Chapter 01 – Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-1
CHAPTER 1: INTRODUCTION TO ACCOUNTING AND FINANCIAL
REPORTING FOR GOVERNMENTAL AND NOT-FOR-
PROFIT ENTITIES
OUTLINE
Number
Topic
Type/Task
Status
(re: 17/e)
Questions:
1-1
Differences between types of organizations
Identify
New
1-2
Distinguishing between general purpose and
special purpose governments
Identify
Revised
1-3
Standards-setting bodies
Identify
Same
1-4
Determining which standard-setting body sets
standards for a nongovernmental NFP
Categorize
New
1-5
Nature and significance of interperiod equity
Explain
Same
1-6
Determining the purpose of the two types of
accountability
Determine
Revised
1-7
Primary reporting objectives for NFPs and
governments
Compare
New
1-8
Comprehensive annual financial report
Recognize
Same
1-9
Federal government performance and
accountability report
Identify/Describe
Same
1-10
NFP reporting of expenses
Explain
New
Cases:
1-11
Research Case—GASB
Written report
Same
1-12
Research Case—FASB
Written report
New
1-13
Research Case—FASAB
Written report
Same
1-14
Research Case—Comparing Financial
Reporting Objectives
Analyze
New
1-15
Research Case—Federal Financial Reporting
Objectives
Analyze
New
Exercises/Problems:
1-16
Examine the CAFR
Examine
Revised
1-17
Financial Statement Differences
Differentiate
New
1-18
Various
Multiple Choice
Items 1, 2,
and 4 are
new; other
items are the
same or
revised
1-19
Concepts and reporting characteristics or
requirements for governmental and NFP
organizations
Matching
Same
Chapter 01 – Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-2
CHAPTER 1: INTRODUCTION TO ACCOUNTING AND FINANCIAL
REPORTING FOR GOVERNMENTAL AND NOT-FOR-
PROFIT ENTITIES
Answers to Questions
1-1. Following is a list of some of the differences between business organizations and
government/not-for-profit organizations.
General Problem Information: Differences between types of organizations
Learning Objective: 1-1
Topic: Distinguishing Characteristics of Governmental and Not-for-Profit Entities
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: BB Industry
Level of Difficulty: Easy
General Problem Information: Distinguishing between general purpose and special
purpose governments
Learning Objective: 1-1
Topic: What are Governmental and Not-for-profit Organizations?
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: BB Industry
Level of Difficulty: Easy
Business Organizations
Chapter 01 – Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-3
Ch. 1, Answers (Cont’d)
1-3. Illustration 1-1 depicts the standard-setting jurisdiction of the FASB, GASB and FASAB.
General Problem Information: Standards-setting bodies
Learning Objective: 1-2
Topic: Sources of Financial Reporting Standards
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
1-4. No, I do not agree with this board member’s statement. Since Beth House Museum is a
nongovernmental not-for-profit organization, it is required to follow the standards issued
General Problem Information: Determining which standard-setting body sets standards
for a nongovernmental NFP
Learning Objective: 1-2
Topic: Sources of Financial Reporting Standards
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
1-5. Interperiod equity, whether current period revenues are sufficient to pay for current
General Problem Information: Nature and significance of interperiod equity
Learning Objective: 1-3
Topic: Objectives of Financial Reporting
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
Chapter 01 – Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
Ch. 1, Answers (Cont’d)
1-6. The purpose of operational accountability is to assess whether the government has used
General Problem Information: Determining the purpose of the two types of
accountability
Learning Objective: 1-3
Topic: Overview of Financial Reporting for State and Local Governments, the Federal
Government, and Not-for-profit Organizations
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
1-7. The primary financial reporting objective for not-for-profit organizations is to provide
decision-useful financial information to resource providers, such as donors, members,
and creditors. The primary financial reporting objective for a government organization is
accountability, but other objectives include providing useful information for economic,
1-8. A CAFR should have an introductory section, financial section, and statistical section.
The contents of each section are described briefly in the section headed Comprehensive
Annual Financial Report. Minimum requirements for general external financial reports
Chapter 01 – Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-5
Ch. 1, Answers, Question 1-8 (Cont’d)
General Problem Information: Comprehensive annual financial report
Learning Objective: 1-4
Topic: Overview of Financial Reporting for State and Local Governments, the Federal
Government, and Not-for-profit Organizations
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
1-9. The four sections of a federal agency’s performance and accountability report (PAR) are
(1) an MD&A, which provides a brief overview of the entire PAR and describes the
General Problem Information: Federal government performance and accountability
report
Learning Objective: 1-5
Topic: Overview of Financial Reporting for State and Local Governments, the Federal
Government, and Not-for-profit Organizations
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
1-10. Reporting program expenses separately from management and general expenses and
fund-raising costs provides information to donors, members and oversight bodies to
General Problem Information: NFP reporting of expenses
Learning Objective: 1-5
Topic: Overview of Financial Reporting for State and Local Governments, the Federal
Government, and Not-for-profit Organizations
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
Chapter 01 – Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-6
Ch. 1, Solutions (Cont’d)
Solutions to Cases
1-11. Instructors may wish to provide specific instructions for the format of the students’ brief
reports. The GASB’s Web site (www.gasb.org) provides extensive information about the
Board’s mission, structure, the due-process it follows in setting standards, and the role of
its advisory council, the Governmental Accounting Standards Advisory Council
General Problem Information: Research Case—Understanding GASB
Learning Objective: 1-2
Topic: Sources of Financial Reporting Standards
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Research
Level of Difficulty: Easy
1-12. Instructors may wish to provide specific instructions for the format of the students’ brief
reports. The objective of this project is to reexamine existing standards for financial
statement presentation by not-for-profit entities, focusing on improving:
General Problem Information: Research Case—FASB NFP Project
Learning Objective: 1-2
Topic: Sources of Financial Reporting Standards
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Research
Level of Difficulty: Medium
Chapter 01 – Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-7
Ch. 1, Solutions (Cont’d)
1-13. Instructors may wish to provide specific instructions for their students’ brief reports.
FASAB’s Web site may change over time, but the Web site does provide extensive
information about the board’s mission, structure, and due-process. A good source of
information is the Memorandum of Understanding between the Comptroller General,
1-14. Government and not-for-profit financial reports are used by a variety of individuals for a
variety of purposes. However, a major group of users are the resource providers (or their
representatives) who generally do not expect to receive a direct or economic benefit from
the resources they provide. Since these organizations do not exist to return a direct or
Bloom’s Taxonomy: Analyze
Accreditation Skills tag: AACSB: Critical Thinking, AICPA: FN Research
Level of Difficulty: Difficult
Chapter 01 – Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-8
Ch. 1, Solutions (Cont’d)
1-15. Instructors may wish to provide specific instructions for the format of the students’ brief
reports. The four major groups of users identified by the board are citizens, Congress,
executives, and program managers.
Citizens – Citizens pay for and receive government services. Therefore, they are
interested in individual government programs, candidates for office, and the fiscal and
of funds that should be spent and the purposes of the expenditures. They are concerned
with how to finance and execute programs. They also assist in monitoring and assessing
the effectiveness and efficiency of programs, as well as evaluating the management
performance of the executive branch.
General Problem Information: Research Case—Federal Financial Reporting
Objectives
Learning Objective: 1-3
Topic: Objectives of Financial Reporting
Bloom’s Taxonomy: Analyze
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Hard
Chapter 01 – Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
Ch. 1, Solutions (Cont’d)
Solutions to Exercises and Problems
1-16. As students may have different CAFRs, there is no single solution to this exercise. It
works well to devote class time to asking students some of the questions listed in the
exercise, and perhaps tabulating the numbers of reports containing statements that are
General Problem Information: Examine the CAFR
Learning Objective: 1-4
Topic: Overview of Financial Reporting for State and Local Governments, the Federal
Government, and Not-for-profit Organizations
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
1-17. Although the major similarities and differences have been provided, students will
undoubtedly also find additional items which you may wish to discuss.
a. The following represent some of the similarities and differences in Denver’s
Statement of Net Position and the American Diabetes Association’s (ADA) Balance
Chapter 01 – Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-10
Ch. 1, Solutions, Exercise 1-17 (Cont’d)
• Denver uses net position rather than net assets and divides the net position into net
b. Other than the name there are very few similarities between Denver’s Statement of
Activities and the ADA’s Statement of Activities. Listed below are some similarities
and differences.
Similarities
Dissimilarities
• Denver divides its revenues into program revenues (charges for services,
operating grants and contributions, and capital grants and contributions) and
general revenues; whereas, the ADA divides its revenues into contributions and
grants, and fees from exchange transactions.
General Problem Information: Financial Statement Differences
Learning Objective: 1-4
Learning Objective: 1-5
Topic: Overview of Financial Reporting for State and Local Governments, the Federal
Government, and Not-for-profit Organizations
Bloom’s Taxonomy: Analyze
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Hard
Chapter 01 – Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-11
Ch. 1, Solutions (Cont’d)
1-18. 1. c. 6. d.
General Problem Information: Various
Learning Objective: 1-1
Learning Objective: 1-2
Learning Objective: 1-3
Learning Objective: 1-4
Learning Objective: 1-5
Topic: Various chapter topics
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
1-19. This is an exercise that may generate considerable discussion in class, as some of the
answers will be absolutely true and others partially true, depending on individual
judgments and interpretations. Keeping this in mind, you may wish to provide some
leeway in grading this exercise, depending on how literally you interpret the particular
item’s relationship to type of organization.
Characteristic, Concept, or
Financial Reporting
Requirement
State and
Local
Governments
Federal
Government
Nongovernmental
Not-for-profit
Organizations
Organization-wide financial
statements
Y
Y
Y
Management’s discussion and
analysis (MD&A)
Y
Y
N
Annual performance report
N
Y
N*
Modified accrual
Y
N
N
Reporting of program expenses
separate from supporting
expenses
N**
N
Y
Absence of defined ownership
interests
Y
Y
Y
Standards set by GASB
Y
N
N
Standards set by FASB
N
N
Y
Standards set by FASAB
N
Y
N
Standards focused on both
internal and external users of
financial information
N
Y
N
Chapter 01 – Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-12
Ch. 1, Solutions, Exercise 1-19 (Cont’d)
General Problem Information: Concepts and reporting characteristics or requirements
for governmental and NFP organizations
Learning Objective: 1-1
Learning Objective: 1-2
Learning Objective: 1-4
Learning Objective: 1-5
Topic: Various chapter topics
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium