Government and Not-for-Profit Accounting, Binder Ready Version: Concepts and Practices, 7th Edition Class Notes

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Chapter 1Chapter 1The Government and Not-for-Profit EnvironmentIn the first session or two, (after addressing course mechanics–the syllabus, policies,etc.) I present the objectives of the course.I note that my priority ranking of theobjectives is likely to be close to the reverse of that of the students.I emphasize thatthe course will, in fact, prepare students for the CPA exam, but that preparation for theCPA exam preparation is not the course’s primary objective.I then ask the students why we have a course in governmental and not-for-profitaccounting when we have no such similar courses for other “industries.”Or, to put inanother way, why we have two standard boards–one for government; the other for allother types of entities.In the course of the discussion that ensues, I try to key on thepoint that a central purpose of accounting is to measure entity performance.In thebusiness sector, the objective of the entity is to earn profit; hence the financialstatementsfocusonprofit.Governmentalandnot-for-profitorganizationshaveobjectives other than profit; therefore it would be no sense to focus profitability.I start the discussion by asking the students what they did in the morning right aftergetting up. For example, using the water, dropping of their kid to school, the road theytravelled on, the streets etc–it is all public sector and is part of every facet of their life.I also emphasize the importance of the Public Sector (PS) by showing a video from theAGA that states that the PS is 50% of the economy.Additionally, most of you(addressing to the students)can expect to have some involvement with government andnot-for-profit entities during your professional careers, either as aController/CEO of agovernmental/NFP entity, as an auditor with a public accounting firm orStateAuditor,or as an accountant or financial manager with such an entity, be on the Board of anNFP or even hold a public office.I try to convince the students that governmental and not-for-profit accounting is farmorechallengingthanbusinessaccounting.Ingovernmentalandnot-for-profitaccounting we face all of the same issues as in business accounting (i.e. manygovernments and not-for-profits engage in business-type activities), plus many more.Examples:We have first to determine the objectives of the entity, then measure how wellthey have been achieved (I engage in a brief discussion of what are theobjectives of organizations with which they are familiar, such as a policedepartment or a university).In making capital budgeting decisions in business, we typically compare costswithbenefits–i.e.cashinflowswithcashoutflows.Innot-for-profitorganizations the benefits are not easily defined, let alone measured (e.g.whatis the benefit of a new fire station?; what is the value of the lives that might besaved?).

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