FAR CPA Lessons 250-257 Flashcards
1
Q
General Purpose Financial Statements (GPFS)
A
represent the minimum requirements for external reporting.
2
Q
three principal components of General Purpose Financial Statements (GPFS)
A
- Management’s discussion and analysis (MD&A)
- Basic financial statements
- Required supplementary information (RSI)
3
Q
Comprehensive Annual Financial Report (CAFR)
A
In order to meet the information needs of external users of the financial statements, most governmental entities produce a Comprehensive Annual Financial Report (CAFR), which is the equivalent of the annual report of a for-profit organization.
4
Q
3 sections of Comprehensive Annual Financial Report (CAFR)
A
- Introductory section
- Financial section
- Statistical section
5
Q
CAFR—Financial Section
A
n addition to the required financial statements, the Financial section includes explanatory text and a number of supporting schedules.
- Auditor’s report
- Management’s discussion and analysis (MD&A)
- Basic financial statements
- Government-wide statements
- Fund statements
- Notes to the financial statements
- Budgetary Comparison Statement
- Pension Plan and Other Postemployment Benefit (OPEB) Plan Disclosures
- Information Related to Infrastructure Assets Accounted for Using the Modified Approach
6
Q
Management’s discussion and analysis (MD&A)
A
The purpose of the MD&A is to help the user assess the overall financial condition of the governmental entity and determine whether the government’s position has improved or deteriorated during the period.
7
Q
Governmental Basic financial statements consist of
A
- Government-Wide Statements
- Fund Statements
- Notes to the Financial Statements
8
Q
Government-wide statements
A
These statements present information for the government as a whole and are presented on a full accrual basis.
- Government-Wide Statement of Net Position
- Government-Wide Statement of Activities
9
Q
Fund statements
A
Information from each of the three fund categories is presented using its native accounting basis.
10
Q
Notes to the financial statements
A
- Summary of significant accounting policies
- Other required supplementary information (RSI)
11
Q
The restoration cost approach
A
typically used for impairments resulting from physical damage (e.g., fire damage to a city building). The amount of the impairment is derived from the estimated costs to restore the utility of the capital asset
12
Q
The service units approach
A
enerally used for impairments resulting from changes in legal or environmental factors or from technological development or obsolescence (e.g., new water quality standards that a water treatment plant does not meet). The amount of impairments is determined by evaluating the maximum service units or total estimated service units throughout the life of the asset before and after the event or change in circumstances.
13
Q
The deflated depreciated replacement cost approach
A
generally used for impairments resulting from a change in the manner or duration of use. The current cost for a capital asset to replace the current level of service is identified. This cost is depreciated to reflect the fact that the existing capital asset is not new and then is deflated to convert to historical cost dollars.
14
Q
how are impaired capital assets reported?
A
At the lower of carrying value and fairvalue
15
Q
Special items
A
Special items are within the control of management but are either unusual in nature or infrequent in occurrence. Special items are reported separately in the statement of activities and before extraordinary items.
16
Q
Extraordinary items
A
Extraordinary items are unusual in nature, infrequent in occurrence, and outside the control of management.
17
Q
How are liabilities reported on the financial statements
A
using the effective interest rate method - both short and long term are shown at their present value
18
Q
Net Position contains 3 component parts:
A
- Net investment in capital assets
- Restricted net position
- Unrestricted net position
19
Q
Net Revenue (Expense)
A
the function’s program revenues less the function’s expenses
20
Q
Exchange revenue
A
is recognized on the full-accrual basis.
21
Q
Nonexchange revenue
A
is recognized when all conditions surrounding the receipt of the monies have been met (purpose, time, reimbursement, and other contingencies).
22
Q
Derived revenue
A
(sales taxes, income taxes, gasoline taxes, etc.) should be recognized in the same period as the underlying transaction
23
Q
Imposed nonexchange transactions
A
(property taxes, fines, penalties, etc.) are recognized as soon as a legally enforceable claim exists
24
Q
The statement of activities is developed in a
A
functional format
25
Converting internal service funds to the governmental balance sheet
Add all internal service fund assets and liabilities to the governmental activities balance sheet. The internal service fund Net Position are added to the Fund Balance of the governmental fund.
26
How to handle intercompany transaction for the governmental balance sheets
Eliminate all interfund payables/receivables except those to/from Enterprise funds.
27
Fixed assets on the governmental balance sheet
Add net general government fixed assets - accumulated depreciation must be deducted
28
Long-term debt on the governmental balance sheet
Ass net general government long-term debt. - use effective interest rate method instead of par value
29
accruals and deferrals on the governmental balance sheet
Bring accruals and deferrals up-to-date according to the economic resources measurement focus (full accrual basis).
30
Budgetary Comparison Schedule should include
general and major special revenue fund types for which annual budgets have been legally adopted.
31
program revenues include
(1) charges for services
(2) operating grants and contributions,
(3) capital grants and contributions
32
minimum required report for the basic financial statements of a government entity?
Fund financial statements
33
Primary Government
A state government, a general-purpose local government (cities, counties) or a special purpose government that (1) has a separately elected governing body, (2) is legally separate, and (3) is fiscally independent of other state and local governments.
34
To be fiscally independent, the organization must be authorized to take all three of these specific actions without the approval of another government:
1. Determine its budget
2. levy taxes or set user fees and
3. issue bonded debt
35
Component Units
Legally separate organizations for which the primary government officials are financially accountable or for which the relationship with the primary government is such that it would be misleading or incomplete to exclude it from the primary government's financial statements.
36
Financial Reporting Entity
A primary government and its component units.
37
What are the criteria for recognizing an independent agency as a component unit of a general-purpose governmental unit
The component unit must be fiscally dependent on the primary government or, if not fiscally dependent, then its board must be appointed by the primary government and either the primary government can impose its will on the component unit or significant financial burdens or benefits can be shifted from one to the other.
38
Legally separate entities that meet all of the following criteria, should be discretely presented as component units if:
1. The separate organization holds economic resources entirely, or almost entirely, for the direct benefit of the primary government, its component units, or its constituents
2. The primary government is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the separate organization
3. The economic resources received or held by the separate organization are significant to the primary government
39
Blending
If the component unit is, in substance, a part of the primary government then the balances for its funds should be included with similar funds in the primary government.
40
component unit's general fund combined with the primary government statements?
considered a special revenue fund for the primary unit.
41
Combining financial statements when the component unit is considered part of the primary government
balances for its funds should be included with similar funds in the primary government.
42
major fund
Comprises 10% of the total assets plus deferred outflows, or liabilities plus deferred inflows, revenues, or expenditures/expenses (excluding extraordinary items) for its fund category (governmental or enterprise funds) and one that comprises at least 5% of the corresponding total for all governmental and enterprise funds combined.
43
required statements for fiduciary funds
a Statement of Fiduciary Net Position and a Statement of Changes in Fiduciary Net Position
44
Reconciliation of fund-based statements to government-wide statements
Must be presented:
a) on the face of the fund-based financial statements or
b) on a separate schedule.
45
Government Activities Accounting Equation
```
Current Assets
+ Capital assets
+ Deferred Outflows
- Current Liabilities
- Long-term liabilities
- Deferred inflows
- Deferred Revenues
= Net Position
```
46
Residual Equity Transfers
These are nonrecurring, relatively infrequent, transfers of monies between funds, typically to establish or expand the activities of a Proprietary fund (i.e., for capital purposes), remove a deficit equity position in a Proprietary fund, or transfer a remaining balance out of a fund that is being closed.
47
Expenditure Reimbursements
When one fund pays an expenditure on behalf of another fund and subsequently receives repayment, the expenditure is reduced in the fund that receives the repayment and increased in the fund making the repayment.
48
Operating Transfers
These are regular, routine, or recurring transfers of resources between funds to subsidize current activities. They are classified as Operating Transfers.
49
Infrastructure
capital assets such as highways, bridges, streets, sidewalks, water and sewerage systems, storm drainage, seawalls, and lighting systems that are stationary in nature and can be preserved much longer than most other capital assets
50
Accounting for long term liabilities in fund based statements
In the fund-based statements only when the use of current resources is required.
1. Long-term assets purchased are reported as fund expenditures rather than as fixed assets.
2. Proceeds of long-term debt are recorded as other financing sources rather than as long-term debt.
3. Long-term portions of the liability are kept off the fund-based statements
51
Accounting for long-term liabilities in government-wide financial statements
All unmatured long-term debt, except for that of proprietary funds or trust funds, is reported in the government-wide Statement of Net Position. Matured general obligation debt, that has been recorded in or will be paid from a debt service fund, is excluded from general long-term liabilities.
52
How to report liabilities on government wide financial statements
If there is a structured settlement plan then the discounted value of the plan to discharge the liability is used
In the absence of a structured settlement plan, the liability is simply reported at face value
53
Accounting for Compensated Absences
For fund based accounting only accrue a liability for the next year portion
For government wide financial statements accrue the entire amount
54
According to GASB Statement No. 62. A lease is a capital lease if it meets any one of the following classification criteria:
1. The lease transfers ownership of the property to the lessee by the end of the lease term.
2. The lease contains an option to purchase the leased property at a bargain price.
3. The lease term is equal to or greater than 75% of the estimated economic life of the leased property.
4. The present value of the rental or other minimum lease payments equals or exceeds 90% of the fair value of the leased property less any investment tax credit retained by the lessor.
55
A liability for pollution should be accrued if one of the following five events occurs:
1. Pollution poses an imminent danger to the public or environment
2. The government has violated a pollution prevention-related permit or license.
3. The government has been identified by a regulator as being responsible
for cleaning up pollution, or for paying all or some of the cost of the clean-up.
4. An outcome of a lawsuit will compel the governmental entity to address a pollution problem
5. The government begins to clean up pollution or conducts related remediation activities
56
Accounting for pollution expense
Government-wide financial statements - accrue it
Government fund statements - recognize when paid for
57
When cab pollution expense be capitalized?
When it is incurred to improve property owned
58
Nonexchange Financial Guarantees
A government may extend or receive a financial guarantee without receiving or providing equal or approximately equal value in return.
An example is a school receiving bonds from the government to build a new school
59
Revenues of governmental funds are classified by source. The main revenue source classes are:
1. Taxes
2. Licenses and permits
3. Intergovernmental
4. Charges for services
5. Fines and forfeits
6. Investment earnings
7. Miscellaneous
60
Expenditure Classifications of governmental funds
1. Fund
2. Program or function
3. Activity
4. Organizational unit
5. Character
6. Object
61
Fund
The fund supplying the financial resources
62
Program or function
The broad purpose of the expenditure (i.e., public safety, education, health, etc.)
63
Character
Identifies the period of time benefited by the expenditure:
- Current expenditures—Benefit the current period only
- Capital outlay—-Benefits current and future periods
- Debt service—Benefits past periods (and, potentially, current and future periods)
- Intergovernmental transfers—Nonexchange (and frequently mandatory) transfers of resources from one governmental entity to another
64
Object
The “natural” expense category, the specific purpose of the expenditures (e.g., salaries, supplies, and rent).
65
alternate titles under modified accrual basis
- Expenditures, not expenses
- Fund balance, not retained earnings or owner's equity
- Vouchers payable, not accounts payable
- Warrants, not checks
66
control account
a general ledger summary account that reflects the grand total balance of the subsidiary ledger accounts
67
2 step process for recognizing revenue for fund-based statements
1. Determine whether revenue can be recognized under GASB 33. If it cannot it is all a deferred inflow of resources
2. If it can then apply the modified accrual basis recognition standards to determine if it can be recorded in the government fund - record what can be and the rest is deferred inflow of resources
68
Nonexchange Revenue Classifications
1. Imposed nonexchange revenues
2. Derived tax revenues
3. Government-Mandated Nonexchange Transactions
4. Voluntary Nonexchange Transactions Contracts
69
Imposed nonexchange revenues
Government-assessed amounts, such as property taxes, fines, and interest on delinquent property taxes, are billed and charged to individuals and businesses.
70
Recognition standards for Imposed nonexchange revenues
Recognize revenue in the period for which the taxes are levied; and
Recognize an asset (property taxes receivable) when there is an enforceable claim or when payment is received (cash).
71
Derived tax revenues
Taxes resulting from the taxable exchange transactions of individuals and businesses. Principal examples are sales taxes and income taxes. the government does not know what the amount will be until it receives the tax.
72
Recognition standards for Derived tax revenues
Recognize both assets and revenue at the time the underlying exchange transaction takes place.
73
Government-Mandated Nonexchange Transactions
These are intergovernmental transfers of resources including entitlements, shared revenues, and payments in lieu of taxes. Most of these resources: 1) have restrictions on how they may be used; and 2) are only available to the recipient entity if they meet specific conditions known as eligibility requirements.
74
Recognition standards for Government-Mandated Nonexchange Transactions
Recognize both assets and revenue when all eligibility requirements have been met:
75
Voluntary Nonexchange Transactions Contracts
Entered into voluntarily by the participants, who may include individuals and/or other governmental entities; this classification includes competitively awarded grants, cash and/or property contributions or bequests, and endowments; frequently subject to use/purpose restrictions and/or eligibility requirements
76
Recognition standards for Voluntary Nonexchange Transactions Contracts
Recognize both assets and revenue when all eligibility requirements have been met:
77
The following assets should be measured at acquisition value:
1. Donated capital assets
2. Donated works of art, historical treasures, and similar assets
3. Capital assets that a government received in a service concession arrangement
78
Tax Abatement
A reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which (a) one or more governments promises to forgo tax revenues to which it is entitled and (b) the individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the entity or the citizens of those entities.
79
Irrevocable Split-Interest Agreement
created through a trust, or other legally enforceable agreement, in which the donor irrevocably transfers resources to an intermediary. The intermediary administers the resources for the unconditional benefit of a government and at least one other beneficiary.
80
Types of Interests
Lead interest & Remainder interest
81
Lead interest
Receives resources from the throughout the term of the split-interest agreement.
82
Remainder interest
Receives resources as a final disbursement at the termination of the split-interest agreement.
83
Asset Recognition Criteria
Assets should be recognized when all of the following criteria are met:
1. The government is specified by name as a beneficiary in the legal document underlying the donation;
2. The donation agreement is irrevocable;
3. The donor has not granted variance power to the intermediary with respect to the donated resources;
4. The donor does not control the intermediary, and
5. The irrevocable split-interest agreement establishes a legally enforceable right for the government's benefit
84
Required Disclosures for Direct Borrowings and Direct Placements
1. Principal and interest requirement to maturity for each of the next 5 years and in five-year increments thereafter
2. Terms by which interest rates change for variable-rate debt
3. The amount of unused lines of credit
4. Assets pledged as collateral
5. Terms in debt agreements related to (i) events of default, (ii) termination events, and (iii) acceleration clauses.
