All organizations need accountants to manage their financial activities, and state and local governments (SLGs) are no exception. Accounting positions with governmental organizations can be reliable career choices because cities, counties and states will always need accountants, regardless of the economy’s ups and downs.
Like all accountants, SLG accountants need a strong background in accounting methods and principles. The education to perform these duties can be obtained through programs such as a Master of Accountancy (M.Acc.). Offering the knowledge needed for SLG accounting work, this program can put candidates on the road to a rewarding and successful SLG accounting career.
Duties for State and Local Government Accountants
Like accountants in private organizations, SLG accountants must perform some basic accounting duties. These responsibilities fall into five categories, according to accounting consultant Pacific Crest Group:
- Accounts payable (money out): The accounting department makes sure that employees and vendors get paid on time. Accountants are also tasked with finding opportunities to save money, for example, determining whether discounts or incentives are available for paying certain vendors more quickly.
- Accounts receivable and revenue tracking (money in): The accounting department tracks receivables, including outstanding invoices and any required collection actions. It creates and tracks invoices and issues reminders when necessary.
- Payroll: Payroll includes making sure that all employees are paid accurately and promptly and that the proper tax is assessed and that tax payments are on time with state and federal government agencies.
- Reporting and financial statements: Accountants collect and track data all year long and use it to prepare financial reports that can be used for budgeting, forecasting and other decision-making processes. Reports are also needed for communication to investors, banks and other financial professionals.
- Financial controls: Financial controls include reconciliations and division of responsibilities, as well as determining whether proper accounting standards are in place.
Those who perform accounting for state and local governments must also work to ensure that their accounting aligns with various state and city laws and policies. This includes monitoring changes slated for implementation, so they can be implemented proactively.
GAAP for Governments
In following these duties, SLG accountants are usually expected to follow a protocol called GAAP, which stands for generally accepted accounting principles. GAAP was instituted in 1936 after irregular accounting practices contributed to the infamous stock market crash of 1929, which set the stage for the Great Depression. Issued by the Financial Accounting Standards Board (FASB), GAAP represents a common set of accounting rules, procedures and standards designed to ensure ethical and accurate reporting of financial information. While the primary goal of GAAP is to ensure compliance in reporting, it strives toward this goal by methods that improve clarity and minimize ambiguity through regulated definitions and methodologies.
U.S. law requires businesses that release financial statements to the public and companies that are publicly traded on stock exchanges and indices to follow GAAP guidelines, which incorporate 10 key concepts:
- Principle of regularity: GAAP-compliant accountants strictly adhere to established rules and regulations.
- Consistency: Consistent standards are applied throughout the financial reporting process. The accountant must fully disclose and explain any changes or updates to these standards in the footnotes of the affected financial statements.
- Sincerity: GAAP-compliant accountants are committed to accuracy and impartiality.
- Permanence of methods: Consistent procedures are used in the preparation of all financial reports. This enables a clear comparison of companies’ financial information.
- Noncompensation: All aspects of an organization’s performance, whether positive or negative, are fully reported with no prospect of debt compensation.
- Prudence: Speculation does not influence the reporting of financial data.
- Continuity: Asset valuations assume that the organization’s operations will continue.
- Periodicity: Reporting of revenues is divided by standard accounting time periods, such as fiscal quarters or fiscal years.
- Materiality: Financial reports fully disclose the organization’s monetary situation.
- Utmost good faith: All involved parties are assumed to be acting honestly.
GAAP is similar to the International Financial Reporting Standards (IFRS). Established by the International Accounting Standards Board (IASB), IFRS provides governance of accounting standards for more than 100 countries. The FASB and the IASB have been working on converging GAAP and IFRS for the last two decades; while they share similarities, several key differences exist between the two standards, including the following:
- Last in, first out (LIFO) inventory: GAAP allows this inventory cost method, and IFRS does not.
- Research and development costs: GAAP states that these costs are charged as they are incurred, and IFRS allows them to be capitalized and amortized in certain scenarios.
- Reversing write-downs: GAAP does not allow the reversal of write-downs of a fixed asset or inventory if its value subsequently increases. IFRS allows this.
While GAAP provides the framework for compliant accounting processes, most accounting for SLGs concurrently follow additional accounting and financial reporting standards by the Governmental Accounting Standards Board (GASB). This private, independent organization helps establish accounting and reporting standards for state governments already following GAAP.
GAAP Compliance
GAAP compliance is important because it makes the financial reporting process transparent and standardizes assumptions, general accounting terminology, definitions and methods. External parties can easily compare financial statements issued by GAAP-compliant entities and safely assume consistency, allowing for quick and accurate cross-company comparisons.
Without standards such as GAAP, organizations would be free to present financial information in whatever format best suited their needs. They would have carte blanche to portray their fiscal standing in the most ideal light. This could make it easier for organizations to engage in devious practices, such as fraud, which could affect investors or the public. Implementing GAAP establishes a level of trust that can drive key decisions in the public and private sectors. Today, all 50 state governments prepare their financial reports according to GAAP.
While GAAP has been part of the accounting industry since 1936, it has experienced various changes that impact various accounting processes. In 2022, for example, GAAP accounting standards regarding credit losses, pledging and recourse, balance sheet offsetting, and depreciations from superseded guidance were updated. Accountants for SLGs must be aware of these changes as they occur and follow evolving standards as they are implemented.
While these changes may require getting used to for industry veterans, those new to the scene may be better prepared to embrace emerging practices due to their limited frame of reference. With fresh education in the most up-to-date techniques and knowledge, they stand ready to tackle the challenges of accounting in today’s world.
Pursue a Career in State and Local Government Accounting
While various practices and regulations may occasionally be adjusted, consistency remains the backbone of SLGs. This consistency is present in the accountant field as a whole — as long as there is government and commerce, accounting will be a necessary profession. This can make the role of SLG accountant a reliably steady career path.
The University of North Dakota’s online M.Acc. program can help you become an accounting professional ready for the unique challenges of SLG accounting. Our program is designed to help you master accounting principles as well as related necessary skills, such as GAAP compliance, for a successful career in accounting at the highest levels. Learn how we can help guide you toward your ideal career path.
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Sources:
Association of Certified Fraud Examiners, Government Accountant
CFA Institute, IFRS: International Financial Reporting Standards
Governmental Accounting Standards Board, About the GASB
Investopedia, “Government Financial Careers: What to Expect”
Investopedia, “Stock Market Crash of 1929”
Pacific Crest Group, Key Functions of Your Accounting Department