Academic journal article The Journal of Government Financial Management

The Federal Government's Annual Financial Report: Evolution and Importance, and Outreach

Academic journal article The Journal of Government Financial Management

The Federal Government's Annual Financial Report: Evolution and Importance, and Outreach

Article excerpt

Private sector companies issue Form 10-K reports annually to provide the public with such information as company history, organizational structure, financial results and other important information. The 10-K is a vital source of information about companies, large and small, particularly for investors, and especially concerning a company's audited financial results. Similarly, but not nearly as well-known, the federal government issues its own audited financial report to its 'investors' and 'shareholders.' Since FY 1997, the U.S. Department of the Treasury (Treasury), in cooperation with the Office of Management and Budget (OMB) and the U.S. Government Accountability Office (GAO), has issued the government's annual Financial Report of the U.S. Government (FR). Within the past decade, the government developed a Citizen's Guide (Guide) to the FRto more effectively communicate this important information to the public. However, the history and evolution of both the FR and the Guide can be traced back much further - as far back as our founding fathers.


The Treasury Act of 1789 created the Treasury, establishing an auditor and comptroller within Treasury. The first Treasury Secretary, Alexander Hamilton, presented the First Report on the Public Credit to Congress on Jan. 9, 1790, and in 1802, President Thomas Jefferson is quoted as stating:

We might hope to see the finances of the Union as clear and intelligible as a merchant's books, so that every member of Congress and every man of any mind in the Union should be able to comprehend them, to investigate abuses and consequently, to control them. 1

Over the next two centuries, particularly during the 20th century, the evolution of federal government financial accounting and reporting would be marked by a number of key milestones, including, but not limited to: ^


While the GMRA made preparing the CFS a statutory requirement, the origins of the FR, as we know it today, can be traced back to the early-1970s. Former Comptroller General of the United States and Arthur Andersen (Andersen) partner, Charles Bowsher, recounted that in 1973, then Andersen Chairman, Harvey Kapnick, was inspired to initiate a research project by a combination of: (1) discussions with overseas colleagues about their concerns regarding the lack of meaningful accountability reporting by the U.S. Government; (2) rising federal deficits and the financial distress being experienced by many cities and states, and; (3) a Fortune magazine article authored by Carol Loomis entitled, "An Annual Report for the Federal Government" (May 1973),2 which included Fortune's own perception of what federal government-wide financial statements would look like using a corporate model. Kapnick viewed this confluence of concerns and interest as an opportunity to explore the potential for creating a set of financial statements for the U.S. government based on a private-sector model and focusing on accrual accounting concepts and methods.

Kapnick turned to Bowsher, then an Andersen colleague, to lead a project team to prepare prototype CFS by compiling data from a series of public reports issued by Treasury. Andersen's report, "Sound Financial Reporting in the Public Sector," was released on Sept. 10, 1975, covering fiscal years 1973 and 1974. Andersen's efforts led to Treasury's implementation of a plan, under then Secretary William Simon and Fiscal Assistant Secretary David Mosso, to prepare its own version of prototype government-wide CFS the following year. With the help of an advisory committee, including Kapnick, Mosso, Loomis, then Comptroller General Elmer Staats, and executives from private sector accounting firms, thinktanks, and academia, Treasury produced its first prototype CFS in October 1976 for fiscal years 1975 and 1974. Secretary Simon's opening statement in that report was not only reflective of Thomas Jefferson's sentiments nearly 200 years earlier, but a foreshadowing of future efforts:

"The democratic process works best when the citizenry is wellinformed. …

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