional to
resources provided
Lack of a profit motive
Absence of transferable ownership
Services better society
How Do Governmental Entities Differ
From Not-For-Profit Organizations?
 Power
ultimately rests in the hands of the people
 People vote and delegate that power to public
 Created by and accountable to a higher level
government (states, county, township, city)
 Power to tax citizens for revenue
 Governed by budgets not markets
Sources of GAAP and
Financial Reporting Standards
Business organizations
Nongovernmental not-for-profits
 (YMCA)
Governmental organizations
Governmental not-for-profit
 (U of MI)
Federal Government and its agencies
***Hospitals can fall into either group 1 of 2 above
Criteria for Determining Whether
an NPO is Governmental
 Governmental
organizations typically have one
or more of the following characteristics:
 Popular election of officers, or appointment of
a controlling majority of the governing body
by officials of another government
 Potential dissolution by a government with net
assets reverting to a government
 Power to enact and enforce a tax levy and
impose charges
 States can issue tax-exempt debt
Additional Governmental Characteristics
 Budgets
not annual reports are the most
significant financial document
Budgets drive financial reporting
 Some can be legally binding
 Some must be balanced
 Governments
can seize assets of other
governments within their jurisdiction!!!!!!
Additional Government Characteristics
Revenue does not indicate demand for services (Benton Harbor)
No direct link between revenues and expenses
Many capital assets neither produce revenues or save costs (roads)
so projects are evaluated differently
Some resources are restricted (land, cash, art)
Equity does not exist and ownership cannot be bought or sold
Objectives of Financial Reporting
“ACCOUNTABILITY is the cornerstone of all financial
reporting in government “
TERM FOCUSED !!!!!!!!!
“Interperiod Equity the concept that constituents pay for the
services that they receive and do not shift the burden to their
children “
Objectives of Financial Reporting
Q: What do we mean by accountability?
A: Accountability arises from the citizens’
“right to know?” It imposes a duty on
public officials to be accountable to
citizens for raising public monies and how
they are spent.
Objectives of Financial Reporting
Q: How does “interperiod equity” relate to
A: Interperiod equity is a government’s
obligation to disclose whether current-year
revenues were sufficient to pay for currentyear benefits or did current citizens defer
payments to future taxpayers (Doesn’t
mean governments shouldn’t borrow) – For
example – Interstate Highway System
Users of Financial Reports
 Governing
 Investors & Creditors
 Approx.
$1.8 trillion bonds outstanding/bank loans
 Citizens/Taxpayers
 Donors/Grantors
 United
Way and Ford Foundation
 Regulatory
 Employees
and oversight agencies
Objectives of Financial Reporting—State
and Local Governments
Financial reports are used primarily to:
 Compare
actual financial results with legally
adopted budget
 Assess financial condition and results of
 Assist in determining compliance with
finance-related laws, rules, and regulations
 Assist in evaluating efficiency and
Comprehensive Annual Financial Report
Introductory section
Financial section
Statistical section
CAFR - Introductory Section
Title page
Contents page
Letter of transmittal *
General information on organization structure
Other (as desired by management)
*From CEO or CFO about state of affairs
CAFR - Financial Section
Basic Financial Statements
Required Supplementary Information (RSI)
Combining and individual fund financial statements
and schedules (if required)
Management’s Discussion and Analysis
Brief objective narrative providing
management’s analysis of the government’s
financial performance
Basic Financial Statements
Government-wide Financial Statements*
 Statement
of Net Assets (page 42)
 Statement
of Activities (page 43)
Fund Financial Statements (see next slide)
Notes to the Financial Statements
*Sometimes called Governmental Activities
Fund Financial Statements
Balance Sheet (Page 44)
Statement of Revenues, Expenditures, and
Changes in Fund Balances - Governmental
Funds with reconciliation (page 45-46)
Statement of Net Assets - Proprietary Funds
(Page 51)
Statement of Revenues, Expenses, and
Changes in Fund Net Assets - Proprietary
Funds (Page 53)
Fund Financial Statements (Cont’d)
Statement of Cash Flows - Proprietary Funds
Statement of Fiduciary Net Assets
Statement of Changes in Fiduciary Net
CAFR - Statistical Section
Tables and charts showing multiple-year
trends in financial and socioeconomic
What information would be important?