The Government Accounting Standards Board (GASB) order number 56 was introduced on April 16, 20098, and it became effective immediately. The order is called Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards. The order contained a combination of accounting and financial reporting information previously found in the American Institute of Certified Public Accountants auditing literature. The document focuses on related party transactions, going concern considerations, and follow up events.
The Essence of Order 56
The order was produced as an effort by the GASB to codify all allowed general codes of accounting for state and local governments, so they are accessible from one point. The accessibility provided by the order ensures that certified public accounts are better placed on applying accounting principles. The code allows the certified public accountants to access relevant literature easily and makes the process less time-consuming. One of the areas that the document pays attention to is related to parties' interactions. Under this principle of accounting, both state and local governments disclose some relevant information. For instance, in the form of a substance is altered because of related parties' involvement, the financial statements should acknowledge the transaction substance instead of recognizing its legal way. Such interactions include borrowing or lending money without interest or offering products below their market rates.
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The second area covered by order 56 is subsequent events after a financial interaction. These are the events that affect the financial statement, although they occur after the date of the notice of net assets. Some of these events may need to be altered in the financial report, while others could be disclosed on the footnotes. The information issued before availing financial statements should be used to evaluate the effectiveness of such events. The financial statements are also required to be altered to show the changes. Subsequent events are such as the issuance of bonds and government facilities' loss due to natural calamities.
The third area addressed by order 56 of the GASB is the going concerns considerations. Every government is assumed as a going concern in financial accounting unless there is evidence to contradict the assumption. Any information that introduces such a contradiction should be reported to the financial statements. Accountants are required to scan for such details before making and providing financial statements for their entities.
Why did the GASB Deem the Order Necessary
The GASB deemed order 56 necessary because it can change the company's entire face of financial statements. The presence of an issue in making financial statements can change the economic reality of an organization. The failure of informing readers and investors could be deemed as misleading the stakeholder. Through the order, the government gained authoritative guidance of the government into alignment with the best practices for financial statements literature.
The Importance of Order 56 for Government Accountants
Any account performing governmental accounting services stands to benefit from the GASB order 56. It makes their work less complicated and allows them to work with better clarity and certainty. Auditors and accountants no longer have to go through loads of documents to trace the guidelines for creating financial statements.
A Journal Entry for Company A
|
Date |
Debit |
Credit |
|
10/01/2010 |
$100,000 |
|
|
10/03/2010 |
$100,000 |
A journal Entry for City Recreational Department
|
Date |
Debit |
Credit |
|
12/1/2010 |
$100,000 |
|
|
1/1/2011 |
$100,000 |
A journal Entry for A Profit Retail Store
|
Date |
Debit |
Credit |
|
9/1/2010 |
$200,000 |
A Journal Entry for a local city bus park
|
Debit |
Credit |
|
$200,000 |
A Journal Entry for Non-Profit Organization
|
Date |
Debit |
Credit |
|
12/1/2011 |
$200,000 |
|
|
2012 |
$200,000 |
