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Budgeting and Financial Reporting in Government

The scope of public budgeting

Public budgeting is a policy by the government that forecasts revenues and expenditures for a fiscal year. A fiscal year is usually twelve months between which resources are allocated to any sector in the economy with the highest opportunity cost. A fiscal year is usually different from a typical calendar year. Public budgeting involves dividing society’s economic, social, and financial resources between the public and the private sector as well as allocation of such resources among competing public sector needs (Lee, Johnson & Joyce, 2008). Through complex channels, the government gathers information on what is desired and after proper assessment, institutes the decision-making mechanism. The choices made by the government are guided by public perceptions and interests, partisan politics, and altruism. The public budget has wide and drastic implications and, therefore, economists view it as a vital tool for the expression and execution of government policies. Budgeting is an intricate process that involves setting up goals and objectives and subsequently allocation of resources to achieve them. It is an integral instrument for strategic planning especially due to competing interests within the government with every sector of the economy bargaining for a share of resources. According to Lee et al. (2008) budgeting explores an organization’s past utilization of resources, cost incurred, and formulation of financial reports for future budget periods. Public budgets act as an administrative and financial tool, for instance, assigning duties and responsibilities among the executive, legislature, and judiciary. Ideally, a budget should not be prepared as part of a funding proposal, then taken out, and dusted when it is time to do a financial report for the financier. A budget is a living tool that must be consulted in day-to-day work, checked regularly, monitored constantly, and used creatively.

Philosophy of public finance

Golembiewski and Rabin (1997) argued that budgetary decisions affect the performance of both the federal and local governments. Most countries have a devolution system where local governments have the authority for the provision of services and are, therefore, entitled to raise revenues through taxation or borrowing. Examples include property tax and sales tax. The central government provides services on a higher level such as maintenance of interstate highways, welfare services, and higher education. Though the central government provides limited services to the local states, it still plays a pivotal supervision role to ensure services provided are of high quality. The federal government’s role in the provision of services should be limited and instead should concentrate on making access to financial information on its operations readily available.

The contrast between government and non-government accounting

Accounting is a fundamental system that serves to instill integrity and honesty in the public sector. It is the process of recording financial transactions, that is, receipts and expenditures, according to laid down rules and standards. These transactions should be recorded in a manner that would allow independent auditing in the future. Government accounting differs slightly from business accounting (non-government accounting). Business accounting adheres to generally accepted accounting principles (GAAP) which have several distinct features. GAAP categories financial accounting and managerial accounting as two separate topics. Whereas corporate management has the discretion over the budget formulation and cost accounting, it’s reporting to investors and creditors is extremely controlled. Consolidated and audited financial statements should be published annually for the public to scrutinize. This is an exception in government accounting. The regulation of financial reporting is comparable to the oversight role of the government. A major difference with business accounting is the timing of transactions. They are several methods of determining when a revenue or expense item should be recorded. Accrual accounting demands financial transactions be recorded when activities generally occur. Receipts are recognized when earned while expenses are recognized when incurred irrespective of whether the payment of goods and services has been made. Cost accounting is concerned with the period a resource was utilized in the production of goods and services. For instance, gasoline purchased for a state department is accounted for when the gasoline is consumed. Additionally, cost accounting requires the purchase of fixed assets such as land and equipment not to be considered as costs in the year of purchase rather depreciated over the life span of the goods (Bowsher, 1985).

Financial reporting as an aspect of budgeting

The government issues financial statements based on standards set by GASB (Government Accounting Standards Board). These documents information such as changes in assets from year to year and long-term aspects of pension funds. Financial reporting assists federal and state governments to be accountable to the public and fulfill their duties such as facilitating access to information.

References

  1. Bowsher, C.A. (1985).Governmental Financial Management at the Crossroads: Public Budgeting & Finance, Vol. 5, No. 2, pp. 9-22
  2. Golembiewski, T.R. & Rabin, J. (1997).Public budgeting and finance: Markel Dekker
  3. Lee, R.D., Johnson, P.G., & Joyce, P.G. (2008).Public Budgeting Systems: Jones and Bartlett

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StudyKraken. "Budgeting and Financial Reporting in Government." January 15, 2022. https://studykraken.com/budgeting-and-financial-reporting-in-government/.

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StudyKraken. 2022. "Budgeting and Financial Reporting in Government." January 15, 2022. https://studykraken.com/budgeting-and-financial-reporting-in-government/.

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StudyKraken. (2022) 'Budgeting and Financial Reporting in Government'. 15 January.

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