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Assessing Governmental and Not-for-profit Accounting

Question 1:
Government organizations and not-for-profit organizations (NPOs) are largely governed by their budgets, not the marketplace. Consequently, the budget, not the financial statements, is the most significant financial document. Nonetheless, most financial reports do not present much detail on the budget.

How, in your opinion, can the budget be described as important, but comprise a small component of the governmental financial reports? Do you think the coverage of the budget in the financial statements is adequate? Why? Which stakeholders might be more interested in the budget rather than the financial statements? Why?
Some governments do not integrate their budgets into their accounting system or encumber the cost of goods or services for which they are committed. Both scenarios reduce the budgeting process' ability to control spending. Under what circumstances should a government choose not to encumber the cost of goods and services? Under what circumstances would a government not integrate its budget? Under these conditions, how is budgetary control achieved?

Question 2:
A political official boasts that the year-end excess of revenues over expenditures was significantly greater than was budgeted. Are favorable budget variances necessarily a sign of efficient and effective governmental management? Explain why and provide two examples to support your answer. Moreover, the variances reported in the final budget-to-actual comparisons may be of no value in revealing the reliability of budget estimates made at the start of the year. Do you agree or disagree? Provide at least two examples to support your answer.

Solution Summary

This solution discusses the purpose and use of governmental and not-for-profit accounting.