America's Audited Annual Report - Arizona Society of CPAs

By Michael G. Doorley, CPA (NY)

Certified Public Accountants prepare, audit, analyze, and rely on audited financial statements throughout their careers. Yet one of our nation’s most important audited financial reports remains unfamiliar to many members of our own profession.

The Financial Report of the United States Government is America’s audited annual report. Produced each year by the U.S. Department of the Treasury, in coordination with the Office of Management and Budget (OMB), the Financial Report presents the federal government’s audited financial statements, prepared using accrual accounting in accordance with federal accounting standards. Like the annual reports of public companies, and generally nonprofits and state and local governments, it includes management’s discussion and analysis, audited financial statements and notes to the financial statements, and the independent auditor’s report.

Despite its significance and online availability, the report receives relatively little media or public attention. Former Congressman Jim Cooper once described it as “one of the best-kept secrets in America.” More than fifteen years later, his observation remains remarkably accurate. For CPAs, that is reason enough to become familiar with it.

An Important Public Financial Report

Public discussion of federal finances most often focuses on economic growth, inflation, employment, interest rates, taxation, government spending, the annual federal budget deficit and national debt. Those issues are important and deserve thoughtful discussion.

The Financial Report complements those discussions by providing audited, accrual-based financial information about the federal government’s financial position, operating results and long-term financial condition.

Its importance is emphasized in the Executive Summary itself. The Secretary of the Treasury, the director of the OMB, and the comptroller general of the United States jointly emphasize that the information presented in the Financial Report is important to all Americans. Their message reflects a shared belief that informed discussion of the nation’s financial position should be supported by reliable financial information.

The accounting profession has expressed a similar commitment to improving public understanding of the nation’s finances. The AICPA supported the bipartisan Fiscal State of the Nation Act. This legislation would require the congressional budget committees to conduct an annual joint hearing to receive a presentation from the comptroller general regarding (1) the Government Accountability Office’s audit of the financial statement of the executive branch, and (2) the financial position and condition of the federal government. Although the legislation has not been enacted, the AICPA’s support reflects the profession’s longstanding commitment to transparency, accountability and improving public understanding of financial reporting. For CPAs, these affirmations underscore the significance of the report as an important public financial document.

Understanding the Federal Government’s Financial Statements

The Financial Report is prepared using accrual accounting, the same accounting framework familiar to every CPA.

Like other audited financial statements, it contains a balance sheet, statement of net cost (the federal government equivalent to an income statement), statement of operations and changes in net position, extensive notes to the financial statements and required supplementary information. Collectively, these statements provide readers with a broader understanding of the federal government’s finances and financial position than annual budget information alone.

That distinction is particularly important. Most media attention focuses on the annual federal budget deficit because it measures approximately how much the federal government needed to borrow during the fiscal year. The Financial Report also presents net operating cost, the federal government’s accrual-based measure of annual financial performance — described in the Financial Report as the “Bottom Line”.

Every CPA understands why these two measures differ. Cash-based measures report financing requirements. Accrual-based measures recognize revenues and expenses in the periods in which they are earned or incurred. Both are important because they answer different financial questions.

The difference between the two measures can be significant. For example, in fiscal year 2022 the federal budget deficit was approximately $1.4 trillion, while net operating cost was approximately $4.2 trillion. These figures are not contradictory. They simply measure different aspects of the federal government’s annual financial performance. Changes in actuarial assumptions, veterans’ benefits, federal employee pensions, environmental liabilities, insurance programs and other long-term obligations can significantly affect accrual-based operating results without immediately affecting annual cash flows.

For CPAs, understanding both perspectives is second nature. That same perspective is valuable when reviewing the federal government’s audited annual report. Like any audited annual report, its purpose is not to advocate but to present reliable financial information.

Looking Beyond Annual Operating Results

CPAs also know that annual operating results tell only part of the financial story. Every comprehensive financial analysis eventually asks another question:

What is the organization’s financial position?

The Financial Report answers that question through the federal government’s balance sheet. For fiscal year 2025, the federal government reported approximately $6 trillion in assets, $48 trillion in liabilities and a negative net position of approximately $42 trillion (exclusive of Heritage and Stewardship assets). These amounts reflect obligations recognized under federal accounting standards and provide important information about the government’s long-term financial condition. As with any audited financial statements, the accompanying notes provide essential context for understanding the reported amounts and the assumptions underlying them.

Understanding these figures does not require agreement on fiscal policy. Reasonable people will continue to hold different views regarding taxation, government spending, entitlement programs, borrowing and debt management. The purpose of the Financial Report is not to resolve those policy debates. Its purpose is to provide reliable, independently audited financial information that contributes to a more complete understanding of the federal government’s finances.

For CPAs, this approach is familiar. Throughout our careers we have relied upon audited financial statements to evaluate an organization’s financial position, operating performance, liquidity, commitments and long-term obligations. The Financial Report provides the same disciplined financial perspective for the federal government.

Why This Matters to Arizona CPAs

Arizona CPAs help clients interpret complex financial information and explain what it means in one of the nation’s fastest growing and most dynamic state economies. Whether advising closely held businesses, publicly traded companies, healthcare organizations, nonprofit organizations, tribal enterprises, municipalities, school districts, or rapidly expanding technology and semiconductor companies, the Financial Report offers valuable insights to broaden their perspective.

Federal fiscal decisions influence many aspects of Arizona’s economy, including defense and aerospace, semiconductor manufacturing, water infrastructure, public lands, Native American communities, international trade with Mexico, transportation, health care and retirement programs. Understanding the federal government’s audited financial statements can therefore provide valuable context for many of the economic and financial issues affecting Arizona businesses and residents.

The mission of the Arizona Society of Certified Public Accountants is to advance the profession through education, professional excellence, advocacy and service. Becoming familiar with the Financial Report is consistent with that mission. It expands our understanding of governmental financial reporting while reinforcing the profession’s longstanding commitment to transparency, accountability and informed financial decision-making.

An Opportunity for Professional Growth

Many CPAs regularly read the annual reports of public companies, governmental entities, nonprofit organizations and clients. America’s audited annual report deserves similar attention. It is one of the few documents that brings together the federal government’s audited financial statements, management’s discussion and analysis, long-term fiscal projections and independent audit findings in a single, comprehensive publication.

Whether your professional practice includes auditing, financial reporting, taxation, consulting, education, governmental accounting or executive leadership, the report provides valuable insight into the financial reporting of one of the world’s largest governmental entities.

As CPAs, we understand the value of audited financial statements. The Financial Report of the United States Government provides an opportunity to apply that professional perspective to one of the nation’s most significant public financial documents.

Whether you agree or disagree with current fiscal policies, understanding the federal government’s audited annual report will broaden your perspective on governmental financial reporting and strengthen your appreciation for one of the most comprehensive financial reports produced each year.