Prompt : The statement of net assets and the statement of activities under GASB Statement No. 34 are prepared on a government-wide basis. These statements are prepared on the accrual basis using the flow of economic resources concept. Explain this rationale.
Accounting for State and Local Government
GASB Statement No. 34 has been issued by the Governmental Accounting Standards Board to change the financial reporting requirements for both state and local governments within the United States. According to GASB Statement No. 34, government-wide financial statements consist of a statement of activities and net assets statement (Governmental Accounting Standards Board). These two statements are measured on accrual basis of accounting using the economic resources measurement focus. From net assets statement and statement of activities, one can obtain financial reports on all revenues, assets, gains, losses, revenues, liabilities, and revenue generated by the government. When giving these reports, each statement is expected to distinguish between business-type and governmental-type activities of the primary government by discretely presenting the units in separate columns. It is important to remember that fiduciary activities that cannot finance government programs are not included in the government-wide statements (Governmental Accounting Standards Board).
Statement of net assets uses a net assets format where the value of net assets is obtained by subtracting liabilities from assets, (assets-liabilities= net assets), but not the traditional balance sheet format. The column for governmental-type activities contains report for all liabilities and assets that finance government’s programs. Statement of activities is an accrual financial statement that uses a net cost format (Governmental Accounting Standards Board). It first gives a report of total cost for all government functions and a portion of those costs that can be financed by other grants and contributions. The net cost is therefore reported as the difference between the two types of costs and it represents those costs that must be financed through government resources. Examples of government’s own resources are non-program related revenue and taxes. Therefore, the statement of net assets and the statement of activities are prepared on a government-wide basis because they provide financial reports on government-type activities. In addition, statement of activities is prepared on the accrual basis using the flow of economic resources concept because it provides reports on net costs which are financed by a government’s own resources (Governmental Accounting Standards Board).
Statement of activities and statement of net assets provide a comprehensive overview for government finances. Governments experience a big problem in implementing these statements which can be met by tackling the implementation task bit by bit. For instance, when giving reports for government activities, one must first convert existing fund information to the government-wide format by applying accrual basis of accounting. Another important task that governments must perform when implementing the two statements described in GASB Statement No. 34 is to capture cost information about infrastructure assets such as roads and bridges (Chase and Triggs, 2001).
GASB Statement No. 34 has several implications for budgeting at both local and state governments (Governmental Accounting Standards Board). Statement of activities and statement of net assets emphasize the long –term perspective in budgeting at the state and local level. In addition, the two statements reveal how important a budget is in demonstrating accountability at state and local governments. Furthermore, statement of activities and statement of net assets activate the debate about accrual budgeting and raise the need to the financial position of government projects. State and local governments must be able to establish the types of adjustments that must be done in order to convert fund-based information to the accrual basis in government-wide statements (Chase and Triggs, 2001). Order Unique Answer Now