FAR Module 21 Flashcards
What are the four Jurisdictions in Accounting?
FASB
GASB
IFRS
SEC
What jurisdiction covers State & Local Governmental Accounting?
GASB
What are some of the major differences in governmental accounting from commercial accounting? (7)
Lack of a profit motive (for the most part)
Legal emphasis that involves restrictions
Inability to match revenues with expenditures
Emphasis on accountability
Fund accounting
Recording of a budget
Use of modified accrual accounting
Define Governmental Accounting
This covers the entire jurisdiction of state/local governments under GASB
Define Governmental Funds. List the 5 funds
These account for the current financial resources raised and expended to carry out general government purposes.
Governmental funds include the general fund, special revenue funds, debt service funds, capital projects funds, and permanent funds
Define Government-Wide Financial Statements
Financial statements that incorporate all of the state’s governmental and business-type activities, as well as its non-fiduciary component units.
What is the hierarchy of sources of GAAP for states & local governments (descending order of authority)? (4)
1) Officially established acct principles (GASB Statements & Interpretations)
2) GASB Technical Bulletins & AICPA Industry Audit & Acct Guides & Statements of Position (SoPs) Cleared by the GASB
3) AICPA Practice Bulletins cleared by the GASB & consensus positions of groups of accountants organized by the GASB
4) Implementation guides published by the GASB staff and practices that are widely recognized and prevalent
GASB Statement 62 incorporates GASB’s authoritative literature, making it very similar to what under FASB?
The ASCs
Why is the budget so significant in accounting for government-type activities?
Because it expresses public policy, funding intent, and provides control over the government’s expenditures
Why is fund accounting so important?
Because it provides control over revenues and expenditures
Who are the three primary users of the external state and local governmental financial reports?
1) The citizenry
2) Legislative & Oversight Bodies
3) Investors & Creditors
Governmental financial reports are primarily used how?
To compare actual results with budgets, to assess financial condition and results of operations, to assist in determining compliance with finance-related laws and regulations, and to evaluate effectiveness and efficiency
State & Local Governmental financial reports should posses what 6 basic characteristics?
Understandability Reliability Relevance Timeliness Consistency Comparability
Define Understandability under GASB
the information can be interpreted by the user.
Define Reliability under GASB
the information is reasonably free from error or bias.
Define Relevance under GASB
the information has the capacity to make a difference in a decision by a user.
Define Timeliness under GASB
the information is available before it loses its capacity to affect the decision.
Define Consistency under GASB
the information is consistently presented over time.
Define Comparability under GASB
users can identify similarities and differences between two entities.
What are the five elements of a statement of financial position under GASB?
Assets Liabilities Deferred Outflow of Resources Deferred Inflow of Resources Net Position
What are the two elements of the resource flows statements under GASB?
Outflow of resources
Inflow of resources
Define Assets under GASB
Resources with present service capacity that the government presently controls
Define Liabilities under GASB
present obligations to sacrifice resources that the government has little or no discretion to avoid
Define Deferred Outflow of Resources under GASB
A consumption of net assets by the government that is applicable to a future reporting period. This is similar to an asset (prepaid asset)
Define Deferred Inflow of Resources under GASB
An acquisition of net assets by the government that is applicable to future reporting periods. This is similar to a liability (unearned revenue)
Define Outflow of Resources under GASB
A consumption of net assets by the government that is applicable to the reporting period
Define Inflow of Resources under GASB
An acquisition of net assets by the government that is applicable to the reporting period
How is operational accountability demonstrated?
By the government-wide financial statements, which illustrate how effective and efficient the organization has been at using its resources and the resources that are available to meet its future obligations
How is fiscal accountability illustrated?
By fund financial statements, which show the organization’s compliance with laws and regulations affecting its spending activities.
What is the integrated approach
The integrated approach requires a reconciliation between the government-wide financial statements and the fund financial statements. This will show both the operational and fiscal accountability of the government, as well as the relationship between those two.
What are the five minimum requirements for basic financial statements in compliance with GAAP for general-purpose governmental units
1) MD&A (RSI)
2) Government-Wide FSs
3) Fund Financial Statements
4) Notes to the Financial Statements
5) RSI other than MD&A
What are the two Government-Wide FSs
Statement of Net Position
Statement of Activities
What are the three categories of Fund Financial Statements & their subcategories?
1) Governmental Funds
- Balance Sheet
- Stmnt of Rev, Expenditures, & Changes in Fund Balance
2) Proprietary Funds
- Statement of Net Position
- Stmnt of Rev, Expenses, & Changes in Fund Balance
- Statement of Cash Flows
3) Fiduciary Funds
- Statement of Fiduciary Net Position
Statement of Changes in Fiduciary Net Position
What are examples of RSI other than the MD&A?
1) 10-yr schedules of selected information
2) budgetary comparison schedules (governments may elect to make this schedule part of the basic FSs, not part of RSI)
3) Information about Infrastructure Assets
4) Claims Development Information when the government sponsors a public entity risk pool
What is a CAFR?
A Comprehensive Annual Financial Report is more than the minimum required for basic financial statements for general-purpose governmental units. It will have additional data such as an organizational chart, a list of principal officials, an auditors report etc.
What are special purpose governments? Give examples.
These are governments that engage in governmental activities, business-type activities, fiduciary activities and both governmental and business-type activities.
Examples: park districts, tollway authorities, school districts, and sanitation districts
What is a reporting entity?
This consists of a primary government and appropriate component units
What is a primary government?
1) a state government
2) a general purpose local government
3) a special purpose local government that has a separately elected governing body, is legally separate, and is fiscally independent of other state/local governments
What is a component unit?
A legally separate organization for which the elected officials of a primary government are financially accountable
When is financial accountability for a legally separate organization assumed?
1) The primary government appoints a voting majority of the organization’s governing body and it is able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government
2) The organization is fiscally dependent on and there is potential for the organization to provide specific financial benefits to, or burdens on, the primary government regardless of the primary government’s influence on the governing board
Give a classic example of a component unit
A school district
What are the two options for reporting a component unit?
Discretely presented (separate column) Blended
When should a component unit be blended?
1) The governing body of the component unit is substantially the same as that of the primary government and there is a financial benefit/burden relationship or the management of the primary government has operational responsibility for the component unit
2) The component unit provides services almost/entirely for the primary government
3) The component unit’s total debt outstanding is expected to be repaid almost/entirely by the primary government
What is the MD&A
it provides an overview of the government’s financial activities. It will compare the CY with PY, with emphasis on the PY. It will analyze any significant variances, discuss situations/facts that may have a significant effect on the numbers, etc.
What focus are the Government-Wide Financial Statements prepared on?
Both the Statement of Net Position & the Statement of Activities (government-wide FSs) are prepared on the economic resources measurement focus, the accrual basis of accounting.
Describe the Statement of Net Position
It is similar to a BS except the equation is:
Assets + Deferred Outflows of Resources - Liabilities - Deferred Inflows of Resources = Net Position
Which is generally a debit: Deferred Outflows or Inflows of Resources
Deferred Outflows of Resources, (Asset - Prepaids)
Which is generally a credit: Deferred Outflows or Inflows of Resources
Deferred Inflows of Resources (Liab - Unearned Rev)
Describe the Statement of Activities
This is a consolidated statement except that inter-fund transactions are not eliminated when they are between governmental & business-type activities or between primary and discretely presented component units
Define Exchange Revenues
These are reported on the Statement of Activities when goods or services are transferred for payment of approximately equal value, as is true for business enterprises
Define Nonexchange Transactions. List the four categories
These are transactions in which a government gives or receives value without directly receiving or giving value in exchange. There are four categories of nonexchange transactions:
1) derived tax revenues
2) imposed nonexchange revenues
3) government-mandated nonexchange transactions
4) voluntary nonexchange transactions
Define derived tax revenues
These result from taxes assessed by governments on exchanged transactions. Examples include sales taxes, income taxes, and motor fuel taxes.
When should derived tax revenues be recognized?
When the underlying transaction (the sale, income earned, etc.) takes place.
Define imposed nonexchange revenues
These are taxes/assessments by governments that are not derived but rather imposed. Examples include property taxes, fines, forfeits, and special assessments.
When should imposed nonexchange transactions be recognized?
When an enforceable legal claim exists or when the resources are received, whichever occurs first.
Property taxes are an exception for imposed nonexchange revenues. When/how should those revenues be recognized?
Revenues for property taxes should be recognized net of estimated refunds & estimated uncollectable taxes in the period for which the taxes are levied, regardless of when the enforcement date or collection date might be. Property taxes may not be recognized unless collected within 60 days after the end of a fiscal year.
Define government-mandated nonexchange transactions
These exist when the providing government requires the receiving government to expend funds for a specific purpose.
When should government-mandated nonexchange transactions be recognized?
Receiving governments should recognize the assets/revenues when all eligibility requirements have been met
Define voluntary nonexchange transactions
These include grants, entitlements, and financial guarantees provided from a government to another entity where the providing government does not impose specific requirements upon the receiving entity.
When should voluntary nonexchange transactions be recognized?
Receiving governments should recognize the assets/revenues when all eligibility requirements have been met
Define extraordinary items. Where will it appear?
These are items that are both unusual in nature and infrequent in occurrence (same as for business enterprises). It will appear on the Statement of Activities, a Government-Wide FS
Define a special item. Where will it appear?
These are events within the control of management that are either unusual in nature or infrequent in occurrence. It will appear on the Statement of Activities, a Government-Wide FS
Depreciation is considered a direct expense when it can be directly charged. If depreciation expense serves multiple/all functions, how is it treated?
It can be treated:
1) as an indirect expense
2) charged to general government
3) unallocated depreciation expense
How should depreciation expense for general infrastructure assets be treated?
It should not be allocated but rather shown as an expense of that function that is normally used for the capital outlay.
