Every year, CPAs review audited financial statements for corporations, nonprofit organizations, pension plans, municipalities, healthcare systems, and financial institutions. Balance sheets, long-term liabilities, internal controls, auditor opinions, and accrual accounting principles are fundamental to the profession’s understanding of financial condition and sustainability.

Yet one of the world’s largest and most complex reporting entities—the federal government—produces an audited annual financial report that remains largely outside mainstream financial discussion.

The Financial Report of the United States Government, produced annually by the U.S. Department of the Treasury in coordination with the Office of Management and Budget (OMB), presents a consolidated accrual-based view of the federal government’s financial position and operating condition. The report is audited by the Government Accountability Office (GAO) and prepared in accordance with standards issued by the Federal Accounting Standards Advisory Board (FASAB).

Despite its scale and importance, however, public debate surrounding federal finances continues to focus primarily on annual budget deficits, debt ceiling negotiations, and short-term fiscal policy. For CPAs, the Financial Report offers a far more comprehensive framework for understanding the federal government’s long-term financial condition.

Looking Beyond the Budget Deficit

Most public discussion of federal finances centers on the annual federal budget deficit. The deficit is primarily a cash-based measure reflecting the difference between federal receipts and expenditures during a fiscal year. It remains important because it directly affects Treasury borrowing needs and near-term fiscal policy.

The Financial Report, however, measures federal operations differently.

Using accrual accounting principles, the report attempts to capture the economic impact of governmental activity when obligations are incurred rather than when cash payments occur. In this respect, the report applies many of the same accounting concepts used throughout private-sector financial reporting.

One of the report’s most significant measures is Net Operating Cost, which the Financial Report describes as the government’s “bottom line.” Unlike the budget deficit, Net Operating Cost incorporates changes in long-term liabilities and accrued obligations that may not yet require immediate cash expenditures.

The differences can be substantial.

For fiscal year 2025, the federal government reported:

• a budget deficit of approximately $1.8 trillion, while
• Net Operating Cost totaled approximately $2.1 trillion before the reversal of illegally collected tariffs.

In fiscal year 2022, the divergence was even more pronounced:

• the budget deficit was approximately $1.4 trillion, while
• Net Operating Cost reached approximately $4.2 trillion.

For CPAs, the reason is straightforward. Accrual accounting captures economic obligations as they arise, including actuarial changes, pension-related liabilities, veterans’ benefits obligations, and other long-term commitments that may not yet impact current-year cash flows.

The distinction reflects two fundamentally different approaches to evaluating financial condition—one focused on annual financing requirements and the other focused on broader economic obligations.

The Federal Government’s Balance Sheet

The Financial Report also includes a consolidated balance sheet that rarely becomes part of broader public discussion.

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, excluding certain Stewardship and Heritage assets.

Major liabilities include publicly held Treasury debt, federal employee retirement obligations, veterans’ benefits, and other accrued commitments.

The report also includes extensive long-term projections related to Social Security and Medicare. Over a 75-year horizon, the present value shortfall for major social insurance programs was estimated at approximately $88 trillion.

Although these long-term projections are not recognized as liabilities under federal accounting standards, they are disclosed to provide users with insight into long-term fiscal sustainability and the potential effects of current fiscal policies.

The report repeatedly warns that the federal government remains on an “unsustainable fiscal trajectory.” Regardless of political perspective, these disclosures involve concepts familiar to every CPA: long-term obligations, actuarial assumptions, sustainability analysis, and the relationship between current operations and future financial capacity.

Constitutional and Professional Foundations

Federal financial transparency has deep constitutional roots. Article I, Section 9, Clause 7 of the U.S. Constitution states that “a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”

Federal reporting focuses primarily on annual cash receipts and expenditures. As federal programs expanded throughout the twentieth century, accounting professionals and policymakers increasingly recognized that cash-based reporting alone did not adequately reflect the government’s growing long-term obligations.

A significant shift occurred with passage of the Chief Financial Officers Act of 1990. The legislation established Chief Financial Officer positions throughout major federal agencies and strengthened federal financial management and reporting requirements. It also accelerated the movement toward audited, accrual-based government-wide financial statements.

Today, FASAB establishes generally accepted accounting principles for federal entities, and the AICPA recognizes FASAB as the official accounting standards-setting body for the federal government. For the accounting profession, the evolution of federal financial reporting reflects broader principles long associated with transparency, comparability, accountability, and decision-useful financial information.

Continuing Audit Challenges

Although the federal government prepares consolidated audited financial statements annually, the GAO has issued a disclaimer of opinion on the government-wide financial statements every year since the first government-wide audit for fiscal year 1997.

For CPAs and auditors, a disclaimer of opinion is significant because it indicates that sufficient appropriate audit evidence could not be obtained to express an opinion on the consolidated statements as a whole.

The GAO has identified several major causes, including:

• material weaknesses in internal controls over financial reporting,
• limitations involving the Department of Defense,
• difficulties related to property and inventory systems,
• and uncertainties affecting portions of the consolidated statements.

At the same time, many individual federal agencies receive unmodified opinions on their standalone financial statements. The most significant challenges arise from government-wide consolidation and the extraordinary complexity of federal operations.

For accounting professionals, these issues highlight the importance of internal controls, systems integration, data governance, and enterprise-wide financial reporting capabilities in large organizations.

Why the Report Matters to the Profession

The Financial Report of the United States Government is more than a governmental accounting exercise. Federal fiscal conditions influence interest rates, inflation, taxation, healthcare funding, capital markets, and long-term economic growth.

CPAs routinely advise businesses, lenders, investors, governmental entities, nonprofit organizations, and retirees whose financial outcomes are directly affected by federal fiscal policy and economic conditions. Understanding the federal government’s audited financial position therefore provides important context for broader financial and economic analysis.

The report also reinforces a core principle of the accounting profession: objective financial reporting matters. In virtually every other context, audited accrual-based financial statements are viewed as essential tools for evaluating financial condition and long-term sustainability. The same analytical principles apply at the federal level.

Reasonable professionals may disagree about taxation, spending priorities, entitlement reform, or debt management strategies. However, transparent financial reporting remains essential regardless of political viewpoint.

For CPAs, the Financial Report of the United States Government is possibly one of the most important—and least discussed—financial reporting documents produced anywhere in the world.

About - Michael Doorley, CPA, was a former public accounting auditor, and a 35-year financial services executive serving in CFO, CAO, COO and board positions. He founded usdebtforum.com, which seeks to educate others on the financial position and condition of the U.S. government and the U.S. National Debt. He may be contacted at mikedoorley@gmail.com.