The need for governmental accounting education has never been greater in the United States, as governments at the federal, state, and local levels face a wave of impending personnel retirements. Last year’s GAO report to Congress on “High-Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others” (GAO-17-317; http://bit.ly/2Gkx4wu) identified six government-wide occupational areas with mission-critical skills gaps. One of these skills gaps is in the area of auditing, which is typically the domain of accountants (other related skills gaps include mathematics, cybersecurity, and acquisition, arguably also within the practice areas of accountants providing services in valuation, analytics, statistics, and corporate finance). In addition, according to the U.S. Office of Personnel Management (OPM) data, the need for government accountants and auditors will grow as more than 34% of federal employees on board by the end of fiscal year 2015 will be eligible to retire by 2020 (p. 73).
Meeting a Public Need
As the director of the Rutgers Master in Accountancy in Governmental Accounting Program, the author is increasingly aware of the need for the academic training of governmental accounting and auditing professionals in the public sector. Undergraduate accounting programs do not adequately cover this area. In many universities, governmental accounting is covered only in an advanced accounting course over a 1–2 week period, sometimes as an elective course. The primary goal in these colleges is to prepare students for the GNP section of the CPA exam. Very little is provided to students in terms of other areas in governmental financial management. Due to the interdisciplinary nature of public sector governmental accounting positions, an urgent need exists for programs that require students to learn not only about governmental accounting and auditing, but also other areas such as public finance, budgeting, information systems, and ethics. A mix of governmental accounting, public policy, and public administration topics must be covered for a program to be successful. It is challenging for a graduate program in governmental accounting to be offered through the accounting department at a university’s business school.
In my personal interviews and conversations with students in the Rutgers program, I have found that very few employees in public sector jobs start off with a solid background in governmental accounting education. Most of these employees are expected to learn the principles and practices on the job. For this reason, many of these employees who aspire to obtain senior-level positions are interested in furthering their academic skills by enrolling in a graduate program in governmental accounting. In addition to the employees of government agencies, under the current guidance from the federal Office of Management and Budget, CPA firms that work in this area are required to utilize staff possessing specialized knowledge.
How Governmental Accounting Is Unique
- The emphasis is on accountability.
- Fund accounting is used.
- Different bases of accounting and measurement are used—the modified accrual basis and flow of financial resources.
- Budgets are legal documents that need to be integrated into the accounting system.
- Two sets of financial statements are produced—the modified and full accrual basis.
- Encumbrance accounting, which also needs to be integrated into the accounting system, is used.
- The treatment of long-term debt and capital assets is different.
What Makes Government Accounting Different?
The Governmental Accounting Standards Board (GASB), which sets accounting standards for state and local governments as well as governmental nonprofit entities, issued a white paper on why governmental accounting and financial reporting is—and should be—different (http://bit.ly/2GHhsqF). It outlines the need for accounting and financial reporting standards for governments and nonprofits to be distinct due to the unique environment in which these entities operate. This environment is fundamentally distinct from private businesses and public corporations, which operate for the benefit of their stockholders rather than stake-holders. The information needs of the users of government financial statements are different from the needs of the users of a publicly traded corporation. Governments also obtain funding primarily from taxpayers, which often does not bear a direct relationship to the services that they received. These forms of non-exchange transactions are unique in the government environment and are distinct from businesses that receive revenues from exchange transactions involving a willing buyer and seller.
It is important for taxpayers to collectively assess the value that they receive in return for the resources that are provided to governments. Performance data, which involves examining the inputs, outputs, and outcomes, is fundamentally important to governments. Governmental accounting and financial reporting standards aim to address this need for public accountability through information provided to various stakeholders regarding how public resources are required and used. A fundamental issue in determining accountability is the notion of inter-period equity, which looks at whether current resources are sufficient to meet current service costs and whether current costs are shifted to future taxpayers, as well as whether the government’s ability to provide services has improved or deteriorated from the previous year.
Another environmental difference is the relative longevity of governments’ existence. Despite the fact that governments do not operate in a competitive marketplace, there is virtually no threat of liquidation. For this reason, there are no equity owners and citizens collectively decide the public policy that they want their community to pursue through the annual budget process. The budget document outlines citizens’ desire for service priorities and becomes the legally authorized spending authority, while also providing creditors information on the government’s ability to raise taxes and to repay debt. Net income and earnings have no meaning to stakeholders and users of government financial reports.
An Educational Priority
The need to academically prepare the next generation of government accountants and raise interest among students in serving in governmental accounting positions should be a priority for the accounting profession as a whole. Given the financial challenges that all levels of governments currently face, this is truly an urgent task.
