Question

The federal government, state governments, and local governments are all governmental entities. Discuss whether the same conceptual framework, rule making bodies for financial reporting, and objectives of financial reporting are the same for all levels of government, and if not, why not.

Answer 1

The American government is a federal one, which means that authority and jurisdiction are divided among national, state and local governments. Under the U.S taxation system, both federal and state governments have the authority to levy taxes. Federal and state taxes are completely separate and the federal government doesn’t have any right to interfere with state taxation. Local governments also have their authority to levy tax.

That means the federal government, state governments, and local governments are all governmental entities only but with separate authority and jurisdiction.

Conceptual framework, Rulemaking bodies:

The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S.

The Financial Accounting Standards Board ( FASB ) is a private and non-profit organization that establishes and improves financial accounting and reporting standards.

The International Accounting Standards Board (IASB) is the international equivalent of the FASB. It has established guidelines for financial practices globally.

Generally Accepted Accounting Principles (GAAP) refer to the standard framework of guidelines for financial accounting; generally known as accounting standards or standard accounting practice.

International Financial Reporting Standards (IFRS) refer to the standards that are used to present the companies financial statements in such a way that it meets the presentation requirements internationally, which makes the financials understandable and comparable across international boundaries.

The informational need differs from sector to sector of the economy in the federal government and state and local governments. As a consequence, different accounting and auditing standards have evolved in these sectors. State and local governments have standards distinct from those of the federal government. So the accounting and auditing standards can be classified into three areas: (1) private industry standards, (2) federal government standards, and (3) state and local government standards.

The FASAB, that establishes and improves financial accounting and reporting standards for the federal government. The Government Accountability Office (GAO) has responsibility for establishing auditing standards for federal government agencies, including federal grant recipients in state and local governments.

A counterpart to FASAB for state and local governments is the Government Accounting Standards Board (GASB). Even though the underlying principles are same between FASAB and GASB, states are allowed to choose as per the need of the particular government. Auditing standards vary by state and local governments.

So the conceptual framework, rule-making bodies for financial reporting and objectives of financial reporting are the same for all levels of government. But those state and local governments are allowed to make their own rules without changing the underlying principles.