1. The Government Accounting Standards Board and the Fiancial Accounting Standards Board are the boards in charge of establishing the generally accepted accounting principles in the United States. However, the two boards have major differences inherent in their structures and functions.
The Government Accounting Standards Board (GASB) sets the accounting standards for local and state government institutions. On the other hand, the Financial Accounting Standards Board is responsible for setting accounting standards for the private sector. GABS requires that government entities present a balance sheet that displays current assets separately from non-current assets. It also requires that non-current liabilities are separate from the current liabilities. FASB is usually not so strict in the classification of current and non-current items on the statement of financial position (Marsh & Fisher, 2011).
Another difference between the two boards is the classification of net assets. GASB classifies these assets as invested, restricted, and unrestricted. On the other hand, FASB classifies the net assets as unrestricted, permanently restricted, and temporarily restricted.
2. From the illustration provided, it is clear to see that GASB and FASB employ different accounting standards especially when it comes to the literature used. GASB advocates the use of financial reporting as a means for assessing accountability for all levels of government as well as not for profit organizations. According to GASB, financial reporting is also meant to assist in assessing the financial condition of the particular government entity. The reporting also assists in determining the compliance with finance related regulations.
On the other hand, FASB uses literature or wording such as profit making and shareholder equity when talking about the importance of financial reporting. The GASB definition of financial reporting is all about efficiency, accountability, and compliance with financial regulations. FASB considers the most important function of financial reporting to be the presentation of the company’s value to the shareholders.
3. The objectives of a business and a government are entirely different. The difference in objectives and operations is the reason that governmental accounting systems are different from business accounting systems (Avenir, n.d.). The money collected by the government is used in the provision of services to its people. Business revenue is used to expand the business and pay off creditors and other expenses. Governments prioritize budgets while businesses prioritize returns on investments and profits. Governmental financial statements list different types of taxes in its revenue section. Businesses do not list taxes in their financial statements. Rather, these financial statements show the sales of the business as revenue earners. Furthermore, businesses have to incur expenses in order to make revenues. Governments do not need to spend to generate revenue as all the citizens and business institutions in the country are required to pay taxes, a government’s main source of revenue.
4. It is true that governmental entities should have a greater accountability than for profit entities. The taxes the government collects are supposed to pay for the services the government provides to every citizen in the country. These services are for the collective good of all the people regardless of economic class. The services also go a long way in ensuring equality and class redistribution in the society. The taxes are supposed to benefit each citizen because it is mandatory that every citizen pay his taxes (Brautigm, Fjeldstad, & Moore, 2008). On the other hand, individuals have a choice of whether or not to invest in a business entity. The choice to invest lessens the accountability the business has to the society. According to the shareholder value theory, the only responsibility that a company has is to maximize the profits for its shareholders. In this sense, businesses are majorly accountable to their shareholders. Therefore, the government should be more accountable in this respect.
Avenir, R. (n.d.). Government Accounting Vs. Profit Business Accounting. AzCentral.com. Retrieved on 2/3/2016 from http://yourbusiness.azcentral.com/government-accounting-vs-profit-business-accounting-8114.html
Brautigm, D., Fjeldstad, O., & Moore, M. (2008). Taxation and State-Building in Developing Countries: Capacity and Consent. Cambridge, UK: Cambridge University Press.
Marsh, T., & Fischer, M. (2011). FASB/GASB Recognition and Reporting Differences: a Non-Profit Sector Perspective. Journal of Accounting and Finance, 11 (1): 21-30.