FINANCIAL REPORTING

The Importance Of Financial Reporting

The Importance Of Financial Reporting

Introduction

Financial reporting in government can be seen as a summary of the government's performance, or capacity, in raising, handling, and using public money. Another way of expressing the role of financial reporting is to say it goes hand in hand with accountability. Accountability is often considered one of the cornerstones of good democratic governments. Officials are given authority and responsibility and it is the task of the officials to clearly convey actions taken and whether these actions fall within the prescriptions of law and community wishes.

The importance of financial reporting to evaluate Financial Performance

Assessing performance or accounting with respect to raising, handling, and using public money is a complex issue. The criteria are many, diverse, and sometimes conflicting. In some cases there is a recognized rule or standards making body that can cover selected aspects of financial accountability. In general, however, there may be more than one rule making body. For instance, there can be governmental and private rule making bodies. Residents of the affected jurisdiction may have their own views or oversight committees. More generally, in a democratic society there are often norms that provide guidance on accountability. These norms, too, may diverge.

As an illustration, consider the disagreement that can arise over a tax decision. Is it adequate to cover current and future obligations made by decision makers; does it relate payments to benefits received; does it impose greater burdens on one group as opposed to others; and is it difficult to collect? Financial reports can be generated on all these issues.

This text focuses more on the collectivity of financial decisions made by government, state and local government in particular. How money does raise cover spending and obligations? What is the current and future financial health of the jurisdiction or sub entities covered? How do these decisions comply with the expectations of rule or standard making bodies?

Governments issue many types of financial reports, but the most encompassing and visible at the state and local level is the Comprehensive Annual Financial Report (see this chapter, lesson 2) ( CAFR ). The CAFR includes the financial statements. In this text the financial statements provide the main focus and thus the term financial statement is sometimes used interchangeably with the phrase financial report. Financial statements are fairly exacting in format and provide a quantitative look at the operating success, financial health, and ...