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.
Give examples of infrastructure assets
These will be very large projects such as:
1) roads
2) bridges
3) storm sewers
How is interest on long-term debt treated?
It can be included as a direct expense if the interest is due to a single function. Generally, this is not the case so the interest should be shown as a separate line.
T/F
Interest is capitalized for governmental activities but not for business-type activities
FALSE
Interest is capitalized for business-type activities but not for governmental activities
What is the modified approach for recording eligible infrastructure assets?
Under the modified approach, eligible infrastructure assets are not required to be depreciated.
Under the modified approach for eligible infrastructure assets, how are expenditures treated? Are there any exceptions to this?
All expenditures (except for additions and improvements) should be expensed in the period incurred. Additions and improvements should be capitalized.
How is an infrastructure asset deemed to be eligible for the modified approach?
1) the government manages the eligible infrastructure assets using an asset management system
2) the government documents that the eligible infrastructure assets are being preserved approximately at (or above) a condition level established and disclosed by the government
What are the different types of pensions under GASB?
Defined Contribution Plan
Defined Benefit Plan --
a) Single Employer
b) multiple employer
i) Agent
ii) Cost SharingWhat are the two types of pension plans that the state or local government should report if they have it?
a Single-Employer DBP
a Multiple-Employer Agent DBP
Where should the state/local government report their pension plans?
in the Statement of Net Position they will record a Net Pension Liability
At what amount will the state/local government report their Net Pension Liability on the Statement of Net Position?
The Net Pension Liability is measured as the portion of the actuarial PV of projected benefit payments attributable to past periods of employee service - the pension plan’s fiduciary net position
The discount rate used in calculating the Net Pension Liability should be
a) The long-term expected rate of return on pension plan investments to the extent that the pension plan’s fiduciary net position is projected to be sufficient to make the benefit payments
b) The yield or index rate for 20-year, tax-exempt, general obligation municipal bonds with an average rating of AA/Aa or higher to the extent that the conditions in a) are not met
The effects on the net pension liability of differences expected and actual investment returns is recognized in pension expense over a closed period of how many years?
5
If the government has a Multiple-Employer Cost-Sharing DBP it must record a liability and expense equal to what?
Its proportionate share of the collective net pension liability and expense for the plan
If the government has a DCP the pension expense should be accrued equal to what amount?
The amount of contributions or credits to employees’ accounts that are defined by the benefit terms
What is the difference between GASB 67 and GASB 68
GASB 67 discusses accounting for pensions in fiduciary funds (this is part of the Fund Financial Statements)
GASB 68 discusses accounting for pensions in Government-Wide FSs
GASB 68 requires what disclosures and RSI for Pensions?
1) Descriptive Information about the types of benefits provided
2) A statement of how contributions to the pension plan are determined
3) the assumptions and methods used to calculate pension liability
Governments with a Single-Employer DBP or a Multiple-Employer Agent DBP must disclose what additional information?
1) The composition of the employees covered by benefits terms
2) sources of changes in the components of the net pension liability for the current year
Governments with a Single-Employer DBP or a Multiple-Employer Agent DBP must provide RSI schedules covering the past how many years?
10 years
Governments with a Single-Employer DBP or a Multiple-Employer Agent DBP must provide RSI schedules covering the past 10 years regarding what information?
1) Sources of changes in the components of the net pension liability
2) Ratios that assist in assessing the magnitude of the net pension liability
3) Comparisons of actual employer contributions to the pension plan with actuarially determined contribution requirements
Regarding pensions, what is an example of a Special Funding Situation?
Some governments may be legally responsible to make contributions to pension plans on behalf of another government. For example, a state may be required to make pension contributions to a local school districts’ teacher’s fund.
In addition to Government-Wide Financial Statements (the Statement of Net Position and Statement of Activities) governmental accounting standards require a number of fund financial statements. What are the three general categories of funds?
Governmental Funds
Proprietary Funds
Fiduciary Funds
What are the 5 types of Governmental Funds?
General Special Revenue Debt Service Capital Projects Permanent
Define the General, Governmental Fund
This fund is always considered a major fund. It accounts for and reports all financial resources except those required to be accounted for and reported in another fund. Kind of a dumping-bucket of sorts
Define the Special Revenue, Governmental Fund
These funds are used to account for and report specific revenue sources that are restricted or committed to expenditures for specified current purposes other than debt service and capital projects.
Define the Debt Service, Governmental Fund
These funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditures for the payment of general long-term debt principal and interest
Define the Capital Projects, Governmental Fund
These funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Capital Projects Funds exclude capital-related outflows financed by proprietary funds or for assets that will be held in trust funds.
Define the Permanent, Governmental Fund
These funds are used to account for and report resources that are restricted to the extent that only earnings, and not principal, may be used to support government programs which benefit the government or its citizens. These funds exclude private purpose trust funds which benefit individuals, private organizations, or other governments.
What are the two types of Proprietary Funds?
Internal Service
Enterprise
Define the Internal Service, Proprietary Fund
These report any activity that provides goods or services to other funds of the primary government on a cost-reimbursement basis. They may incidentally provide services to other governments, also on a cost-reimbursement service.
Define the Enterprise, Proprietary Fund
These are used to provide goods or services to external users for a fee. These funds must be used if:
1) the activity is financed with debt that is secured solely by a pledge of the net revenues from fees and charges of that activity
2) if laws/regulations require that the activity’s cost of providing services be recovered with fees/charges instead of from taxes
3) if the pricing policies of the activity establish fees and charges designed to cover its costs including capital costs
What are the four types of Fiduciary Funds?
Agency
Pensions/Employee Benefit Trust Funds
Investment Trust Funds
Private Purpose Trust Funds
Define the Agency, Fiduciary Fund
Agency Funds report resources held by the reporting government in a purely custodial capacity. The Agency Funds will only report assets & liabilities and will not be included in the Statement of Changes in Fiduciary Net Position
Define the Pensions/Employee Benefit Trust, Fiduciary Funds
These are funds held in a trust for the payment of employee retirement and other benefits. Accounting for these plans is partially covered by GASB 67
Define the Investment Trust, Fiduciary Funds
These are used to report the external portions of investment pools, when the reporting government is the trustee
Define the Private Purpose Trust, Fiduciary Funds
These should be used to report all other trust arrangements where the principal must remain intact (similar to a Permanent, Governmental Fund) and the income generated is used to benefit individuals, private organizations, and other governments.
T/F
Most governments use fund accounting internally and prepare the government-wide financial statements with journal adjusting entries from the fund accounting base
FALSE
Government-wide FSs are prepared with WORKSHEET adjustments from the fund accounting base. There are no journal adjusting entries made! The worksheet entries are not posted to the GL!
What is a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities and balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations
This is the GASB definition of a Fund
T/F
Fund Financial Statements are combined between the Governmental, Proprietary, and Fiduciary Funds
FALSE
Each category has their own Financial Statements
Why are fixed assets and long-term debt not reported in the fund financial statements for governmental units?
Because Fund Financial Statements follow Modified Accrual Accounting, which does not include long-term assets and liabilities.
T/F
Since Fixed Assets and Long-Term debt are not required under modified accrual accounting (and thus on the fund financial statements), you also won’t see Fixed Assets and Long-Term debt relating to the governmental funds on the governmental-wide financial statements
FALSE
Fixed assets and long-term debt relating to governmental funds are reported on the government-wide financial statements (specifically the Statement of Net Position)
How do you define a major fund?
1) total assets, liabilities, deferred inflows/outflows, revenues, expenditures/expenses of that individual governmental or enterprise fund constitutes 10% of the governmental or enterprise category
2) total assets, liabilities, deferred inflows/outflows, revenues, expenditures/expenses are 5% of the total of the governmental and enterprise category combined
3) if the government feels that reporting the fund will be useful, they can choose to call any fund major
T/F
Nonmajor funds are not reported at all
FALSE
Nonmajor funds are aggregated and reported as a single column
What are the financial statements for Governmental Funds?
1) Balance Sheet
2) Statement of Revenues, Expenditures, and Changes in Fund Balances
GASB 54 established fund balance classifications that are to be used by governmental funds based on the extent that the government is obligated to observe constraints imposed on the use of the resources. What are the 5 fund classifications?
Nonspendable Restricted Committed Assigned Unassigned
Define the Nonspendable Fund Classification
This classification describes amounts that cannot be spent because they are either not in spendable form (such as inventories or prepaid amounts) or they are legally or contractually required to be maintained intact.
Define the Restricted Fund Classification
This classification describes amounts that are restricted to specific purposes where the constraints are placed upon the resources in the following ways:
1) externally imposed by creditors, contributors, or laws/regulations
2) Imposed by law through constitutional provisions or enabling legislations
Define the Committed Fund Classification
This classification describes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority
Define the Assigned Fund Classification
This classification describes amounts that are constrained by the government’s intent to be used for specific purposes, but are neither restricted nor committed. It will also include any remaining positive amounts reported in governmental funds (other than the General Fund) that are not classified as nonspendable, restricted, or committed, as well as some amounts from the General Fund that are intended to be used for a specific purpose
How do you define “intent” when determining if an amount should be classified as “assigned”?
Intent is expressed by
1) the governing body
2) a body or official who has the authority to assign amounts to be used for specific purposes
Define the Unassigned Fund Classification
This classification is for the general fund only. It is for amounts that have not been assigned to other funds and that have not been restricted, committed, or assigned to specific purposes within the general fund.
T/F
Encumbrances are a specific purpose and should be displayed as a separate item on the balance sheet
FALSE
Encumbrances should be included in the appropriate fund balance classification based on the definition and criteria for fund balance classifications. Significant encumbrances should be disclosed in the notes.
Which Fund Categories use the Modified Accrual Basis?
Only the Governmental Fund
Which Fund Categories use the Accrual Basis?
The Proprietary and Fiduciary Funds
Which basis (Modified or Full Accrual) uses expenditures?
Modified.
The Full Accrual (like for business enterprises) uses expenses.
What is a stabilization fund?
This is a rainy day fund. You will need to disclose details relating to such a fund
What are the financial statements for the Proprietary Funds?
1) Statement of Net Position
2) Statement of Revenues, Expenses, and Changes in Fund Net Position
3) Statement of Cash Flows
How is the Statement of Cash Flows different for GASB than for FASB? (6)
1) Under GASB, only the direct method is acceptable and a reconciliation is required
2) The reconciliation is from operating income to net cash flow from operating activities (not from Net Income, like FASB)
3) GASB has four categories instead of 3 (operating, noncapital financing, capital and related financing, and investing)
4) Cash receipts from interest are classified as investing, not operating activities
5) Cash payments for interest are classified as financing, not as operating activities
6) Purchases of capital assets are considered financing, not investing
What are the financial statements for the Fiduciary Funds?
1) Statement of Fiduciary Net Position
2) Statement of Changes in Fiduciary Net Position
T/F
Under GASB 51, intangible assets are recognized as capital assets in the statement of net position at fair value
FALSE
only IDENTIFIABLE intangible assets are to be recognized. Furthermore, they will be recognized at HISTORICAL COST
Costs relating to internally generated intangibles can be capitalized when what three criteria are met?
1) The government’s specific objective for the project (like software) and the proposed service capacity has been determined
2) The feasibility of completing the project has been demonstrated
3) The government’s intention to complete or to continue the development of the asset has been demonstrated.
T/F
Intangible assets should be amortized over their useful lives
TRUE
T/F
Intangible assets that don’t have legal, contractual, regulatory, technological, or other factors limiting its useful life should be amortized over the asset’s estimated life
FALSE
In this case, the intangible asset is considered to have an indefinite life and should not be amortized unless it is later determined that the asset’s life is no longer indefinite
Describe a situation where there may be a sale and/or pledge of receivables and future revenues
A state/local government may decide to sell receivables or future revenues. For example they may sell their future tobacco settlement receipts or their delinquent tax receivables
T/F
GASB 48 establishes that a sale/pledge of receivable or future revenues transaction is a collateralized borrowing unless the government transfers the receivables or future revenues.
FALSE
Not only does the government have to transfer the receivables or future revenues, they must also have no continued involvement with them.
What circumstances indicate continued involvement in a sale/pledge of receivables or future revenues?
1) Gov/Buyer can cancel the sale
2) Gov can limit the buyer’s ability to subsequently sell or pledge the items
3) Gov has access to the items or to the cash collected from them
4) Gov can substitute for or reacquire specific receivables without the buyer’s consent
5) Gov is actively involved in the future generation of sold revenues (for example, the revenues are the product of goods/services provided by the government)
When the receivables meet the requirements for a sale, they should be removed from the assets of the selling government’s financial statements. The difference between the carrying value and the funds received is reported how?
As a gain/loss on accrual basis financial statements
OR
As revenue in modified-accrual basis financial statements
When the future revenues meet the requirements for a sale, they should be removed from the assets of the selling government’s financial statements. How is this reported?
The proceeds from the sale are recorded as a deferred inflow. This revenue will be recognized over the life of the sales agreement.
T/F
GASB 64 amends GASB 63 to clarify whether an effective hedge of a financial instrument can be maintained after the replacement of the swap counterparty or the swap counterparty’s credit support provide. GASB 64 indicates that this hedging relationship is not maintained in such an instance.
FALSE
GASB 64 indicates that the relationship is maintained and the hedge accounting should continue as if no changes occurred.
T/F
A government need not estimate its expected outlays for pollution remediation if it knows a site is polluted. Rather the government will recognize the exact amount only in the period that the $ amount is transferred
FALSE
A government must estimate its expected outlays for pollution remediation if it knows a site is polluted.
What are other recognition triggers that will require a government to estimate its expected outlays for pollution remediation?
1) Pollution poses an imminent danger to the public/environment and the government has little/no discretion to avoid fixing the problem
2) The government has violated a pollution prevention-related permit/license
3) A regulator (EPA) has identified the government as responsible or potentially responsible for cleaning up the pollution or paying for the cost of the cleanup
4) The government is named in a lawsuit to compel it to address the pollution
5) The government begins or legally obligates itself to begin the cleanup or post-cleanup activities.
What is involved in a service concession arrangement agreement?
1) The government conveys to the operator the right/obligation to provide public services through the use of a facility in exchange for consideration
2) The operator collects and is compensated by fees from third parties
3) The government unit has the ability to modify or approve the services to be provided
4) The government unit is entitled to significant residual interest in the facility at the end of the arrangement
Give two common examples of a service concession arrangement
1) Arrangements in which an operator agrees to design and build or improve a facility and collect fees from third parties (for example, a tollway)
2) Arrangements in which an operator will pay the government unit for the right to operate a government facility and collect fees from third party for its use (for example, a parking structure)
When a facility is purchased, constructed, or improved by the operator, what should the government unit record?
when it is placed in operation the government will record:
1) a new facility (capital asset) at its FV
2) any related contractual obligations as liabilities
3) a corresponding deferred inflow of resources equal to the difference (Asset - Liab)
What will the Notes say about a service concession arrangement?
1) A general description of the arrangement, including objectives
2) Nature of amounts of assets, liabilities, deferred outflows, and deferred inflows relating to the agreement
3) Nature and extent of rights retained by the government
4) Details of any related guarantees and commitments
T/F
All subsequent events should be recognized in the financial statements until they are finalized
FALSE
Only the subsequent events that provide additional evidence about conditions that already existed at the date of the statement of net position and affect the estimates therein should be reflected. Subsequent events relating to events that did not exist at that date should only be disclosed.
What are four indicators that there may be substantial doubt about an entity’s ability to continue as a going concern? Give examples.
1) Negative trends (recurring losses)
2) Other indicators of financial difficulties (defaults)
3) Internal matters (strikes)
4) External matters (litigation)
T/F
A government should not disclose any going concern issues because they do not want the public to lose faith
FALSE
If there is substantial doubt about the going concern, the notes must disclose the details and the government’s official plan for dealing with those concerns.
Define a Merger
A merger is a government combination of legally separate entities in which no significant consideration is exchanged.
In a merger, how are items measured?
The items are generally measured at the carrying values of the separate entities, but they may be adjusted to bring the accounting principles into alignment (from FIFO to LIFO for example).
In a merger, how are disposals dealt with?
Anything that will be disposed of should be tested for impairment.
Define an Acquisition
This is a government combination in which a government acquires another entity, or the operations of another entity, in exchange for significant consideration.
In an acquisition, how are items measured?
Generally measure the items at acquisition value at the date of the acquisition.
T/F
In an acquisition, acquired deferred outflows of resources (or goodwill) arising from prior acquisitions can be recognized by the acquiring entity
FALSE.
In an acquisition, how are disposals dealt with?
Anything that will be disposed of should be tested for impairment.
How should acquisition costs be recognized?
As expenses/expenditures when they are incurred
Define a transfer of operations
This is a government combination involving the transfer of operations of a government or nongovernmental entity in which no significant consideration is exchanged
In a transfer of operations, how are items measured?
At the carrying values at the date of transfer, but they may be adjusted to bring the accounting principles into alignment (from FIFO to LIFO for example).
In a transfer of operations, how are disposals dealt with?
Anything that will be disposed of should be tested for impairment.
What are the five classifications of expenditures?
1) Function/Program
2) Organization Unit (Department)
3) Activity
4) Character
5) Object
Give a description of the Function/Program classification of expenditures, including examples.
This classification provides information on the overall purpose or objective of the expenditures. It represents a major service or area of responsibility.
Examples: Highways/Streets Health/Welfare Education General Government Public Safety
Give a description of the Organization Unit (Department) classification of expenditures, including examples.
This classification is grouped according to the government’s organizational structure. The responsibility for a department is fixed.
Examples: Police Fire Parks & Rec Personnel Department City Clerk
Give a description of the Activity classification of expenditures, including examples.
This is for specific and distinguishable lines of work performed by an organizational unit as part of one of its functions/programs. It is more meaningful if the performance of each activity is fixed.
Examples: Police administration Crime Control & Investigation Traffic Control Police Training Support Services
Give a description of the Character classification of expenditures, including examples.
This classifies expenditures by the fiscal period benefited.
Examples:
Current Expenditures
Capital Outlays
Debt Service
Give a description of the Object classification of expenditures, including examples.
This classifies according to the types of items purchased or services obtained.
Examples: Personal services Supplies Rent Utilities Buildings
The Statement of Revenues, Expenditures, and Changes in Fund Balances generally reports expenditures by which classification?
By Function within Character Classifications
Budgets often report expenditures by what classification?
By Object within the Department level
T/F
According to GASB 35, public colleges and universities that choose to report both governmental and business-type activities should report government-wide financial statements
FALSE
They must report BOTH government-wide financial statements AND fund financial statements
