FAR SEC 19 Flashcards
What do governmental funds emphasize?
Governmental funds emphasize sources, uses, and balances of current financial resources.
For governmental funds, how is the fund balance computed?
In these funds, (a) expendable assets are assigned to funds based on their intended use, (b) current liabilities are assigned to funds from which they will be paid, and (c) the difference is the fund balance.
How does the current financial resources measurement focus relate to governmental funds?
Thus, the governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting
What is the measurement focus and basis of accounting for governmental funds? (3 elements)
1) Governmental funds emphasize sources, uses, and balances of current financial resources.
2) In these funds, (a) expendable assets are assigned to funds based on their intended use, (b) current liabilities are assigned to funds from which they will be paid, and (c) the difference is the fund balance.
3) Thus, the governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting.
For governmental and proprietary fund financial statements, what is the distinction between major vs. nonmajor fund reporting?
Governmental and proprietary fund financial statements emphasize major funds. But major fund reporting does not apply to internal service funds.
Is the main operating fund (the general fund) always a major fund?
Yes.
On the governmental funds financial statement, how is each major fund presented?
Each major fund is presented in a separate column.
On the governmental funds financial statement, how are nonmajor funds presented?
Nonmajor funds are aggregated in one column.
Are combining statements required for nonmajor funds?
No. Combining statements are not required for nonmajor funds.
What are the conditions for recognizing a governmental fund as major? ( 2 elements)
1) Any individual governmental or enterprise fund must be reported as major if
i) Total assets, liabilities, revenues, or expenditures or expenses (excluding extraordinary items) of the fund are at least 10% of the corresponding element total (assets, etc.) for all funds of its category (i.e., all governmental or all enterprise funds), and
ii) An element that met the 10% standard above is at least 5% of the corresponding element total for all governmental and enterprise funds.
2) To determine whether major fund criteria are met,
i) Deferred outflows of resources are combined with assets and
i) Deferred inflows of resources are combined with liabilities.
What is another way that a fund could qualify as major?
Any governmental or enterprise fund believed to be particularly important to users also may be reported in the same way as a major fund.
Any individual governmental or enterprise fund must be reported as major if _______________. (2 elements)
1) Total assets, liabilities, revenues, or expenditures or expenses (excluding extraordinary items) of the fund are at least 10% of the corresponding element total (assets, etc.) for all funds of its category (i.e., all governmental or all enterprise funds), and
2) An element that met the 10% standard above is at least 5% of the corresponding element total for all governmental and enterprise funds.
To determine whether major fund criteria are met___________. (2 elements)
1) Deferred outflows of resources are combined with assets and
2) Deferred inflows of resources are combined with liabilities.
What is the general fund? (2 elements)
1) The general fund accounts for all resources not required to be reported elsewhere.
2) The reporting entity has only one general fund.
What are special revenue funds? (4 elements)
1) Special revenue funds account for restricted or committed proceeds of specific sources of revenue. Expenditure must be for a specified purpose (but not debt service or a capital project).
2)Thus, the basis of the fund is a substantial inflow from restricted or committed revenue sources.
3) Examples of resources accounted for are federal grants, shared revenue, and gasoline taxes.
4) The following are examples of the uses of special revenue funds:
i) Operation of a municipal auditorium
ii) Upkeep of a zoo
iii) Road maintenance
What are three examples of the uses of special revenue funds?
1) Operation of a municipal auditorium
2) Upkeep of a zoo
3) Road maintenance
How are donations to programs treated?
Donations provided for programs to be administered by the government also are accounted for in special revenue funds.
Are special revenue funds used for resources of a trust held as a fiduciary activity?
No, a special revenue fund is not used for the resources of a trust held as a fiduciary activity.
How is the general fund of a blended component unit reported?
The general fund of a blended component unit is reported as a special revenue fund.
Are special revenue funds required?
Special revenue funds are not required unless legally mandated.
What are capital projects funds? (3 elements)
1) Capital projects funds account for financial resources restricted, committed, or assigned to be expended for capital purposes.
-These resources include general obligation bond proceeds to be used to acquire or construct major capital facilities for general government use (e.g., schools, bridges, or tunnels).
2) Capital projects financed by proprietary funds or in trust funds are accounted for in those funds.
3) The assets themselves are not accounted for in these funds.
What are debt service funds? (3 elements)
1) Debt service funds account for resources restricted, committed, or assigned to payment of the principal and interest.
2) They are required if
i) They are legally mandated, or
ii) The resources are for payment of principal and interest due in future years.
3) If the government has no obligation on special assessment debt, the debt service transactions are accounted for in a custodial fund.
What are permanent funds?
1) Permanent funds account for resources that are restricted to the use of earnings for the benefit of the government or its citizens.
i) An example is a perpetual-care fund for a public cemetery.
2) Permanent funds are not private-purpose trust funds.
i) Private-purpose trust funds are reported with the other fiduciary funds.
What is the balance sheet format for governmental funds?
A balance sheet is required for governmental funds. It should be in balance sheet format with a total column.
Balance Sheet Format:
Assets + Deferred outflows of resources = Liabilities + Deferred inflows of resources + Fund balances
What is the balance sheet format equation for governmental funds?
Assets + Deferred outflows of resources = Liabilities + Deferred inflows of resources + Fund balances
How should fund balances be classified? (5 elements)
Fund balances should be classified as
1) nonspendable,
2) restricted,
3) committed,
4) assigned, or
5) unassigned.
Is the Statement of Revenues, Expenditures, and Changes in Fund Balances required?
Yes. This statement is required.
What is the Statement of Revenues, Expenditures, and Changes in Fund Balances?
This statement is required. It reports inflows, outflows, and balances of current financial resources. The focus is on major fund reporting.
For governmental accounting, what are revenues? (2 elements)
1) Revenues are classified in this statement by major source and expenditures by, at a minimum, function.
2) Debt issue costs (e.g., underwriter’s fees) paid from the proceeds are expenditures.
-Issue costs (e.g., rating agency fees) paid from existing resources also are expenditures (but not until the liability is incurred).
For governmental accounting, other financing sources and uses include __________. (6 elements)
1) The face amount of long-term debt,
2) Issuance premium or discount,
3) Some payments to escrow agents for bond refundings,
4) Interfund transfers,
5) Sales of capital assets (unless the sale is a special item), and
6) Debt refundings.
What are special and extraordinary items? (3 elements)
1) Special items are transactions or other events that are (a) within the control of management and (b) either unusual in nature or infrequent in occurrence but not both.
-Significant transactions or other events that are either unusual or infrequent but not within the control of management should be (1) separately identified in the appropriate revenue or expenditure category or (2) disclosed in the notes.
2) Extraordinary items are transactions or other events that are unusual in nature and infrequent in occurrence.
3) If both special items and extraordinary items occur in the same fiscal year, special items are reported before extraordinary items.
What are government-wide financial statements? (3 elements)
1) Government-wide financial statements report information about the government as a whole. Thus, they do not display funds or fund types.
2) Government-wide statements also do not report information about fiduciary activities, including fiduciary component units.
-The assets of a fiduciary fund are held as a fiduciary activity.
2) The primary government is distinguished from its discretely presented component units.
3) The governmental activities and business-type activities of the primary government are separately presented.
i) Governmental activities normally are financed by nonexchange revenues (taxes, etc.). They are reported in governmental and internal service funds.
ii) Business-type activities are financed at least in part by fees charged to external parties for goods and services. They are reported in enterprise funds.
What are governmental activities?
Governmental activities normally are financed by nonexchange revenues (taxes, etc.). They are reported in governmental and internal service funds.
What are business-type activities?
Business-type activities are financed at least in part by fees charged to external parties for goods and services. They are reported in enterprise funds.
For government-wide financial statements, what is the measurement focus and basis of accounting? (9 elements)
1) The economic resources measurement focus and the accrual basis of accounting are used to measure and report all of the following:
2) Assets (capital and financial)
3) Deferred outflows of resources
4) Liabilities
5) Deferred inflows of resources
6) Revenues
7) Expenses
8) Gains
9) Losses
Do government-wide financial statements display funds or fund types? Why not?
Government-wide financial statements report information about the government as a whole. Thus, they do not display funds or fund types.
For government-wide financial statements, what are reclassifications?
Preparation of the government-wide statements requires that certain interfund activity and fund balances be eliminated or reclassified.
For government-wide financial statements, what are eliminations? (3 elements)
1) Certain interfund amounts, e.g., receivables and payables, are eliminated from the governmental and business-type activities columns of the statement of net position.
2) The exceptions are net residual amounts due between the two types of activities.
3) However, the total primary government column excludes internal balances.
-The statement of net position below is an example of the elimination of internal balances. The statement of activities below is an example of the elimination of transfers.
What are internal service funds? (3 elements)
1) Internal service funds report activities that provide goods or services on a cost-reimbursement basis to (1) other funds or functions of the primary government or (2) other governments.
2) Their activities ordinarily are more governmental (e.g., financing goods or services for other funds) than business-type. Thus, although internal service funds are proprietary funds, they are reported in the governmental activities column in the government-wide statements to the extent they are not eliminated.
3) When the activities of governmental funds and internal service funds are both governmental, the effects of transactions between them must be eliminated.
Are eliminations made in the statement of activities?
Eliminations are not made in the statement of activities for the effects of interfund services provided and used between functions.
-An example is the sale of power by a utility (an enterprise fund) to the general government.
How are flows of resources between the primary government and its blended component units reclassified?
1) Flows of resources between the primary government and its blended component units are reclassified as internal activity based on the requirements for interfund activity.
2) Flows between the primary government and its discretely presented component units (unless they affect the statement of net position only) are treated as external transactions (as revenues and expenses).
How are receivables from or payables to fiduciary funds reclassified?
Receivables from or payables to fiduciary funds are reclassified as receivables from or payables to external parties.
-The reason is that fiduciary funds report only balances held as fiduciary activities.
What is the Statement of Net Position? (4 elements)
1) The statement reports all financial and capital resources.
2) The GASB prefers the following format:
(Assets + Deferred outflows of resources)
–(Liabilities + Deferred inflows of resources)
=Net position
3) Net position, not equity or fund balance, is reported.
4) Presentation of assets and liabilities in order of relative liquidity is encouraged.
-Separate display of current and noncurrent assets and liabilities (a classified statement) also is acceptable.
What are the three components as which net position should be presented? (3 elements)
Net position should be displayed as three components:
1) Net investment in capital assets
2) Restricted net position
3) Unrestricted net position
What is the component of net position known as net investment in capital assets? (3 elements)
1) Net investment in capital assets includes capital assets, net of accumulated depreciation, reduced by outstanding debt related to acquiring, constructing, or improving the assets. Related deferred inflows and outflows of resources also are included.
2) However, significant (1) unspent debt proceeds or (2) deferred inflows of resources may exist at the end of the period. The part of the debt or deferred inflows related to the unspent amount then is excluded from the net investment in capital assets.
3) Accordingly, that part of the debt or deferred inflows should be classified in the same net position component as the unspent amount (restricted or unrestricted).
What is the component of net position known as restricted net position? (3 elements)
1) Restricted net position equals restricted assets minus related liabilities and deferred inflows of resources. The restrictions are imposed by external entities (creditors, grantors, or other governments) or by law (constitutional provisions or enabling legislation).
2) If permanent endowments or permanent fund principal amounts are included, restricted net position should be displayed as expendable and nonexpendable.
3) Nonexpendable means that the restriction is retained in perpetuity.
What is the component of net position known as unrestricted net position? (2 elements)
1) Unrestricted net position is the net of (a) assets, (b) deferred outflows of resources, (c) liabilities, and (d) deferred inflows of revenue not included in the other components of net position. Thus, it is a residual category.
2) Unrestricted net position includes items that may be internally committed or assigned. These commitments and assignments are not reported on the face of the statements.
What are the three items that unrestricted net position is the net of? (4 invoices)
Unrestricted net position is the net of
(a) assets,
(b) deferred outflows of resources,
(c) liabilities, and
(d) deferred inflows of revenue not included in the other components of net position.
What does nonexpendable mean?
Nonexpendable means that the restriction is retained in perpetuity.
What is the Statement of Activities? (3 elements)
1) The statement of activities displays net (expense) revenue for each function.
2) It reports the relative financial burden on the taxpayers for each function.
3) The net (expense) revenue for each governmental or business-type function equals expenses (at a minimum, the function’s direct expenses) minus program revenues.
On the Statement of Activities, what are the minimum levels of detail for activities accounted for in governmental funds and in enterprise funds? (2 elements)
1) The minimum levels of detail for activities accounted for in governmental funds and in enterprise funds are by function and by different identifiable activities, respectively.
2) An identifiable activity has a specific revenue stream and related expenses, gains, and losses separately accounted for. Whether it is different ordinarily depends on the goods, services, or programs that the activity provides.
On the Statement of Activities, what are direct expenses? (4 elements)
1) Direct expenses must be reported by function.
2) Indirect expenses may or may not be allocated.
3) Depreciation specifically identifiable with a function is a direct expense. Depreciation of capital assets shared by functions is allocated as a direct expense.
i) Depreciation of capital assets that serve all functions is not required to be included in direct expenses of the functions. It may be displayed on a separate line in the statement of activities or as part of the general government function. It may or may not be allocated.
ii) Depreciation of infrastructure assets is not allocated to other functions.
4) Interest on general long-term liabilities is usually an indirect expense.
On the Statement of Activities, what are Program revenues? (4 elements)
1) Program revenues include (1) charges for services, (2) program-specific operating grants and contributions, and (3) program-specific capital grants and contributions.
2) They also may include investment earnings specifically restricted to a given program.
3) Charges for services are program revenues resulting from charges to customers, applicants, or others who (a) directly benefit from what is provided (goods, services, or privileges) or (b) are otherwise directly affected.
i) Thus, fines and forfeitures are charges for services because they are paid by persons directly affected by a program or service.
ii) Charges for services are assigned to a given function if the function generates those revenues.
4) Grants and contributions are assigned to a given function if the revenues are restricted to it.
On the Statement of Activities, what do program revenues include? (3 elements)
Program revenues include
(1) charges for services,
(2) program-specific operating grants and contributions, and (3) program-specific capital grants and contributions.
On the Statement of Account, what are general revenues? (3 elements)
1) General revenues are not required to be reported as program revenues. They are reported separately after total net (expense) revenue for all functions.
2) All taxes, including those levied for a special purpose, are general revenues.
3) General revenues are reported at the bottom of the statement of activities to determine the change in net position for the period.
What items are reported separately at the bottom of the Statement of Activities? (4 elements)
The following are reported separately at the bottom of the statement of activities:
(1) contributions to endowments,
(2) contributions to permanent fund principal,
(3) transfers between governmental and business-type activities, and
(4) special and extraordinary items.
What are the attributes of the items that are reported separately at the bottom of the Statement of Activities? (3 elements)
1) Extraordinary items are unusual in nature and infrequent in occurrence.
2) Special items are reported separately before extraordinary items. They are significant transactions or other events that are
i) Unusual or infrequent but not both and
ii) Within the control of management.
3) Significant transactions or other events that are unusual or infrequent but not within the control of management should be disclosed in the notes.
Of the items reported separately at the bottom of the Statement of Activities, what are extraordinary items?
Extraordinary items are unusual in nature and infrequent in occurrence.
Of the items reported separately at the bottom of the Statement of Activities, what are special items?
Special items are reported separately before extraordinary items. They are significant transactions or other events that are
1) Unusual or infrequent but not both and
2) Within the control of management.
What is the Reconciliation: total governmental fund balances to net position of governmental activities? (3 elements)
1) A summary reconciliation of (1) the total governmental fund balances to (2) the net position of governmental activities in the government-wide statement of net position must be prepared.
2) This summary should be presented at the bottom of the statement or in a schedule.
3) General capital assets and general long-term liabilities not currently due are reconciling items because they are not reported on the balance sheet. Thus, (1) the current financial resources measurement focus of the governmental funds balance sheet is reconciled with (2) the economic resources measurement focus of the government-wide statement of net position.
What is the Reconciliation: Net Change in Governmental Fund Balances to Change in Net Position of Governmental Activities? (2 elements)
1) A summary reconciliation of (1) the net change in governmental fund balances to (2) the change in net position of governmental activities in the government-wide statement of activities must be prepared.
2) This summary should be presented at the bottom of the statement or in a schedule.
For proprietary funds reporting, what is the measurement focus and basis of accounting? (3 elements)
1) The emphasis of proprietary funds is on (1) operating income, (2) changes in net position (or cost recovery), (3) financial position, and (4) cash flows.
2) Moreover, these funds customarily do not record a budget and encumbrances.
3) The economic resources measurement focus and the accrual basis of accounting are required in the proprietary fund financial statements.
What are the four emphasizes of proprietary funds accounting? (4 elements)
The emphasis of proprietary funds is on
(1) operating income,
(2) changes in net position (or cost recovery),
(3) financial position, and
(4) cash flows.
What may enterprise funds be used for? (3 elements)
1) Enterprise funds may be used for (1) any activities for which fees are charged to external users or (2) certain fiduciary activities.
2) Business activities (including enterprise funds) may report assets and a liability otherwise reportable in a custodial fund (a fiduciary fund) in the statement of net position. But the assets ordinarily should be expected to be held for no more than three months.
3) If this reporting is adopted, significant additions and deductions should be separately reported as operating cash inflows and outflows, respectively, in the statement of cash flows.
How are the criteria to determine whether an activity must be reported as an enterprise fund applied? (2 elements)
The criteria to determine whether an activity must be reported as an enterprise fund (1) are applied in the context of the activity’s principal revenue sources and (2) emphasize fees charged to external users.
What are the sufficient criteria for an activity to be reported in an enterprise fund? (4 elements)
1) An activity is reported in an enterprise fund if any of the following criteria is met:
2) The activity is financed with debt, and the only security is a pledge of the activity’s net revenues from fees and charges.
3) Capital and other costs of providing services are legally required to be recovered from fees and charges, not taxes or similar revenues.
4) Pricing policies set fees and charges to recover capital and other costs.
What are six examples of enterprise fund activities?
1) Public transportation systems
2) State-run lotteries
3) Public utilities (water, sewage, or electricity)
4) Unemployment compensation funds
5) Emergency services
6) Government-owned healthcare facilities
How are journal entries treated for enterprise funds?
Journal entries are virtually the same as in any business. Major fund reporting is required for enterprise funds.
What are internal service funds used for? (2 elements)
1) They may be used for activities that provide goods and services to other subunits of the primary government and its component units or to other governments on a cost-reimbursement basis.
2) However, if the reporting government is not the predominant participant, the activity should be reported as an enterprise fund.
What are five examples of internal service fund activities?
1) Information technology support
2) Central purchasing and warehousing
3) Motor pool maintenance
4) Photocopying and printing
5) Self-insurance for payment of claims and judgments
For internal service funds, how are billings for goods and services recorded?
Billings for goods and services are recorded as operating revenues. These activities are considered to be interfund services provided and used.
For internal service funds, how are journal entries done? (3 elements)
1) Journal entries are virtually the same as for any business.
2) The initial allocation of resources may come from (a) an interfund transfer (i.e., an amount not to be repaid) or (b) an interfund loan.
3) To record an interfund transfer from the general fund and an interfund loan from an enterprise fund, the entry might be
Cash $800,000
Interfund transfer from the general fund $200,000
Due to enterprise fund $600,000
Is major fund reporting required for internal service funds? (2 elements)
1) Major fund reporting is not required for internal service funds.
2) The combined totals for all internal service funds are reported in a separate column (usually labeled as governmental activities) to the right of the total enterprise funds column in each proprietary fund financial statement.
For proprietary funds, what is the Statement of Net Position? (6 elements)
1) Governments are encouraged to use the following net position format:
Assets $ 58,438,000
Deferred outflows of resources $3,027,000
Total $61,465,000
Liabilities $(16,974,000)
Deferred inflows of resources $(3,620,000)
Total $(20,594,000)
Net position
$40,871,000
OR: TOTAL ASSETS - TOTAL LIABILITIES = NET POSITION
OR: ASSETS - LIABILITIES + NET DEFERRED FLOWS OF RESOURCES = NET POSITION
2) Assets and liabilities must be classified as current or long-term.
3) Net position should be reported in three components:
i) Net investment in capital assets
ii) Restricted (with display of major categories)
iii) Unrestricted
4) Capital contributions (such as grants or contributions by developers) should not be displayed as a separate component.
5) Designations should not be shown on the face of the statements.
6) Capital assets of proprietary funds and long-term liabilities directly related to, and expected to be paid from, proprietary funds are reported in
i) The government-wide statement of net position and
ii) The proprietary fund statement of net position.
For the statement of revenues, expenses, and changes in fund net position, how are revenues reported? (3 elements)
1) Revenues are reported by major source either
2) Net with disclosure of discounts and allowances or
3) Gross with discounts and allowances reported beneath the revenue amounts.
For the statement of revenues, expenses, and changes in fund net position, how are operating items included? (4 elements)
1) Operating items are included in the following separate subtotals:
2) Revenues
3) Expenses
4) Income (loss)
For the statement of revenues, expenses, and changes in fund net position, how are nonoperating revenues and expenses reported? (3 elements)
1) Nonoperating revenues and expenses are reported after operating income (loss).
2) An example of a nonoperating revenue is the receipt of an unrestricted grant from another government (a nonreciprocal transfer).
3) Another example is receipt of a state appropriation in a government-mandated nonexchange transaction.
For the statement of revenues, expenses, and changes in fund net position, which items are reported separately after nonoperating revenues and expenses? (4 elements)
The following are reported separately after nonoperating revenues and expenses:
1) Revenues from capital contributions
2) Revenues from additions to the principal of term and permanent endowments
i) A term endowment is temporarily restricted.
ii) A permanent endowment is principal that cannot be expended.
3) Special and extraordinary items (Subunits 19.1 and 19.2 contain relevant outlines.)
4) Transfers (Study Unit 18, Subunit 1, contains an outline of nonreciprocal interfund activity.)
What sequence of items should be followed in each column of the statement of revenues, expenses, and changes in net fund position? (4 elements)
This sequence should be followed in each column of the statement (order is important):
1) Revenues
2) Operating Items
3) Nonoperating revenues and expenses
4) Those items reported separately after nonoperating revenues and expenses
For the statement of revenues, expenses, and changes in fund net position, what is the rule for definitions of operating items?
A government should consistently follow appropriate definitions of operating items. The presentation in a cash flows statement should be considered in defining these items. For example, an item not classified as an operating cash flow most likely should be treated as a nonoperating revenue or expense.
For the statement of revenues, expenses, and changes in fund net position, how is reconciliation done? (2 elements)
1) Net position and changes in net position are reported in the proprietary fund statements for total enterprise funds. They ordinarily are the same as the corresponding amounts for business-type activities in the government-wide statements. However, any differences should be reconciled.
2) For example, although internal service funds are proprietary funds, the activities they account for generally are governmental.
i) Thus, they should be included in the governmental activities column in the government-wide statement of activities.
ii) But, if enterprise funds are the predominant participants in the internal service funds, this presentation is not appropriate.
iii) Accordingly, internal service fund transactions must be reclassified from governmental to business-type activities. The purpose is to reconcile the amounts for total enterprise funds to amounts in the government-wide statements.
For proprietary funds reporting, what is the guidance for preparing the cash flows statement?
The guidance for preparing the cash flows statement is similar to that for nongovernmental entities (covered in Study Unit 16).
This section is intended only as a concise statement of the differences.
For proprietary funds reporting, what is a statement of cash flows required for? (2 elements)
A statement of cash flows is required for
1) Proprietary funds and
2) Entities engaged in business-type activities, e.g., governmental utilities, governmental healthcare providers, and public colleges and universities.
For proprietary funds reporting, what are the four categories on the cash flows statement?
Cash flows should be classified as operating, financing, and investing, but financing cash flows are reported in separate categories.
1) Noncapital financing activities
2) Capital and related financing activities
3) Operating activities
For proprietary funds reporting, what are noncapital financing activities? (5 elements)
1) Noncapital financing activities include borrowings (and repayments of debt, including interest) for purposes other than acquiring, constructing, or improving capital assets.
Cash flows may include
2) Grants and subsidies received or paid,
3) Property tax receipts,
4) Debt proceeds, and
5) Cash received from or paid to other funds (excluding flows from interfund services provided or used).
For proprietary funds reporting, what are capital and related financing activities? (4 elements)
1) Capital and related financing activities include (a) receipts of grants, contributions, and proceeds of sale of capital assets and (b) borrowings (and repayments of debt, including interest) for
2) Acquiring, constructing, or improving capital assets;
3) Acquiring and disposing of capital assets used to provide goods or services; and
4) Paying for capital assets obtained on credit.
For proprietary funds reporting, what are operating activities? (4 elements)
1) Operating activities are activities not classified as financing or investing. In general, operating activities affect operating income. They include
2) Loan activities not intended as investments but as program loans made to fulfill a governmental responsibility (e.g., student loans),
3) Interfund services provided and used, and
4) Selling goods or services.
For proprietary funds reporting, what are investing activities? (2 elements)
1) Investing activities include (a) making and collecting loans (other than program loans) and (b) acquiring and disposing of debt and equity instruments.
2) Cash interest and dividends received as returns on nonprogram loans, equity securities, etc., are inflows from investing activities.
For proprietary funds reporting, how do investing, capital, and financing activities affect recognized assets in the current period? (3 elements)
Investing, capital, and financing activities may affect recognized assets or liabilities but not result in cash flows in the current period.
1) These activities should be presented in a separate schedule. Space permitting, this schedule may be presented on the same page as the statement of cash flows. Examples of noncash transactions are
2) Acquiring assets by assuming directly related liabilities (e.g., mortgages) or entering into a capital lease and
3) Exchanging noncash assets or liabilities for other noncash assets or liabilities.
For proprietary funds reporting, what is the direct method of reporting operating cash flows?
The direct method (including a reconciliation of operating income to operating cash flows) should be used to report operating cash flows. The indirect method is not permitted.
For proprietary funds reporting, what are the minimum classes to be reported for operating cash flows under the direct method? (7 elements)
The major classes of gross operating cash receipts and payments and their sum (net cash flow from operating activities) are reported. The following are the minimum classes to be reported:
1) Cash receipts from customers
2) Cash receipts from interfund services provided
3) Other operating cash receipts
4) Cash payments to employees for services
5) Cash payments to other suppliers of goods or services
6) Cash payments for interfund services used
7) Other operating cash payments
For fiduciary funds reporting, what measurement focus and basis of accounting are required?
The economic resources measurement focus and the accrual basis of accounting are required in the fiduciary fund financial statements.
What is the nature of fiduciary funds? (3 elements)
1) Fiduciary funds emphasize net position and changes in net position. They are used to report fiduciary activities.
2) The complex criteria for identifying fiduciary activities often address
i) The government’s control of assets,
ii) The source of the assets (e.g., not from revenues generated by the government itself), and
iii) The beneficiaries (e.g., not the government itself).
3) All fiduciary funds, including fiduciary component units, are reported only in the statements of fiduciary net position and changes in fiduciary net position. Thus, information about fiduciary activities is excluded from the government-wide statements.
For fiduciary funds accounting, the complex criteria for identifying fiduciary activities often address _______. (3 elements)
The complex criteria for identifying fiduciary activities often address
1) The government’s control of assets,
2) The source of the assets (e.g., not from revenues generated by the government itself), and
3) The beneficiaries (e.g., not the government itself).
What are the fiduciary funds? (4 elements)
The fiduciary funds are the
1) Pension (and other employee benefit) trust funds,
2) Investment trust funds,
3) Private-purpose trust funds, and
4) Custodial funds.
-A trust fund differs from a custodial fund because of a trust agreement (or equivalent) with certain terms.
How does a trust fund differ from a custodial fund?
A trust fund differs from a custodial fund because of a trust agreement (or equivalent) with certain terms.
Which three fiduciary activities are reported by pension (and other employee benefit) trust funds?
These funds report fiduciary activities of
(1) pension plans (defined benefit or contribution),
(2) other postemployment benefit plans, or
(3) other employee benefit plans.
Are defined benefit pension plans provided by government similar to those used in the private sector?
Yes. A governmental entity that provides a defined benefit pension plan administered through a trust applies principles similar to those for nongovernmental entities.
How is the government liability to employees reported in a pension or other trust?
The liability to employees is measured as follows:
[Total pension liability (actuarial present value
of projected payments based on past service)]
–
Plan’s fiduciary net position
=
Net pension liability
With what frequency must actuarial valuations of the total liability be done in the case of government pension (or other benefit) trusts?
Actuarial valuations of the total liability must be done at least every 2 years.
For government pensions (or other benefit) trusts, how are projected benefits discounted?
Projected benefits must be discounted using a long-term expected rate of return on plan investments. But a tax exempt, high quality municipal bond rate must be used if the fiduciary net position is not projected to suffice to pay benefits.
When is this Gleim description of government pension (or other benefit) trusts applicable? (4 elements)
1) This outline applies to accounting by single and agent employers who do not have a special funding situation.
2) A single employer uses a plan that provides benefits to employees only of that employer.
3) An agent employer participates in a multi-employer plan that (a) pools plan assets but (b) maintains separate employer accounts.
4) A cost-sharing employer also participates in a multi-employer plan. But the plan assets can be used to pay benefits to employees of any employer that provides pensions through the plan.
For government pensions (or other benefit) trusts, what is a single employer?
A single employer uses a plan that provides benefits to employees only of that employer.
For government pensions (or other benefit) trusts, what is an agent?
An agent employer participates in a multi-employer plan that (a) pools plan assets but (b) maintains separate employer accounts.
For government pensions (or other benefit) trusts, what is a cost-sharing employer?
A cost-sharing employer also participates in a multi-employer plan. But the plan assets can be used to pay benefits to employees of any employer that provides pensions through the plan.
For government pensions (or other benefit) trusts, how does this Gleim outline pertain to special funding situations?
This outline does not address special funding situations. These are legal responsibilities of nonemployers to provide pensions to employees of one or more other entities. Moreover, (1) the amount of the required contribution is not dependent on an event unrelated to pensions, or (2) the employer is the only entity required to contribute directly to the pension plan.
-The employer must make accounting adjustments for nonemployer contributions.
For government pensions (or other benefit) trusts, what things other than special funding situations are outside of the scope of the Gleim outline? (2 elements)
Also beyond the scope of this outline are the requirements for reporting by (1) governmental pension plans and (2) governmental plans and employers for other post employment benefits.
What are the four attributes of pension expenses?
1) Pension expenses and deferred inflows and outflows of resources primarily result from changes in the net pension liability.
2) Most such changes are expensed in the period of change.
3) The effects of certain changes are expensed over the current and future periods:
i) Changes in assumptions and
ii) Differences between expected and actual experience.
4) Changes in the net pension liability not included in pension expense are reported as deferred inflows or outflows.
Which three items should be reported by a government employer providing a defined contribution pension plan?
A governmental employer that provides a defined contribution pension plan should report
(1) a plan description,
(2) a summary of significant accounting policies, and
(3) information about investment concentrations.
For the description report required for a government employer defined contribution pension plan, what are the two attributes of the plan description report?
1) The plan description should identify the plan as a defined contribution plan and disclose in the notes to the financial statements the number of participating employers and other contributing entities.
2) The description also should include
i) The classes of employees covered and the total current membership,
ii) A brief description of plan provisions and the authority under which they are established (or may be amended), and
iii) Contribution requirements.
For a government employer defined contribution pension plan description, which three items are included in the description?
The description also should include
i) The classes of employees covered and the total current membership,
ii) A brief description of plan provisions and the authority under which they are established (or may be amended), and
iii) Contribution requirements.
For government employer defined contribution pension plans, what is pension expense?
An employer recognizes pension expense equal to contributions to employees’ accounts required by the benefit terms (net of forfeited amounts).
A change in the pension liability is recognized for the difference between (1) pension expense and (2) amounts paid.
For fiduciary funds reporting, what are the four attributes of investment trust funds?
1) An investment trust fund reports fiduciary activities involving the external portion of an investment pool (the portion belonging to legally separate entities not part of the reporting entity). Each external pool is reported by the government as a separate fund.
2) An investment trust fund also should be used for individual investment accounts provided to legally separate entities not part of the same reporting entity. This arrangement makes specific investments for individual entities.
-In contrast, an investment pool commingles the monies of the legally separate entities.
3) Most investments are reported at fair value. It is an exit price defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
4) The GASB has adopted the FASB’s approach to fair value measurement described in Study Unit 4, Subunit 7.
For fiduciary funds reporting, what are private-purpose trust funds?
These funds are used for all other trust arrangements meeting the criteria for fiduciary activities.
-An example is a fund for escheat property. Property escheats when it reverts to a governmental entity in the absence of legal claimants.
For fiduciary funds reporting what are the four attributes of custodial funds?
1) These funds report fiduciary activities not required to be reported in a trust fund.
2) They account for grants and other financial assistance to be transferred to, or spent on behalf of, a secondary recipient if the recipient government acts purely as a conduit, that is, if it receives the monies and transmits them without having any administrative or direct involvement in the program.
3) When capital improvements are financed by special assessment debt, the debt service transactions for which the government is not obligated should be reported in a custodial fund in the statement of fiduciary net position, not a debt service fund.
4) Other examples are (a) the external portion of an investment pool not held in a trust and (b) sales taxes collected for other governments.
What information is included in fiduciary fund financial statements?
These statements include information about all fiduciary funds and similar component units. The statements report information in a separate column for each type of fiduciary fund but not by major fund.
What are the notes to fiduciary fund financial statements?
The notes present financial statements for individual defined benefit pension and other postemployment benefit plans unless separate GAAP reports have been issued.
What kind of statement of fiduciary net position is required for fiduciary funds? (3 elements)
1) A statement of fiduciary net position is required for fiduciary funds. For each type of fiduciary fund, it presents net position as follows:
Assets
+
Deferred outflows of resources
–
Liabilities
–
Deferred inflows of resources
=
Net position
2) The statement does not present the three components of net position reported in the government-wide statement of net position or in the proprietary fund statement of net position.
3) Capital assets of fiduciary funds and long-term liabilities directly related to, and expected to be paid from, fiduciary funds are reported in the statement of fiduciary net position, not in the government-wide statement of net position.
What kind of statement of changes in fiduciary net position is required for fiduciary funds?
1) A statement of changes in fiduciary net position is required for fiduciary funds. The following is presented for each type of fiduciary fund:
Additions
–
Deductions
=
Net increase (decrease) in fiduciary net position
2) Additions should be disaggregated by source (if applicable), such as
i) Investment earnings,
ii) Investment costs, and
iii) Net investment earnings.
2) Deductions should be disaggregated by type with separate display of administrative costs.
3) Single aggregated totals for additions and deductions (e.g., property taxes collected for, or distributed to, other governments) of custodial funds may be reported if the resources are expected to be held for no more than 3 months.
What is shown on the flow chart of government-wide financial statements?
