What characterizes internal service fund expenses that involve parties external to the government?

Internal service fund expenses that involve parties external to the government are significant because they directly relate to the financial statements and can influence how the government’s financial position is represented. When internal service funds engage in transactions with external parties, those expenses must be recorded accurately, as they affect the overall financial reporting. This means that expenses incurred from external transactions will appear in the financial statements and impact metrics such as the fund’s operating results, cash flows, and overall fiscal health. Properly accounting for these expenses ensures transparency and provides stakeholders with a true picture of the government's financial activities and resources, facilitating better decision-making and accountability.