Accounting Homework Paper on Financial Statement / Audit Report Review

FINANCIAL STATEMENT / AUDIT REPORT REVIEW

            The different methods of accounting undertaken by businesses, usually depends on the size of the business and the level of operations it undertakes. The accounting methods not only defer because of the nature of a business’ task, but also according to the requirement of accounting, there are procedure that they use to calculate their financial records. The accrual accounting method is a method that is mostly applied by big business organizations. The accrual method usually accounts for its incomes even before they earn them, and also accounts for its expenses for goods and services before they incur for same. The cash method is usually practiced by smaller businesses and it accounts for its revenue after the money is received and for expenses only when the money is paid for the service provided or goods supplied.

            For instance the general fund, which usually accounts for the all received transaction received from the state government and therefore it usually uses the cash-basis accounting method. The commonwealth transportation uses the accrual accounting method because the fund, usually caters for expenditures that are related to transportation; maintenance and construction costs. The private purpose trust fund, usually uses the accrual accounting method due to the fact that it deals with trust arrangements, such as savings plans (Albrecht et al., 2007, p. 128).

            The use of these methods of different funds, enables the state to be able to avoid miscontradiction of finances due to different natural internal and external changes that may happen from time to time on the entity. However, using the different accounting methods on different funds, help the entity to be able to have a better financial plan or support in case such an incidence occurs. Proper financial and management planning usually entails positive strategies that will be required to be applied during the operations of the businesses and duties in the state (Pearson, 2014, p. 81).  

            The main purpose of the Statement No. 34 of the Governmental Accounting standards Board (GASB), is to create credibility in general financial reports and also help users understand the usefulness of the financial reports. Through this statement, accountability is an important aspect to be applied by the creators of governmental financial reports, in order to avoid the local leader making erroneous decisions, when it comes to the local area’s plan of economic development, politics and social status (GASB, 1999, p. 3).

However, from this statement, there are basic standards that must be complied with when preparing financial information for governmental entities. For instance, through the management’s discussion and analysis (MD&A), the analysis should have a proper description of the basic financial statements for the benefits of the users. The basic description of the basic financial statements are supposed to have a display of the financial reports of the government as a whole. It is also however, supposed to show different segments of the activities associated with the government and the business-type associated activities, that include those of the primary government (GASB, 1999, p. 4).

The statements also indicate that the users also need to understand the fund financial statements, that should be included after the basic financial statements. Through these statements, the users will be able to understand whether the funds given are well managed or misappropriated. Therefore, these fund financial statements are supposed to be displayed by using focused measurements and the basis of accounting required (GASB, 1999, p. 5). The given financial statements, are also required by the users of the information to have notes on the different statements such as comparing budgets. The local governments and other users will be able to understand from the notes provided what kind of difficulties the state is experiencing and will have to come up with decisions that will help overcome such challenges to development enhancement.

            The information that should be included in the financial statements, is how the carried down funds were used and evidences of any incurred expenses during the financial year. Some of the financial details provided in the statements usually show large figures of expenses. Those expenses should be included there in the statements with evidence of receipts or invoices to approve the same. However, the analysis that is usually presented by the governments should include information of these analyses, and the financial position of the operations. It is important for current and potential investors of these governmental entities to understand whether these entities have a future and whether the entities are likely to cater for their future profitability or not.

            The financial position from the financial statements and information may be stable, but in order for the users to verify that the state’s financial positions is as so as the statements and information dictate, they should ensure that the state goes an auditing process from a qualified and outside firm, that will not be biased to hide any information not provided and also free to give the level of free and fair financial position the state is at. It is a requirement that the state engages the people of the state to ensure operations are done effectively and efficiently.

References

Albrecht, W. S., Stice, E. K., & Stice, J. D. (2011). Financial accounting. Mason, OH: South-Western/Cengage Learning.

Governmental Accounting Standards Board. Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Government. (1999). GASB: Norwalk. Retrieved from http://www.gasb.org/cs/BlobServer?blobkey=id&blobwhere=1175824063624&blobheader=application%2Fpdf&blobcol=urldata&blobtable=MungoBlobs

Pearson, M. L. (2014). Virginia Department of Accounts: General Accounting. Commonwealth of Virginia. Retrieved from http://www.doa.virginia.gov/Financial_Reporting/CAFR/2013/K_Notes.pdf