How should a negative NPO be reported?

A negative net position (NPO) is an indication that liabilities exceed assets in a government entity's financial situation. In governmental accounting, this situation must be reported accurately to provide a clear picture of the entity's financial health.

When reporting a negative NPO, it is essential to present this information in a manner that reflects the overall financial condition of the government entity. The government-wide statement of net assets is the appropriate place for this disclosure, as it aggregates the financial data for the entire government, including both governmental and business-type activities. This statement offers a broad view and highlights the net position as a whole, making it crucial for stakeholders assessing the financial viability of the government.

In contrast, the governmental fund balance sheet typically focuses on the financial position of individual funds, which are short-term in nature. While it may provide information about fund balances, it does not capture the total net position of the governmental entity. Therefore, it is not the primary means for reporting a negative NPO.

Thus, a negative NPO should be prominently reported in the government-wide statement of net assets, underscoring the entity's financial challenges effectively to stakeholders.