Summary: Government accounting is discussed with regard to financial reporting by various levels of government. In addition to lack of clarity, frequent criticisms of governmental financial reporting include the facts that true financial conditions are not reflected because important assets and liabilities are not included in financial statements, and the needs of investors and citizens are not served. Steps have been taken at the Federal level to strengthen and integrate financial accountability. The Department of the Treasury has an ongoing project to publish consolidated financial statements for the Federal Government on an accrual basis. Continued reforms of Federal budgeting and congressional oversight and evaluation include improvements in the reporting on policy and program costs and performance. Many Government organizations that are reimbursed for the services or products they provide follow commercial accounting practices. However, commercial accounting would not serve the nonbusiness areas of the Government. Considerable differences exist between the accounting principles applicable to State and local governments and those applicable to industry. While there are some similarities between Federal accounting principles and those of State and local government, whether or not they should be the same is questionable. State governments have the sovereign right to set their own accounting standards, and most State governments have assigned specific responsibility for this task to a particular State official. Similarities in principles applicable to various sectors would facilitate comparisons. Although setting standards for State and local accounting is important, compliance with the standards is also important. The Federal Government is increasingly concerned with the financial reporting of State and local governments because it relies on their accounting systems to provide information on how Federal grant and revenue-sharing funds are spent. The principal goal in this matter is that all interested parties will work together toward more meaningful financial reporting.
