Objective and the Revenue-Expense Match
The Statement of Financial Performance (equivalent to the commercial income statement or statement of activities) measures the economic operational results of a government over a specific fiscal period. Under accrual frameworks, it details all economic revenues earned and expenses consumed, revealing whether the current generation of taxpayers paid for the true full cost of the services provided, or if a deficit was shifted to future generations.
Formatting Classifications: Nature vs. Function
IPSAS 1 permits public sector entities to organize their expenses in the statement using two alternative formatting designs:
  • Analysis by Nature: Expenses are aggregated according to their economic type, regardless of which department consumed them (e.g., employee wages, depreciation expense, raw materials consumed, transport costs, grants granted). This is highly favored by statistical systems like the IMF GFS.
  • Analysis by Function: Expenses are grouped according to the public program or policy objective they support (e.g., Health Services, Defense, Public Education, Public Safety, Environmental Protection).

[ Expenses by Nature ]   ──► Salaries (€50M) + Depreciation (€10M) + Supplies (€5M)
[ Expenses by Function ] ──► Public Education (€40M) + Public Safety (€25M)

If a government utilizes the functional approach, it must provide a complete breakdown of its expenses by nature within the accompanying financial statement notes to ensure transparency.
The GASB Net Cost Format
The US GASB framework uses a unique functional approach on its government-wide Statement of Activities. It formats the ledger to highlight the net economic dependency of each public function on general taxation:
Net (Expense) Revenue = Gross Expenses of Function − Program Revenues (User Fees, Specific Grants)
By subtracting direct program revenues from programmatic expenses, the statement reveals exactly how much money a specific function (e.g., Public Works or Judicial Administration) drains from general tax revenues (like sales and property taxes), allowing policymakers to evaluate the self-sufficiency of public services.
 
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