The purpose of this memo is to outline some of the differences in financial reporting standards between government and business enterprises. These differences require separate accounting and financial reporting standards because the needs of the users differ. For example, agencies within the government must provide financial information that meets the needs of their stakeholder which could consist of federal or state legislators, the President or governors of the states and the American people. This information provides the stakeholders with useful information that will allow them to assess the government’s accountability for the resources appropriated to conduct services and also allow the stakeholders make political, social and economic decisions based on how those resources was expanded.
The government is in a very unique operating environment and must ensure that they are accountable for the use of public resources and also safeguard the interest of the American people against fraud, waste and abuse of their tax dollars.
Why Separate Accounting and Financial Reporting Standards are Essential?
Governmental entities and business enterprises must report relevant information to the user of the financial reports. Therefore, reporting requirements must be tailored to the needs on those who are authorized to make decision for the stakeholder. The primary beneficiary of information for government entities are the American people and their elected representatives versus creditors and equity investors for a business enterprise. The needs of the American people and their elected representative emphasizes accountability for resources entrusted in the government to execute services in which those funds were appropriated f...
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... the rate at which pension benefits could be settled. In other words, business enterprises have the flexibility to use rates of return for high-quality fixed investments or annuity contracts that are currently available at the time of maturity.
In conclusion, separate accounting and financial standards are needed because the audience for governmental financial reporting are fundamentally different than businesses. The government operates in a very unique environment; therefore, reporting must be tailored to provide the stakeholder with the necessary information to make timely political, social and economic decision for the American people. It is the responsibility of the government to account for every dollar that is levied through taxation in order to ensure services are available to the American people in order to protect them and enhance quality of life.
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