In: Accounting
he main reason for the financial statements and reporting for any city or municipality is for the following …
Select one:
a. Implement the interperiod equity concept.
b. Create accountability of the reports.
c. Budgetary compliance.
d. To show the service efforts.
e. To show the accomplishments.
Ans:Option A implement The Interperiod Equity Concept
Explanation is as follows
Taking the concepts stated in GASB as base ' Interperiod equity concept can be understood as follows
A financial reporting objective related to both accountability and decision usefulness, interperiod equity makes its first appearance
“living within our means” and “balanced budget” and “fairness” are the topics needed to assist the the concept. The idea is that by achieving interperiod equity, taxpayers of today pay for the services that they receive and the burden of payment for services today is not shifted to taxpayers of the future.
Of course, whether interperiod equity is achieved is a policy decision of the government.
From a financial reporting perspective, the extent to which interperiod equity has been achieved can be indicated and a determination of whether taxpayer contributions are appropriate can be assessed.
“the state in which current period inflows of resources equal current period cost of services.” When this is achieved, it goes on to say, “the burden of the cost of [current period] services is borne by present-year taxpayers and revenue providers” rather than “shifted to future-year taxpayers or revenue providers through an increase in the level of borrowing” or paid from net resources accumulated in past periods. It is easy to understand why the GASB considers this a relevant metric to assess accountability.
Interperiod equity should not be interpreted as meaning that governments should live only from year to year, and not do financial planning for the long term. Again, that decision is based on the policies of the government. For example, many would argue that it is appropriate to use long-term debt to pay for capital assets, or to accumulate resources annually over many years to do.
Hence for financial reporting purposes, interperiod equity is a significant metric to assess accountability rather than a goal that is expected to be met in any specific reporting period. the concept of interperiod equity is particularly important because it addresses the implications of fiscal decisions a government makes today but that may be felt well into the future.