Question

Identify and explain the characteristics that distinguish governments and not-for-profit entities from business entities.

Answer 1

Solution:-

Identify and explain the characteristics that distinguish governments and not-for-profit entities from business entities:-

a. Receipts of sig. amount of resources from people who don’t expect to get either repayment or economic benefits proportionate to the resources provided

b. Operating purposes other than to provide goods or services at a profit or profit equivalent

c. Absernce of defined ownership interests that can be sold, transferred, or redeemed, or that convey entitlement to a share of a residual distribution of resources in the event of liquidation

GASB’s characteristic that distinguish governmental entities from not-for profit entities and businesses:

• Governments exist in an environment where the power ultimately rests in the hand of people
• Revenues raised by each level of gov’t come from taxpayers that have little choice about which gov’t services they receive

GASB’s view: the needs of users of financial reports are unique and is the reason why accounting and financial reporting standards for governments must be separate from business organizations

-Gov’ts don’t operate in a competitive marketplace, no threat of liquidation, don’t have equity owners

-Gov’t financial reporting focuses on:

• Gov’t stewardship of public resources
• Ability to raise taxes
• Manage resources
• Compliance with legal spending limits

-Gov’t financial reporting helps stakeholders assess:

• How public resources are acquired and used
• Whether current resources were enough to meet current service costs
• Whether some costs were shifted to future taxpayers
• Whether the government’s ability to provide services improved or deteriorated from the previous year