Question

What factors should be considered when deciding if a government should follow GAAP?

Answer 1

GAAP is regarded as universally accepted principles and hence government is no exception as well. However, there are certain factors that needs to be kept in mind before following GAAP. Some of these factors includes:

• Cost of following GAAP
• Expertise within the organization to deal with complexity of GAAP
• Benefits of following GAAP to stakeholders
• Impact of following GAAP on the users of government company's financial statements etc.
• Disclosure requirements in GAAP is high, therefore, government must recognize this aspect before following GAAP, as it will lead to disclosure of various things which were not disclosed before and this may impact competitiveness of the government etc.

GAAP is followed worldwide and most governments around the world also follows the same for the purpose of better preparation and presentation of their financial statement and accounting records in an effective way. Due to its complexity and higher cost involved, it is usually advisable for local and small governments not follow GAAP because id does not turn out beneficial for them. The factors discussed above should be kept in mind before making any judgement with regards to following of GAAP.