F8: Governmental Accounting Flashcards
Objectives of Governmental and Non-for-Profit Reporting
designed to demonstrated the accountability of each org for the stewardship in the resources in their care
Accountability Issues
- focused on providing efficient and effective delivery of services w either public resources or private resources shielded from taxation
Resources
- gov. derive revenues from taxes or answer to public authorities
- NFPs derive income from contributions or fees and are not taxable
- these publicly funded entities differ from commercial in that they usually derive their income from sales or fees and are generally taxable
Dual Objective*
- both gov. and NFP orgs seek to demonstrate their operational accountability for the entity taken as a whole and their fiscal accountability
- F/S: 1. Timeliness 2. Consistency 3. Comparability
- but reliability is hard
Objectives of Fund Accounting and Reporting
foundational to gov and NFP accounting is concept of fund accounting
Purpose*
- funds = legal restrictions
- enables service and mission-driven orgs to easily monitor and report compliance w spending purposes (fund restrictions), spending limits (budget), and other fiscal accountability objectives
Use
- gov: use to demonstrated fiscal accountability in their external reporting and use funds for internal accting
- NFP: use funds for internal accting
- external fund reporting is only allowed for gov.
Industries that use Gov or NFP Accting and Reporting Principles
governmental, NFP, and commercial accting are applied to entities consistent w their basis of organization and their funding sources, not their industries
Governmental Units Colleges and Universities Health Care Organizations Voluntary Health and Welfare Organizations Foundations Other NFP Organizations
F8 to F9 skipped bc will be talked about in future lectures
Governmental Accounting Principles and Standards
Governmental Accounting Standards Board (GASB), the gov. counterpart of FASB, established accting and reporting standards for govs.
hierarchy of GAAP established by GASB 55:
- GASB Statements and Interpretations
- GASB Technical Bulletins, AICPA Industry Audit Guides, and AICPA Statements of Position
- AICPA Practice Bulletins
- GASB Implementation Guides
Governmental Finance Officers Association (GFOA), the professional trade organization for gov. officers, provides optional and nonauthoritative guidance
- like AICPA
Establishment of Accting Principles and Standards for NFP Organizations
- FASB
- Audit and Accounting Guides
- Industry-specific literature
Government Accountability Office (GAO)
GAO prescribes governmental auditing standards* (Yellow Book standards) for audits of gov. orgs and federal assistance programs, activities, and functions
- federal financial assistance is primarily awarded to govs and NFPs, and is freq. subject to audits under Single Audit Act*: requires compliance w gov. audit standards and specific single audit rules
Fund
sum of money or other resource segregated for the purpose of carrying on a specific activity or attaining certain objectives in accordance w specific regulations, restrictions, or limitations, constituting an independent fiscal and accting entity
- each fund is a self-balancing set of accounts
- like a checkbook
Gov. Accting generally tested w/i context of 3 themes
Pass Key
- fund structure
- fund accounting
- external reporting
Fund Accounting
fund classifications w/i fund structure defined by GASB impact basis of accounting and measurement focus principles associated w each fund category
- application of diff. accting principles to funds in each group is frequently tested
- 11 fund types
Fund Structure*
GASB 34 defines fund structure for government. 11 fund types are classified in 3 generic categories
- Governmental Funds
- Proprietary Funds
- Fiduciary Funds
fund FSs should be separately presented for governmental, proprietary, and fiduciary funds to report additional and detailed info about the primary government
- all checkbooks ultimately get consolidated in government wide FSs
Gov External Reporting*
GASB 34 establishes min. reporting requirements to be in compliance w GAAP
- fund based and government wide presentations supported by notes to FSs and variety of supplementary info
- presentation of a reconciliation of FSs to government-wide FSs to fully integrate reporting objectives is also required
Government Wide Presentations
Gov External Reporting*
= consolidated FS*
- full accrual accounting (basis of accounting)
- economic resources measurement focus
government-wide FSs convert disaggregated fund-based FSs using multiple measurement focuses and a basis of accting to a single consolidated set of FSs which use full accrual basis of accting and economic resources measurement focus
financial activity of the primary gov. is classified in 2 ways:
- governmental activities
- business-type activities
Major Fund Financial Statements
Gov External Reporting*
major funds presented using basis of accting and measurement focus unique to each category of fund
- only major funds (as defined by GASB) are presented
- nonmajor funds are displayed in the aggregate
- like segment reporting
- reconcile to gov-wide presentations
Dual Perspective Reporting~
Gov External Reporting*
Gov Fund Reconciliation
- gov fund FSs are reconciled to the ‘governmental activities’ section of the gov-wide presentation
Disposition of Other Funds
- Enterprise Funds: carried into business-type activities section of gov-wide FS, gr w no reconciling items
- Internal Service Funds: often merged w governmental activities displayed in gov-wide FS
- Fiduciary Funds: presented individually as fund FS, but excluded from gov-wide FS presentation
Disclosures and Supplementary Info~
Gov External Reporting*
- budget vs actual data
- managements discussion and analysis
- presentation of nonmajor funds
- modified approaches to presentation of infrastructure
Governmental Funds
Fund Structure
no profit motive
- modified accrual accounting (basis of accting)
- current financial resources measurement focus
“GRaSPP”
- General fund: for ordinary operations, financed from taxes and other general revenues
- all transactions not accted for in other funds
- all accounts are ‘current’, no fixed assets or LT debt - special Revenue funds: for revenues from specific taxes or other earmarked sources that by law are restricted or committed to finance particular activities of gov.
- debt Service funds: for accumulation of resources and payment of interest and principal on all ‘general obligation debt’
- other than that serviced by enterprise funds or special assessments in another fund
- restricted, committed, or assigned to debt service expenditures - capital Project Funds: for acquisition or construction of major capital assets
- except those projects financed by enterprise fund - Permanent fund: legally restricted to the extent income, and not principal, may be used for purposes supporting the reporting government’s programs
BS
current assets and deferred outflows | current liabilities + deferred inflows of resources + fund balance = total current liabilities, deferred inflows of resources, and fund balances
Statement of Revs, Expenditures, and Changes in Fund Balance (demonstrates compliance w rules)
- revenues - expenditures + other financing sources (- uses) = Net Change in Fund Assets
Proprietary Funds
Fund Structure
for business-type activities, accting similar to commercial
- full accrual accounting
- economic resources measurement focus
- treat like customers/not citizens
“SE”
internal Service funds
- for goods and services provided by designated epartments on a (cost reimbursement) fee basis to other departments and agencies w/i a single gov unit or to other gov units
- customers are primarily internal
Enterprise funds
- for acquisition and operation of gov facilities and services intended to be primarily (50%+) self supported by user charges
- customers primarily external
- required when any 1/3 is met:
1. activity of fund financed by debt secured by pledge of fee revenue
2. law requires collection fees adequate to recover costs or
3. pricing policies established to produce fees to recover costs
Statement of Net Position
- all assets and def. outflows of resources - all liabs and deferred inflows of resources = Net Position
Statement of Revs, Exps, and Changes in Fund Net Position
- operating revenue - op. exps + non op revs (-exps) = Change in Net Position
Fiduciary (Trust) Funds
Fund Structure
assets received where gov. acts in capacity of a trust or agency fund
- full accrual accounting
- economic resources measurement focus
- except for certain pension liabilities and post-employment health care plans
“PAPI”
- Pension (and other employee benefit) trust funds
- Agency trust funds: resources in temporary custody of a gov unit
- Private purpose trust funds
- designated funds for all other trust fund arrangements under which principal and income are for benefit of specific individuals, private orgs, or other govs
- need to record escheat property here - Investment trust funds: account for external investment pools
Statement of Fiduciary Net Position
- all assets and deferred outflows of resources - all liabilities and deferred inflow of resources = Net Position
Statement of Changes in Fiduciary Net Position
- additions - deductions = Change in Net Position
Measurement Focus and Basis of Accounting~
used in gov-wide and fund financial presentations
- accomplishes accountability objectives unique to each fund and to gov-wide presentations
- use of measurement focus and basis of accting in gov funds different from those used in gov-wide FS are source of reconciling items b/w their respective FSs
Balance Sheet- Measurement Focus
measurement focus refers to how to recognize transactions in the FS, governs where transactions appear
Current Financial Resources (GRaSPP)
- modified accrual
- current financial resources measurement
- only current assets and liabilities included on BS
- no fixed assets, no non-current liabilities
- adding FA and subtracting non-current liabs are 2 of the most significant reconciling items b/w governmental funds and government-wide FSs
Economic Resources (SE-PAPI)
- full accrual
- economic resources measurement
- all assets and liabilities included on BS, including deferred outflows/inflows
- net position analyzed and reported in 3 components: net investment in capital assets, restricted, and unrestricted
Income Statement- Basis of Accounting
Basis of Accounting: when revs/expenditures are recognized in accts and reported in FS, timing of measurements made
Modified Accrual (GRaSPP)
- used w current financial resources measurement focus; blend of accrual and cash basis
- revenue is recognized when measurable and available
- available: collectible w/i current period or soon enough thereafter to be used to pay liabilities in current period (gr 60 days after YE)
- expenditures gr recorded when related fund liability is incurred, w some exceptions: unmatured interest on LT debt is not accrued, only recorded when legally due
- add. of accrual basis revenues in excess of modified and subtraction of accrued debt are freq. reconciling items b/w governmental fund FS and government-wide FS
Full Accrual (SE-PAPI)
- used w economic resources measurement
- identical to commercial enterprises
- rev recognized when earned
- exps recognized when incurred
Classification of Governmental Fund Balances (GRaSPP)
GASB 54 established 5 categories of fund balances/degrees of constraint in order:
- Nonspendable Fund Balance
- prepaid expenses, inventories, etc - Restricted Fund Balance
- assets restricted by external authorities
- bond covenants, legislation, grantors, creditors, etc - Committed Fund Balance
- assets obligated by formal action of gov’s highest decision-making authority
- resolutions, encumbered appropriations, etc - Assigned Fund Balance
- assets the gov intends to obligate but has not formally committed - Unassigned Fund Balance
- only general fund should have positive unassigned fund balance
GRaSPP “NU CAR”
F8-14 summary chart
Which Leads to Fund Accounting by a Gov Org?
HW
financial control: yes
legal restrictions: yes
Similarities w Commercial GAAP
Modified Accrual Accounting (GRaSPP)
- both use double-entry bookkeeping (debit/credit)
- both serve to produce periodic BS (current assets and deferred outflows of resources = current liabilities and deferred inflows of resources + fund balance)
- both serve to produce periodic operating statements (no IS in gov. fund reporting)
- both use historical cost and comply w most GAAP
- terminology is similar, but add. terms unique to modified accrual
- both concerned w safeguarding assets and providing info for internal and external use
Differences w Commercial GAAP
Modified Accrual Accounting (GRaSPP)
- funds must comply w both legal statutes and GAAP
- no profit motive in any gov. funds* thus no income determination (budget, activity, encumbrances)
- each fund is separate entity; a self-balancing set of accounts
- Budgetary accting is emphasized in order to control spending
- Activity emphasizes flow of current financial resources
- Encumbrance accting used to record purchase orders
book BAE, then close BAE to BS, then roll forward to next year
- book and close for same amount
