Each year, the U.S. Department of the Treasury, in coordination with the Office of Management and Budget, produces the “Financial Report of the United States Government.” The report includes consolidated financial statements, an executive summary, management discussion and analysis, notes, required supplementary and other information, and an independent auditor’s report issued by the U.S. Government Accountability Office (GAO).
For certified public accountants (CPAs), the structure of the report should look familiar: The financial statements are prepared on an accrual basis in accordance with federal accounting standards and present both operating results and financial position, similar to reporting frameworks used in the private sector.
Yet, despite these characteristics, the report isn’t widely known and remains absent from most fiscal discussions, including public discourse, which focuses predominantly on the budget deficit (a cash-based measure). Of course, this may be due, in part, to its complexity, as accrual-based financial statements require interpretation and familiarity with accounting concepts that may not be central to broader economic and policy discussions.
For CPAs, however, these accounting concepts are foundational. The report provides CPAs an opportunity to apply their professional expertise to an area of significant public interest, particularly in understanding how financial information is measured, presented, and interpreted at the federal level.
Federal financial reporting has its origins in Article I, Section 9, Clause 7 of the U.S. Constitution, which requires periodic publication of a “Statement and Account” of all public receipts and expenditures. Historically, this requirement has been fulfilled through cash-based reporting focused on annual inflows and outflows, which is currently presented in documents such as the annual report, “Combined Statement of Receipts, Outlays, and Balances of the United States Government.”
However, as federal operations expanded—particularly during and after the 20th century—cash-based reporting became less reflective of the government’s full financial activity. That’s because long-term liabilities and commitments, including pensions, veterans’ benefits, and social insurance programs, introduced obligations that extended well beyond a single fiscal year.
A significant shift in this was marked by the passing of the Chief Financial Officers Act of 1990, which required audited, accrual-based financial statements, with the first being issued for fiscal year 1997. While this framework introduced a more comprehensive measurement model of the federal government’s financial position, its integration into discussions with policymakers, economists, and the media has remained limited.
There are two distinct measures of annual financial performance reported in the federal government’s reports:
For fiscal year 2025, the budget deficit was approximately $1.8 trillion, and the net operating cost was approximately $2.1 trillion (before the reversal of the U.S. Supreme Court’s decision on illegal tariffs).
Notably, the divergence between these measures can be significantly larger in certain years. For example, in fiscal year 2022, the budget deficit was approximately $1.4 trillion, while net operating costs reached approximately $4.2 trillion—a 200% increase. From an accounting standpoint, slight differences can be expected—but this large of an increase should raise questions.
Keep in mind that cash-based measures capture liquidity and financing needs, while accrual-based measures capture economic activity, including the recognition of earned benefits and changes in actuarial estimates. In private-sector financial reporting, accrual-based net income is the primary measure of performance. This is why evaluating federal performance solely through the budget deficit provides a more limited view.
The report also presents a consolidated balance sheet that provides insight into the government’s financial position. For fiscal year 2025:
In addition to the public debt, $15 trillion of liabilities were related to federal employee and veteran benefits that have already been earned but will be paid over time.
The report also includes required supplementary information presenting the estimated present value of commitments for social insurance programs. Over a 75-year horizon, the Social Security and Medicare shortfall is approximately $88 trillion.
These amounts aren’t recorded as liabilities under federal accounting standards but are disclosed to provide context regarding long-term fiscal sustainability. Taken together, the balance sheet and related notes provide a broader perspective on America’s financial condition than annual deficit figures alone.
The report repeatedly emphasizes the concept of fiscal sustainability, which is defined as the ability to maintain current policies without increasing the debt-to-gross domestic product ratio over the long term. For many years, the report has stated that current policy isn’t sustainable under existing policies and assumptions, which is based on projections of rising expenditures—particularly for health and retirement programs—relative to projected revenues.
These warnings are mentioned more than 30 times throughout the 2025 report and are based on established modeling assumptions. They’re not policy prescriptions but rather disclosures intended to inform users about long-term trends and risks.
Notably, the AICPA recently reaffirmed its long-standing support for bipartisan H.R. 7026, the Fiscal State of the Nation Act, which would require the U.S. comptroller general to present audited financial statements to Congress annually. The AICPA states the act would improve fiscal transparency and help policymakers better understand the government’s financial condition, including long-term sustainability.
Since the inception of GAO’s audits for fiscal year 1997, the agency has consistently issued a disclaimer of opinion on the consolidated statements. In the 2025 report, the disclaimer indicates that the auditor was unable to obtain sufficient appropriate evidence to form an opinion on the financial statements as a whole due to:
While many federal agencies receive unmodified audit opinions, unresolved issues at the government-wide level prevent the issuance of an overall opinion. For CPAs, this presents a familiar distinction between component-level audit success and consolidation-level reporting challenges.
The limited use of accrual-based federal financial information has implications for financial analysis and decision making. Cash-based measures (e.g., the budget deficit) provide insight into short-term financing requirements. However, they don’t fully reflect:
Accrual-based reporting addresses these limitations by aligning costs with the periods in which they’re incurred. This approach is consistent with generally accepted accounting principles and is widely used across the private sector and by many international governments. From an analytical perspective, the two frameworks serve different but complementary purposes. A comprehensive evaluation of fiscal condition requires consideration of both.
The federal government’s report represents the most comprehensive set of financial statements available. Prepared on an accrual basis and subject to independent audit, it provides a broader view of financial performance and condition than cash-based measures alone.
In most contexts, audited, accrual-based financial statements are central to evaluating performance and financial position. For CPAs, the issue isn’t the availability of that information but whether that information is being used. By engaging with the “Financial Report of the United States Government,” CPAs gain a more complete understanding of the federal financial position and long-term obligations, which may position them to better advise clients, companies, local governments, and legislators alike.
