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Each year, the federal government publishes one of the most comprehensive financial reports in the world, yet most Americans—and financial professionals—are largely unaware of its existence.

Earlier this year, the U.S. Treasury released the 

Financial Report of the United States Government for Fiscal Year 2025

, which presents audited, accrual-based financial statements for the federal government. It resembles the annual report of a large corporation, containing consolidated financial statements, management discussion and analysis, notes to the financial statements, required supplementary information, and an independent auditor’s report issued by the Government Accountability Office (GAO). 

For CPAs, the report should feel familiar. It applies many of the same accounting concepts used in private-sector reporting, including accrual accounting, liability recognition, sustainability analysis, internal controls, and audit reporting. Yet despite its significance, the report remains largely absent from mainstream financial discussions, media coverage, and public policy debates.

Constitutional Origins and Modern Financial Reporting

Federal financial accountability has been embedded in the nation’s framework since the adoption of the Constitution. Article I, Section 9, Clause 7 requires that “a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.” 

This requirement is fulfilled primarily through cash-based reporting centered on annual receipts, expenditures, and deficits. As the federal government expanded, however, the limitations of cash-based reporting became increasingly apparent. Programs such as Social Security, Medicare, federal pensions, and veterans’ benefits created long-term obligations that were not fully reflected in annual budget measures.

After decades of discussion, Congress enacted the Chief Financial Officers Act of 1990, establishing Chief Financial Officer positions at the major federal agencies and laying the foundation for modern federal financial reporting. The Government Management Reform Act of 1994 subsequently required annual, audited, consolidated accrual-based financial statements for the federal government. The first audit was for fiscal year 1997. 

One of the most important concepts within the Financial Report is the distinction between the federal budget deficit and net operating cost.

Public discussion almost always focuses on the annual cash-based budget deficit which reflects how much the government must borrow during a fiscal year. While useful for evaluating short-term financing needs, it does not capture the long-term economic effects of government operations. 

The Financial Report instead emphasizes net operating cost, an accrual-based measure defined in the report as the government’s “bottom line.” Under accrual accounting, expenses are recognized when incurred rather than when cash payments are made. This includes changes in long-term liabilities and future obligations that may not require immediate cash expenditures. 

The difference between the two measures can be substantial. For fiscal year 2025, the budget deficit was $1.8 trillion, and the net operating cost was $2.1 trillion before the reversal of illegally collected tariffs 

The difference was even more dramatic in fiscal year 2022 when the budget deficit was $1.4 trillion and the net operating cost was $4.2 trillion. 

For CPAs, the distinction is significant. In private-sector reporting, evaluating financial performance without considering accrued liabilities would provide an incomplete picture of economic reality. Yet discussions of federal finances focus almost exclusively on cash-based measures.

The Federal Balance Sheet and Long-Term Sustainability

The report’s consolidated balance sheet provides additional insight into the government’s long-term fiscal position. For fiscal year 2025, the federal government reported total assets of $6 trillion (exclusive of Stewardship and Heritage Assets), total liabilities of $48 trillion and negative net position of $42 trillion. 

Among the largest liabilities are publicly held debt and accrued interest. And federal employee pensions, and veterans’ benefits of $15 trillion. 

The report includes the present value shortfall for Social Security and Medicare over a 75-year horizon of $88 trillion, an increase of $10 trillion from the prior year. Although these projections are not recorded as liabilities under federal accounting standards, they provide important context regarding long-term fiscal sustainability.

Throughout the report, the government repeatedly warns that current fiscal policies are “unsustainable.” These warnings are not political commentary. They are formal disclosures contained within audited financial statements. 

Since fiscal year 1997, the GAO has consistently issued disclaimers of opinion. 

The reasons include material weaknesses in internal controls over financial reporting; scope limitations, including at the Department of Defense; insufficient audit evidence; and ongoing challenges involving accounting systems and interagency balances. 

Importantly, many individual federal agencies do receive unmodified opinions. However, the scale and complexity of consolidating the entire federal government continue to present substantial reporting challenges.

Arguably, the Financial Report remains one of the most comprehensive yet underutilized financial documents in America. It provides a broader and more complete perspective on the government’s financial condition than cash-based budget measures alone.

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 provides important context for broader financial and economic analysis.

For CPAs, the report serves as a real-world case study in accrual accounting, long-term liability recognition, financial transparency, internal controls, and audit complexity. It also demonstrates the importance of understanding the difference between cash-based budgeting and accrual-based financial reporting when evaluating financial sustainability.

The accounting profession has long emphasized transparency, comparability, and informed decision-making. The AICPA has supported efforts to increase awareness of federal financial reporting, including bipartisan legislation such as the Fiscal State of the Nation Act, which would require annual presentations to Congress of the government’s audited financial statements. 

CPAs are well positioned to explain the distinctions between budget deficits, net operating costs, liabilities, and long-term obligations in a way that is objective and understandable to the public. The information exists. The question may simply be why more people—including CPAs—are not paying attention to it.

America’s ‘Hidden’ Financial Statements

CPAs advise businesses and clients whose financial outcomes are affected by federal fiscal policy. Understanding the federal government’s audited financial position provides important context for broader financial and economic analysis.

The accounting profession is changing quickly. Artificial intelligence is reshaping how work gets done, new career pathways are emerging, and expectations for CPAs continue to expand. At the same time, the profession must maintain the trust, integrity and professional standards that have always defined it.

Through all this, CalCPA remains focused on preparing CPAs for the future while protecting the integrity of the profession. 

 showcases CalCPA’s leadership in advocating for the profession; expanded education around AI literacy, ESG reporting and advisory services; building community; and investing in the next generation of CPAs who will carry the profession forward.

 to read how CalCPA is helping strengthen the profession at every stage of the pipeline and shaping what’s next for California CPAs.

CalCPA 2025 Impact Report: Charting What's Next Together

From advocacy and education to community and scholarships, see how CalCPA helped move California’s accounting profession forward.

I have been a CPA for close to 40 years. Over that time, I have read, reviewed, analyzed and examined countless financial statements of privately held, family or individually owned companies. And yet, I’m still not sure I’m doing everything I should be doing. 

When a client, particularly a new client, sends me their internally prepared financial statements, this is generally what I do.

I look at two numbers before anything else: year-to-date sales and profits, compared to the prior year. This gives me an immediate sense of how things are going with the client and sets my mind to dig into the details.

I then start with the balance sheet. Maybe that’s because of my big-firm audit training. One thing that’s been ingrained in my head is that if the balance sheet is correct, then the profits shown on the P&L have to be correct; otherwise, the balance sheet wouldn’t balance.

On the balance sheet, I start with the obvious: Does it actually balance? Does everything add up? Believe it or not, sometimes it doesn’t! I also want to make sure there are prior period balances showing—either from the end of the last fiscal year or the same month-end from the year before—because how do I know if a balance makes sense unless I have something else to compare it to? Without prior balances, I’m operating in a vacuum.

I then look at how liquid the company is. Do they have enough cash and receivables to cover their current payables and liabilities? I look at how much money is sitting in checking accounts or invested. Payroll and clearing accounts should be near zero. Larger balances in investment accounts earning interest indicate a healthier company. I confirm that cash has been reconciled.

I ask about the collectability of receivables. I check if a company is calculating their depreciation monthly rather than waiting for a year-end adjustment, because this, to me, indicates a higher level of financial maturity. I look for any unusual or intangible assets. I question asset balances that are credits and liabilities that are debits. I confirm that outstanding debt balances tie out the lender’s statement. 

Once I’m comfortable that a balance sheet is relatively clean, I then turn to the P&L. 

You can argue this with me, but I tend to ignore monthly income statements. No offense on my clients, but they’re usually not developed enough to truly take into consideration all the accruals and adjustments needed to properly close out a monthly report. They’re not publicly held, they’re generally under-resourced and their accounting team isn’t always trained to do so. Most of that stuff is done at year’s end. So instead, I turn right to the year-to-date amounts, because any timing differences for most of the preceding months would have shaken out by then.

Like the balance sheet, I need prior year, cumulative amounts to be shown on a P&L for comparison. How do I know if sales are up or profits are down? How do I know if certain expenses are higher or lower? I need a benchmark. 

The other thing I need is the percentage of sales columns. Cost of materials, labor and other expenses may have increased, but if the amounts are consistent with last year, as a percentage of sales, then I’m less concerned. Percentage of sales is a valuable column for me. Some larger companies I know don’t report actual dollars and instead just show the percentage of sales for their P&L, and I understand why. It can be more relevant, particularly as numbers grow.

Also important: a variance column. That way, I can just focus on the revenues and expenses that are significantly higher and lower than the prior period shown. 

Analyzing sales is always more challenging. That’s because sales are sales. I can ask generally why sales have gone up or down overall or even focus on a specific product line of sales (hopefully this is broken out on the P&L). But, as an accountant, I have little advice for my client when it comes to generating more revenue. That’s their sales team’s job. My advice to “sell more” wouldn’t exactly go very far!

Expenses, however, is an area where I can provide value. So I zero in on those.  

Here, I want to make sure gross margins are consistent, and if not, I want to understand why not. Higher material costs? More labor? Is the client allocating overhead correctly?  Understanding one's margin drives pricing, which drives overall profitability. For most businesses, it's the core of their financials.

For the rest—selling, general, administrative, operating, other—I compare variances. Are there large fluctuations period-to-period? Are the percentages out of whack? Are there significant expenses from the last period that no longer exist, and vice versa? Why? I like to focus on the larger expense categories, such as health insurance, payroll, utilities and freight, and and ask how they’re controlling these costs. Maybe I have some advice. I look at “other costs,” interest, fees and unusual items to make sure I understand them.

I’m not afraid to repeat myself every time I review a client’s financials. Asking the same questions sometimes brings up new issues. It keeps everyone—including me—on our toes. 

Sometimes a general P&L isn’t sufficient. Depending on the size and complexity of a company, I may recommend that we report on a product line basis. Or by division or by company that consolidates. I’ve learned that the more details I have, the better analysis I can give. Sometimes, a combined financial statement hides issues that a more detailed breakout reveals.

Also, it’s great to have thumbnail metrics outside of the financials. Payroll and labor. Machine hours. Overtime. Backlog. Pipeline. I suggest these things to my clients and use them in my analysis.

One thing I’d like to do better: Compare my client’s financials to similar companies in their industry. That’s really what my clients want to know: Am I doing better than the other person? I haven’t done a good job of this, mainly because I don’t have enough data. Buying this information—if available—can be expensive. My firm isn’t big enough that we have a representative sample of similar companies in any one industry. Perhaps AI platforms will be able to help solve this problem for me. It’s definitely a great client advisory service to offer.

That’s what I do to review a client’s financial statement. It’s certainly not an audit and definitely not a review. If there’s one thing I’ve learned, it’s that reviewing a financial statement is more art than science. There’s no right or wrong way. But the more familiar I get, the better advice I can provide and the more valuable my services are. 

Am I missing something? Do you do anything different with your clients?

How I Read a Financial Statement. Do You Do the Same?

What does an experienced CPA actually look for when a client sends over their financials? Gene Marks walks through his playbook—and why the details matter.

CAMICO’s hotline has received numerous inquiries about the Statement on Standards for Accounting and Review Services (SSARS) No. 27, Applicability of AR-C Section 70 to Financial Statements Prepared as Part of a Consulting Services Engagement. Some callers want to determine whether financial statement services they already perform, or are considering performing, qualify for the new exception to AR-C section 70. Others seek a clearer understanding of how SSARS No. 27 affects consulting and client advisory services (CAS).

These questions are understandable because CAS engagements often produce financial information. Before SSARS No. 27, many practitioners struggled with whether generating financial statements as part of a CAS engagement triggered AR-C section 70, Preparation of Financial Statements. In a broader advisory relationship, the client may receive financial statements, dashboards, budget-to-actual reports or management reports, among other deliverables. The issuance of SSARS 27 created another exception to the SSARSs.

That clarification is important, yet many CPAs remain unfamiliar with it or misunderstand it. SSARS 27 did not create a blanket exception that permits firms to avoid the SSARS merely by labeling an engagement “consulting” or “CAS.” Instead, firms must evaluate the substance of the engagement, not just its description.

Whether SSARS 27 applies depends on the engagement’s primary objective.

If the primary objective of the engagement is to generate financial statements, AR-C section 70 applies. If the objective is broader consulting or advisory services, and financial statements are only one of several deliverables, the engagement may fall within CS section 100, provided the firm and the client agree that the services will be performed under the consulting standards.

This is not a matter of labeling. It is a substance-over-form determination grounded in the scope of services, the deliverables, and the client’s expectations.

The ‘Primary Objective’ Is the Key Determination

The concept of primary objective is central to applying the SSARS 27 exception. To qualify, financial statements must not be the primary objective of the consulting services performed for the client.

In practice, this distinction can be subtle. If the engagement’s main purpose is to prepare recurring monthly financial statements for the client, AR-C section 70 applies. If the 

engagement’s purpose is to provide broader controllership services, and financial statements are one component, CS section 100 may apply.

This determination should be clearly reflected in both the engagement letter and internal documentation.

Firms considering relying on SSARS 27 should document their analysis thoroughly. Clear documentation is a critical risk management control.

At a minimum, firms should document four points: why the engagement qualifies as consulting services under CS section 100; why financial statement preparation is not the primary objective; which additional services or deliverables support that conclusion; and that both the firm and the client understand and agree that the services are being performed under the consulting standards.

Absent clear documentation, firms may face difficulty supporting their position if the engagement is later challenged.

Understanding the Boundaries of Consulting Standards (CS 100)

A common source of confusion is the scope of consulting services under CS section 100. The standard provides that the nature and scope of work is determined by the practitioner’s understanding with the client and that, generally, consulting services are performed only for the client’s use and benefit (CS Section 100.02).

Not all client advisory activities qualify as consulting services. The 

These exclusions matter because a firm should not assume that CS section 100 applies merely because the client relationship feels advisory. If the engagement is for bookkeeping, tax or financial statement preparation, the standards governing those services apply regardless of how the engagement is labeled.

A firm is engaged solely to prepare monthly financial statements from client records and deliver them to management. It then attempts to classify the work as consulting to avoid AR-C section 70. That position fails because the engagement’s primary objective is financial statement preparation, so the SSARS apply.

Another example involves bookkeeping. If the firm is engaged to perform bookkeeping services, CS section 100 footnote 1 should be considered. The presence of financial reports and occasional recommendations does not convert a bookkeeping engagement into a consulting engagement.

In both cases, the firm should consider only those services that fall within six pages of the consulting standards and carefully scope out any services specifically excluded by footnote 1.

CPAs performing consulting services must establish an understanding of the responsibilities of the parties and the nature, scope and limitations of the services to be performed, and to modify the understanding if there is a significant change in the engagement. However, the consulting standards do not mandate that these understandings be in writing (CS Section 100.07, Understanding with Client).

Although professional standards do not require it, risk management best practices call for CPAs to use an engagement letter or master service agreement (MSA) to document the objective and scope of the services in plain language. The agreements should avoid labels such as “CAS,” “OAS,” “virtual CFO” or “advisory” unless those terms are clearly defined. The agreement should specify what the firm will do, how often it will do it, what the client will receive, what the firm will not do, the client’s responsibilities, any use limitations and the professional standards governing each service to be performed.

Engagement terms should emphasize the client’s management responsibilities. Even when the firm provides high-level advice, the agreement should make clear that the client remains responsible for managing the business, maintaining internal controls, making decisions, approving transactions, evaluating recommendations and determining whether and how to implement the firm’s advice.

To mitigate risk when applying SSARS 27, firms should:

SSARS 27 offers useful flexibility, but only when firms apply it with careful judgment. They should also periodically reassess whether an engagement continues to qualify for the exception and document both that conclusion and the engagement terms.

Firms should focus less on whether the exception is available and more on whether the facts and circumstances justify their application. When in doubt, they should apply a substance-over-form analysis, document their rationale and confirm that the engagement aligns with the relevant professional standards. Just because an engagement may be performed under the consulting standards does not mean it should be performed under those standards instead of the SSARS.

Engagement Letters, Master Services Agreements and Statements of Work

An illustrative Master Service Agreement and Statements of Work can be found on 

 in the Engagement Letter Resource Center.

SSARS No. 27: Helpful Guidance, but Misunderstood

SSARS 27 did not create a blanket exception that permits firms to avoid the SSARS merely by labeling an engagement “consulting” or “CAS.” Instead, firms must evaluate the substance of the engagement, not just its description.

, the statewide association representing California's CPA profession, announced its positions on three measures on the 

, the “2026 Billionaire Tax Act,” and supports 

, the “Improving Transparency, Effectiveness, and Efficiency in California Government Act of 2026,” and supports 

, the “Retirement & Personal Savings Protection Act of 2026.” CalCPA is also a signer of the official ballot argument in support of Proposition 41.

CalCPA’s positions are grounded in the profession’s expertise in tax, auditing and financial accountability, along with its longstanding commitment to the public interest. Because CPAs help taxpayers navigate California’s tax laws and assess whether programs and controls are effective, CalCPA evaluated each measure for fair, consistent and predictable implementation, as well as its potential effects on accountability and public confidence.

“Our positions reflect the accounting profession’s longstanding work to advance sound public policy,” said Denise LeDuc Froemming, CPA, President and CEO of CalCPA. “Every day, CPAs help California taxpayers, businesses and nonprofit organizations navigate complex tax laws and provide independent assurance that builds public trust. We evaluated each measure through that practical lens because Californians deserve tax policies that are clear, workable and accountable.”

Oppose Proposition 40—The 2026 Billionaire Tax Act

Proposition 40 would impose a one-time 5 percent tax on individuals and trusts with more than $1 billion in covered assets, payable over five years. CalCPA opposes the measure because it creates a fundamentally new and difficult-to-administer tax framework that raises significant administrative feasibility concerns. The proposal relies on valuing complex and often illiquid assets, increasing the likelihood of valuation disputes, litigation and uncertainty for taxpayers, tax practitioners and tax agencies. In addition, its retroactive tax provisions undermine taxpayer certainty by changing the rules after the fact. The 

 analysis of Proposition 40 notes many of these practical implementation concerns and long-term risks to income tax revenues from taxpayer behaviors in response to the measure.

Support Proposition 41—Improving Transparency, Effectiveness and Efficiency in California Government Act 

 to conduct pre-election and ongoing performance and financial audits of programs funded by new statewide special taxes, with audit results made available to voters. The measure also requires new state taxes to remain subject to California's existing voter-approved state spending limit. 

CalCPA supports Proposition 41 because independent audits provide voters with objective, credible information to inform decisions about public spending. Transparency, sound data and independent review are essential to effective governance and reflect principles central to the CPA profession.

CPAs provide businesses, nonprofits, governments and the public with reliable information that supports sound decision-making. Proposition 41 applies these principles, giving Californians useful information to evaluate public programs, inform resource allocation and promote responsible fiscal management. CalCPA is proud to sign the official ballot argument in support of Proposition 41.

Support Proposition 42—Retirement & Personal Savings Protection Act 

Prop 42 would amend the California Constitution to prohibit new state taxes on personal property, including retirement accounts, financial assets, business interests and intellectual property, while also limiting certain retroactive state taxes. 

CalCPA supports the measure because stable, prospective tax policy promotes taxpayer certainty and reinforces confidence that the rules will not change after the fact. Clear and predictable tax laws make California's tax system easier to administer, easier for taxpayers to comply with and more consistent with sound principles of tax administration.

 is the largest state CPA society in the country, representing and supporting certified public accountants and related professionals in California.

CalCPA Takes Positions on November Tax Measures

CalCPA’s positions on three November measures focus on more than dollars and cents—including administration, accountability, transparency and taxpayer certainty.

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