Chapter 17 – Accounting and Reporting for the Federal Government
17-1
CHAPTER 17: ACCOUNTING AND REPORTING FOR THE FEDERAL
GOVERNMENT
OUTLINE
Number
Topic
Type/Task
Status
(re: 18/e)
Questions:
17-1
Roles of GAO, Treasury, and OMB in federal
financial reporting
Explain
Same
17-2
Federal GAAP hierarchy
Compare
Same
17-3
Objectives of federal financial reporting
List, explain
Same
17-4
Accounts used in federal accounting
Compare
Same
17-5
Net position and net assets
Compare
Same
17-6
Reporting entity
Compare
Same
17-7
Federal funds
Identify, compare
Same
17-8
Stewardship assets
Define, compare
Same
17-9
Dual-track accounting
Explain, relate
Same
17-10
Performance accountability report
Explain, identify
Same
17-11
Intended Audience for the U.S. Financial Report
Explain, identify
New
Cases:
17-12
Agency PAR and audit report
Calculate, explain
Revised
17-14
Audit of U.S. Government-wide annual report
Explain, discuss
Revised
17-15
Analysis of the U.S. Government MD&A
Analyze, evaluate
Revised
Exercises/Problems:
17-16
Various
Multiple Choice
17-15. Items
9 and 10
revised; items
12 and 13
new.
17-17
Identifying account types and normal balances
Identify
17-16
17-18
Fund balance with U.S. Treasury
Compute
17-17 revised
17-19
Agency financial statements, continuation of 17-18
JE, apply
17-18 revised
17-20
Prepare statement of net cost
Apply
17-19
17-21
Prepare statement of budgetary resources
Apply
17-20 revised
17-22
Transactions and statement of financing
Apply
17-21
17-23
Financial statement analysis
Analysis
17-22 revised
Chapter 17 – Accounting and Reporting for the Federal Government
17-2
CHAPTER 17: ACCOUNTING AND REPORTING FOR THE FEDERAL
GOVERNMENT
Answers to Questions
17-1. Each of these three agencies plays a significant role in the financial accounting and
reporting of federal agencies. The GAO serves as the independent audit agency for the
federal government. It is responsible for the audit of the federal government as a whole.
Its reports help ensure that the federal agencies are complying with legal requirements
and GAAP reporting requirements. As established by law, the GAO also has
responsibility for prescribing accounting standards; this responsibility has been delegated
to the FASAB.
The OMB provides the financial plan for the federal government. Directly related to
accounting and financial reporting are several circulars issued by OMB that provide
guidance to agencies on how to record and report transactions. Two of the circulars are
mentioned in the chapter—Circular A-134, “Financial Accounting Principles and
Standards,” and Circular A-136, “Financial Reporting Requirements.” Additionally, the
OMB provides approvals on the standard general ledger and provides several cost
circulars that help the federal agencies in ensuring that funds disbursed are being used
appropriately by subrecipients.
General Problem Information: Roles of GAO, Treasury, and OMB in federal reporting
Learning Objective: 17-1
Topic: Federal Government Financial Management Structure; GAAP for the Federal
17-2. The GAAP hierarchies for the federal government and state and local governments are
similar but have a few notable differences. One major difference is that federal
authoritative guidance comes from the FASAB, while state and local government
Chapter 17 – Accounting and Reporting for the Federal Government
17-3
Ch. 17, Answers, Question 17– 2 (Cont’d)
For federal government GAAP, there are four categories of principles, while the GASB
only has two levels in its hierarchy. The highest level (category a) being the statements
and interpretations issued by the respective standard-setting bodies.
The category b principles include the Technical Bulletins issued by the respective
standard-setting bodies. AICPA Industry and Accounting Guides are also considered
category b principles if made applicable to federal entities by the FASAB or state and
local governments if cleared by the GASB. The GASB can also make AICPA Statements
of Position applicable. In addition, the GASB considers the following sources category b:
GASB implementation guides and any other literature of the AICPA cleared by the
GASB.
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry
Level of Difficulty: Medium
17-3. The four objectives for federal financial reporting as outlined in SFFAC No. 1 are: (1)
budgetary integrity, (2) operating performance, (3) stewardship, and (4) adequacy of
systems and controls. Budgetary integrity is ensuring that taxes and other monies raised
by the federal government are raised in accordance with law and regulation, and that
expenditures are made in accordance with law and regulation. Operating performance
refers to how efficient, effective, and economical the federal agencies have been in using
In many ways, the objectives are similar, in that both the FASAB and the GASB focus on
accountability. However, the focus of the FASAB objectives needs to differ somewhat
Chapter 17 – Accounting and Reporting for the Federal Government
Ch. 17, Answers, Question 17– 3 (Cont’d)
from the GASB focus, given that the audiences are somewhat different. The FASAB
objectives have a broader focus since the FASAB identifies both external and internal
groups as primary users of federal financial reporting. An example of this broader focus
is the objective on adequacy of systems and controls. This objective has relevance for the
FASAB standard-setters since the standard-setters must consider the needs of internal
users when promulgating standards.
17-4. The account name Estimated Revenues used by state and local governments is a
budgetary account representing the government’s estimate of the amount of revenue
expected to be realized during the year. Federal agencies use the account Other
Appropriations Realized in their budgetary track to capture the amount Congress has
appropriated to an agency for the upcoming year. Other Appropriations Realized is for
basic operating appropriations, rather than appropriations designated for specific
purposes. Other Appropriations Realized is closer in meaning to Appropriations of state
and local governments than it is to Estimated Revenues.
General Problem Information: Accounts used in federal accounting
Learning Objective: 17-4
Topic: Required Financial Reporting—Government Agencies
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Measurement
Level of Difficulty: Medium
17-5
17-5. Agree, in part. The net position account on the balance sheet of a federal agency
represents the difference between assets and liabilities, as net position does for a state or
local government. However, the net position of a federal agency is classified into two
categories—unexpended appropriations and cumulative results of operations—which are
Topic: Required Financial Reporting—Government Agencies
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Measurement
Level of Difficulty: Medium
17-6. The three perspectives from which the federal government can be viewed are the
organizational perspective, budget perspective, and program perspective. Organizational
perspective is most similar to what you would expect to see in an organizational chart; it
contains the department/agencies/commissions of the government. Budget perspective
refers to the budgetary account structure. It would be a collection of
General Problem Information: Reporting entity
Learning Objective: 17-2
Topic: Conceptual Framework
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry
Level of Difficulty: Medium
Chapter 17 – Accounting and Reporting for the Federal Government
17-6
17-7. The two groups of funds used by federal government entities are federal funds and trust
funds. There are three federal fund types—General Fund, special funds, and revolving
funds. The General Fund is similar in intent to the General Fund of state and local
governments. It receives all revenue and other receipts not designated (or identified) for a
specific purpose. General appropriations are made from the General Fund. Special funds
are established for a specific non-business-type purpose. These funds are most similar to
a special revenue fund used by state and local governments. Revolving funds are
established for business-type activities, making them similar to the proprietary funds of
state and local governments.
General Problem Information: Federal funds
Learning Objective: 17-3
Topic: Funds Used in Federal Accounting
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry
Level of Difficulty: Medium
17-8. Stewardship assets are of two types—heritage assets and stewardship land. Heritage
assets have historical or natural significance; cultural, artistic, or educational significance;
or are architecturally significant. Stewardship land is land that is not used by the federal
government for operating purposes.
Chapter 17 – Accounting and Reporting for the Federal Government
Ch. 17, Answers, Question 17-8 (Cont’d)
be provided, including physical units added and withdrawn during the year; methods of
acquisition and withdrawal; and condition information.
General Problem Information: Stewardship assets
Learning Objective: 17-3
17-9. The two tracks in the dual-track system are the budgetary accounts track and the
proprietary track. The purpose of the budgetary accounts track is to (1) ensure that
available budgetary resources and authority are not over expended or over obligated, and
(2) facilitate standardized budgetary reporting requirements. Proprietary track accounts
provide information for management on the cost of operating the entity.
Federal budgetary accounts capture the legally approved budget and help ensure that
entities do not exceed budgetary authority. The purpose of the budgetary accounts track is
similar to the governmental fund accounting track at the state and local level; wherein,
the government records the approved budget to ensure that budget authority is not
Topic: Dual-track Accounting System
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Measurement
Level of Difficulty: Medium
17-8
17-10. The PAR contains several components including:
• An agency head message—analogous to a transmittal letter.
• Financial statements—there are seven reports, two (statement of social insurance and
statement of net changes in social insurance amounts) of which are only prepared by a
limited number of agencies. The other five statements are the balance sheet, statement
of net costs, statement of changes in net position, statement of budgetary resources,
and statement of custodial activity.
General Problem Information: Performance accountability report
Learning Objective: 17-4
Topic: Required Financial Reporting—Government Agencies
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry
Level of Difficulty: Medium
17-11. The intended audience for the consolidated financial report of the U.S. government
includes (1) citizens, (2) citizen intermediaries, (3) Congress, (4) federal executives, and
(5) program managers. The FASAB suggests the first two, citizens and their
intermediaries, are the primary audiences. In general, the consolidated financial report
should be a general purpose report that can be easily understood by the average citizen. A
review of the financial report by citizens is helpful to inform the public about the
financial condition of the U.S. government which can provide insights into how federal
policies might change in the future (e.g., policy change to increase tax revenues).
Chapter 17 – Accounting and Reporting for the Federal Government
17-9
Solutions to Cases
17-12. The answers to the questions will vary by the agencies the students choose. The
Department of Defense (DOD) has consistently received a disclaimer of opinion while
Housing and Urban Development (HUD) received a qualified opinion for FY 2019.
Instructors looking for variation in the audit opinions might direct students to either the
General Problem Information: Agency PAR and audit
Learning Objective: 17-4
Topic: Required Financial Reporting—Government Agencies
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN: Research
Level of Difficulty: Medium
17-13. The information provided in the solution is current as of April 24, 2020.
a. According to the FASAB website, the mission of the FASAB is to “serve the public
interest by improving federal financial reporting through issuing federal financial
accounting standards and providing guidance after considering the needs of external and
internal users of federal financial information.” The purpose of the FASAB mission is to
support public accountability through the issuance of GAAP.
c. The FASAB is funded by legislative appropriation through the budgets of the three
sponsors.
Chapter 17 – Accounting and Reporting for the Federal Government
17–10
Ch. 17, Solutions, Case 17-13, d. (Cont’d)
To pass a standard, two-thirds of the board members must approve. Technically, the
composition of the board makes it possible for the nonfederal members to override the
decisions of the sponsors; however, all nonfederal members would need to be in
agreement. Finally, two of the sponsors (principals), the Comptroller General and the
Director of the Office on Management and Budget, have veto power over any FASAB
statement if they act within the 90-day review period for final statements.
e. The answer to this assignment will change, given that the project agenda is ongoing.
The following information was taken directly from the FASAB website, accessed on
April 24, 2020.
One of the FASAB projects relates to an evaluation of existing standards. The goal of
the project is to clarify and make changes to existing standards to ensure the benefits
of standards clearly exceed cost. Several other projects on the agenda include the
• Leases. This project is being undertaken by the board primarily because the
current lease accounting standards, SFFAS No. 5 and No. 6, have been criticized
because they do not make meaningful distinctions between capital and operating
leases regarding the substance of lease transactions. Federal lease standards are
based on the FASB standard, which has recently been revised.
Chapter 17 – Accounting and Reporting for the Federal Government
17–11
Ch. 17, Solutions, Case 17-13, e. (Cont’d)
• Reporting Model-Phase II. This project is considering the needs of users for
integrated budget, cost, and performance information. The project involves
considering improving guidance, as well as the formatting of existing reports to
improve the presentation of budget information.
g. The Accounting and Auditing Policy Committee (AAPC) is a permanent committee
authorized to improve federal financial reporting through the timely identification,
discussion, and recommendation of solutions to accounting and auditing issues.
Implementation guidance in the form of Technical Releases is developed by the AAPC
and must be reviewed by the FASAB before being issued. The AAPC may not amend
existing standards nor promulgate new standards.
General Problem Information: Research case—FASAB
Learning Objective: 17-1
Topic: Federal Government Financial Management Structure and GAAP for the Federal
Government
17-14. The FY 2019 report for the U. S. government is available at
https://www.gao.gov/assets/710/704983.pdf. The answers to these questions are based on
the FY 2019 (i.e., October 1, 2018–September 30, 2019) report.
b. Several material weaknesses in internal control were cited as contributing factors to
GAO’s inability to provide an opinion. It should be noted that most of these
weaknesses are ongoing and have been cited repeatedly over the years. The following
list of weaknesses was taken from the page 235 of the Fiscal Year 2019 Financial
Report of the U.S. Government.
Chapter 17 – Accounting and Reporting for the Federal Government
17–12
Ch. 17, Solutions, Case 17-14, b. (Cont’d)
Specifically, these weaknesses concerned the federal government’s inability to:
• satisfactorily determine that property, plant, and equipment and inventories and
related property, primarily held by the Department of Defense (DOD), were
properly reported in the accrual-based consolidated financial statements;
• adequately account for and reconcile intragovernmental activity and balances
between federal entities;
• ensure the information in the (1) Reconciliations of Net Operating Cost and
Budget Deficit and (2) Statements of Changes in Cash Balance from Budget and
Other Activities is complete and consistent with the underlying information in the
audited entities’ financial statements and other financial data.
c. Social insurance statements received a disclaimer of opinion. Significant uncertainties
primarily related to the achievement of projected reductions in Medicare cost growth
prevented the comptroller from expressing an opinion on the statements.
d. The following list of long-term fiscal challenges was taken from page 239 of the
Fiscal Year 2019 Financial Report of the U.S. Government.
• For the 2019 projections, debt-to-gross domestic product (GDP) at the end of the
75-year projection period was 474 percent.
• The budget deficit increased for the fourth consecutive year in fiscal year 2019
Overall, absent policy changes, the federal government’s fiscal path is unsustainable.
Note to Instructor: The annual report of the U.S. government is certainly
provocative and likely to result in a spirited discussion among students. We suggest
Chapter 17 – Accounting and Reporting for the Federal Government
17–13
Ch. 17, Solutions, Case 17-14, d. (Cont’d)
you focus on the tremendous accounting challenges in auditing the largest
organization in the world and stress the positive aspects of how far federal agencies
have come in the years since audit requirements were enacted.
General Problem Information: Audit of U.S. government-wide annual report
17-15. The answers provided below are based on information from the Fiscal Year 2019
Financial Report of the U.S. Government. If subsequent reports are used, the numbers
will vary. The information to answer a-d was obtained from the Management’s
Discussion and Analysis (MD&A) section of the Financial Report for the U.S.
Government. Instructors may consider supplementing these questions with additional
questions to take advantage of the rich information provided in the MD&A.
b. In 2019 the five largest components of net cost were Department of Health and
Human Services (24%), Social Security Administration (22%), Department of
Defense (18%), Department of Veteran Affairs (8%), and Interest on Treasury
Securities Held by the Public (8%). The Department of Defense had the largest
increase in net cost ($210 billion increase).
c. In 2019 the amount of federal debt held by the public as a percentage of GDP was
79%. The 2019 debt level is above the historical average of 47.8% (based on data
going back to 1940). Notably, the highest level since 1940 was 106% in 1946, which
coincided with the conclusion of World War II.
Chapter 17 – Accounting and Reporting for the Federal Government
17–14
Ch. 17, Solutions, Case 17-15 (Cont’d)
d. In 2019, real GDP growth was 2.1%, while the growth in the consumer price index
was 1.7%. Real disposable personal income increase was even higher at 3.3%
indicating relatively strong personal income growth.
General Problem Information: Analysis of the U.S. Government MD&A.
Learning Objective: 17-4
Topic: Required Financial Reporting—U.S. Government-wide
Chapter 17 – Accounting and Reporting for the Federal Government
Solutions to Exercises and Problems
2. d. 7. a. 12. d.
4. d. 9. b.
5. a. 10. b.
General Problem Information: Various topics
Learning Objective: 17-1
Topic: Various chapter topics
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Medium
17-17. 1. P Cr 6. P Dr
2. P Dr 7. B Dr
General Problem Information: Identifying account types and normal balances
Learning Objective: 17-5
Topic: Dual-track Accounting System
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Measurement
Level of Difficulty: Easy
Chapter 17 – Accounting and Reporting for the Federal Government
17–16
17-18. SAVE OUR RESOURCES COMMISSION
a. COMPUTATION OF MISSING AMOUNTS: Debits Credits
PROPRIETARY ACCOUNTS
ACCOUNTS PAYABLE $ 230,000
ACCUMULATED DEPRECIATION 4,800,000
APPROPRIATIONS USED 4,500,000
DEPRECIATION AND AMORTIZATION 750,000
PLANT AND EQUIPMENT 7,400,000
UNEXPENDED APPROPRIATIONS⎯2023 410,000
TOTAL AMOUNTS GIVEN 10,363,000 10,949,000