November 12, 2012
Comprehensive Annual Financial Report
Having the most accurate and up-to-date financial information is important to many users of financial data in order to make informed decisions about a company. One of the ways that a company displays this information is with a Comprehensive Annual Financial Report or CAFR as most people in industry have come to know it by. The steps and preparation of preparing a CAFR provide the users the chance to view the overall financial health of a business and ensures that essential information about the business is consistent not only in information, but in content from year to year.
Governmental vs. For-profit accounting
The local, State, and Federal governments are generally involved in supplying the public with the services that are essential to the overall well being of its citizens which makes the focus of the accounting within the government on where the money comes from and where the government spends it. The private or for-profit sector is focused on making a profit and increasing the bottom line and it required to report the profit or loss and also the financial position of the company. While companies are constantly competing with each other for customers, and always concerned with making more money, governments are funded through taxes that are paid by citizens and therefore don’t have the same dependencies as the private sector does. Governments do not have investors demanding profits, however, they are held accountable by the citizens for the way they spend the resources which they are given.
Unlike the private for-profit sector, the Federal Accounting Standards advisory Board or FASAB was created for developing rules and standards strictly for the United States government. From this advisory group, the Government Accounting Standards Board or GASB was formed and became the group to provide and issue standards for the local and State governments. The accounting system within the government is a collection of funds, appropriations, and budgets. Fund accounting separates any money received by the government and then divides it between different accounts to be used by various departments or projects within the government. Most of the money received by the governments is through tax dollars and are used primarily on infrastructure maintenance, public services, schools, and a multitude of other government expenditures. The fundamental difference between governmental accounting and for-profit accounting comes down to who will be using the information and for what purpose they will be using it for. For a government accounting office to achieve the required results, the financial information that is gained and put together in the financial documents must be reliable and relevant.
The reports need to satisfy the needs of many departments and must include the short-term financial position and liquidity, the budgetary and legal compliance and such issues that may arise in the long term such as budgets. The most important type of communication that most governments deal with is the annual financial report which details the current financial position, the current operating situation and even the cash flows for the given period. The financial reports supplied by governmental agencies must be done in accordance with the GASB and must have consistency for all users of the information. The users of for profit accounting information could include people interested in investing in the company or doing business with company. Users would be able to judge the viability of the company and the ability of the company to repay loans and what sort of return they might get on their investment. I own a for profit business and a not for profit business. My profit business comes down to the bottom line and what the company makes vs. what it spends. The not for profit...