The Treasury Department has issued Consolidated Financial Statements of the United States Government (CFS) since FY 1974, but the 1997 CFS were the first to be audited. The Government Management Reform Act of 1994 required that beginning with FY 1997 Treasury prepare financial statements for the executive branch and GAO audit them.

The 1997 CFS reflected the Federal financial accounting standards that FASAB (Federal Accounting Standards Advisory Board) has developed since OMB, Treasury, and GAO created it in 1990. Expenses are recognized when incurred, exchange revenue when earned, and tax revenue on a modified cash basis. Some of the standards are the same or similar to those of private business, while others reflect the characteristics of the Federal Government. For example, operations are reported in two statements instead of a single income statement: a statement of net cost, which reports the cost incurred for carrying out major governmental functions (such as national defense and health), the revenue earned from business-like operations within each function, and the net cost; and a statement of changes in net position, which reports how net cost, tax revenue, and other financing determines the change in net position from the beginning of the year to the end. The 1997 CFS does not reflect all the basic standards developed by FASAB, because several do not become effective until 1998.

The 1997 CFS also reflects the improvements in Federal financial reporting since the Chief Financial Officers Act of 1990 required a pilot program for agencies to begin preparing and auditing financial statements. The Government Management Reform Act of 1994 required that the 24 cabinet departments and major independent agencies prepare audited financial statements beginning with 1996. By 1997, 3 of the 14 cabinet departments and 6 of the 10 major independent agencies had received unqualified audit opinions on their financial statements.

GAO issued a disclaimer of opinion on the 1997 CFS, saying they were unable to determine the reliability of significant portions of the statements because of financial systems weaknesses, problems with fundamental recordkeeping, incomplete documentation, and weak internal controls. For example, the Government could not properly account for hundreds of billions of dollars of property, equipment, materials, and supplies; accurately estimate various liabilities; or support significant portions of its net cost. As a result, the amounts reported do not provide a reliable source of information for decision-making by the Government or the public.

The President has committed to an unqualified audit opinion on the 1999 CFS. He has directed that agencies develop plans, including milestones, for resolving the financial reporting deficiencies identified by the auditors of the FY 1997 financial statements; and that they provide quarterly reports on the progress of these plans to OMB. OMB and the CFO Council have revised the five-year Federal financial management plan to list as the first priority: "obtain unqualified opinion on financial statements and issue accounting standards."