Government and Not-for-Profit Accounting: Concepts and Practices 7th Edition
The objectives of this, the seventh edition of Government and Not-for-Profit Accounting:Concepts and Practices, remain unchanged from those of the previous editions. Above all, the text aims to make students aware of the dynamism of government and not‐for‐profit accounting and of the intellectual challenges that it presents. Government and not‐for‐profit accounting has changed dramatically in the past few
decades. For certain, the nature of governments and not‐for‐profit organizations and the transactions in which they engage will continue to evolve further in the future. Therefore, so too must the corresponding accounting.
For the most part, the accounting issues faced by governments and not‐for‐profit organizations are far less tractable than those encountered by businesses. Businesses have the luxury of directing attention to profits—a metric that is relatively easy to define—inasmuch as the overriding objective of businesses is to earn a profit. Governments and not‐for‐profit entities, by contrast, have broader, much less clear‐cut goals. They must determine not only how to measure their performance but also what to measure. Hence, the accounting profession is almost certain to bedealing with fundamental questions throughout the professional careers of today’s students, and the pace of rapid change will continue unabated.
Obviously, we intend for this text to inform students of current accounting and reporting standards and practices—those with which they might need to be familiar in their first jobs. More important, however, we want to ensure that they are aware of the reasons behind them, their strengths and limitations and possible alternatives. We are more concerned that students are prepared for their last jobs rather than their first. The text aspires to lay the intellectual foundation so that the students of today can become the leaders of tomorrow—the members of the standard‐ setting boards, the partners of CPA firms, the executives of government and not‐for‐profit organizations, and the members of legislative and governing boards.
Courses in government and not‐for‐profit accounting are just one element of an accounting program and, indeed, of a college education. Therefore, we expect that this text will lead not only to an awareness of the issues of government and not‐for‐profit accounting, but also to a greater understanding of those in other areas of accounting. Almost all issues addressed in this text—for example, revenue and expense recognition, asset and liability valuation, the scope of the reporting entity, reporting cash flows—have counterparts in business accounting. By emphasizing concepts rather than rules and procedures, we hope that students will gain insight into how and why the issues may have been resolved either similarly or differently in the business sector. Moreover, we trust that this text will contribute to students’ ability to read, write, and “think critically.” To that end we have made a special point of designing end‐of‐chapter problems that challenge students not only to apply concepts that are presented in the text, but also to justify the approach they have taken and to consider other possible methodologies. Needless to say, many students will use this text to prepare for the CPA exam. We have endeavored to cover all topics that are likely to be tested on the exam—an admittedly difficult goal, however, now that the American Institute of Certified Public Accountants (AICPA) does not publish past exams. We have also included approximately 20 multiple‐choice questions in most chapters as well as several other “CPA‐type” questions. In addition, this text will be useful to students preparing for the Certified Government Financial Manager exam (CGFM) and other professional certification exams in which matters relating to government and not‐for profits are tested.
The need to update this text was made especially compelling by Governmental Accounting Standards Board (GASB) pronouncements that were either issued or had to be implemented since publication of the sixth edition. Most notably, Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68, Accounting and Financial Reporting for Pensions, had to be implemented for years beginning June 2013 and June 2014, respectively. Then in 2015 the GASB issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans, and Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions. Statements No. 74 and No. 75 deal mainly with postemployment health care benefits and must be implemented for years beginning June 2016 and June 2017, respectively. Collectively, these four pronouncements will have consequences that reach far beyond the form and content of financial statements. Many state and local governments face severe fiscal crises, and a key underlying cause is underfunded pensions and health care retirement plans. The new GASB pronouncements will not only require many governments to increase the measure of their pension and health care plan shortfalls, but also to report either new or significantly larger liabilities on their balance sheets and expenses on their statements of activities. Thus, they are likely to have major policy implications as governments struggle to cope with obligations that previously either went understated or, in some cases, unreported. Already, in fact, we have witnessed several governments “reforming” their pension and health care plansas a direct consequence of the new, more rigorous accounting and reporting requirements. Owing to the importance of these pronouncements, this text addresses them, in Chapter 10, in detail. For years beginning in June 2015, governments must begin implementing Statement No. 72, Fair Value Measurement and Application. This statement, discussed in Chapter 7, made significant changes to the way certain investments are measured and reported.
Beginning in June 2013, Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees, also became required as part of governments’ financial reporting. The reporting of loan guarantees falls under this new standard, and is covered in Chapter 8 of the text. Statement No. 77, Tax Abatement Disclosures, was adopted in 2015 and future financial statements will require disclosures about governments’ tax abatement programs that reduce tax revenues in the future. This new standard is discussed in Chapter 11. We have also, of course, revised the text to take into account other significant GASB statements, applicable Financial Accounting Standards Board (FASB) updates to standards, AICPA Audit and Accounting Guides, and publications of both the Office of Management and Budget as well as the Government Accountability Office that were actually issued, or we thought likely to be issued, since the publication of the sixth edition. For example, shortly before this text went to press, the FASB proposed noteworthy changes to the not‐for‐profit reporting model. We have added language in Chapters 12 and 14 to make students aware of these potentially significant changes. Both the GASB and FASB were also considering changes to reporting in capital leases at the time of this text’s production. We included language in Chapter 8 to inform users how the standards described here might be different in the near future
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