Whereas the GASB specifies the principles of accounting to which governments must adhere in reporting on their governmental funds, it is silent on those they can use in preparing their budgets. Unless a government reports its actual results using budgetary principles or its budget using GAAP, a comparison between the budget and actual results would not be meaningful. Therefore, per Statement No. 34, the GASB requires that governments present their budget-to-actual comparisons on a budgetary basis and include a schedule that reconciles the budgetary and the GAAP amounts.

The differences between legally adopted budgets and the GAAP-based financial statements can be attributed to several factors. Among them are

  • Differences in basis of accounting. As previously noted, governments often prepare their budgets on a cash or near-cash basis, whereas their financial statements must be prepared on a modified accrual basis.
  • Differences in timing. As shown in its budget, a government may appropriate resources for a particular project rather than for a particular period. For example, in approving resources for a construction project, the government will typically establish the total amount that can be spent. It will not allocate resources to specific years. By contrast, the annual report of the fund in which the project is accounted would have to present the expenditures year by year. Moreover, governments may permit departments to carry over to subsequent years resources not spent in the year for which they were budgeted. Thus, expenditures in a particular year may not have been budgeted in that year.
  • Differences in perspective. Governments may structure their budgets differently from their financial reports. For example, a government may budget on the basis of programs. The programs, however, may be financed by resources accounted for in more than one fund. Thus, the amounts expended in each of the funds cannot be compared to any particular line item in the budget.
  • Difference in the reporting entity. GAAP requires that a government’s reporting entity include organizations that are legally independent of the government, yet, in political or economic reality, an integral part of it. For example, a city may create a financing authority—a separate legal entity—to issue bonds on behalf of the city. If the city has political control over the authority (e.g., the mayor appoints the majority of the governing board) or is responsible for its financial affairs (e.g., approves its budget), then GAAP dictates that the authority be reported upon in the city’s financial statements. Yet because the authority is a separate legal entity, the city may exclude it from its legally adopted budget.


  • Granof, Michael H., Saleha B. Khumawala, Thad D. Calabrese, and Daniel L. Smith. Government and not-for-profit accounting: Concepts and practices. John Wiley & Sons, 2016.
  • Otley, D. T. (1978). Budget use and managerial performance. Journal of accounting research, 122-149.

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