A 10-K for the Taxpayer: The Federal Financial Report Provides a Comprehensive Look at the U.S. Government's Financial Metrics and Perspective on Future Issues and Challenges
[ILLUSTRATION OMITTED] The 2015 Financial Report of the United States Government counters the conventional wisdom that federal accounting is an oxymoron. The financial report is, in essence, a "10-K for the taxpayer." It has many of the same elements as a private sector company's annual 10-K report to its shareholders, including, but not limited to, statements of financial position, operating statements, and related disclosures. While a primary focus of the financial report is on the federal government's activity and results during and as of the end of its fiscal year (Sept. 30), it also provides insight on key prospective trends, including long-term fiscal sustainability. This article provides an overview of the federal financial report to help CPAs--who play an important role in guiding citizens and policymakers on financial matters--understand the information that is presented. The financial report provides a comprehensive view of the federal government's finances--its financial position and condition, its revenues and costs, assets and liabilities, and other obligations and commitments, as well as analysis of important financial issues and significant conditions that may affect future operations. Federal financial statements are prepared largely pursuant to accrual accounting principles as prescribed in federal accounting standards, which consider revenues as earned and costs as incurred (see the sidebar "The Role of FASAB"). FEDERAL REPORTING OVERVIEW The financial results and activity of more than 150 federal entities are included in the financial report, which is prepared by the Treasury Department in cooperation with the Office of Management and Budget. However, pursuant to current federal accounting rules, other entities that are often thought of as part of the federal government are excluded from the consolidated financial statements, notably the Federal Reserve System. Although the Federal Reserve has been primarily responsible for establishing and executing the nation's monetary policies, when created it was explicitly granted a degree of independence from usual executive and legislative branch controls. That is why, despite its importance to the economy and the magnitude of its assets and liabilities, under federal accounting rules, it is not consolidated in the basic statements. Still, the report provides extensive information about the Federal Reserve's relationship to the central government as well as key financial data in note disclosures. The U.S. Government Accountability Office (GAO) audits the financial report (see the sidebar "Inside the GAO's Audit Disclaimer"), and Treasury typically issues the reports within five months of the federal government's fiscal year end. The content of the financial report can be generally characterized in one of two ways: (1) traditional accrual-based financial statements with supporting information; and (2) nontraditional sustainability financial statements with supporting information. Traditional accrual-based financial reporting (in the context of financial reporting) refers to types of information that a user would expect to see in a typical corporate sector financial report (e.g., balance sheet, operating statement, and statement of cash flows). Nontraditional sustainability financial reporting refers to a distinctive feature of federal financial reporting in general and of the financial report in particular--presentation and discussion of the projections of federal revenues and expenditures for the federal government as a whole (fiscal sustainability) and for certain key federal programs (social insurance). FINANCIAL REPORTING: NUTS AND BOLTS The report contains eight basic financial statements. Some are readily comparable to those of businesses, while others are unique to the federal government. For example, the government's operating statement--the statement of operations and changes in net position--presents its costs and operating revenues. …