Question

How does accounting for a governmental unit differ from accounting for a for-profit corporation? Choose a governmental entity, review its financial statements, and explain the items that you find that are different from what you would see in the financial statements of a for-profit corporation.

Answer 1

Accounting for a government unit differs from accounting for a for-profit corporation on the basis of accounting standards, statement and reporting.

Accounting for a government unit requires following the GASB (Government Accounting Standard Board). The GASB establishes the accounting and financial reporting standard for all government units be it federal, state or local. A for-profit corporation has to adhere to guidelines of GAAP with regards to their accounting.

The financial statements also differ. For a government unit there is a statement of activities, statement of cash flows and statement of net assets. For a for-profit corporation there in income statement, cash flow statement and balance sheet.

Lastly differences exist on the basis of annual reporting. Government units have to put together a CAFR (Comprehensive Annual Financial Report) while for profit corporations have to put together annual reports in the form of 10K’s. The rules and norms governing CAFRs are more stringent that those governing annual reports of for-profit corporation.

The governmental entity that I have selected is ‘City of New Orleans, Louisiana’. The CAFR of this entity has divided its revenue and expenses into different fund types – general, special revenue, debt service and capital projects. Secondly statement of revenues consists of changes in fund balances actual and budget section. Thirdly statement of cash flow is divided into non-expendable fund trust, Totals primary government and Component units (proprietary funds). All these elements are sections are not present in the financial statements of a for-profit corporation.