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According to the principles of the GASB accounting treatment, the information that is presented in the financial statements of the governmental funds should be reconciled to be provided in the government-wide financial statements. Even though the same activities are usually reported in the financial statements of funds and the government-wide financial statements, the used accounting bases are different, as well as the followed measurements (Reck, Lowensohn, & Wilson, 2012). This situation creates additional issues and barriers to recording the information in statements appropriately. From this perspective, reconciliation can be discussed as a process of reporting on aspects that are different in these two variants of the financial statements (Freeman, Shoulders, Allison, & Smith, 2012). Thus, the use of two types of accounting bases can lead to significant differences in the final numbers reported in statements.
The reconciliation procedure can address this issue. In this context, the reconciliation should be done for the fund balances, and it also involves reporting on changes in the total net assets. Furthermore, the reconciliation is expected to be completed when there are differences in reporting revenues and expenditures (Reck et al., 2012). From this perspective, it is possible to identify the typical areas and numbers that need to be reconciled before being reported in the government-wide financial statements. These particular areas recorded in the financial balance sheets and statements are the assets, long-term debts, expenses, and transfers (Reck et al., 2012). However, the main focus should be on reconciling the information regarding the capital assets.
The number of assets that are reported in two statements is usually different. The reason is that for completing the fund statements, the measurement focus is on the current financial resources (Freeman et al., 2012). It is important to note that the funds usually do not present long-term assets in their statements, and long-term liabilities are also not reported in balance sheets (Reck et al., 2012). To adjust the records related to the funds to the government-wide financial statements, it is necessary to pay attention to differences in recording capital outlays in two statements because funds present them in the form of expenditures. On the contrary, in government-wide statements, they are presented as assets (Freeman et al., 2012). Furthermore, there are also differences in reporting the disposition and depreciation related to capital assets in these statements (Reck et al., 2012). These aspects are recorded differently in the financial statements of the governmental funds and the government-wide financial statements. Therefore, much attention should be paid to reconciling these details to present accurate financial information.
While using the reconciliation procedure, it is possible to provide the fund financial statements as additions to the government-wide financial statements. The reconciliation allows integrating the financial information with the focus on standardizing the measurement that is used to record assets, revenues, and liabilities for these types of governmental organizations. When the reconciliation is completed, the summary of the made changes is provided in the government-wide financial statement. According to the GASB standards, the reconciliation can also be reported in a schedule. Moreover, it is also necessary to add a brief or detailed explanation of the changes related to the reconciliation, depending on the nature of conducted alterations in the stated numbers.
References
Freeman, R., Shoulders, C., Allison, G., & Smith, R. (2012). Governmental and nonprofit accounting. New York, NY: Prentice Hall.
Reck, J., Lowensohn, S., & Wilson, E. (2012). Accounting for governmental and nonprofit entities. New York, NY: McGraw-Hill Education.
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