A government entity is any business that is closely associated with the government in terms of ownership and control. All state or local government entities have a financial responsibility and periodically the government examines their performance to check their financial conditions. Financial conditions on the other hand refer to the ability of such entities to meet their financial obligations in supporting the welfare of the community. This paper will discuss ways of identifying the financial conditions of state or local government entities.
The government is monitored by many interested parties such as the citizens, investors, creditors and other elected leaders. All these parties require financial reports to analyze the financial conditions of these entities. Financial reporting presents the financial position and cash flows for specific accounting periods. The state and local government entities must always provide relevant and reliable financial information to the stakeholders. Financial reporting intends to achieve two main goals; a. To enhance accountability and, b. To enable interested parties to make informed economic, social and political verdicts.
To identify the financial condition of a state or local entity, financial reporting must expose the exact financial state and the result of the entity’s operation. After identifying the financial position of the business, a comparison with the adopted budgets must be carried out. After that a compliance test is performed to ensure that the business fully adheres to the finance-related laws and regulations. Another aspect of the business that needs to be checked is its effectiveness and the efficiency of its operations. Lastly, the proper and prudent maintenance of the government’s capital in terms of assets should be checked.
For state and local government entities to enhance proper financial accountability, segregation of capital and accounting systems must be structured in a fund basis. In a government finance system, there are three types of funds; Government Funds, Proprietor Funds, and Fiduciary Fund. Government funds account for government functions in the business, while proprietor funds account for recovery costs and changes in the net assets. Lastly, the fiduciary fund account for assets held by the government as a trustee.
This essay has discussed the different ways of determining the financial conditions of state or local government entities. The paper has acknowledged financial reporting as one of the greatest indicators of a business’ financial condition. Areas to monitor in financial accountability have also been discussed as well as government fund structures.
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