Why Governmental Accounting and Financial Reporting Is-and Should Be-different

Throughout our class lectures, our textbook, and in the article titled Governmental Accounting Standards Board’s Why Governmental Accounting and Financial Reporting Is-and Should Be-Different, we the students were given five environmental differences between governments and for-profit business enterprises. The five environmental differences as follows: organizational purposes, sources of revenue, potential for longevity, relationship with stakeholders, and role of budget. First, organizational purpose is described to as a government organizational purpose to provide public services for the well-being of citizens regardless of profit. Some of these public services are education, public safety, transportation, and social services. Whereas a for-profit business’s organizational purpose is to generate a profit for the owner while providing services to the public. Second, sources of revenue state that it’s for-profit business’s source of revenue is its net income, which is total revenues (sales) minus total expenses.

On the other hand, a government’s source of revenue is mainly from taxes. Third, is potential for longevity. The article explains that state and local governments hardly go out of business because they are given the ability to tax and for that reason, governments view accounting operations on a long-term basis instead of a short-term basis. While, governments concentrate on maintaining services and how they will meet their future demands. Next, is relationship with stakeholders. This is stated that since governments main source of revenue is taxes, which are mostly known to be paid by citizens, they are required to account for these public funds, while on the other hand a business can use its resources as it chooses. Lastly, is the role of budget. The article explains that businesses prepare a budget for planning and control purposes and are normally not provided to creditors or investors: while, governments on the other hand, prepare a budget which is expressed as a public policy, which prevents spending outside their budgetary authority.

Moreover, there are a couple of differences between the private and public-sector organizations. For instance, public and private sectors have different goals and motives. They are overseen with different principles. Groups oversee their actions and procedures throughout. An example is how organizations that are in the private sector have more freedom to operate freely. As for public organizations, they aren’t as free. They are governed by rules, laws, and traditions. A significant difference between the two is their goals. For example, the public sectors main focus is to assist the general public and look after their interests. As for the private sector, their main concern is creating markets in order to enable earning profits.

The private sector must answer to stakeholders, customers, to the investors, and the board and directors. The difference in their goals and external forces affect the way different kinds of organizations operate. For instance, public organizations often can’t choose their goals. As for the private sector, they set their own goals and focus on their resources on accomplishing them. Public organizations continuously find themselves pressed by legislative obligations and often have to try to accommodate a host of other organizations that can have conflicting goals. Therefore, public and private organizations face challenges that are unique to each sector.