Where should a net pension obligation (NPO) be reported?

A net pension obligation (NPO) is primarily a long-term liability that arises from the underfunding of a pension plan and should be reported in the government-wide financial statements. Specifically, it is reported in the statement of net assets, allowing for a comprehensive overview of the government’s financial status, including liabilities.

The government-wide financial statements are designed to present a full accrual basis of accounting, which aligns with the reporting of pensions as liabilities. These statements provide a broader and more complete perspective of the government's overall financial health, including long-term debts.

In contrast, governmental fund financial statements focus primarily on short-term financial resources and their allocation, using a modified accrual basis of accounting. Consequently, long-term liabilities such as NPO are typically not reported on the governmental fund balance sheets. This difference in the basis of accounting between the two types of statements explains why the NPO is reported exclusively in the government-wide statement of net assets.