Acct 625 WK 1: DQ Response

Posted: August 26th, 2021

Acct 625 WK 1: DQ Response

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Acct 625 WK 1: DQ Response

Original Question

Discuss environmental differences between governmental and for-profit businesses as identified in the GASB’s Why Governmental Accounting and Financial Accounting Is – And Should be Different, which can be found on the GASB Website at https://www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176156741271 

Do you agree?  Why or why not?

ShovaResponse

Significant Environmental Differences between Government and Businesses 

Organizational Purposes

            A government’s organizational primary purpose is public services. It enhances or maintains the wellbeing of citizens by providing public services in accordance with public policy and goals. The government provides these services because the economic incentives are not sufficient for businesses to provide them with the quantity, quality, and price considered appropriate by public policy, among other reasons. In contrast, profit-oriented businesses organization’s primary purpose is not the public service, instead of making a profit while providing services to the public.

Sources of Revenue 

The government’s primary sources of revenue come from taxes, licenses, fees or any other penalties and charges. On the other hand, business enterprises have various sources of revenues from which a business earns monies i.e., from the sale of goods or the provision of the services. The types of revenue that business records on its accounts depend on the types of activities carried out by the business. 

Potential for Longevity 

Governments rarely go out of business because of their continuous power to tax and the ongoing need for public services. However, for the Profit business organization, it can go out of business if demand and supply do not work together, or they are unable to sell their products or services for more than its costs to produce.

Relationship with Stakeholders 

However, the amount of taxes paid by an individual does not directly correlate with the level of services they received but Governments still should demonstrate accountability for public funds. Since the Government’s primary source of revenue taxes, which are paid by citizens, they are required to account for these public funds. In contrast, business enterprise financial reports show changes in equity of the enterprise during the current period because business enterprises focus primarily on increasing shareholders’ equity. Business can use its resources as it chooses.

Role of the Budget 

For governments, a budget plays a significant role for the public. The government prepares the budget for public service, development of cities, hospitals, school and transportation. For business enterprises, the budget represents an internal financial planning tool that is controlled entirely by the management and is considered proprietary. Business enterprises are not required to provide the budget to creditors or investors. It is only for their internal control.

Do you agree?  Why or why not? 

I fully agree that the governmental agencies are doing what the general public needs in their day to day lives such as public structure maintenance, education funds, public health, law enforcement and support for the struggling families. The private sector gains by having well maintained roads, bridges and safe environment for their delivery of goods and service while government works well when a business pays their taxes to support the funds needed to maintain the services public need to conduct the business. Finally, since the government is a citizen’s business and concern, the public has access to view where their tax is going and how they are being allocated. 

Reply

Agree. The term environment refers to the conditions under which particular activities take place. In this case, the financial and accounting setting remain unique for government and business entities (Copley, 2015). Notably, as filed in the response, these differences are exhibited in the relationships with the stakeholders, the role of budget, potential for longevity, sources of revenue and organizational purposes as exhibited between the two entities (Copley, 2015). These environmental differences are demonstrated in the presentation of financial statements, accounting standards and reporting in the areas mentioned earlier (Copley, 2015). Thus, the three key elements are critical in distinguishing environmental differences in accounting for government and for-profit entities.

Original Question

What regulatory bodies are involved in accounting for governmental and not-for-profit entities?   

John’s response

GASB is a private nongovernmental organization that created reporting standards for state and local governments. It pushes consistent, transparent, and comparable financial reporting for the state and local governments. The financial information that is provided to the public is important because it helps shape up policies and decisions on services and investments.FASB is an independent nonprofit organization and it is responsible for companies and nonprofit organizations. This is created to improve financial reporting to provide information to investors. They follow along with the rules of GAAP.

Reply

Agree. However, regulatory mandates for government and not-for-profit entities’ accounting information is not limited to GASB and FASB only (George, 2017). There are other regulatory bodies established by the Congress to guide the accounting of public and NFP entities. These include:

Security and Exchange Commission (SEC)

The body is involved in regulating the activities of public entities in the Security and Exchange Commission. Its responsibility is protecting the investors, ensuring efficiency in markets, facilitating capital formation and enhancing fairness in the security markets (George,  2017). Equally, the body is mandated to interpret the laws formulated by congress besides supporting companies to implement the laws.

International Accounting Standards Board (IASB)

The role of this body is to regulate the accounting standards established by IASB. IASB is a private sector body that is independently involved in developing and approving the International Financial Reporting Standards (IFRS) (George, 2017). The IFRS Foundation regulates the body.

References

Copley, P. (2015). Essentials of accounting for governmental and not-for-profit organizations. New York, NY: McGraw-Hill Education.

George, J. (2017). Audits of state and local governments: what you need to know. Durham, NC: Association of International Certified Professional Accountants.