By: Sheila Weinberg

Sheila Weinberg is the CEO and founder of the Institute for Truth in Accounting.

When I first started to investigate federal budgeting and accounting issues I was shocked to discover that the government did not prepare consolidated financial statements until 1995. Now there is a discussion going on regarding whether the federal government should continue to spend the time, effort and resources to prepare these statements.

The answers to why audited federal financial statements are needed can be found in the Federal Accounting Standards Advisory Board, Objectives of Federal Financial Reporting Statement of Federal Financial Accounting Concepts, Number 1 (SFFAC#1).

“The federal government derives its just powers from the consent of the governed. It therefore has a special responsibility to report on its actions and the results of those actions. These reports must accurately reflect the distinctive nature of the federal government and must provide information useful to the citizens, their elected representatives, federal executives, and program managers. Providing this information to the public, the news media, and elected officials is an essential part of accountability in government. Providing this information to program managers, executives, and members of Congress is essential to planning and conducting government functions economically, efficiently, and effectively for the benefit of society.”“Financial reporting by the federal government provides information for formulating policy, planning actions, evaluating performance, and other purposes. In addition, the processes of preparing and auditing financial reports can enhance the government's overall accountability structure by providing greater assurance that transactions are recorded and reported accurately, that consistent definitions are used to describe the transactions, etc. Thus, federal financial reporting helps to fulfill the government's duty to manage programs economically, efficiently, and effectively and to be publicly accountable.” “Because a democratic government should be accountable for its integrity, performance, and stewardship, it follows that the government must provide information useful to assess that accountability. Similarly, because a democratic government is accountable for operating economically, efficiently, and effectively, for the purposes intended by citizens and their elected officials, certain other conclusions logically follow.”
“In a democracy, appointed officials are accountable to their superiors, and elected officials are accountable to the citizens for each of these kinds of accountability. Accounting and financial reporting can help elected and appointed officials to maintain and to demonstrate their accountability.” “Citizens are interested in many aspects of the federal government. They are concerned about individual programs, candidates for office, the services the government provides, and the fiscal responsibility of their elected and appointed representatives. Citizens receive and pay for government services and therefore are concerned with the outputs and outcomes of those services and the efficiency with which they are provided. Citizens are concerned about their families and, in particular, with the financial burden their children and grandchildren will inherit. As individuals, citizens typically have limited time and ability to analyze reports about their government; they want and rely on assurances that the government is functioning economically, efficiently, and effectively.” “Federal financial reporting should assist report users in assessing the impact on the country of the government's operations and investments for the period and how, as a result, the government's and the nation's financial conditions have changed and may change in the future.”
“Federal financial reporting should provide information that helps the reader to determine whether:
• the government's financial position improved or deteriorated over the period,
• future budgetary resources will likely be sufficient to sustain public services and to meet obligations as they come due, and
• government operations have contributed to the nation's current and future well-being.”

The federal balance sheet gives citizens and their elected officials information about our government’s financial position and its deterioration. The balance sheet and statement of social insurance provides information about the amount of resources that will be needed in the future to meet our obligations as they come due. The federal statement of operations helps determine if the country “profited” from the government’s activities.

Some say that the federal government is not in the business of making a profit. Others would say that the government should not be in the business of losing hundreds of billions of dollars a year. Cash basis budgeting and managerial accounting do not provide information about the government’s overall financial results.

Some argue that the government is not in a competitive market place whose ability to attract capital depends on its production of auditable financial statements. So far our country has been fortune that our treasury bonds have been relatively easy to sell, but it appears to be getting harder. As the world’s global economy becomes more competitive, will our country be at a disadvantage, if the federal government does not issue transparent financial information?

A big argument against producing financial statements is the amount of time and resources needed, and that agencies’ efforts need to focus on their major missions. For example the defense department’s job is to defend the country, should not be bogged down in financial reporting. The defense department hires several corporations to assist them with its mission. These corporations also spend a great deal of time and resources to produce financial statements. Shouldn’t we let defense companies, like Halliburton and Blackwater, focus on our defense mission, instead being bogged down generating audited financial statements?

The revenues of the top 10 Fortune 500 companies are less than the revenues of the federal government. I am sure that these corporations spend a great deal of time and resources preparing their audited financial statements. Should we not require them to generate these statements because it takes resources away from producing their goods and services?

Federal laws require corporations to generate these statements. We should expect no less from the largest financial entity in the world, the United States federal government. Citizens of this great democracy are fortunate that the Chief Financial Officer’s Act and other legislation require the preparation, audit and publication of federal financial statements.