A key objective of ﬁnancial reporting is to provide information about an entity’s ﬁnancial performance during a speciﬁed period.
Financial accounting and reporting, however, are concerned almost exclusively with the goal of maximizing either proﬁts or some variant of it, such as cash ﬂows.
The ﬁnancial reports of governments and not—for—proﬁts can provide information about an organization’s inﬂows (revenues) and outﬂows (expenditures) of cash and other resources.
If the ﬁnancial statements of a government or not-for—proﬁt incorporate only monetary measures, such as dollars and cents, they cannot possibly provide the information necessary to assess the organization’s performance.
Governments and not—for-proﬁts are governed mainly by their budgets, not by the marketplace.
In sum, expenditures drive revenues.
A government or not—for—proﬁt’s release of its annual report is customarily ignored by both organizational insiders and outsiders.
For governments and not-for—proﬁts, the budget takes center stage— properly so, because the budget is the culmination of the political process.
Because it is so important, the budget, unlike the annual report, is a source of constituent concern and controversy.
Constituents of an organization want information on the extent of adherence to the budget.
They want to know whether revenue and expenditure estimates were reliable.
The accounting system and the resultant ﬁnancial reports must be designed to provide that information.
Currently, few governments and not—for-proﬁts have established budgetary and accounting systems to measure and report adequately on the nonmonetary aspects of their performance.
Understand the characteristics that distinguish governments
and not-for-profit organizations from businesses (for-profit
Identify the features that distinguish governments from not-
Identify authoritative bodies responsible for setting GAAP
and financial reporting standards for different governmental
and not-for-profit entities.
Governments and not—for—proﬁt organizations have much in common with businesses. However, the differences between the two environments are sufﬁciently pronounced that business schools have established a separate course in governmental and not— for—proﬁt accounting apart from the usual accounting courses—ﬁnancial accounting, managerial accounting, auditing, and information systems.