REVISED TITLE 2--"ACCOUNTING" AND APPENDIX III--"ACCOUNTING SYSTEM STANDARDS"

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89G00643R001000040006-6
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 14
• Document Creation Date: December 23, 2016
• Document Release Date: November 16, 2011
• Sequence Number: 6
• Publication Date: August 31, 1987
• Content Type: MISC

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EXECUTIVE SECRETARIAT
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OPTIONAL FORM 41 (Rev. 7-76)
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GAO
United States
General Accounting Office
Washington, D.C. 20548
Accounting and Financial.
Management Division
September 11, 1987
Heads of Departments and Agencies
procedur
frccutiue R ? s eilr
Executive Rgitr
This is an advance copy of the revised title 2, "Accounting,"
and new appendix III, "Accounting System Standards," of GAO's
Policy and Procedures Manual for Guidance of Federal
Agencies. It is being sent to selected offices to alert
agencies to the new standards. Along with the accounting and
internal control standards previously published, agency heads
must consider these new standards in accounting system
development and maintenance and in their annual reporting on
the status of systems as required by 31 U.S.C. 3512.
Additional copies will soon be available through the
Government Printing Offi4 in accordance with its normal
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GAO POLICY AND PROCEDURES MANUAL FOR GUIDANCE OF FEDERAL AGENCIES
TITLE 2--ACCOUNTING
TRANSMITTAL SHEET NO. 2-25 August 31, 1987
Effective Date: Immediately (See Below)
Material Transmitted: Revised title 2--"Accounting" and
appendix III--"Accounting System Standards"
Transmitted herewith is a newly developed appendix to title 2,.-,
providing accounting system standards and related guidance, along
with a revised title 2 to reflect minor conforming changes related
to the new appendix.
This appendix prescribes accounting system standards that agency
heads must observe in establishing, maintaining, and reporting on
their systems of accounting and internal controls as required by
31 U.S.C,. 3512. The standards apply to all manual and/or
automated systems of accounting that are under development, under
major revision, or operating in all executive branch departments
and agencies, as defined in 31 U.S.C. 102 and 3501.
The standards are based on applicable systems requirements from
the 1978 version of title 2, certain traditional ADP system life
cycle concepts, current technology, and consultation with
officials in a number of federal agencies and private firms. The
standards are intended to promote, to the maximum extent possible,
the use of systems that will provide the information needed for
effective and economical management of the government's resources
and operations and to assess management's stewardship.
The various standards are relatively broad so as to survive the
passage of time and changes in technology. Along with the related
guidance, they are intended to be complementary to the existing
accounting and internal control guidance in appendixes I and II of
title 2, as well as be compatible with the financial requirements
currently placed on departments and agencies by the office of
Management and Budget and the Department of the Treasury.
The discussion material included in this appendix is intended to
aid in interpreting and implementing the standards. It includes
references to related requirements of law or guidance published by
other central management agencies as appropriate.
All provisions that are designated as standards, i.e., that are
presented at the.beginning of each chapter under the "standards"
caption, are intended to be mandatory. Consequently, if a system
does not comply with the standards, the department or agency is
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expected to plan for and ensure compliance within a reasonable
time, in light of economic considerations.,.as well as make .
appropriate-disclosure in reports on the status of the accounting
system required by 31 U.S.C. 3512(c).
Filing instructions
Remove and destroy Present basic title 2, pages 1
through 6 and 2-1 through 2-7
Revised basic title 2, pages 1
through 4 and 2-1 through 2-8; and
appendix III, pages i-1 through 6-4
Obtaining additional copies
Each federal department and agency receives a limited number of
copies of all revisions and updates to the GAO Policy and
Procedures Manual for Guidance of Federal Agencies. Copies are,
sent to agency heads, the Offices of the Inspectors General or
other agency audit heads, and departmental financial management
offices. Additional copies are sent to other central locations in
various departments and agencies, and to congressional offices,
based on specific requests.
If you desire additional copies of this revision of title 2 and
the new appendix III or any other title, they may be obtained from
the Superintendent of Documents at the Government Printing Office
by ordering them on a subscription basis.
Charles A. Bowsher
Comptroller General
of the United States
Please retain this transmittal sheet. It is part of the document.
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Chapter Section
TITLE 2 -- ACCOUNTING
Table of Contents
INTRODUCTION
I Statutory Responsibilities
for Accounting
2 Applicability
3 Organization of This Title
ACCOUNTING PRINCIPLES AND
STANDARDS
4 Authority
5 Objectives, Concepts, and
Standards
5.1 Objectives
5.2 Concepts
5.3 Standards
INTERNAL CONTROL STANDARDS
6 Authority
7 Objectives, Concepts, and
Standards
7.1 Objectives
7.2 Concepts
7.3 Standards
ACCOUNTING SYSTEMS
Authority
Objectives
Standards
Page
2-7
2-7
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TITLE 2 -- ACCOUNTING
Table of Contents
APPENDIX I - ACCOUNTING PRINCIPLES AND STANDARDS
Introduction
Concepts
Standards
Reference to Industry Standards
Topical Index
APPENDIX II - INTERNAL CONTROL STANDARDS
Introduction
Concepts
Explanation of General Standards
Explanation of Specific Standards
Explanation of the Audit Resolution Standard
APPENDIX III - ACCOUNTING SYSTEM STANDARDS
Introduction
Accounting System Structure and Operation
Financial Reporting
Accounting System Development and Modification 4-1
Documentation 5-1
Topical Index 6-1
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TITLE 2 - ACCOUNTING
SECTION 1 - STATUTORY RESPONSIBILITIES FOR ACCOUNTING
Under 31 U.S.C. 3512(a),(b), the head of each agency is
responsible for establishing and maintaining adequate systems of
accounting and internal control. The law requires that these
systems must conform to the accounting principles, standards, and
related requirements and internal control standards prescribed by
the Comptroller General, which are contained in appendix I,
"Accounting Principles and Standards," appendix II, "Standards
for Internal Controls in the Federal Government," and appendix
III, "Accounting System Standards." Agencies shall follow these
standards unless otherwise specified by law.
To demonstrate that their systems of accounting and internal
control are operating in conformity with the accounting
principles, standards, and related requirements and internal
control standards, agencies must report annually whether their
accounting and internal control systems conform to GAO standards.
This requirement is contained in 31 U.S.C. 3512(c), the Federal
Managers' Financial Integrity Act of 1982. Agencies shall use
the accounting principles, standards, and related requirements
and the internal control and accounting system standards
contained in this and other titles when preparing their annual
statements.
The ultimate responsibility for good accounting systems for
financial statements remains with management. Good financial
management is dependent on strong financial management systems,
including accounting systems containing sufficient discipline,
effective internal controls, and reliable financial information.
Financial statements prepared in accordance with these standards
are part of the discipline and quality of the accounting system,
and it is the primary responsibility of management to ensure that
the.financial statements and accounting systems comply with these
standards.
The requirements contained in this title apply to all federal
departments, agencies, or instrumentalities in the executive
branch that fall within the definition of executive agency as
defined in 31 U.S.C. 102 and 3501. These requirements may be.
cited as "generally accepted accounting principles for the
federal government." Government corporations, which are excluded
from the definition, follow generally accepted accounting
principles promulgated by the Financial Accounting Standards
Board (FASB) and its predecessors. -
2-1
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Any guidelines and instructions that the Department of the
Treasury may issue, setting forth policies of, accounting and
reporting designed to implement the standards promulgated by-the
Comptroller General herein, should be consistent with these
standards. This includes detailed requirements Treasury may
provide for agencies to follow in accounting and reporting on
collections, budget authority, obligations, outlays, and
budgetary resources, as well as assets, liabilities, revenues,
and expenses.
This title is organized to discuss three topical areas. Chapter
2, "Accounting Principles and Standards," summarizes appendix I,
which details the objectives, concepts, standards, and related
requirements of federal government accounting and financial
reporting. Chapter 3, "Internal Control Standards," summarizes
appendix II, which details the objectives and specific internal
control standards for federal government internal control
systems. Chapter 4, "Accounting System Standards," summarizes
appendix III, which provides guidance on the design and
operational objectives for agencies' accounting systems.
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CHAPTER 2 - ACCOUNTING PRINCIPLES AND STANDARDS
Appendix I prescribes principles, standards, and related
requirements for accounting to be observed by each executive
agency. This appendix is issued after consulting with the office
of Management and Budget and the Department of the Treasury
concerning their accounting, financial reporting, and budgetary
needs and considering the needs of other executive agencies,
pursuant to 31 U.S.C. 3511.
Appendix I replaces previously issued accounting principles,
memoranda, and statements except the April 18, 1983, Comptroller
General letter "Modification of General Accounting Office
Procedures With Respect to Approval of Executive Agency
Accounting Systems."
SECTION 5 - OBJECTIVES, CONCEPTS, AND STANDARDS
Appendix I discusses accounting principles, standards, and
.related requirements of the federal government, which are
comprised of objectives, concepts, and standards for federal
government accounting and financial reporting.
Objectives are goals or aims toward which accounting and
financial reporting are directed. They are derived directly
from the needs of intended users. Two of the main
objectives of federal government accounting and financial
reporting, summarized below, are discussed in detail in
appendix I:
-- allocating resources and
-- assessing management performance and stewardship.
Resource allocation is the process of distributing budget
authority and deciding how resources will be used.
Assessing management's performance and stewardship involves
analyzing information to determine if management is
performing its program and stewardship function as the
Congress intended.
Concepts provide the underlying basis for federal government
accounting standards. They provide important assumptions in
the federal accounting environment.
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The specific concepts discussed in appendix I are:
-- reporting entity,
-- elements of financial reporting,
-- usefulness of accounting information,
-- recognition,
-- measurement, and
-- cost.
These concepts provide the foundation for consistent
application of the accounting standards.
5.3 STANDARDS
Standards provide the basis for agencies to use in
accounting for and reporting on the elements of financial
reporting. The standards prescribed in appendix I are based
on the objectives and concepts of federal government
accounting and financial reporting. In addition to
providing the basis for agency accounting and financial
reporting, the standards in appendix I provide criteria for
reviewing accounting systems in implementing the Federal
Managers' Financial Integrity Act.
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CHAPTER 3 - INTERNAL CONTROL STANDARDS
Appendix II, "Standards for Internal Controls in the Federal
Government," is issued pursuant to 31 U.S.C. 3512(b) which
requires the Comptroller General to prescribe internal control
standards to be followed by executive agencies in establishing
and maintaining systems of internal control.
SECTION 7 - OBJECTIVES, CONCEPTS, AND STANDARDS
The internal control standards, as specified in appendix II, are
comprised of objectives, concepts, and standards for executive
agency internal control systems.
The objectives of federal government internal control
systems are presented in appendix II. They are to provide
reasonable assurance that:
Obligations and costs comply with applicable law.
All assets are safeguarded against waste, loss,
unauthorized use, and misappropriation.
Revenues and expenditures applicable to agency
operations are recorded and accounted for properly so
that accounts and reliable financial and statistical
reports may be prepared and accountability of the
assets may be maintained.
Concepts, along with the objectives of internal control
systems, provide the basis for internal control standards.
As discussed in appendix II, the concepts underlying the
standards for internal control are:
1. The ultimate responsibility for good internal controls
rests with management.
-2. Internal controls should not be looked upon as
separate, specialized systems within an agency.
Rather, they should be recognized as an integral part
of each system that 'management uses to regulate and
guide its operations.
3. Internal controls are plans of organization and methods
and procedures adopted by management to ensure that
resource use is consistent with laws, regulations, and
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policies; that resources are safeguarded against fraud,
-waste-and misuse; and reliable data are obtained,
maintained, and fairly disclosed in',reports.
The Comptroller General's internal control standards are
presented in appendix II. These standards cover program
management as well as financial management, define the
minimum level of quality acceptable for internal control
systems in operation, and constitute the criteria against
which systems are to be evaluated. The standards consist of
General Standards, Specific Standards, and Audit Resolution
Standards.
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CHAPTER 4 - ACCOUNTING SYSTEMS
As required by 31 U.S.C. 3512(c), heads of executive branch
agencies are to report annually on whether their accounting
systems conform with the Comptroller General's accounting
principles, standards, and related requirements as prescribed in
this and relevant portions of other titles. Accounting system,
in this application, is the total structure of methods and
procedures used to classify and report information on the
financial position and operations of a governmental unit of any
of its funds, balanced account groups, and organizational
components. It is comprised of the various operations involved
in authorizing, recording, classifying, and reporting financial
data related to financing sources and gains, expenses, losses and
transfers out, assets, liabilities, and equity. It encompasses
the procedures and processes from the point a transaction is
authorized (initiated) through processing the data (either
manually or automatically) to issuance of financial and
management information statements and reports containing the data
in detail or summary form.
In addition to conformity with accounting principles, standards,
and related requirements prescribed in appendix I of this
document, accounting systems must be designed and operated to:
(1) demonstrate compliance with applicable laws;
(2) provide information needed by the President, the Congress
(including congressional committees), Treasury, Office of
Management and Budget (OMB), and the General Services
Administration (GSA); and.
(3) provide information required by agency managers to operate
their programs efficiently and effectively.
To help in designing and operating accounting systems, GAO
periodically issues illustrative supplements. The procedures
they illustrate are not mandatory, but they are designed to show
acceptable ways of applying the prescribed principles and
standards.
SECTION 10 - STANDARDS
The accounting system standards and related guidance are
presented in appendix III.
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