Governmental Accounting - Governmental Accounting

Governmental Accounting

Public sector accounting refers to the field of accounting that specifically finds application in the public sector or government. A special field of accounting exists because: - The objectives to which accounting reports to differ significantly from that for which generally accepted accounting practice has been developed for in the private (business) sector; and - The usage of the results of accounting processes of government differs significantly from the use thereof in the private sector.

The unique objectives of government accounting do not preclude the use of the double entry accounting system. There can, however, be other significant differences with private sector accounting practices, especially those that are intended to arrive at a net income result. The objectives for which government entities apply accountancy can be organized in two main categories: - The accounting of activities for accountability purposes. In other words, the representatives of the public, and officials appointed by them, must be accountable to the public for powers and tasks delegated. The public, who have no other choice but to delegate, are in a position that differs significantly from that of shareholders and therefore need financial information, to be supplied by accounting systems, that is applicable and relevant to them and their purposes. - Decision-making purposes. The relevant role-players, especially officials and representatives, need financial information that is accounted, organized and presented for the objectives of their decision-making. These objectives bear, in many instances, no relation to net income results but are rather about service delivery and efficiency. The taxpayer, a very significant group, simply wants to pay as little as possible taxes for the essential services for which money is being coerced by law.

The governmental accounting system sometimes uses the historic system of fund accounting. A set of separate, self-balancing accounts are responsible for managing resources that are assigned to specific purposes based on regulations and limitations.

The governmental accounting system has a different focus for measuring accounting than private sector accounting. Rather than measuring the flow of economic resources, governmental accounting measures the flow of financial resources. Instead of recognizing revenue when they are earned and expenses when they are incurred, revenue is recognized when there is money available to liquidate liabilities within the current accounting period, and expenses are recognized when there is a drain on current resources.

Governmental financial statements must be accompanied by required supplementary information (RSI). The RSI is a comparison of the actual expenses compared to the original budget created at the beginning of the fiscal year for the Government's General Fund and all major Special Revenue Funds.

Sources (not directly quoted but used in synthesis):

1. Conradie, J.M. The applicability of Generally Accepted Accounting Practice in the Central Government of South Africa (English summary of a thesis written in another language) University of Pretoria, 1993.

2. Conradie, J.M. Die toepaslikheid van Algemeen Aanvaarde Rekeningkundige Praktyk in die Sentrale Owerheid van Suid-Afrika. Universiteit van Pretoria, 1993. (Original full text of the summary.)