Essentials of Accounting for
Governmental and
Not-for-Profit Organizations
Chapter 14
Financial Reporting by the Federal Government
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Overview of Chapter 14
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Federal government reporting standards
Reporting requirements of federal agencies
Consolidated Financial Report of the U.S.
government.
Journal entries for typical transactions of a
federal government unit, applying budgetary
and proprietary accounting practices.
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Federal Accounting
Standards
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The Office of Management and Budget, together with the
Government Accountability Office (GAO) and the
Department of the Treasury are the primary organizations
charged with financial management of the federal
government. Together they created the Federal Accounting
Standards Advisory Board.
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Federal Accounting
Standards
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Federal Accounting Standards Advisory Board (FASAB).
The purpose of the FASAB is to develop and issue federal
accounting standards. The Board is comprised of ten
members; two from the executive branch, two from the
legislative and six who are not employees of the federal
government.
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Federal Accounting
Standards Advisory Board
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The standards (called Statements of Federal
Financial Accounting Standards) are recognized as
the highest level of authoritative standard in the
AICPA’s Code of Professional Conduct for federal
government entities.
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Like the FASB and GASB, the FASAB has developed a
conceptual framework to guide the Board in the development
of new standards
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Reporting requirements of federal
agencies – Financial Statements
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Balance Sheet,
Statement of Net Cost
Statement of Changes in Net Position
Statement of Budgetary Resources
Statement of Custodial Activity (if applicable),
and
Statement of Social Insurance (if applicable).
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Reporting requirements of federal
agencies – Financial Statements
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Balance Sheet - Assets and liabilities are measured on the
accrual basis. The difference between assets and liabilities is net
position and is comprised of unexpended appropriations and the
cumulative result of operations.
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Statement of Net Cost - This statement displays the cost
(measured on the accrual basis) of the federal agency by strategic goal.
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Statement of Changes in Net Position - identifies all
financing sources used to support its operations. The statement
articulates with net position appearing on the balance sheet.
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Reporting requirements of federal
agencies – Financial Statements
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Statement of Budgetary Resources - The statement
provides information on how budgetary resources were obtained and
the status (e.g. expended, obligated, etc.) of those resources at year
end.
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Statement of Custodial Activity (if applicable) This statement is required only if the government agency collects nonexchange funds to be turned over to Treasury and is analogous to an
agency fund of a state or local government. The SEC, U.S. Customs
and Border Protection and the IRS prepare this statement.
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Reporting requirements of federal
agencies – Financial Statements
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Statement of Social Insurance (if applicable). - A
statement of social insurance is required for federal agencies
administering social insurance programs such as Social Security and
Medicare. The Statement projects income and benefit payments so that
users of the statements can evaluate the long-term viability of the
programs
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CONSOLIDATED FINANCIAL REPORT
OF THE U.S. GOVERNMENT
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The consolidated report presents the financial
position and results of operation of the federal
government, measured on the accrual basis.
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The report includes
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Managements’ Discussion and Analysis,
Financial Statements,
Supplemental and Stewardship Information (unaudited), and
the Auditor’s (i.e. GAO’s) Report
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CONSOLIDATED FINANCIAL REPORT
OF THE U.S. GOVERNMENT
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Financial Statements include:
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Balance Sheet,
Statement of Net Cost,
Statement of Operations and Changes in Net Position,
Reconciliation of Net Operating Cost and Unified Budget
Deficit,
Statement of Changes in Cash Balance from Unified Budget
and Other Activities,
Statement of Social Insurance
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CONSOLIDATED FINANCIAL REPORT
OF THE U.S. GOVERNMENT
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The consolidated report is over 200 pages long.
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For this reason, the federal government also publishes an
annual Citizen’s Guide to the Financial Report of the U.S.
Government .
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The Guide presents plain language explanations of key terms
It provides graphic displays of revenues by source and the cost of
operating the government by function.
Finally, it includes an abbreviated financial report, called a Snapshot of the
Government’s Financial Position and Condition.
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Citizen’s Guide to the Financial Report
of the United States Government
A Snapshot of
The Government’s Financial Position and Condition
2010
Gross Costs
Earned Revenues
Loss from Assumptions
2009
$ (4,472.3)
309.2
250.9
(3,735.6)
300.9
247.8
(4,296.0)
(3,434.7)
2,216.5
(0.8)
2,198.4
(17.4)
$ (2,080.3)
(1,253.7)
$ 2,883.8
2,667.9
Debt Held By the Public
(9,060.0)
(7,582.7)
Federal Employee & Veteran Benefits
(5,720.3)
(5,283.7)
Other Liabilities
(1,576.3)
(1,257.4)
Total Liabilities
(16,356.6)
(14,123.8)
$ (13,472.8)
(11,455.9)
Net Cost
Total Taxes and Other Revenues
Other
Net Operating Cost
Assets
Less: Liabilities, comprised of:
Net Position (Assets Minus Liabilities)
BUDGETARY AND PROPRIETARY
ACCOUNTING
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The accounting systems of federal agencies must
serve both the external financial reporting needs
mandated by the Chief Financial Officers’ Act and
the necessity of having internal budgetary controls
over the spending of public resources.
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This is accomplished through the maintenance of two selfbalancing sets of accounts, termed budgetary and
proprietary accounts.
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BUDGETARY AND PROPRIETARY
ACCOUNTING
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The purpose of budgetary accounts is to provide a
record by which federal expenditures may be traced
back to the budgetary authority granted by Congress
through appropriations.
Proprietary accounts are those accounts which
comprise the accrual basis financial statements
prepared by the federal governments and its
agencies.
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Federal Government Budgetary Authority Process
Typical Journal Entries - Federal Agency
Comparison of Budgetary and Proprietary Accounting
Event Description
Budgetary Accounting
Debits
Credits
Appropriations: Treasury notifies the agency
Appropriations
realized
12,000,000
that Congress passed legislation (signed by
Unapportioned authority
12,000,000
the President) granting budgetary authority
to fund its activities
Apportionment: OMB apportions ¼ of the
appropriated amount which may now be
expended for first quarter activities.
Unapportioned Authority 3,000,000
Apportionments
3,000,000
Allotment: The head of the agency allots a
Apportionments
portion of the apportionment to the heads
Allotments
of subunits within the agency. The subunits
may now expend resources.
Obligations (commitments): A unit of the
agency places orders for goods and
services related to its activities.
Expenditure: Some of the items ordered
above (equipment of $ 100,000 and
services of
$ 800,000) are received
and approved for payment.
2,500,000
Proprietary Accounting
Debits
Credits
Fund balance with Treasury 12,000,000
Unexpended appropriations
12,000,000
No journal entry required
No journal entry required
2,500,000
Allotments
1,900,000
Obligations – undelivered orders 1,900,000
No journal entry required
Obligations
– undelivered orders
900,000
Expended Appropriations
900,000
Equipment
100,000
Operating (program) expense 800,000
Accounts payable
900,000
Accounts payable
900,000
Fund balance with Treasury
900,000
How the budgetary accounts work
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Under federal budgetary accounting, budgetary
resources (appropriations) are represented by
debits. Credits reflect the status of the
resources within the spending process.
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Credits reflect the status of the resources
within the spending process
Amount
Status
$ 9,000,000 - Unapportioned authority: this amount will be apportioned to the agency
by OMB over the remaining 3 quarters of the year.
500,000 - Apportionments: current quarter resources that have not yet been allotted
by the head of the agency to specific subunits of the agency.
600,000 - Allotments: resources currently available to agency offices, but have not
yet been committed by placing orders for goods or services.
1,000,000 - Obligations for undelivered orders: commitments for outstanding
purchase orders for goods and services that have not yet been received.
900,000 - Expended appropriations: amounts that have been expended on goods
and services received.
$ 12,000,000
Total appropriation
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How the proprietary accounts work
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Proprietary accounts measure assets, liabilities,
revenues and expenses (including depreciation)
in much the same manner as accrual basis
accounts of state and local governments.
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How the proprietary accounts work
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Unexpended appropriations, represents a source of funds to
the federal agency and is similar to a transfer in account in a
state or local government fund.
Fund Balance with Treasury. Federal agencies do not
typically maintain cash balances. Instead, the ability to draw
cash from the Treasury is recognized as an asset at the time of
an appropriation with this account.
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Payments made by Treasury on behalf of the agency are reflected with a
credit to this account.
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