United States

Government accounting has been viewed historically as a key
element in the movement from absolute power, (i.e., the

government or a king or emperor) to relative power (i.e., a
shared model of government). Under the shared model of
government, government accounting was used by a parliament
to limit the king's power to (1) spend public money, (2) raise
taxes to cover the expenditures, and (3) determine the purpose
of the expenditure. The use of governmental accounting
remained unchanged during the evolution into modern
democratic systems.
Thus government accounting requires the executive to (1) state
the amount, nature, and purpose of the planned expenditure
and the taxes needed to fund it, (2) ask for and obtain approval
from the legislature, and (3) comply with the expenditure
authority—appropriation—granted by the legislature and
demonstrate such compliance. Under government accounting,
the legislature is allowed to steer and control the behavior of the
government.
The basic foundation of governmental financial accounting and
reporting in the United States was established by the
Governmental Accounting Standards Boards (GASB) in its
"Objectives of Financial Reporting," which stated that the
purpose of financial reporting is to provide information to
facilitate decision making by various groups (GASB, 1987). The
groups were defined as (1) citizens of the governmental entity,
(2) direct representatives of the citizens, such as legislatures
and oversight bodies, and (3) investors, creditors, and others
who are involved in the lending process. Although not
specifically identified, intergovernmental agencies and other
users have informational needs similar to the three primary user
groups. While the three user groups have overlapping
membership with corporate financial information users, citizens
and legislative users are unique to governments. The use of
governmental accounting information centers on political, social,
and economic decisions in addition to determining the
government's accountability.
Accountability (GASB, 1987, 56-58) was identified as the
paramount objective of governmental financial reporting
because it is based on the transfer of responsibility for
resources or actions from the citizens to some other party, such
as the management of the governmental entity. The
assessment of accountability is fulfilled when financial reporting
enables financial data users to determine to what extent
current-period costs are financed by current-period revenues.
Two basic types of budgets are used by governments and are
the same as those used by corporate entities—an annual
operating budget and a capital budget. Governmental annual
operating budgets include estimated revenues and
appropriations for expenditure for a specific fiscal year. Capital
budgets control the expenditures for construction projects and
fixed asset acquisitions. Operating or capital budgets are
recorded in the accounting system as a means of control or
compliance.
Many governmental entities are required by law to maintain a
balanced budget in that revenues must equal or exceed
appropriations; the latter situation results in a budgetary
surplus. If a budgetary deficit occurs in a governmental entity
with a balanced-budget requirement, additional appropriations
must be enacted by the legislative process.
Governmental accounting uses a fund accounting structure as a
means of controlling resources. That is, each type of financial
activity is segregated into a separate set of self-balancing asset,
liability, and net asset accounts. GASB codification identifies
three fund groups—governmental, proprietary, and fiduciary
(GASB, 1999, Sections 1100.103 and 1100.105). Governmental
funds are used to account for financial resources used in the
day-to-day operations of the government. Proprietary funds are
those used to account for the government's business-type
activities where fees are charged for the services rendered, for
example, utility services. Fiduciary funds are those used to
account for funds held by the government in trust for others that
cannot be used to support the government's programs, for
example, an employee pension fund.

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Government accounting has been viewed historically as a key

element in the movement from absolute power, (i.e., the

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