Governmental Financial Reporting Flashcards
Who is responsible for establishing GAAP for state and local governments?
GASB – a private, nonprofit organization
What is the hierarchy of GAAP for state and local governments?
GASB Statements and Interpretations
GASB Technical Bulletins (also AICPA Industry Audit and Accounting Guides, and AICPA Statements of Position)
AICPA Practice Bulletins (and consensus positions of accountants organized by GASB)
Implementation guides (Q&As) published by GASB
Widely recognized gov’t-accounting practices
What is interperiod equity?
Refers to whether current-year revenues were sufficient to support current-year benefits, or whether there will be a burden on future taxpayers
Crucial to governmental responsibility
What are different factors that make public accountability crucial for governments?
Taxation eliminates consumer-driven demand
Relationship between taxes and services is usually only one of timing, not direct (as business-type activities are)
Governments have monopolies
No single overall performance measure
Are a budget and fund ever used in recording business-type activities?
Only rarely
How does the purpose for financial reports differ for business-type activities than for other activities?
Focused on financial condition and operations’ effectiveness – rather than comparing actual results to budgeted amounts
How do capital assets differ for business-type activities than for other activities?
For business-type activities, capital assets are meaningfully related to raising revenue
Besides the obvious cases, what entities qualify as governments?
Any entity having at least one of these traits:
(1) popular election of officers, or approval/appointment of a controlling majority of board members by gov’t officials
(2) possibility for gov’t to unilaterally dissolve the entity and move its net assets to a gov’t
(3) ability to tax
What types of bond issuers are classified as governments?
Entities that can directly issue debt whose interest is federally tax-exempt
If this is the only trait an entity has to make it a government, it can avoid being classified as gov’t if it provides compelling evidence
What is usually identified as the governmental reporting entity?
Usually coincides with the legal unit/entity as defined in law
But: gov’ts may control other governmental units, quasi-governmental units, or nonprofit corporations – whatever would, in substance, be one of its departments – and must report them in their financials
What is the purpose of GASB 34?
To establish a superior reporting model for state and local governments
What is operational accountability?
Whether the gov’t is being accountable with its periodic economic cost for the services it provides (whether it is in the black or not)
Are governmental colleges covered by GASB 34?
They were not, but GASB 35 requires them to use the same reporting model
What is the basis of accounting for government-wide statements?
Accrual basis (even for amounts from governmental funds)
“Fund statements” are more specified, and they use the same basis as the funds themselves
What are included in basic financial statements (BFS)?
Both government-wide statements and fund statements (and notes)
What are the four required columns in government-wide statements?
- Governmental activities
- Business-type activities
- Primary government (sum of previous two)
- Component units
Note: funds do not explicitly appear in GWS
What must be included in governmental fund financial statements?
Reconciliation to GWS
Can be on face of statements, in separate schedule, or in notes
In fund statements, where would a statement of cash flows appear?
Only in statements for proprietary funds
What are special and extraordinary items?
Special = events within management control, both (1) abnormally large and (2) either unusual or infrequent
Extraordinary – both unusual and infrequent
On what does GASB 34 provide guidance for interfund activities?
Adjustments, eliminations, and reclassifications
E.g. interfund payables and receivables are eliminated, internal events that are essentially allocations of overhead are eliminated too
Where is management’s discussion & analysis located?
Before financial statements, even though it is required supplementary information (RSI)
What are the first four categories for the MD&A?
- Discussion
- Comparison
- Analysis of Overall Financial Position & Results of Operations
- Analysis of Balances & Transactions of Individual Funds
What are the second four categories for the MD&A?
- Analysis of Significant Budget Changes
- Capital Asset & Long-Term Liability Activity Description
- Infrastructure Discussion
- Currently Known Facts, Decisions, or Conditions
What are the two required government-wide statements?
Statement of Net Assets
Statement of Activities
Are fiduciary activities included in the GWS?
No, because those assets and liabilities are not allowed to be used to support the government’s own programs
How are amounts from internal service funds classified in the GWS?
Usually under governmental activities
Under business-type activities if the ISF provides services primarily to enterprise funds
What amounts are included in the governmental activities and business-type activities columns?
Governmental = amounts from governmental funds and most ISFs
Business-type = amounts from enterprise funds and few ISFs
When are governments permitted not to report depreciation on infrastructure assets?
If they meet the requisite three criteria
The criteria basically involve tracking the value of the IAs each year, knowing how much it costs to maintain them
If a government has a collection of works of art, or historical treasures, etc., then should they capitalize it?
They are encouraged to capitalize if the collection is:
- held for public benefit, not financial gain
- protected and preserved
- part of a policy where proceeds from the collection are used to acquire other similar items
Should collection items be depreciated?
Yes, unless they are inexhaustible (and thus can’t be depreciated)
When should a capital asset be considered impaired?
If (a) the decline in benefits is large and (b) the event causing the decline is outside its normal life cycle
Should not be written down if impairment is temporary
How is it reported if there is an insurance recovery related to an asset impairment?
Should be netted against the impairment loss
Restoration/replacement of asset with the recovery should be reported as a separate transaction (applies to non-impairment cases too)
How is a government-wide statement of activities formatted?
8 columns rather than 4
- the right 4 are governmental activities, business-type activities, total (i.e. total primary government), and component units – just like the statement of net assets
- the left 4 determine the right 4
How do the left four columns on a GW statement of activities affect the right four columns?
The left four are:
- Expenses
- Charges for Services
- Operating Grants and Contributions
- Capital Grants and Contributions
The latter three are revenue, and are netted against the expenses to determine the amount to report in one of the right 4 columns
In a GW statement of activities, once you have the net revenue or expense from the left four columns, where does it go in the right four columns?
There are different functions/programs listed on the far left which correspond to one of the four rows (e.g. different governmental activities that correspond to the “governmental activities” column)
Besides a section for program revenues and expenses, what else is present in the GW statement of activities?
A schedule for general revenues
This only uses the right 4 columns, simply showing what revenues are obtained for governmental activities, business-type activities, and component units
What is at the very bottom of the GW statement of activities?
The change in net assets
Current-period change comes from total revenues minus total expenses (for each of the four columns)
-this is added to beg. NA to calculate ending NA
What are the columns for a fund financial statement?
- column for General Fund
- separate columns for major funds
- column to aggregate nonmajor funds
Are governmental and proprietary funds combined in the same statement?
No, they are on separate statements since their accounting is different
What are the criteria for determining a fund as major?
Total assets, liabilities, revenues, or expenditures/expenses are both:
(1) at least 10% of total for the whole fund category (i.e. governmental or proprietary)
(2) at least 5% of total for all funds combined (both governmental and proprietary)
If a fund does not meet the two ordinary criteria to be a major fund, can it still be classified as a major fund?
Yes, if the government’s officials believe it is particularly important to users
Which two financial statements are required for governmental fund financial statements?
Fund Balance Sheet
Statement of Revenues, Expenditures, and Changes in Fund Balances
How should fund balance be reported for governmental fund financial statements?
With classifications according to how much the gov’t is restricted to spend the money
What comprises the Nonspendable Fund Balance category?
- Items legally required to remain intact
- Items “not in spendable form”: not expected to be converted to cash (e.g. inventories, long-term amount of loans receivable)
Exception: If the proceeds for items not expecting to be converted are restricted/committed, then those items should be classified the same way
What comprises the Restricted Fund Balance category?
Amounts restricted by external parties (e.g. creditors, contributors) or by law
What comprises the Committed Fund Balance category?
Amounts restricted by the formal action of the government’s highest level of decision-making authority
These constraints can be changed through appropriate due process
What comprises the Assigned Fund Balance?
Amounts restricted merely by the government’s intent
Intent can be expressed by a particular body that is delegated authority to make such decisions – but it need not be the formal decision of the highest authority
Besides funds intended to be spent a particular way, what is included in the Assigned Fund Balance?
(1) Remaining positive amounts in governmental funds (besides the general fund) that are not classified as the other three
(2) Amounts in the general fund intended for a specific purpose
What comprises the Unassigned Fund Balance?
All remaining funds in the general fund
Which is the only fund that reports a positive unassigned fund balance amount?
General fund
All others may have a negative amount, if expenditures for a specific purpose > amounts restricted to that purpose
If there is an expenditure for which funds from different fund balances (assigned, restricted, etc.) can be spent, how is it applied?
According to the government’s accounting policies
If no policy, then Committed is reduced first, then Assigned and Unassigned
When should the amount for the Nonspendable Fund Balance be determined?
Before classifying amounts according to Restricted, Committed, and Assigned fund balances
What happens if an amount constrained for some purpose is less than the expenditures for that purpose?
Amounts constrained to other purposes are first reduced
If a deficit still remains, then it is a (negative) unassigned fund balance
What are stabilization arrangements?
Amounts set aside for emergencies or to provide extra revenue if the budget doesn’t balance
Stabilization is considered a specific purpose
What fund balance are stabilization arrangements classified under?
Restricted or committed (in the general fund) if they meet the criteria, otherwise unassigned
What are different ways in which fund balances can be split up on the statements?
Nonspendable can be split between (1) not in spendable form and (2) legally restricted
Restricted, committed, and assigned fund balances can be split by major purposes
Or, these all can be reported in aggregate
Which three financial statements are required in proprietary fund statements?
Statement of Net Assets (or Balance Sheet)
Statement of Revenues, Expenses, and Changes in Fund Net Assets/Fund Equity
Statement of Cash Flows
How are enterprise funds reported in proprietary fund statements?
Divided into all major funds, and nonmajor funds are aggregated
These funds are then the column headers for the different statements
How are internal service funds reported in proprietary fund statements?
Reported in aggregate in a separate column after all the enterprise funds
In the proprietary fund statements, what is required for the Statement of Net Assets/Balance Sheet?
Net assets should be reported in same categories as in government-wide statements
In the proprietary fund statements, what is required in the Statement of Revenues, Expenses, and Changes in Fund Net Assets?
(1) current and noncurrent assets/liabilities
(2) operating and nonoperating rev./exp.
(3) restricted assets
(4) contributions, special and extraordinary items, and transfers (all located at bottom)
This provides the total change in fund net assets for the period
In the proprietary fund statements, what is the required format for the Statement of Cash Flows?
Should be prepared with direct method
The statement will therefore have a reconciliation of operating income to net cash from operating activities (i.e. what would automatically be provided in the indirect method)
Which two financial statements are required for fiduciary funds?
Statement of Fiduciary Net Assets
Statement of Changes in Fiduciary Net Assets
How are fiduciary statements formatted?
Include separate columns for different fiduciary fund types
In the governmental funds balance sheet, what is reported instead of equity?
Fund Balances
The fund types are the columns, and the rows are assets, liabilities, and then fund balances
What are the two main sections of a fiduciary funds operating statement?
Additions and Deductions
The difference between them is the Change in Net Assets for the period, which is then added to Beginning NA to get Ending NA
What are the two major differences between the GASB and FASB format for the statement of cash flows?
GASB uses four categories (splitting up financing activities)
GASB requires direct method
What are the four categories of a GASB statement of cash flows?
Operating, noncapital financing, capital and related financing, and investing activities
How are proceeds from quasi-external transactions classified in the statement of cash flows?
Under operating activities
When are loans considered operating activities?
Proceeds from loans are operating activities if they’re part of a government program (e.g. student loans, low-income housing)
Does NOT include investment-type loans
How are taxes, duties, fines, and other fees or penalties classified on the statement of cash flows?
Under operating activities
What is included in noncapital financing activities?
Borrowing (inflow) for purposes other than for capital assets, such as bonds
Repaying (outflow) borrowings, both principal and interest
How are receipts from grants classified on the statement of cash flows?
Depends on their purpose
If given for operating activities, then operating; if given for capital assets, then capital financing; otherwise they are noncapital financing
How are tax revenues and expenses classified on the statement of cash flows?
Taxes paid are operating
Taxes received are in financing activities – capital financing if restricted for capital purposes, otherwise noncapital financing
How are fund transfers classified on the statement of cash flows?
Quasi-external transactions are operating, but otherwise transfers are noncapital financing activities
What is included in investing activities?
Inflows – receipts from loan collections. returns on investments, withdrawals from investment pools
Outflows – loans made to others, purchases of securities, deposits into investment pools
What is included in other required supplementary information (RSI)?
Budgetary Comparison Schedule (BCS) and Infrastructure Schedules
RSI is presented after the financial statements
What is the budgetary comparison schedule?
Presented for general fund and each major special revenue fund with a budget
Accompanied by a reconciliation of budgetary information to GAAP information
What are infrastructure schedules?
They provide info on the assessed condition of infrastructure and the annual estimated amounts to maintain its condition
What are the different sections of the comprehensive annual financial report (CAFR)?
- Introduction
- Financial
- Statistical
- Financial Trends
What is included in the introduction section for the CAFR?
- title page & table of contents
- report of independent auditor
- letter of transmittal
What is included in the financial section of the CAFR?
- MD&A
- basic financial statements
- RSI
- combining statements (for nonmajor funds)
- individual fund statements & schedules
What is included in the statistical section of the CAFR?
- financial trends
- revenue capacity
- debt capacity
- demographic and economic
- operating
^^^This is all intended to give context for users to interpret the financials
What is included in the financial trends information section of the CAFR?
At minimum, should present info for net assets and changes in net assets
NAs should be subdivided (investments in capital assets, restricted, unrestricted)
Revenues, expenses, etc. should be shown for governmental activities and business-type activities (separately) to show changes in NAs
What are the criteria for legally separate, tax-exempt entities to be component units for a government?
All three are necessary:
(1) resources of the entity are totally (or nearly) for the “direct benefit” of the gov’t
(2) gov’t is entitled to majority of the entity’s resources
(3) entity’s resources are significant to the gov’t
Judgment is needed to determine these – whatever keeps financials from being misleading
When should governments recognize revenue?
In the period it “becomes available and measurable”
available = collected or collectible within ~60 days of the period
What are imposed nonexchange transactions?
Payments required from nongovernmental entities
In other words, taxes
When are assets recognized for imposed nonexchange transactions?
When the gov’t has an enforceable legal claim, or when the asset is received, whichever is earlier
Exception to this: property taxes
What is the name for the date when an asset claim is legally enforceable?
Lien date, or assessment date
When and how are revenues recognized for property taxes?
Reported net of refunds and uncollectible amounts
Reported in period when taxes are levied, even if the legal claim or the payment inflow occurs in a different period
What are government-mandated nonexchange transactions?
When one level of gov’t gives resources to another level, requiring it to be used for a particular purpose
If eligibility requirements for these transactions are not met, then the revenue/expense recognition should be deferred until they are
What are voluntary nonexchange transactions?
Result from legislative or contractual agreements, but don’t involve an equal exchange of value, and can involve a non-governmental entity
Recognition criteria are same as for government-mandated nonexchange transactions
How do governmental funds record capital leases?
Records an expenditure and an OFS – as if the leased asset were constructed/acquired from debt proceeds
Recorded at lesser of (1) PV of MLPs or (2) FV of asset
Why and how is a debt service fund used to record capital leases?
DSF is used because annual payments are long-term debt – governmental fund first records asset, and then the DSF is used to pay it off
Even though payments are part principal and part interest, the Expenditures account is debited for the full payment
What are the JEs to record the lease inception and repayments?
Inception (in governmental fund):
Dr: Expenditures
Cr: OFS – Capital Leases
Repayment (in DSF):
Dr: Expenditures
Cr: Cash
What role do proprietary funds have in capital leases?
Record depreciation
Record leased asset at lesser of (a) PV of MLPs or (b) FV of asset, and split up lease payments between principal and interest
What are the JEs for lease inception and repayment in the related proprietary fund?
Inception:
Dr: Equipment
Cr: Capital Leases Payable
Repayment:
Dr: Expenses – Interest
Dr: Capital Leases Payable
Cr: Cash
What are MSWLFs?
Municipal solid waste landfills
EPA has procedures for closing, post-closing, and maintaining
How should costs for MSWLFs be recognized?
Depending on the fund
Proprietary fund – capital assets should be fully depreciated by the time the MSWLF (or the relevant “cell” of the landfill) accepts no more waste
Governmental-type fund – uses modified accrual basis, liability reported with other general long-term debt
What is the purpose of GASB Concepts Statements?
They provide a framework in which GASB can develop standards – but they do not establish standards themselves
What is GASB Concepts Statement No. 1?
“Objectives of Financial Reporting”
Emphasizes accountability
What is GASB Concepts Statement No. 2?
“Service Efforts and Accomplishments Reporting”
What is GASB Concepts Statement No. 3?
“Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements”
What is GASB Concepts Statement No. 4?
“Elements of Financial Statements”
Identifies 5 elements for statement of financial position and 2 elements for resource flow statements
What is GASB Concepts Statement No. 5?
“Service Efforts and Accomplishment Reporting”
amends no. 2
When should governments accrue liabilities for vacation leave?
(1) if the liability is for past services
(2) if it is probable that the employer will compensate the employee for it
When should governments accrue liabilities for sick leave?
To whatever extent it is probable that the benefits will result in “termination benefits,” i.e. benefits the employee would get upon termination/retirement
NOT accrued based on contingencies (e.g. expected illnesses)
How is accounting for sabbaticals done?
Depends on whether compensation for sabbatical is (1) for work done during the sabbatical or (2) for previous work
If (1), should be accounted for in period rendered – there should be no liability accrued in advance
If (2), liability should be accrued as the employee earns the sabbatical benefits
What is the schedule of funding progress?
Used to track governmental postemployment benefits
Reports actuarial value of plan assets, actuarial accrued liability, and the relationship between the two over time
What is the schedule of employer contributions?
Used to track governmental postemployment benefits
Provides info on employer’s annual required contributions (ARCs)
What is the basic criterion in determining a governmental reporting entity?
Financial accountability
