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Based on a Study of: 1. Financial Reporting for Governmental and Not-for-Profit Entities (Chapter 1) & 2. Principles of Accounting and Financial Reporting for State and Local Governments (Chapter 2)
Prepared For:
Mohammad Mizanour Rahman Lecturer Department of Accounting & Information Systems Comilla University
Prepared by:
Zenith
Consisting of: Farhana Afroje (07) Gulam Mostafa (35) Md. Iqramul Hasan Atik (36) Arzuman Fatema (49) Mosharref Husain (51) Department of Accounting & Information Systems (1st Batch) Comilla University
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Comilla University
Comilla February 16, 2012 Mohammad Mizanour Rahman Lecturer Department of Accounting & Information Systems Comilla University Sir, Here is the term paper on the Accounting for Government and Non-government Organization you asked us to prepare on February 8, 2012. As you will see, our term paper pointed to some specific aspects of the required subject. We are confident that this will satisfy you. We appreciate having this term paper assigned on us. Sincerely Yours
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ACKNOWLEDGEMENTS
I take immense pleasure in thanking the Almighty Allah for making us capable of preparing and submitting this term paper. I would like to express our deep sense of gratitude to our course coordinator Mohammad Mizanour Rahman for his able guidance and useful suggestions, which helped us in completing the term paper, in time. Needless to mention that Gulam Mostafa (35), Md. Iqramul Hasan Atik (36), Arzuman Fatema (49),Mosharref Hossain (51); that is all of my group members have made unlimited effort to make this task successful. I want to thank all of them for all their valuable assistance in the term paper. Words are inadequate in offering my thanks to my classmates for their cordial help with adequate information in preparing the term paper.
Sincerely,
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Executive Summary
The assigned term paper includes discussions on the following topics: Financial Reporting for Governmental and Not-for-Profit Entities Principles of Accounting and Financial Reporting for State and Local Governments These two topics are again discussed under several different subtopics. Such as: The first topic is about Sources of Financial Reporting Standards, Distinguishing Characteristics of Government and Not-for-Profit Entities, Objectives of Financial Reporting, Governmental Financial Reporting, Financial Reporting of Not-for-Profit Entities, brief discussions about these topics and a brief conclusion on all these topics. Under the second and final topic we discussed Accounting and Reporting Capabilities, Fund Accounting Systems, Accounting for Fixed Assets and Long-Term Liabilities, Accrual Basis in Government Accounting, Budgeting, Budgetary Control and Budgetary Reporting, Interim and Annual Financial Reports and finally a brief conclusion on these topics. At the end of the term paper we specified the sources of our information of these terms paper and finished the term paper with that.
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TABLE OF CONTENTS
1 FINANCIAL REPORTING FOR GOVERNMENTAL AND NOT-FOR-PROFIT ENTITIES ............................................. 1
1.1 SOURCES OF FINANCIAL REPORTING STANDARDS ................................................................. 1 1.1.1 FASB ............................................................................................................................ 1 1.1.2 IASB ............................................................................................................................. 2 1.2 DISTINGUISHING CHARACTERISTICS OF GOVERNMENT AND NOT-FOR-PROFIT ENTITIES ......... 2 1.3 OBJECTIVES OF FINANCIAL REPORTING ................................................................................. 4 1.3.1 Reporting objectives for Governmental Entities ......................................................... 4 1.3.2 Reporting objectives for other not-for-profit organizations ......................................... 4 1.4 GOVERNMENTAL FINANCIAL REPORTING................................................................................ 5 1.4.1 Introductory Section ..................................................................................................... 5 1.4.2 Financial Section ......................................................................................................... 5 1.4.3 Statistical Section ........................................................................................................ 6 1.5 FINANCIAL REPORTING OF NOT-FOR-PROFIT ENTITIES........................................................... 6 1.5.1 Receipts and Payments Account ................................................................................ 6 1.5.2 Income and Expenditure Account ............................................................................... 7 1.5.3 Balance Sheet.............................................................................................................. 7 CONCLUSIONS .................................................................................................................................. 7
2 PRINCIPLES OF ACCOUNTING AND FINANCIAL REPORTING FOR STATE AND LOCAL GOVERNMENTS .... 8
2.1 ACCOUNTING AND REPORTING CAPABILITIES ......................................................................... 8 2.2 FUND ACCOUNTING SYSTEMS................................................................................................ 8 2.2.1 Types of Funds ............................................................................................................ 8 2.2.2 Number of Funds ......................................................................................................... 9 2.3 ACCOUNTING FOR FIXED ASSETS AND LONG-TERM LIABILITIES .............................................. 9 2.3.1 Valuation of Fixed Assets ............................................................................................ 9 2.3.2 Depreciation of Fixed Assets..................................................................................... 10 2.4 ACCRUAL BASIS IN GOVERNMENT ACCOUNTING .................................................................. 10 2.5 BUDGETING, BUDGETARY CONTROL AND BUDGETARY REPORTING ...................................... 10 2.6 INTERIM AND ANNUAL FINANCIAL REPORTS.......................................................................... 11 CONCLUSION .................................................................................................................................. 11
BIBLIOGRAPHY ............................................................................ 12
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If accounting is the language of finance then financial reporting is the communication of financial information useful for making investment, credit, and other business decisions. Such communications include general purpose financial statements such as income statements, balance sheets, equity reports, cash flow reports, and notes to these statements. Additionally, items such as SEC filings, press releases, meeting minutes, and auditors reports are also included in financial reporting. Many financial reports, or the accounts and data they represent, are subject to various regulations and standards from organizations such as the Securities Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and the International Accounting Standards Board (IASB). Much like any language, financial statements could have their own dialect so to speak. For example, knowing about the use of cash-based accounting versus accrual based accounting could impact some very serious business or investment decisions. The various regulations, standards, and Generally Accepted Accounting Principles (GAAP) helps to make sure were all on the same page. Financial reporting is essential for governmental and not-for-profit entities along with business entities. But forms or reporting have different ways for these two categories of entities. Here we will go with the ways of first one, i.e. reporting of governmental and not-for-profit entities.
1.1.1 FASB
The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles (GAAP). Before the present structure was created, financial accounting and reporting standards were established first by the Committee on Accounting Procedure of the American Institute of Certified Public Accountants (19361959) and then by the Accounting Principles Board, also a part of the AICPA (195973). Pronouncements of those predecessor bodies remain in force unless amended or superseded by the FASB. The FASB's structure is very different from its predecessors in many ways. The board consists of seven full-time members. These members are required to sever all ties to previous firms and institutions that they may have served prior to joining the FASB. This is to ensure the impartiality and independence of the FASB. They are appointed for a five year term and are eligible for one additional five year term. In additional to the full-time members, there are approximately 68 staff
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members. This staffs are, "professionals drawn from public accounting, industry, academe, and government, plus support personnel." The FASB's mission is "to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information." To achieve this, FASB has five goals: Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability, and on the qualities of comparability and consistency. Keep standards current to reflect changes in methods of doing business and in the economy. Consider promptly any significant areas of deficiency in financial reporting that might be improved through standard setting. Promote international convergence of accounting standards concurrent with improving the quality of financial reporting. Improve common understanding of the nature and purposes of information in financial reports.
1.1.2 IASB
The International Accounting Standards Board (IASB) is an independent, privately funded accounting standard-setter based in London, England. The IASB was founded on April 1, 2001 as the successor to the International Accounting Standards Committee (IASC). It is responsible for developing International Financial Reporting Standards (the new name for International Accounting Standards issued after 2001), and promoting the use and application of these standards. The IASB has 15 Board members, each with one vote. They are selected as a group of experts with a mix of experience of standard-setting, preparing and using accounts, and academic work. At their January 2009 meeting the Trustees of the Foundation concluded the first part of the second Constitution Review, announcing the creation of a Monitoring Board and the expansion of the IASB to 16 members and giving more consideration to the geographical composition of the IASB. The IFRS Interpretations Committee has 14 members. Its brief is to provide timely guidance on issues that arise in practice.
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Absence of defined ownership interests that can be sold, transferred, or redeemed, or that convey entitlement to a share of a residual distribution of resources in the event of liquidation of the organization. We can further differentiate governmental and not-for-profit entities from business organizations in the following forms:
Subject
Owners
Business Organizations
Stockholders Earn profits for stockholders Provide services or sell goods
Primary mission Provide services needed by society Secondary mission: Ensure that revenues are greater than expenses so that the services provided can be maintained or expanded Exempt from income taxes if approved by IRS Statement of Financial Position Statement of Activities Statement of Functional Expenses (for some nonprofits) Statement of Cash Flows
Corporations (or their owners) are subject to income taxes Balance Sheet Income Statement or Statement of Operations
Notes to Financial Statements Total assets minus total liabilities is reported as: Examples of revenues: Net assets
Donor contributions, membership dues, program fees, fundraising events, grants, and investment income
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Subject
Non-profit expenses are reported by these functions: Sources of money other than revenues and the sale of assets:
Business Organizations
No non-profit expenses
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us is vitally affected, it is important that we be able to read intelligently the financial reports of governmental and not-for-profit entities.
Combined Statement of Cash Flows The notes to the financial statements are an integral part of the General Purpose Financial Statements and are intended to be read with the General Purpose Financial Statements. Governments may have many different funds within each fund type; therefore persons with a depth of interest in financial condition and financial operations of governmental reporting entity will wish to refer to the Combining and Individual Fund Statements, which are used to aggregate the financial data of all funds within each fund type.
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Surplus or deficit for an accounting period cannot be ascertained from this account, since it shows only the cash position and excludes all non-cash items, This account is not a trial balance, but it is a Cash Trial.
Conclusions
All ins and outs of reporting procedures of governmental and not-for-profit entities are almost impossible to describe in a limited time and words. Nevertheless we have made an effort to describe briefly the requirements of such types of reporting and different related terms related to these which cover the all above items and topics.
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Principles of Accounting and Financial Reporting for State and Local Governments
Whether we are a financial statement preparer or auditor, it is critical to understand the complexities of state and local governments, including revenue and expense recognition, asset valuation, and financial statement presentation. AICPA publications provide information on recent developments, guidance, practice aids, and illustrative examples for the common accounting and audit practices in state and local governments including: Understanding the unique accounting and auditing issues for state and local governments. Principles for reporting assets, liabilities and net assets, and related disclosures. Financial reporting requirements, including required supplementary information. Accounting for and reporting cash, investments, and investment-related transactions. Considerations for auditing primary government and component unit financial statements. Guidance on accounting and auditing considerations for capital assets and investments, including derivatives. Here, we will try to present some explanations of the principles and illustrate their applications to accounting and financial reporting of governmental units.
Special Revenue Fund to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. Capital Project Funds to account for financial resources to be used for the acquisition or construction of major capital facilities Debt Service Fund to account for the accumulation of resources for, and the payment of general long-term debt principle and interest. b) Proprietary Funds Enterprise Fund to account for operations that are financed and operated in a manner similar to private business enterprise and also for operations where the governing body decided that periodic determinations. Internal Service Fund to account for the financing of goods or services provided by one department or agency to other departments or agencies of the governmental unit, or to other governmental units, on a cost-reimbursement funds. c) Fiduciary Funds Trust and Agency Funds to account for assets held by a governmental unit in a trustee capacity or as an agent for individuals, private organizations, other governmental units and/or other funds.
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Conclusion
Principles of Accounting and Financial Reporting for State and Local Governments cover broad areas and concepts. These concepts are again different for different countries. These are established by internationally accepted bodies, but are subject to be modified with the aspects of each different country. So, these broad concepts are changeable from time to time and are not strictly predictable. But every entity responsible for such type of reporting should know up to date modification in these concepts, principles and areas for maintaining a truthful, sound and reliable accounting and reporting system for the government.
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Bibliography
Accounting for Government and Nonprofit Entities By Leon E. Hay and Earl R. Wilson Modern Accountancy By A Mukherjee and M Hanif Class Lectures Delivered By the honourable course coordinator. http://media.wiley.com/product_data/excerpt/37/04712185/0471218537.pdf http://www.accountingcoach.com/nonprofit-accounting/index.html#nonprofit-forprofits
www.google.com http://en.wikipedia.org/wiki/
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