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“Why Governmental Accounting and Financial Reporting Is—and Should Be—Different”

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Submitted By Charnele
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“Why Governmental Accounting and Financial Reporting is—And Should Be—Different”

The paper “Why Governmental Accounting and Financial Reporting is—And Should Be—Different” compares governmental accounting and financial reporting to that of the approach used in for-profit business enterprises. It also states specific reasons why governments should be different. There are environmental differences between governments and businesses that call for a different approach. First, governments have different purposes for their operations. For-profit entities strive to create wealth and to meet return on investment goals. While governments on the other hand are actually trying to enhance or maintain quality of life with services that are dictated by public policy goals. They also must consider efficiency, effectiveness, and economy when they evaluate public policy.

Secondly, governments and for-profit business entities differ in the way they generate revenue. Governments generate income through involuntary taxes. Customers of for-profit business entities have a choice of what services they purchase and where they buy. The same does not apply for the governmental customer. The users of their reports also differ. Citizens and their elected representatives are users of government reports. They are as interested in the “why” as they are the “how much” when they read a financial report. They use governmental financial reporting to support their discussions of public policy such as what services can be delivered, what resources can be used to pay for those services, and who benefits. Even creditors take a different view on a government’s financial health. The ability to tax, even create a new tax, provides a unique revenue stream to repay debt.

Finally there is the issue of longevity. While some companies have been around for a long time, governments have existed since…...

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