F9: Governmental and Not-for-Profit Organizations Flashcards
Operational Accountability
Governmental Accounting
focus of government-wide FS
- report the extent the gov. has met its operating objectives efficiently and effectively*, using all resources available for that purpose, and the extent to which it can continue to meet its objectives for the future
Fiscal Accountability
Governmental Accounting
focus of Fund FS
- to demonstrate the gov entity’s action in the current period have complied* w public decisions concerning the raising and spending of public funds in the short-term (one budgetary cycle or year)
Required Reporting GASB 34
Governmental Accounting
MD+A
- before the FS
- narrative analysis
Gov-Wide FS
- statement of Net Position
- statement of Activities
- basically BS and IS
Fund FS
- reconcile to gov-wide
a) Governmental Funds - BS
- Statement of Revenues, Expenditures, and Changes in Fund Balances
b) Proprietary Funds - Statement of Net Position (or BS)
- Statement of Revenues, Expenses, and Changes in Fund Net Position (or Fund Equity)
- Statement of Cash Flows
c) Fiduciary Funds - Statement of Fiduciary Net Position
- Statement of Changes in Fiduciary Net Position
Notes to FS
Required Supplementary Info (RSI) Other Than Management’s Discussion and Analysis
a) Pension
- sources of changes in net pension liability (last 10 years)
- info about components of net pension liability and related ratios (last 10 yeras)
b) Budget
- budgetary comparison schedules
- ? can be cash or accrual, but must provide add. info to GAAP
c) Infrastructure
- info about infrastructure
- assets for entities using modified approach
Other Supplementary Info (optional)
- combining statements for nonmajor funds
- variance b/w originally adopted and final amended budget
- variance b/w final amended budget and actual
Optional Reporting
Governmental Accounting
Comprehensive Annual Financial Report (CAFR)
- not a GAAP requirement
- GFOA designed presentation that adds an intro section and statistical section to beginning and end of GASP 34
Introductory Section (unaudited)
- letter of transmittal
- organizational chart
- list of principal officers
Basic FS and Req. Supplementary Info (audited
- required reporting GASB 34
Statistical Section (unaudited)
- 10 years of selected financial data
- 10 years of economic data
- other data
General Purpose Governmental Units
Governmental Accounting
focus of gov-wide FS should be on primary government
- primary gov: consists of all organizations that make up legal gov. entity, primary gov. is considered nucleus of the financial reporting entity
Primary Gov. Entities*
- State Govs
- General Purpose Local Govs (e.g. city or county)
- Special Purpose Local Govs that meet all criteria “SELF”
a) Separately-Elected governing body
b) Legally separate and
c) Fiscally independent of other state and local govs
Primary Gov Reports by itSELF
Special Purpose Governmental Units
Governmental Accounting
that are not primary governments are organizations that are financially accountable to a primary gov.
typically entities that engage in
- governmental activities
- business-type activities
- fiduciary activities
- governmental and business-type activities
Component Unit
Governmental Accounting
organization for which elected officials of primary gov. are financially accountable*
- may also be an org that by nature and sig. relationship w primary gov. cannot be excluded from the primary gov’s FS w/o making the primary gov’s FS misleading or incomplete
Blended Presentation
- used when any is present:
a) board of the component unit is substantially the same as that of the primary gov.
b) component unit serves primary gov. exclusively or almost exclusively
c) component unit is not a separate legal entity* - includes following features:
a) combines financial info w primary gov
b) financial info of component units not presented in separate columns
Discrete Presentation (or separate presentation)
- default used when criteria for blended presentation are not met
- displays component units in separate columns
- most component units should use discrete
- FS of reporting entity should provide an overview of the entity based on financial accountability
- e.g. board of education, rescue squad
Reporting Not-for-Profit Entities as a Component Unit of Government
Governmental Accounting
NFP orgs that provide ongoing support to a primary gov or to a component unit of that primary gov may also be a component unit of the primary gov
- private foundations associated w state universities
- private foundations associated w public health care facilities
Criteria for Discrete Presentation
- if all are met:
a) resources held by the tax-exempt org are for the near-exclusive benefit of the primary gov (benefit standard)
b) primary gov has access to majority of resources held by tax-exempt org (access standard)
c) resources held by tax-exempt org are sig. to primary gov (significance standard)
Criteria for Other Component Unit Presentation
- legally separate, tax-exempt orgs meeting the criteria of financially integrated entity should be classified as a component unit of the primary gov. if their relationship is so sig. as to make the FS misleading w/o component unit treatment
Management’s Discussion and Analysis
(required supplementary info)
Governmental Accounting
narrative providing analysis of gov’s financial activities based upon currently known facts, decisions, and conditions
- ST and LT analysis of activities
- before the FSs
includes
- Description of the Financial Statements
- easily readable analysis based on currently known
- condensed FS info (3 yrs of data req. of basic FS are comparative)
- analysis of overall financial position and results of operations
- analysis of balances and transactions of individual funds
- analysis of sig. variations b/w original and final budget (no variance analysis here)
- description of sig. assumptions of use of modified approach for accting for infrastructure - Identity of Primary Gov and Discrete Component Units
- Economic Conditions and Outlook
- impact of economy on FSs - Major Initiatives
- capital asset and LT debt activity during the year
Government-Wide FS
Governmental Accounting
- economic resources measurement focus
- full accrual basis of accounting for both statements
- include all assets and liabilities which gov has control or responsibility; thus, fiduciary funds are excluded and component units are included
2 statements included:
1) Statement of Net Position
2) Statement of Activities
Statement of Net Position
Government-Wide FS
Governmental Accounting
this is a consolidated statement
- like BS
Net Position Format
- assets - liabilities = Net Position
3 components of Net Position “RUN”
- Restricted: imposed by external (not internal) activity
- restricted assets reduced by liabilities and def. inflows related to those assets - Unrestricted
- Net Investment in Capital Assets: all capital assets, net of depr, reduced by o/s balances of borrowings attributable to acquisition of those assets
- deferred outflows and inflows attributable to these transactions are included
On Other Cards
- Capital Assets
- Impairment
- Artwork and Historical Treasures
- Treatment of Interfund Receivables and Payables
Capital Assets
Statement of Net Position
Government-Wide FS
Governmental Accounting
- Capitalization of Assets
a) Valuation: cost includes al ancillary charges
b) Construction Period Interest: cap. of interest not required for capital assets used in gov. activities
c) Infrastructure: streets, bridges, gutters, and other assets of the gov.
- GASB 34, infra. assets recorded as general capital assets. only reported on gov-wide FS bc of incompatibility of recording them at fund level w gov. fund measurement focus and fact that it would be difficult to allocate general assets to individual funds - Required and Modified Approach
a) Required Approach
- all assets meeting capitalization req. should be recorded and depreciation
- depreciation exp that can be identified w a functional category should be included int he direct expenses of that function
b) Modified Approach
- infrastructure assets that are part of a network (eligible infrastructure assets) are not required to be depreciated provided the features of its two req. are met
- ongoing infrastructure expenditures are reported as expenses, unless outlays result in additions or improvements, then they would be capitalized
Capitalization Alternatives: Modified Approach
1) Requirement 1: Government’s Assets Management System Meets Certain Conditions
- inventory of eligible infrastructure assets is up to date
- summarized condition assessment of eligible infrastructure assets is performed and results use measurement scale
- each year, estimate is made of amt necessary to maintain and preserve eligible infrastructure assets at the condition level established and disclosed* by gov
2) Requirement 2: Gov Documentation Should Include Data on Asset Preservation
- complete condition assessment at least every 3 years
- reasonable assurance that 3 most recently completed condition assessments support assertions that eligible infrastructure assets are being presented at (or above) condition level established and disclosed by gov.
Modified Approach Reporting Requirements
- schedule reporting condition of gov’s infrastructure and
- comparison schedule of needed and actual expenditures to maintain the gov’s infrastructure
Modified Approach Accounting Changes (changes in estimates)
- required to modified or modified to required
Identifying and Valuing Impairment
Statement of Net Position
Government-Wide FS
Governmental Accounting
govs are req. to determine if impairment of an asset has occurred
- insurance recoveries netted against the loss
- physical damage: restoration cost approach, loss is est. cost to restore the asset and loss value is used to write down historical cost
- enactment of laws or obsolescence: service units approach, loss based upon productive units available before and after impairment
- asset life (duration) or reduced utility: service units approach
Artwork and Historical Treasures
Statement of Net Position
Government-Wide FS
Governmental Accounting
- should capitalize at historical cost or fair value at date of donation whether held at individual or in collection
- may elect not to capitalize/record when all are met:
a) collection held for public exhibition
b) collection is protected
c) collection subject to organizational policy that requires proceeds from sale or collection items to be used to acquire other items for collections - Not-for-Profits will have same rules
Treatment of Interfund Receivables and Payables
Statement of Net Position
Government-Wide FS
Governmental Accounting
eliminate interfund activities w/i major activity categories
- to avoid grossing up balances of assets and liabilities
- interfund receivables and payables eliminated except for net residual balances of amts due and payable b/w governmental activities and business-type activities
- rec. and pays. to fiduciary funds should be treated like assets and liabilities derived from external services
Statement of Activities
Government-Wide FS
Governmental Accounting
consolidated statement of all governmental and business-type activities
- revs and exps reported using full accrual basis
- operating statement like IS
Program Approach
- net program cost format, not consistent w commercial accting
- cost info about primary functions of gov. and indicates each program’s dependence on general revenues of the gov.
- total cost by function are compared to program revenue associated w each function to arrive at net cost that must be defrayed by tax revenues
Functions/Programs
- the net expense or rev for each function/program is classified into one of 3 categories:
a) primary gov. governmental activities (GRaSPP + S)
b) primary gov. business-type activities (E)
c) component units (rescue squad + board of ed)
Expenses
- reported by function on full accrual basis
Program Revenue
- revenues directly associated w function/program on full accrual basis
Program Revenue Category Types “SOC”
- charges for Services, exchange-like transactions including:
- services to customers who benefit from goods or services
- services to other governments
- fines and forfeitures - Operating grants and contributions:
- mandatory and voluntary non-exchange transactions restricted for use in a particular program - Capital grants and contributions:
- mandatory and voluntary non-exchange transactions restricted for use in a particular program
Net Expense/Revenue presented in 3 categories and total column:
- primary gov. governmental activities column
- primary gov. business-type activities column
- total column (1 +2)
- component unit column
General Revenues
- presented separately in same categories ^
- include taxes, interest earnings, and other revenues not associated w functional expense
Special Items
- reported separately
- unusual or infrequent (but not both) and w/i control of management
Change in Net Position
- deduct general revenues from net (expenses) revenues
- net diff. combined w beg. net position to get ending
Eliminations
- internal transactions that artificially “double up” on activity should be eliminated
- more on F9-19
Major Fund Reporting Criteria
Fund Financial Statements
GASB 34 emphasize reporting by major fund rather than fund type
- provides more meaningful info
- major fund must meet 10% criteria w/i its category and 5% criteria with both categories
- 10% Test “separate columns”
- individual fund compared to respective total governmental funds OR enterprise funds
- 10%+ of revenues, expenditures/expenses, assets and deferred outflows, or liabilities and deferred inflows - 5% Test “total column”
- individual funds compared to total governmental funds AND enterprise funds
- 5%+ revenues, expenses/expenditures, assets and deferred outflows, or liabilities and deferred inflows
- gov officials may elect to report fund as major if they believe public interest is served by the reporting, regardless of the quantitative criteria
- general fund is always a major fund
- *internal service funds not considered in evaluation of major and nonmajor funds
- extraordinary items and transfers are not considered in major fund determinations
Reconciliation of Governmental Fund FSs to Gov-Wide FSs
BS and Statement of Revenues, Expenditures, and Changes in Fund Balances
Governmental Funds
Fund Financial Statements
financial statements must reconcile: (GRaSPP+S)
- diff in fund balances of gov funds and net position in gov-wide FS and
- diff in net change in fund balances of gov funds and change in net position for gov activities
Balance Sheet "GALS BARE" GRaSPP- Fund balance \+ Assets (non-current) - Liabilities (non-current) \+ Service (internal) fund net position Basis of Accounting Accrued Revenues and Expenses
Statement of Revenues, Expenditures, and Changes in Fund Balance "GOES BARE" GRaSPP- Net change in fund balance - Other financing sources \+ Expenditure- capital outlay (net of depreciation) ( and principal, but not interest) \+ Service (internal) fund net income Basis of Accounting Additional accrued Revenues and Expenses
Statement of Cash Flows
Proprietary Funds (SE) Fund Financial Statements
prepared similar to commercial enterprise version, with 7 differences:
- direct method is required
- reconciliation of operating income (not net income) to net cash provided by operating is required
- 4 categories: operating activities, capital and related financing activities, noncapital financing activities, investing activities
- order of financing and investing categories are reversed
- interest income/cash receipts are reported as investing activities (not operating)
- interest expense/cash payments are either:
- capital and related financing or
- noncapital financing (not operating) - capital assets purchased are financing (not investing)
what’s in each F9-29
Notes to the Financial Statements
Fund Financial Statements
essential to fair presentation and considered integral to the FSs. notes should focus on primary gov, specifically:
- governmental activities
- business-type activities
- major funds
- nonmajor funds in the aggregate
- add. info regarding discretely presented component units
Generic Governmental Disclosures
- description of gov-wide activities, noting the exclusion of fiduciary funds
- policies related to elimination of internal activity
- description of modified approach for reporting infrastructure, if used
Specific Governmental Disclosures
- length of time used to define “available” for revenue recognition under modified accrual basis
- actions take to correct material noncompliance w finance-related or legal compliance
those are just the ones they talked about, there are many more F9-34
