, SOLUTION MANUAL FOR Government and Not-for-Profit Accounting
Concepts and Practices, 10th Edition Granof
Important Notes
The file organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
⚠️Note on Answer Keys: If the answer key is not included within the chapter
questions, you will find the complete answers and solutions at the end of each
chapter.
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
⏰ 24/7 Support: We are always here – reach out anytime and expect a fast response.
, Chapter 1
The Government and Not-For-Profit Environment
Questions for Review and Discussion
1. The critical distinction between for-profit businesses and not-for-profits including
governments is that businesses have profit as their main motive whereas the others
have service. A primary purpose of financial reporting is to report on an entity’s
accomplishments — how well it achieved its objectives. Accordingly, the financial
statements of businesses measure profitability, their key objective. Financial reports
of governments and other not-for-profits should not focus on profitability, since it is
not a relevant objective. Ideally, therefore, they should focus on other performance
objectives, such as how well the organizations met their service goals. In reality,
however, the goal of reporting on how well they have achieved such goals has
proven difficult to attain and the financial reports have focused mainly on finance-
related data.
2. Governments and not-for-profits are “governed” by the budget, whereas businesses
are governed by the marketplace. The budget is the key political and fiscal
document of governments and not-for-profits. It determines how an entity obtains its
resources and how it allocates them. It encapsulates most key decisions of
consequence made by the organization. In a government the budget is not merely a
managerial document; it often is equivalent to a law.
3. Owing to the significance of the budget, constituents want assurance that the entity
achieved its revenue estimates and complied with its spending mandates. They
expect the financial statements to report on how the budget was administered.
4. Interperiod equity is the concept that this year’s services are paid for with this
year’s revenues, as opposed to shifting the payment burden to future years.
Financial reporting must provide information that the reader can use to assess the
extent to which interperiod equity has been achieved. Therefore, it must determine
and report upon the economic costs of the goods and services provided (not merely
the cash costs) and of the taxpayers’ contribution toward covering those costs.
5. The notion of matching expenditures to revenues may be less relevant for
governments and not-for-profits than for businesses because there may be no
connection between revenues generated and the quantity, quality or cost of services
performed. An increase in the demand for, or cost of, services provided by a
homeless shelter would not necessarily result in an increase in the amount of
donations that it receives. Of course, governments in particular are concerned with
assessing the extent to which interperiod equity was achieved. It is therefore
important that costs be assigned, not necessarily to the periods in which related
Chapter 1-1
,Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
revenues are recognized, but rather to those in which constituents benefited from
the goods and services that the government provided to them.
6. Governments must maintain an accounting system that assures that resources that
are limited to being used for a specific purpose are not inadvertently expended for
inappropriate purposes. Moreover, statement users may need separate information
on these resources, by category or purpose of limitation, and the resources that
available for any government purpose. In practice, these requirements have led
governments to adopt a system of “fund” accounting and reporting.
7. Even governments within the same category may engage in different types of
activities. For example, some cities operate a school system whereas others do not.
Those that are not within the same category may have relatively little in common.
For example, a state government shares few characteristics with a city.
8. If a government has the power to tax, then it has command over, and access to,
resources. Therefore, its fiscal well-being cannot be assessed merely by measuring
the assets that it “owns.” For example, an assessment of the fiscal condition of a city
should consider the wealth of the residents and businesses within the city, their
earning capacity, and the city’s willingness to exploit its tax base.
9. Many governments budget on a cash or near-cash basis. However, the cash basis of
accounting does not provide adequate information with which to assess interperiod
equity. Financial statements that satisfy the objective of reporting on interperiod
equity may not satisfy that of reporting on budgetary compliance. Moreover,
statements that report on either interperiod equity or budgetary compliance are
unlikely to provide sufficient information with which to assess service efforts and
accomplishments.
10. Measures of service efforts and accomplishments are more significant for
governments and not-for-profits because their objectives are to provide service. By
contrast, the objective of businesses is to earn a profit. Therefore, businesses can
report on their accomplishments by reporting on their profitability. Governments
and not-for-profits must report on other measures of accomplishment in addition to
financial.
11. It is more difficult to distinguish between internal and external users in governments
than in businesses because constituents, such as taxpayers, may play significant
roles in establishing policies that are often considered within the realm of managers.
Also, legislators are internal to the extent they set policy, but external insofar as the
executive branch must account to the legislative branch.
12. The FAF did consider giving the FASB authority over all business-like entities—
such as colleges and universities, hospitals, and utilities—regardless of their status
as governments, nongovernmental not-for-profits, or businesses. Some
organizations and individuals that use the financial statements of such entities,
including lenders and accrediting groups, focus on all entities of a particular type
Chapter 1-2
,Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
and would have benefitted from these entities following the same accounting
standards. The FAF chose to divide these entities between the FASB and the GASB
by governmental status based on the view that although they operate in a similar
manner and provide the same goods and services, different standards may be
necessary because of governments’ unique stakeholders, methods of financing,
among other distinctions. (As a practical matter, the major governmental trade
associations refused at the time to condone any governmental entities being subject
to FASB standards and threatened to withdraw its support for the GASB and create
a new standards-setting organization. The FAF had little choice but to comply with
their demands.)
Exercises
EX 1-1
1. a
2. d
3. c
4. c
5. b
6. c
7. d
8. c
9. b
10. c
EX 1-2
1. b
2. b
3. d
4. b
5. a
6. a
7. b
8. b
9. a
10. b
Chapter 1-3
,Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
EX 1-3
a. 1. The Governmental Accounting Standards Board (GASB) is the independent
organization that establishes and improves standards of accounting and financial
reporting for U.S. state and local governments. Established in 1984 by agreement of the
Financial Accounting Foundation (FAF) and 10 national associations of state and local
government officials, the GASB is recognized by governments, the accounting industry,
and the capital markets as the official source of generally accepted accounting principles
(GAAP) for state and local governments.
Accounting and financial reporting standards designed for the government environment
are essential because governments are fundamentally different from for-profit businesses.
Furthermore, the information needs of the users of government financial statements are
different from the needs of the users of private company financial statements. The GASB
members and staff understand the unique characteristics of governments and the
environment in which they operate.
The GASB is not a government entity; instead, it is an operating component of the FAF,
which is a private sector not-for-profit entity. Funding for the GASB comes primarily
from an accounting support fee established under the Dodd-Frank Wall Street Reform
and Consumer Protection Act, as well as the licensing of its publications. Its standards are
not federal laws or regulations and the organization does not have enforcement authority.
Compliance with GASB’s standards, however, is enforced through the laws of some
individual states and through the audit process, when auditors render opinions on the
fairness of financial statement presentations in conformity with GAAP.
2. The mission of the GASB is:
To establish and improve standards of state and local governmental accounting and
financial reporting that will:
Result in useful information for users of financial reports, and
Guide and educate the public, including issuers, auditors, and users of those
financial reports.
The mission is accomplished through a comprehensive and independent process that
encourages broad participation, objectively considers all stakeholder views, and is subject
to oversight by the Financial Accounting Foundation’s Board of Trustees.
3. Based on the GASB’s White Paper, Governmental Accounting and Financial
Reporting is and Should be Different, the key environmental differences between
governments and for-profit business enterprises are:
Organizational Purposes. The purpose of the government is to enhance or maintain the
Chapter 1-4
,Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
well-being of citizens by providing public services according to the established goals. A
government’s financial reports should give creditors, legislative and oversight officials,
citizens, and other stakeholders the information necessary to make assessments and
decisions relevant to their interests in the government’s accomplishment of its objectives.
In contrast, business enterprises focus on wealth creation, interacting only with those
segments of society that fulfill their mission of generating a financial return on
investment for shareholders. Its primary focus of reporting has been on earnings and its
components, with little or no explicit focus on nonfinancial measures of performance.
Sources of Revenue. The principal source of revenue for government is taxation, which
is a legally mandated involuntary transaction between individual citizens and businesses
and their government. The principal source of revenue of business enterprises is
voluntary exchange transactions between willing buyers and sellers.
Potential for Longevity Because of their ongoing power to tax and because of the
ongoing need for public services, governments rarely liquidate. The possibility of
achieving longevity, however, is not as likely for business enterprises. Business
enterprises will go out of existence if, for an extended period of time, they are unable to
sell their products or services for more than it costs to produce them. Further, a business
may also cease to exist if it is acquired by another entity.
Relationship with Stakeholders. The governments should meet a standard of
accountability, since the citizens are interested in evaluating inter-period equity by
determining whether current taxpayers and users of government services fully financed
the costs of providing current-period services or whether taxes and user fees from prior or
future periods were, or will be, needed to finance the current services provided. For
business, their financial reports show changes in equity of the enterprise during the
current period.
Role of the Budget. For governments, a budget takes on a special legal significance.
Governmental budgets are expressions of public policy priorities and legally authorize
the purposes for which public resources may be spent. In fact, governmental budgets can
be the primary method by which citizens and their elected representatives hold the
government’s management financially accountable. For business enterprises, the budget
represents an internal financial management tool that is controlled entirely by
management and is considered proprietary in nature.
b. 1. The purpose of the Government Finance Officers Association is to enhance and
promote the professional management of governments for the public benefit by
identifying and developing financial policies and best practices and promoting their use
through education, training, facilitation of member networking, and leadership.
The objectives of the GFOA are:
Expert Knowledge. Continue to be recognized as a leading source of expert
knowledge in public financial management by exercising leadership in research,
recommended practice and policy development and information dissemination.
Chapter 1-5
,Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
Education and Training. Enhance the expertise and professionalism of financial
managers and policy makers and provide recognition for their achievements.
Leadership Development. Engage in efforts to assist finance officers to develop the
skills and capabilities necessary to enable them to become organizational leaders as
well as technical experts.
Raising Public Awareness of Sound Financial Policy and Practice. Take leadership in
promoting public awareness of policies and practices that enhance sound financial
management of public resources.
Enhanced Cooperation. Cooperate with and complement the services provided by
other organizations (U.S., Canadian and international) to increase the effectiveness of
GFOA.
Strategic Use of Technology. Provide information and analytical tools to help
governments identify and apply appropriate, economical technologies to support
efficient resource allocation, quality services and effective decision-making and to
promote citizen involvement.
Association Operations. Conduct the operations of the Association in a manner that
exemplifies the highest standards of financial management and member service.
2. The GFOA established the Certificate of Achievement for Excellence in Financial
Reporting Program (COA Program) in 1945 to encourage and assist state and local
governments to go beyond the minimum requirements of generally accepted accounting
principles to prepare annual comprehensive financial reports that evidence the spirit of
transparency and full disclosure and then to recognize individual governments that
succeed in achieving that goal.
Reports submitted to the COA Program are reviewed by selected members of the GFOA
professional staff and the GFOA Special Review Committee (SRC), which comprises
volunteers with expertise in public-sector financial reporting and includes financial
statement preparers, independent auditors, academics, and other finance professionals.
3 The number of state and local governmental entities that were awarded the COA for
the fiscal year 2024 are:
Certificate of Achievement for Excellence in Financial Reporting 2024 Program
Results:
College/University (using only proprietary funds) 614
College/University (using governmental funds) 207
Council of Governments 70
County, Large 529
County, Small 845
Enterprise Fund 3,333
Investment Pool 85
Chapter 1-6
,Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
Municipality, Large 341
Municipality, Small 5,968
Public Employee Benefit Plans or Systems 837
School District 3,277
Special District 1,684
State 149
Total award recipients 17,939
https://lf.gfoa.org/WebLink/CustomSearch.aspx?SearchName=COA&dbid=0&repo=GF
OA
Problems
P. 1-1.
a. The authority’s cash requirements in Year 1 would be as follows (in millions):
Wages, salaries and other operating costs $6.0
Purchase of equipment $10.0
Less: Issuance of bonds 10.0 0.0
Interest on bonds 0.5
Purchase of additional equipment 0.9
Total cash outlays (revenue requirements) $7.4
b. In Year 2, they would be:
Wages, salaries and other operating costs $6.0
Interest on bonds 0.5
Total cash outlays (revenue requirements) $6.5
c. In Year 10, they would be:
Wages, salaries and other operating costs $6.0
Interest on bonds 0.5
Repayment of bonds 10.0
Total cash outlays (revenue requirements) $16.5
d. The budgeting and taxing policies fail to promote interperiod equity. The economic
costs incurred by the authority — the wages, salaries, other operating costs, and
portion of equipment consumed — were the same each year. Yet, tax payments will
depend on when the equipment was purchased and when the debt was repaid.
Taxpayers of Year 10 will have to pay for equipment that provided services to the
taxpayers of the previous nine years.
Interperiod equity could be achieved by budgeting on an accrual rather than a cash
basis. The budget would then include an annual charge of $1.3 million for
Chapter 1-7
, Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
depreciation — $1 million on the ten-year equipment; $0.3 million on the three-year
equipment. Annual required revenues for the first three years would be $7.8 million:
Wages, salaries and other operating costs $6.0
Interest on bonds 0.5
Depreciation on equipment 1.3
Total revenue requirements $7.8
Beginning in Year 4, with the three-year equipment fully depreciated, the total
revenue requirements would be $7.5 million.
This practice might, however, be objectionable to some taxpayers because it
requires that they contribute cash to the authority in years prior to those in which it
will actually be expended. Thus, for example, at the end of Year 1 the authority will
have a cash “reserve” of $0.4 million — the difference between the $7.8 million in
taxes collected and the $7.4 million in cash outlays. The authority could also
achieve interperiod equity by issuing serial bonds (those in which a portion of the
principal matures each year over the life of the issue) or by establishing and
contributing to a debt service “sinking fund.” By taking either of these approaches,
the authority would, in effect, be repaying the bonds over the period in which the
equipment is used and thereby matching equipment costs with equipment benefits.
P. 1-2
1. The information provided should, by itself, pose no obstacle to approving the loan.
For sure, revenues just cover expenses, allowing for no excess to cover the debt
service on the loan and the additional operating expenditures that will be incurred
when the classroom building is put into use. The key issue facing a loan officer,
however, is whether the church members are both willing and fiscally able to pay
for the new facility and to cover the additional operating costs. The fiscal capacity
of the church cannot be assessed independently of that of its members.
The financial statements reveal that the church’s assets will have a fair value of $7.2
million (existing equipment and buildings and the new building plus cash and
investments) when the classroom building is completed. If some or all of these
assets are used to secure the loan, then the bank may have a reasonable cushion
against default. However, fair values of churches or other special-purpose facilities
are notoriously unreliable. Moreover, for obvious reasons, banks are reluctant to
foreclose on local churches.
2. The loan officer may wish to review the financial statements for “smoking guns”
such as contingent liabilities, litigation, or unusual transactions. However, assuming
Chapter 1-8
Concepts and Practices, 10th Edition Granof
Important Notes
The file organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
⚠️Note on Answer Keys: If the answer key is not included within the chapter
questions, you will find the complete answers and solutions at the end of each
chapter.
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
⏰ 24/7 Support: We are always here – reach out anytime and expect a fast response.
, Chapter 1
The Government and Not-For-Profit Environment
Questions for Review and Discussion
1. The critical distinction between for-profit businesses and not-for-profits including
governments is that businesses have profit as their main motive whereas the others
have service. A primary purpose of financial reporting is to report on an entity’s
accomplishments — how well it achieved its objectives. Accordingly, the financial
statements of businesses measure profitability, their key objective. Financial reports
of governments and other not-for-profits should not focus on profitability, since it is
not a relevant objective. Ideally, therefore, they should focus on other performance
objectives, such as how well the organizations met their service goals. In reality,
however, the goal of reporting on how well they have achieved such goals has
proven difficult to attain and the financial reports have focused mainly on finance-
related data.
2. Governments and not-for-profits are “governed” by the budget, whereas businesses
are governed by the marketplace. The budget is the key political and fiscal
document of governments and not-for-profits. It determines how an entity obtains its
resources and how it allocates them. It encapsulates most key decisions of
consequence made by the organization. In a government the budget is not merely a
managerial document; it often is equivalent to a law.
3. Owing to the significance of the budget, constituents want assurance that the entity
achieved its revenue estimates and complied with its spending mandates. They
expect the financial statements to report on how the budget was administered.
4. Interperiod equity is the concept that this year’s services are paid for with this
year’s revenues, as opposed to shifting the payment burden to future years.
Financial reporting must provide information that the reader can use to assess the
extent to which interperiod equity has been achieved. Therefore, it must determine
and report upon the economic costs of the goods and services provided (not merely
the cash costs) and of the taxpayers’ contribution toward covering those costs.
5. The notion of matching expenditures to revenues may be less relevant for
governments and not-for-profits than for businesses because there may be no
connection between revenues generated and the quantity, quality or cost of services
performed. An increase in the demand for, or cost of, services provided by a
homeless shelter would not necessarily result in an increase in the amount of
donations that it receives. Of course, governments in particular are concerned with
assessing the extent to which interperiod equity was achieved. It is therefore
important that costs be assigned, not necessarily to the periods in which related
Chapter 1-1
,Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
revenues are recognized, but rather to those in which constituents benefited from
the goods and services that the government provided to them.
6. Governments must maintain an accounting system that assures that resources that
are limited to being used for a specific purpose are not inadvertently expended for
inappropriate purposes. Moreover, statement users may need separate information
on these resources, by category or purpose of limitation, and the resources that
available for any government purpose. In practice, these requirements have led
governments to adopt a system of “fund” accounting and reporting.
7. Even governments within the same category may engage in different types of
activities. For example, some cities operate a school system whereas others do not.
Those that are not within the same category may have relatively little in common.
For example, a state government shares few characteristics with a city.
8. If a government has the power to tax, then it has command over, and access to,
resources. Therefore, its fiscal well-being cannot be assessed merely by measuring
the assets that it “owns.” For example, an assessment of the fiscal condition of a city
should consider the wealth of the residents and businesses within the city, their
earning capacity, and the city’s willingness to exploit its tax base.
9. Many governments budget on a cash or near-cash basis. However, the cash basis of
accounting does not provide adequate information with which to assess interperiod
equity. Financial statements that satisfy the objective of reporting on interperiod
equity may not satisfy that of reporting on budgetary compliance. Moreover,
statements that report on either interperiod equity or budgetary compliance are
unlikely to provide sufficient information with which to assess service efforts and
accomplishments.
10. Measures of service efforts and accomplishments are more significant for
governments and not-for-profits because their objectives are to provide service. By
contrast, the objective of businesses is to earn a profit. Therefore, businesses can
report on their accomplishments by reporting on their profitability. Governments
and not-for-profits must report on other measures of accomplishment in addition to
financial.
11. It is more difficult to distinguish between internal and external users in governments
than in businesses because constituents, such as taxpayers, may play significant
roles in establishing policies that are often considered within the realm of managers.
Also, legislators are internal to the extent they set policy, but external insofar as the
executive branch must account to the legislative branch.
12. The FAF did consider giving the FASB authority over all business-like entities—
such as colleges and universities, hospitals, and utilities—regardless of their status
as governments, nongovernmental not-for-profits, or businesses. Some
organizations and individuals that use the financial statements of such entities,
including lenders and accrediting groups, focus on all entities of a particular type
Chapter 1-2
,Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
and would have benefitted from these entities following the same accounting
standards. The FAF chose to divide these entities between the FASB and the GASB
by governmental status based on the view that although they operate in a similar
manner and provide the same goods and services, different standards may be
necessary because of governments’ unique stakeholders, methods of financing,
among other distinctions. (As a practical matter, the major governmental trade
associations refused at the time to condone any governmental entities being subject
to FASB standards and threatened to withdraw its support for the GASB and create
a new standards-setting organization. The FAF had little choice but to comply with
their demands.)
Exercises
EX 1-1
1. a
2. d
3. c
4. c
5. b
6. c
7. d
8. c
9. b
10. c
EX 1-2
1. b
2. b
3. d
4. b
5. a
6. a
7. b
8. b
9. a
10. b
Chapter 1-3
,Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
EX 1-3
a. 1. The Governmental Accounting Standards Board (GASB) is the independent
organization that establishes and improves standards of accounting and financial
reporting for U.S. state and local governments. Established in 1984 by agreement of the
Financial Accounting Foundation (FAF) and 10 national associations of state and local
government officials, the GASB is recognized by governments, the accounting industry,
and the capital markets as the official source of generally accepted accounting principles
(GAAP) for state and local governments.
Accounting and financial reporting standards designed for the government environment
are essential because governments are fundamentally different from for-profit businesses.
Furthermore, the information needs of the users of government financial statements are
different from the needs of the users of private company financial statements. The GASB
members and staff understand the unique characteristics of governments and the
environment in which they operate.
The GASB is not a government entity; instead, it is an operating component of the FAF,
which is a private sector not-for-profit entity. Funding for the GASB comes primarily
from an accounting support fee established under the Dodd-Frank Wall Street Reform
and Consumer Protection Act, as well as the licensing of its publications. Its standards are
not federal laws or regulations and the organization does not have enforcement authority.
Compliance with GASB’s standards, however, is enforced through the laws of some
individual states and through the audit process, when auditors render opinions on the
fairness of financial statement presentations in conformity with GAAP.
2. The mission of the GASB is:
To establish and improve standards of state and local governmental accounting and
financial reporting that will:
Result in useful information for users of financial reports, and
Guide and educate the public, including issuers, auditors, and users of those
financial reports.
The mission is accomplished through a comprehensive and independent process that
encourages broad participation, objectively considers all stakeholder views, and is subject
to oversight by the Financial Accounting Foundation’s Board of Trustees.
3. Based on the GASB’s White Paper, Governmental Accounting and Financial
Reporting is and Should be Different, the key environmental differences between
governments and for-profit business enterprises are:
Organizational Purposes. The purpose of the government is to enhance or maintain the
Chapter 1-4
,Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
well-being of citizens by providing public services according to the established goals. A
government’s financial reports should give creditors, legislative and oversight officials,
citizens, and other stakeholders the information necessary to make assessments and
decisions relevant to their interests in the government’s accomplishment of its objectives.
In contrast, business enterprises focus on wealth creation, interacting only with those
segments of society that fulfill their mission of generating a financial return on
investment for shareholders. Its primary focus of reporting has been on earnings and its
components, with little or no explicit focus on nonfinancial measures of performance.
Sources of Revenue. The principal source of revenue for government is taxation, which
is a legally mandated involuntary transaction between individual citizens and businesses
and their government. The principal source of revenue of business enterprises is
voluntary exchange transactions between willing buyers and sellers.
Potential for Longevity Because of their ongoing power to tax and because of the
ongoing need for public services, governments rarely liquidate. The possibility of
achieving longevity, however, is not as likely for business enterprises. Business
enterprises will go out of existence if, for an extended period of time, they are unable to
sell their products or services for more than it costs to produce them. Further, a business
may also cease to exist if it is acquired by another entity.
Relationship with Stakeholders. The governments should meet a standard of
accountability, since the citizens are interested in evaluating inter-period equity by
determining whether current taxpayers and users of government services fully financed
the costs of providing current-period services or whether taxes and user fees from prior or
future periods were, or will be, needed to finance the current services provided. For
business, their financial reports show changes in equity of the enterprise during the
current period.
Role of the Budget. For governments, a budget takes on a special legal significance.
Governmental budgets are expressions of public policy priorities and legally authorize
the purposes for which public resources may be spent. In fact, governmental budgets can
be the primary method by which citizens and their elected representatives hold the
government’s management financially accountable. For business enterprises, the budget
represents an internal financial management tool that is controlled entirely by
management and is considered proprietary in nature.
b. 1. The purpose of the Government Finance Officers Association is to enhance and
promote the professional management of governments for the public benefit by
identifying and developing financial policies and best practices and promoting their use
through education, training, facilitation of member networking, and leadership.
The objectives of the GFOA are:
Expert Knowledge. Continue to be recognized as a leading source of expert
knowledge in public financial management by exercising leadership in research,
recommended practice and policy development and information dissemination.
Chapter 1-5
,Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
Education and Training. Enhance the expertise and professionalism of financial
managers and policy makers and provide recognition for their achievements.
Leadership Development. Engage in efforts to assist finance officers to develop the
skills and capabilities necessary to enable them to become organizational leaders as
well as technical experts.
Raising Public Awareness of Sound Financial Policy and Practice. Take leadership in
promoting public awareness of policies and practices that enhance sound financial
management of public resources.
Enhanced Cooperation. Cooperate with and complement the services provided by
other organizations (U.S., Canadian and international) to increase the effectiveness of
GFOA.
Strategic Use of Technology. Provide information and analytical tools to help
governments identify and apply appropriate, economical technologies to support
efficient resource allocation, quality services and effective decision-making and to
promote citizen involvement.
Association Operations. Conduct the operations of the Association in a manner that
exemplifies the highest standards of financial management and member service.
2. The GFOA established the Certificate of Achievement for Excellence in Financial
Reporting Program (COA Program) in 1945 to encourage and assist state and local
governments to go beyond the minimum requirements of generally accepted accounting
principles to prepare annual comprehensive financial reports that evidence the spirit of
transparency and full disclosure and then to recognize individual governments that
succeed in achieving that goal.
Reports submitted to the COA Program are reviewed by selected members of the GFOA
professional staff and the GFOA Special Review Committee (SRC), which comprises
volunteers with expertise in public-sector financial reporting and includes financial
statement preparers, independent auditors, academics, and other finance professionals.
3 The number of state and local governmental entities that were awarded the COA for
the fiscal year 2024 are:
Certificate of Achievement for Excellence in Financial Reporting 2024 Program
Results:
College/University (using only proprietary funds) 614
College/University (using governmental funds) 207
Council of Governments 70
County, Large 529
County, Small 845
Enterprise Fund 3,333
Investment Pool 85
Chapter 1-6
,Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
Municipality, Large 341
Municipality, Small 5,968
Public Employee Benefit Plans or Systems 837
School District 3,277
Special District 1,684
State 149
Total award recipients 17,939
https://lf.gfoa.org/WebLink/CustomSearch.aspx?SearchName=COA&dbid=0&repo=GF
OA
Problems
P. 1-1.
a. The authority’s cash requirements in Year 1 would be as follows (in millions):
Wages, salaries and other operating costs $6.0
Purchase of equipment $10.0
Less: Issuance of bonds 10.0 0.0
Interest on bonds 0.5
Purchase of additional equipment 0.9
Total cash outlays (revenue requirements) $7.4
b. In Year 2, they would be:
Wages, salaries and other operating costs $6.0
Interest on bonds 0.5
Total cash outlays (revenue requirements) $6.5
c. In Year 10, they would be:
Wages, salaries and other operating costs $6.0
Interest on bonds 0.5
Repayment of bonds 10.0
Total cash outlays (revenue requirements) $16.5
d. The budgeting and taxing policies fail to promote interperiod equity. The economic
costs incurred by the authority — the wages, salaries, other operating costs, and
portion of equipment consumed — were the same each year. Yet, tax payments will
depend on when the equipment was purchased and when the debt was repaid.
Taxpayers of Year 10 will have to pay for equipment that provided services to the
taxpayers of the previous nine years.
Interperiod equity could be achieved by budgeting on an accrual rather than a cash
basis. The budget would then include an annual charge of $1.3 million for
Chapter 1-7
, Granof, Khumawala, Calabrese, & Mead 10e, Government and Not-for-Profit
Accounting
depreciation — $1 million on the ten-year equipment; $0.3 million on the three-year
equipment. Annual required revenues for the first three years would be $7.8 million:
Wages, salaries and other operating costs $6.0
Interest on bonds 0.5
Depreciation on equipment 1.3
Total revenue requirements $7.8
Beginning in Year 4, with the three-year equipment fully depreciated, the total
revenue requirements would be $7.5 million.
This practice might, however, be objectionable to some taxpayers because it
requires that they contribute cash to the authority in years prior to those in which it
will actually be expended. Thus, for example, at the end of Year 1 the authority will
have a cash “reserve” of $0.4 million — the difference between the $7.8 million in
taxes collected and the $7.4 million in cash outlays. The authority could also
achieve interperiod equity by issuing serial bonds (those in which a portion of the
principal matures each year over the life of the issue) or by establishing and
contributing to a debt service “sinking fund.” By taking either of these approaches,
the authority would, in effect, be repaying the bonds over the period in which the
equipment is used and thereby matching equipment costs with equipment benefits.
P. 1-2
1. The information provided should, by itself, pose no obstacle to approving the loan.
For sure, revenues just cover expenses, allowing for no excess to cover the debt
service on the loan and the additional operating expenditures that will be incurred
when the classroom building is put into use. The key issue facing a loan officer,
however, is whether the church members are both willing and fiscally able to pay
for the new facility and to cover the additional operating costs. The fiscal capacity
of the church cannot be assessed independently of that of its members.
The financial statements reveal that the church’s assets will have a fair value of $7.2
million (existing equipment and buildings and the new building plus cash and
investments) when the classroom building is completed. If some or all of these
assets are used to secure the loan, then the bank may have a reasonable cushion
against default. However, fair values of churches or other special-purpose facilities
are notoriously unreliable. Moreover, for obvious reasons, banks are reluctant to
foreclose on local churches.
2. The loan officer may wish to review the financial statements for “smoking guns”
such as contingent liabilities, litigation, or unusual transactions. However, assuming
Chapter 1-8
