Accounting for Government: Guiding Principles

Running head: ACCOUNTING FOR GOVERNMENT

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ACCOUNTING FOR GOVERNMENT

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Introduction

Advanced financial accounting guidelines were introduced by the Financial Accounting Standards Board for not-for-profit organizations to ensure that there is an enhancement of the level of transparency and accountability. The purpose of the formulated guidelines was to ensure that there are advanced changes in the current standards for financial accounting in place. Thus the argument that these standards are meant to replace the existing guidance structures is not valid. The areas targeted for improvement entail classifications of net assets, investment activities, statements that provide information on cash flow, reporting of expenses and availability and liquidity of resources.

Cash flows

The guidelines offer some improvement in the cash flow statements, whereby it defines the necessity of the process of reconciliation. The standard states that there is no need for the reconciliation process in the indirect method when carrying out financial reporting under the direct method. The purpose of this is to encourage organizations to embrace the direct method of financial reporting since it is considered to be well structured and less tedious. The direct method eliminates cases of complexity in financial reporting, as it is considered to be friendlier and easy to comprehend.

Net assets

The new standards generated by FASB advocate for the renaming of unrestricted net assets and restricted net assets to ‘without donor restrictions’ and ‘with donor restrictions’ respectively. It was argued that it would make it easier for individuals who have not familiarized themselves with accounting concepts, to easily comprehend the stated requirements. The guidelines also ensure that there is full-time involvement of the board members in the organization, whereby there should be a critical assessment of all funding proposals before they are fully executed. The underlined standards forbid time restrictions on assets and equipment that are considered to be donated

Investments

The new standards that have been introduced by FASB eliminate the requirements of the current system to report expenses in investment. Furthermore, the guidelines do not provide room for the provision of detailed information about the different components of return on investment. Organizations that therefore engage in investment activities can do so comfortably without the interference of external bodies to increase the returns it gets from investments.

Expenses

The existing principle of financial reporting requires organizations to provide information regarding their expenses through function. The new guidelines that have been formulated by FASB require that function and nature should report information about expenses of a particular organization. It also advocates for a detailed account of how particular expenses are allocated through the utilization of function. This particular principle in financial reporting applies to particular financial notes and basic financial statements. In spite of there not being a conclusive argument on the type of methodology for allocations that can be implemented, policies that are formulated by the government may result in the determination of a particular type of methodology that can be useful in the allocation of these particular expenses.

Resources

Under the new guidelines formulated by FASB, there is the need for the provision of financial information regarding the availability and liquidity of resources in a quantitative and qualitative manner. Qualitative information should provide the mechanism in which management of liquid resources of a particular organization is managed. Information should be in Quantitative nature in that information about the availability of resources should be effectively communicated. The purpose of this approach is to enhance transparency and accountability of organizations financial information. This also brings about an increase in the level of flexibility in reporting of liquidity and availability of resources.

Conclusion

It is of great significance for not-for-profit organizations to embrace change. The new guidelines that have been formulated by FASB aim at ensuring that organizations can experience some level of ease while undertaking financial reporting procedures. These guidelines are aimed at ensuring that the there is enhanced accountability and transparency in an organization’s financial system.