Accounting Question

Scenario

You are an accounting advisor working with state and local government clients. A city official sent an email asking about two citizen concerns. The first concern is about the disclosures of tax abatements required in the city’s financial statements. A constituent asked, “Why are private entities given tax breaks and how is this decided?” Your task is to explain the nature and benefits of tax abatements and their disclosure.

The second citizen asked why governments seem to use two sets of books each fiscal year, one for budgeting (fund) and one for actuals (government-wide). The citizen heard about the modified accrual basis of accounting and wants to know how it differs from regular accrual accounting and how a government keeps funds straight across different years. The citizen also wants to know how double counting is avoided if two sets of books are used to produce financial statements (i.e., reconciliation).

Directions

Write an email reply to the city official addressing the citizens’ concerns and explaining the issues.

Specifically, you must address the following rubric criteria:

Describe what tax abatements are and how they are chosen.

Explain the benefits to the public of disclosing tax abatements.

Describe the process of tracking spending variances between current and prior period (different years) financial statements.