SEVERAL LARGE CITIES, STATES, AND OTHER GOVERNMENTAL UNITS APPEAR TO BE IN SERIOUS FINANCIAL DIFFICULTIES WHICH MAY PRODUCE A DEVASTATING FINANCIAL CRISIS. BECAUSE FINANCIAL STATEMENT OF GOVERNMENTAL UNITS HAVE BEEN INADEQUATE, DECISIONMAKERS, INVESTORS, AND THE PUBLIC HAVE BEEN MISLED BY NOT BEING ALERTED TO THE PROBLEMS WHICH HAVE BEEN DEVELOPING AND WERE CONFUSED AND FRUSTRATED IN THEIR ATTEMPTS TO DEAL WITH THE EMERGING FINANCIAL CRISES. KNOWLEDGE OF CURRENT DEFICITS AND SURPLUSES, INCLUDING COSTS WHETHER PAID OR ACCRUED, IS IMPORTANT FOR THE ANNUAL EVALUATION OF FINANCIAL AFFAIRS. THE PUBLIC SECTOR SHOULD BE SUBJECTED TO THE SAME ACCOUNTING CONTROLS AND SOUND FINANCIAL REPORTING AS THE PRIVATE SECTOR. THEREFORE, THIS REPORT RECOMMENDS THAT THE U.S. GOVERNMENT, ALONG WITH CITY, STATE, AND OTHER POLITICAL SUBDIVISIONS, SHOULD PROVIDE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS ON AN ACCRUAL BASIS INCLUDING ALL ENTITIES IN THE GOVERNMENT AND ALL PROBLEMS WHICH MAY REQUIRE FUTURE TAXES FOR PRESENT LIABILITIES. IN ADDITION, FINANCIAL MANAGEMENT SYSTEMS AND FUNCTIONS OF THE FEDERAL GOVERNMENT SHOULD BE STRENGTHENED AND INTEGRATED TO ACHIEVE FINANCIAL ACCOUNTABILITY AT ALL STAGES. A STRONG AND WELL-STAFFED CONTROL ACCOUNTING DEPARTMENT SHOULD BE ESTABLISHED IN THE EXECUTIVE BRANCH, AND THE ACCOUNTING SYSTEM USED SHOULD CONTAIN INTERNAL CHECKS AND BALANCES TO ASSURE RELIABILITY OF THE DATA PRODUCED. ILLUSTRATIVE FINANCIAL STATEMENTS COLLECTED FROM SEVERAL FEDERAL GOVERNMENT PUBLICATIONS FOR THE YEARS 1973 AND 1974 ARE PRESENTED, FOLLOWED BY A LIST OF ECONOMIC INQUIRIES REGARDING THESE STATEMENTS. APPENDIXES INCLUDE TABULAR DATA CONCERNING GOVERNMENT FINANCIAL HIGHLIGHTS, EXPENDITURES AND GROSS NATIONAL PRODUCT (1929-1976), A BRIEF CHRONOLOGY OF GOVERNMENT ACCOUNTING, AND EXCERPTS FROM SECTION 3 OF THE SECURITIES ACT OF 1933. (AUTHOR ABSTRACT MODIFIED- JLF)