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Understanding state and local financial reporting

What are three key components a financial report user must know to understand state and local governments?

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Governmental and not-for-profit organizations differ in many important ways from business organizations. Accounting and financial reporting for governmental and not-for-profit organizations is also markedly different from accounting and financial reporting for businesses. Accordingly, an understanding of how these organizations differ from business organizations is essential to understanding the unique accounting and financial reporting principles that have evolved for governmental and not-for-profit ...

Solution Summary

Governmental and not-for-profit organizations differ in many important ways from business organizations. Accounting and financial reporting for governmental and not-for-profit organizations is also markedly different from accounting and financial reporting for businesses. Accordingly, an understanding of how these organizations differ from business organizations is essential to understanding the unique accounting and financial reporting principles that have evolved for governmental and not-for-profit organizations.

In its Statement of Financial Accounting Concepts No. 4, the Financial Accounting Standards Board (FASB) noted the following three key components that a financial report user must know in order to distinguish governmental and not-for-profit entities from business organizations (FASB, 1980, p. 11):

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