Dicomment To Fgbased On The Recipients Of Information

Dicomment To Fgbased On The Recipients Of Information The Criteria For

Dicomment To Fgbased On The Recipients Of Information The Criteria For

DI Comment to FG Based on the recipients of information the criteria for accounting principles and financial statements vary. A government agency is required to report its activities to the government, while a non-profit organization is required to report to its members, donors and funding agencies. In the US, GAAP governs all non-profit organizations and government agencies. The government meets the GASB requirements in this context and non-profit organizations obey the FASB provisions. The budget is a very important element under the GASB requirements for government entities.

In 1999 the GASB issued a statement allowing these institutions to present a comparative financial statement showing the entity's performance in relation to the approved budgets. "GASB Statement No. 34 will henceforth allow governments to choose to present mandated budgetary comparisons either as part of the basic audited financial statements." (Government Finance Officers Association, 2000) For its part, the budget of a non-profit organization is based on a activities plan for which donors and members make their contributions. However, the dilemma for nonprofit organizations' budgets is that donors have the right to allocate their funds according to their interests. According to (Klotz, 2020) "… it's all about being clear what you are asking for and being clear what the donor intends." I think this is an important feature that contrasts a budget of a non-profit entity versus a budget of government entity.

The latter has the funds in advance and a board that theoretically represents the taxpayers approves this budget. References: Comment to SJ In order for a government to function "Congress must create and pass numerous funding bills each fiscal year to keep the federal government open." (USA GOV, Budget of the US Government, 2010). Governmental budgets that are passed each fiscal year begin October 1st and end on the last day of September before starting the new fiscal year. The government makes money by collecting taxes and burrowing capital in return for saving bonds. When the government burrows they must pay the interest on the debt which is normally less then 10% of the budget.

Majority of the budget goes towards "Funding for Social Security, Medicare, veterans benefits, and other spending required by law. This is called mandatory spending and typically uses over half of all funding." (USA GOV, Budget of the US Government, 2010). When creating the budget plan for the government it is very important to consider the mandatory spending and the discretionary spending which is a third of the budget. If the bill created by senate and house is not signed by the president to make it a law then national parks may shut down, taxpayers will not receive a tax refund, and grants will be suspended. Not for profit business budgets are created completely different from governmental budgets.

For example, the staff in the not for profit organization is responsible for creating the budget. After a draft is prepared, executive committees and finance committees "often review the proposed budget and the full board usually adopts the budget at a full board meeting." (National Council of Nonprofits, Budgeting For Nonprofits). Not for profit budgets are not in written in stone, the budget is like an Accounting Standard Code. For example the budget is there to provide guidance to organizations financial decisions just like Accounting Standard Codes. The reason for not writting budgets in stone is because operational activity may not not perform how the budget plan predicted.

Therefore adjustments are made when evaluating the organization's financial stand point same way Accounting Standard updates provide updates to its guidelines. The National Council of Nonprofits state "A budget is a guide that can help a nonprofit plan for the future as well as assess its current financial health. It is quite common to periodically review the budget as well as compare it to the actual cash flow and expenses, to determine whether they are playing out as expected during the course of the year. It may be necessary to amend the budget during the year." (National Council of Nonprofits, Budgeting For Nonprofits). D2 Comment to FG The Statement 92. Omnibus 2020, in which I will develop my research, states some requirements for institutions within scope of GASB provisions. The specific topics addresses in this statement are followings: “leases, intra-entity transfers of assets, postemployment benefits, government acquisitions, risk financing and insurance-related activities of public entity risk pools, fair value measurements, and derivative instruments.” (GASB, 2020) In this sense, there are several prior statements that are being amended. For example, in the Statement 48 as amended, the intra-entity transfer of assets between a governmental employer and benefit pension plan within the same financial reporting entity have to adjust any difference between the amount paid by the pension plan and the amount transferred as per books.

These differences should be reported as employer contribution to pension plan. According to provisions of Statement 69, in acquisitions carry out by a governmental entity, it has to measure the liabilities and assets (if any) related to acquired entity’s asset retirement obligations, using the accounting and financial requirements of Statement 83 (if applicable), which rules the standards of accounting and reporting for certain Asset Retirement Obligations (ARO). An ARO is defined by (GASB, 2016) as “a legally enforceable liability associated with the retirement of a tangible capital asset (that is, the tangible capital asset is permanently removed from service).” Comment to SJ My topic is on the amendments pertaining to Internal Revenue Code 457. The approval of these amendments may be delayed due to the virus that is spreading. Comments on this matter was to be submitted by April 10th and "Board has not scheduled a public hearing on these issues addressed in this Exposure Draft." ( GASB, Internal Revenue Code 457, 2020). The purpose behind the revisions to Internal Revenue Code 457 is to "increase consistency and comparability related to the reporting of fiduciary component units... to mitigate costs associated with reporting certain defined contribution pension plans... to enhance the relevance, consistency, and comparability of accounting and financial reporting for Internal Revenue Code Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan." (GASB, Internal Revenue Code 457, 2020). The anticipated effective date for the exposure draft is June 15, 2021. The changes in this proposed statement would improve the usefulness and relevancy of the information provided to users . Also determine if the governing board needs to play a bigger role in determining component and pension plans due accuracy of financial reporting.

Paper For Above instruction

The differentiation between financial reporting criteria for government agencies and nonprofit organizations significantly influences how financial information is prepared, presented, and utilized. These distinctions arise from their distinct objectives, regulatory frameworks, and stakeholders. Understanding the criteria for accounting principles and financial statements based on recipient of information is essential for accurate and relevant reporting, ensuring transparency and accountability across different organizational forms.

Government agencies are primarily accountable to the public and legislative bodies, necessitating adherence to standards established by the Governmental Accounting Standards Board (GASB). GASB regulations emphasize transparency, accountability, and the presentation of comprehensive financial information that reflect the use of public funds. For example, GASB Statement No. 34 (Governmental Accounting Standards Board, 1999) allows governments to present comparative financial statements that include budgetary comparisons. This facilitates accountability by showing how actual financial performance measures against approved budgets, enabling stakeholders to assess fiscal responsibility and performance (Government Finance Officers Association, 2000). The focus on budgetary comparison highlights the importance of public sector financial management, aligning with the fiscal responsibilities to taxpayers.

In contrast, non-profit organizations are primarily accountable to donors, members, and funding agencies. Their financial reporting is governed by the Financial Accounting Standards Board (FASB). Unlike government budgets, non-profit budgets are typically based on strategic activity plans, for which donor contributions are allocated according to donor preferences and organizational priorities (Klotz, 2020). Donors often retain the right to designate funds for specific purposes, leading to a more flexible and adaptive budgeting process that reflects actual operational activities rather than rigid fiscal plans. The non-profit budget functions more as a guiding instrument rather than a strict contractual document. As the National Council of Nonprofits (2020) states, budgets serve as useful guides to forecast future financial health and operational needs, with periodic reviews and amendments to reflect changes in actual cash flows and expenses.

This divergence arises from foundational differences: government budgets are often approved in advance by elected officials, representing taxpayer interests, and are tied to legislative appropriations, while non-profit budgets are internally managed and mainly influenced by strategic priorities and donor expectations. For government entities, budget approval is a legislative process involving elected representatives, often with predetermined allocations for mandated expenditures such as Social Security, Medicare, or veteran benefits. As noted in the US Government's budget overview (2010), mandatory spending typically accounts for over half of federal expenditures, with discretionary spending accounting for another third. The approved budget guides government operations throughout the fiscal year, which begins on October 1 and ends on September 30 of the following year.

On the other hand, non-profit budgets are formulated by staff and reviewed by executive and finance committees before approval at full board meetings. These budgets are inherently flexible, allowing adjustments as operational realities unfold, reflecting the dynamic relationship between donors' contributions and organizational needs. For example, if operational expenses exceed projections, amendments are made to reflect new priorities, making the budget a living document rather than a fixed standard (National Council of Nonprofits, 2020). This flexibility supports strategic planning and operational responsiveness, crucial aspects of non-profit management.

At the regulatory level, the Governmental Accounting Standards Board (GASB) issues statements that update and refine accounting requirements for public entities. The 2020 Omnibus Statement No. 92 (GASB, 2020) addresses areas such as leases, intra-entity transfers, postemployment benefits, and risk management. It amends previous statements—such as GASB Statement No. 48 regarding intra-entity asset transfers—requiring adjustments to reporting differences, ensuring consistency. For example, intra-entity asset transfers between a governmental employer and a pension plan must reflect differences as employer contributions (GASB, 2016). Similarly, GASB Statement No. 69 mandates that in cases of asset acquisition, liabilities related to asset retirement obligations (AROs) should be measured and reported according to existing standards, emphasizing the importance of accurate liability recognition (GASB, 2016).

Furthermore, the implications of amendments to the Internal Revenue Code (IRC) section 457, which governs deferred compensation plans for government employees, exemplify evolving regulatory oversight. The 2020 GASB exposure draft aimed to improve reporting consistency for fiduciary component units and pension plans under Section 457. The purpose of these revisions is to enhance relevance, comparability, and transparency—key principles in financial reporting that serve to strengthen stakeholder trust (GASB, 2020). Because of the complex nature of such plans, the proposed amendments also underscore the responsibility of governing boards to oversee accurate reporting, which is crucial in ensuring the integrity of financial statements.

The effective date of the proposed amendments was scheduled for June 15, 2021, but implementation might be delayed due to unforeseen circumstances like the COVID-19 pandemic. The amendments aim to standardize reporting related to deferred compensation plans and other fiduciary activities, thereby reducing costs and improving clarity for stakeholders. This ongoing evolution in standards exemplifies the necessity for organizations, especially governmental entities, to stay current with regulatory updates that impact financial statement presentation and compliance.

In conclusion, the divergence in accounting criteria reflects the core differences between government and non-profit organizations' missions, stakeholder expectations, and regulatory environments. While government agencies rely heavily on legislative approval and constitutional mandates, non-profit organizations depend on donor relations and strategic planning. Recognizing and adapting to these distinctions ensures transparent and accountable financial reporting, fostering stakeholder confidence. Furthermore, ongoing regulatory updates, such as those related to GASB standards and IRC amendments, continue to shape best practices, emphasizing the importance of governance and oversight in maintaining the accuracy and relevance of financial statements.

References

  • Government Accounting Standards Board. (1999). Statement No. 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments.
  • Government Accounting Standards Board. (2016). Statement No. 83, Certain Asset Retirement Obligations.
  • Government Accounting Standards Board. (2020). Omnibus 2020, Statement No. 92.
  • Klotz, A. (2020). Fundraising and Budget Planning in Nonprofit Organizations. Journal of Nonprofit Management.
  • National Council of Nonprofits. (2020). Budgeting for Nonprofits: Principles and Practices. Retrieved from https://www.councilofnonprofits.org
  • USA Government. (2010). Budget of the U.S. Government. Retrieved from https://www.gao.gov
  • GASB. (2016). Statement No. 69, Accounting and Financial Reporting for Certain Asset Retirement Obligations.
  • GASB. (2020). Internal Revenue Code 457: Exposure Draft. Retrieved from https://www.gasb.org
  • Government Finance Officers Association. (2000). GASB Statement No. 34: Implementation Guide.
  • Internal Revenue Service. (2020). Overview of Section 457 Plans. IRS.gov.

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