Chapter 9 Section 1: Governmental Accounting Flashcards
What are the two types of accountability, and how is each focused on?
Operational Accountability - emphasized in the government-wide financial statements
Fiscal Accountability - emphasized in the fund financial statements
What goes into basic financial statements?
Gov’t-Wide financial statements
Fund financial statements: gov’t, proprietary, fiduciary
Notes to financial statements
What is required for reporting in gov’t-wide financial statements?
MD and A
Gov’t-wide financial statements
Fund financial statements
Notes to financial statements
Required supplementary information other than MD&A
Other supplementary information (optional)
What goes into optional reporting?
Comprehensive annual financial report (CAFR)
What is included in the CAFR?
- Introductory section
- letter of transmittal
- organizational chart
- list of principal officers - Basic financial statements and required supplementary information
- MD&A
- Gov’t-wide financial statements
- Fund financial statements
- Notes to the financial statements
- Required supplementary information - Statistical section
What are the requirements to qualify as a primary government entity?
SELF
Separately elected governing body
Legally separate
Fiscally independent of other state and local gov’ts
Define component unit
An organization for which the elected officials of the primary gov’t are financially accountable.
Cannot be excluded from the primary gov’ts financial statements without making the primary gov’ts financial statements misleading
What are the two options for component unit presentation?
Blended and discrete
Explain the blended presentation method
Units are so intertwined with the primary gov’t that they are, in substance, the same as the primary gov’t
Has any of the following characteristics:
1. board of the component unit is substantively the same as that of the primary gov’t
2. Component unit serves the primary gov’t exclusively
3. Component unit is not a separate legal entity
Do not present the financial information of the component units separately
Explain the discrete presentation method
Used when the criteria for blended presentation are not met
Display the component units in separate columns
This is the most common presentation
Which funds are reported in the gov’t wide financial statements?
GRSPP+S
E is reported as well, but in the business-type section
Define MD&A
It comes before the financial statements, and is a narrative analysis of the economic position and activities
What are the two gov’t-wide financial statements?
Statement of net position
Statement of activities
Which set of funds is excluded from gov’t-wide financial statements?
Fiduciary, because the gov’t doesn’t have control over them
What are the components of net position?
RUN
Restricted
Unrestricted
Net investment in capital assets
How should capital assets be valued?
At cost, including ancillary charges
Do you capitalize construction period interest?
It’s not required
Define infrastructure, and how accounting for it is different
It includes things like streets, bridges, and gutters
They should be recorded as general capital assets, and only reported on gov’t-wide financial statements
They are accounted for using the modified approach - they are not required to be depreciated as long as they meet certain conditions.
How are ongoing infrastructure expenditures reported?
As expenses usually
What are the two conditions to use the modified approach?
The asset management system needs to keep an up-to-date inventory with a condition assessment and a yearly estimate of the amount necessary to maintain the infrastructure
The complete condition assessment needs to happen at least every three years, and give support to show that the assets are presented accurately and at a condition that meets their standards.
What if you change to or from the modified approach?
It’s just a change in estimate
How should artwork and historical treasures be handled?
They should usually be capitalized at their historical cost (or FV at the date of donation)
Sometimes they can not capitalize them.
What conditions must be met to elect to not capitalize works of art?
The collection is held for public exhibition, is protected, and if it is sold, the proceeds will be used to buy more.
What do you do with interfund activities?
Eliminate them
What are the three categories that expenses and revenue for each function are split into?
Primary gov’t governmental activities
Primary gov’t business-type activities
Component units
What are the three program revenue types?
SOC
Charges for services (includes fines)
Operating grants and contributions
Capital grants and contributions
What are the two tests for qualifying as a major fund?
- 10% or all gov’t funds or all enterprise funds
- 5% of all gov’t AND enterprise funds
General is always a major fund, and internal service never goes into the calculation
What are the steps to reconcile the balance sheet?
GALS BARE
GRaSPP - fund balance
+ Assets (noncurrent)
- Liabilities (noncurrent)
+ Service (internal) net position
Basis of accounting =
Accrued
Revenues and
Expenses
What are the steps to reconcile the statement of revenues, expenditures, and changes in fund balance?
GOES BARE
GRaSPP - change in fund balance
- Other financing sources (borrowings)
+ Expenditures - capital outlay (net of depreciation)
+ Service (internal) fund net income
Basis of accounting =
Additional accrued
Revenues and
Expenses
How is the statement of cash flows (for proprietary funds) different?
- Direct method is required
- Reconcile op income to net cash provided
- Four categories: Operating, capital financing, noncapital financing, investing
- Financing and investing switched orders
- Interest income/cash receipts is an investing activity (not operating)
- Interest expense/cash payments can be capital financing or noncapital financing.
- Capital asset purchases are financing activities
What is the difference between capital and noncapital financing?
Capital includes debt, capital grants, capital asset activity
Noncapital includes regular grants, property taxes, and operating transfers
What goes into required supplementary information?
Budgetary information, like comparison schedules showing original, final, and amended budgets, as well as actual amounts.
Don’t have to do variances.
What can go in the other supplementary information?
Combining statements for nonmajor funds
What are the two types of interfund activities? Define them.
Reciprocal: exchange-type transactions like loans and services
Nonreciprocal: non-exchange transactions like transfers and reimbursements
What do you do with a transaction between primary gov’t and fiduciary funds?
Leave it - because fiduciary isn’t included
