Government entities must adhere to a high level of financial transparency and accountability. Public enterprises, unlike the private sector, are accountable to taxpayers rather than shareholders. This distinct role is defined by a system known as Government Accounting Standards, which ensures uniformity, accuracy, and public trust in financial reporting.
These standards are largely established by the Governmental Accounting Standards Board (GASB) and apply to state and local governments across the United States.
What Sets Government Accounting Apart?
Government accounting is more than just recording transactions; it is about proving accountability and stewardship of public resources. These standards support:
- Transparent and uniform reporting across government agencies
- Providing fiscal accountability to the public and oversight agencies
- Informed decision-making among legislators and community leaders
Whereas private corporations are concerned with earnings and shareholders, public enterprises must demonstrate how efficiently they use taxpayer resources to provide services.
For a more in-depth look at how this differs from private sector accounting, see our article on the Fundamental Differences Between Nonprofit and For-Profit Accounting.
GASB vs. FASB: A Vital Distinction
The Financial Accounting Standards Board (FASB) sets the requirements for the vast majority of private corporations. While FASB focuses on financial performance and investor relevance, GASB rules are designed for:
- Accountability
- Budgetary compliance
- Service-level performance
Understanding this distinction is critical when analyzing financial data from government agencies. Using the improper framework may result in reporting errors or misinterpretation of fiscal health.
To learn more about how these ideas apply to audits, read Why Audited Financials Matter.
Noteworthy Updates in Government Accounting Standards
In recent years, GASB has published updated recommendations to reflect developing government practices:
- GASB Statement No. 87: Redefines lease accounting, requiring lessees and lessors to treat leases as liabilities and assets.
- GASB Statement No. 96: Governs subscription-based IT arrangements (SBITAs), a growing category of expenses for government organizations.
To remain compliant, government finance teams must keep up with these modifications. For example, changing lease restrictions may have an influence on capital asset planning, debt ratios, and budget forecasts.
Risk of Non-Compliance
Overlooking or misunderstanding government accounting standards can have significant consequences:
- Audit delays or failures
- Loss of funding or grant eligibility
- Reputational damage
- Legal or regulatory scrutiny
For tips on how to deal with audits, read How Your Business Can Prepare for and Respond to an IRS Audit.
If your organization receives government funds or operates in a regulated industry, compliance is even more important. Want to increase transparency in financial reporting? Begin by reviewing Mind the GAAP: How to Maintain Transparency When Using Non-GAAP Metrics.
Need Expert Help with Government Accounting Standards?
Understanding and applying GASB standards is critical not only for accountants but also for executives, administrators, and board members. If you’re unsure whether your organization is up to date on current standards or if you’re experiencing compliance issues, let us help.
Contact Sorren now to talk with a government accounting professional. We’re here to help you achieve your goals by providing the necessary financial resources and insights.
