Title: Is Fund Accounting Appropriate for Governmental Accounting and Reporting
Abstract: Governmental accounting, as we know it, began in early 1900s when fraudulent practices in financial administration of many cities caused concerned individuals to begin developing uniform accounting and reporting practices, and has evolved to complex set of standards developed by formal board, created in 1984. Almost from its inception, governmental accounting has relied on fund accounting. Organized bodies assumed responsibility for developing sound principles for governmental accounting and reporting. The first was Bureau of Municipal Research formed by Herman A. Metz, Comptroller of New York City, in approximately 1906. That was followed by National Committee on Municipal Accounting, organized in 1934 by Municipal Finance Officers Association. In 1951, committee became National Committee on Governmental Accounting (NCGA). In 1974, NCGA became National Council on Governmental Accounting. In 1984, Governmental Accounting Standards Board (GASB) was created under auspices of Financial Accounting Foundation, as sister organization to Financial Accounting Standards Board, which is responsible for promulgating accounting and financial reporting standards for nongovernmental entities. These bodies recognized disverse nature of government environment, complexity of its financial operations and requirements of accounting for public funds which are uniquely different from commercial sector. They also recognized that commercial conceptual model could not meet government's needs, and, therefore, developed an accounting and reporting system to gather and present financial data in manner that met needs of government. The essence of that system is concept of fund, which structures financial data in discrete categories. These directly relate to budgetary and other regulatory requirements and considerations imposed over public funds. Fund accounting enables those responsible for management, stewardship and oversight of public funds to carry out their public sector responsibilities, as well as provide other users complete and meaningful information. In comparing governmental accounting to commercial accounting, 1968 Governmental Accounting, Auditing and Financial Reporting (GAAFR), published by Municipal Officers Association, defined need for fund accounting: . ..governments are created by law and are continuously regulated by legal provisions found in constitutions, statutes, charters, ordinances, admistrative regulations, legislative resolutions and judicial interpretation.... accounting system must produce data and information which indicate extent to which financial operations carried out by all agencies of government pursuant to their designated objectives comply with applicable laws and legal requirements. The existence of vast network of legal provisions and diverse nature of governmental operations make necessary utilization of fund account The NCGA, in Statement 1, which sets forth council's basic principles on governmental accounting and financial reporting, requires that governmental accounting systems be operated on fund basis and defines fund as: a fiscal and accounting entity with self-balancing set of accounts ... which are segregated for purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. Furthermore, NCGA Statement 1 states that the accounting systems should provide basis for appropriate budgetary control. GASB Statement 1 adopts all NCGA statements. The Council of State Governments, in its research report, Preferred Accounting Practices for State Governments, published in 1983, notes that one of primary arguments against fund accounting is that it is somewhat more cumbersome than single-entity accounting. …
Publication Year: 1993
Publication Date: 1993-04-01
Language: en
Type: article
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