The Importance of Audited Financial Statements Under the CFO Act

What annual duty is required by the CFO Act concerning financial statements?

• A. Preparation and submission of audited financial statements
• B. Review of budget forecasts
• C. Approval of new financial policies
• D. Assessment of agency performances

Answer: (A)

The Chief Financial Officers (CFO) Act, enacted in 1990, establishes a framework for improving federal financial management, which includes a specific annual requirement for the preparation and submission of audited financial statements. According to the Act, federal agencies are required to prepare financial statements that adhere to generally accepted accounting principles (GAAP) and to submit these statements for an independent audit. The annual preparation and submission of audited financial statements ensure accountability and transparency in government financial operations, allowing for scrutiny of an agency's financial activities by external auditors. This process is critical to providing stakeholders, including Congress and the public, with a reliable view of how taxpayer dollars are being utilized and the financial position of the agency. While reviewing budget forecasts, approving new financial policies, and assessing agency performances are all relevant aspects of financial management, they do not constitute the specific annual requirement mandated by the CFO Act. This makes the preparation and submission of audited financial statements the most direct and essential duty outlined in the legislation, reinforcing its role in promoting better financial practices within federal agencies.

When it comes to federal financial management, the Certified Government Financial Manager (CGFM) framework emphasizes a golden rule: the annual duty of preparing and submitting audited financial statements as outlined in the Chief Financial Officers (CFO) Act. You might wonder, “Why is this so important?” Well, let’s unravel it together.

The CFO Act, born in 1990, was a direct response to the growing need for improved financial accountability in government agencies. Can you believe it? Before it was enacted, there was a lot of room for confusion regarding how taxpayer dollars were managed. That’s where the preparation and submission of audited financial statements step in as a game changer. It forces agencies to adhere to Generally Accepted Accounting Principles (GAAP) and opens up their financial activity to independent audits each year.

So, what's the deal with these financial statements? Think of them as the report card for federal agencies. They provide stakeholders — from Congress to the average taxpayer — with a transparent view of an agency's financial position and resource utilization. More transparency means more accountability. Who wouldn’t want to know how their hard-earned money is being spent?

You see, preparing these audited financial statements isn’t just about ticking a box. This procedure ensures that external auditors scrutinize financial activities, poking into the depths of where and how every dollar is used. That’s no small feat! It means putting the agency’s financial health under a microscope, providing a clear, reliable snapshot of its fiscal state.

While it's vital for federal agencies to also review budget forecasts, approve new financial policies, and assess performances — these tasks, though essential, aren’t what the CFO Act specifically mandates. They’re more like supportive functions surrounding the central duty of financial statement audits. Just imagine if no one ever checked the books; it'd be like driving without a rearview mirror!

Ultimately, this annual requirement isn’t just some bureaucratic red tape. It’s all about promoting better practices in federal financial management. The CFO Act serves as a vigilant guardian for the security of taxpayer resources, ensuring each agency operates within a framework of accountability and integrity.

If you're gearing up for the CGFM, don’t sleep on this topic! Understanding the role of audited financial statements isn’t just about passing the exam; it’s about preparing yourself for a career where transparency and accountability are paramount in public service. Keep this framework in mind, and you'll move one step closer to mastering the realm of government financial management.