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Governmental Financial Reporting Flashcards

1
Q

Who is responsible for establishing GAAP for state and local governments?

A

GASB – a private, nonprofit organization

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2
Q

What is the hierarchy of GAAP for state and local governments?

A

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

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3
Q

What is interperiod equity?

A

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

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4
Q

What are different factors that make public accountability crucial for governments?

A

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

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5
Q

Are a budget and fund ever used in recording business-type activities?

A

Only rarely

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6
Q

How does the purpose for financial reports differ for business-type activities than for other activities?

A

Focused on financial condition and operations’ effectiveness – rather than comparing actual results to budgeted amounts

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7
Q

How do capital assets differ for business-type activities than for other activities?

A

For business-type activities, capital assets are meaningfully related to raising revenue

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8
Q

Besides the obvious cases, what entities qualify as governments?

A

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

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9
Q

What types of bond issuers are classified as governments?

A

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

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10
Q

What is usually identified as the governmental reporting entity?

A

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

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11
Q

What is the purpose of GASB 34?

A

To establish a superior reporting model for state and local governments

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12
Q

What is operational accountability?

A

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)

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13
Q

Are governmental colleges covered by GASB 34?

A

They were not, but GASB 35 requires them to use the same reporting model

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14
Q

What is the basis of accounting for government-wide statements?

A

Accrual basis (even for amounts from governmental funds)

“Fund statements” are more specified, and they use the same basis as the funds themselves

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14
Q

What are included in basic financial statements (BFS)?

A

Both government-wide statements and fund statements (and notes)

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15
Q

What are the four required columns in government-wide statements?

A
  • Governmental activities
  • Business-type activities
  • Primary government (sum of previous two)
  • Component units

Note: funds do not explicitly appear in GWS

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16
Q

What must be included in governmental fund financial statements?

A

Reconciliation to GWS

Can be on face of statements, in separate schedule, or in notes

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17
Q

In fund statements, where would a statement of cash flows appear?

A

Only in statements for proprietary funds

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18
Q

What are special and extraordinary items?

A

Special = events within management control, both (1) abnormally large and (2) either unusual or infrequent

Extraordinary – both unusual and infrequent

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19
Q

On what does GASB 34 provide guidance for interfund activities?

A

Adjustments, eliminations, and reclassifications

E.g. interfund payables and receivables are eliminated, internal events that are essentially allocations of overhead are eliminated too

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20
Q

Where is management’s discussion & analysis located?

A

Before financial statements, even though it is required supplementary information (RSI)

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21
Q

What are the first four categories for the MD&A?

A
  • Discussion
  • Comparison
  • Analysis of Overall Financial Position & Results of Operations
  • Analysis of Balances & Transactions of Individual Funds
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22
Q

What are the second four categories for the MD&A?

A
  • Analysis of Significant Budget Changes
  • Capital Asset & Long-Term Liability Activity Description
  • Infrastructure Discussion
  • Currently Known Facts, Decisions, or Conditions
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23
Q

What are the two required government-wide statements?

A

Statement of Net Assets

Statement of Activities

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24
Q

Are fiduciary activities included in the GWS?

A

No, because those assets and liabilities are not allowed to be used to support the government’s own programs

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25
Q

How are amounts from internal service funds classified in the GWS?

A

Usually under governmental activities

Under business-type activities if the ISF provides services primarily to enterprise funds

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26
Q

What amounts are included in the governmental activities and business-type activities columns?

A

Governmental = amounts from governmental funds and most ISFs

Business-type = amounts from enterprise funds and few ISFs

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27
Q

When are governments permitted not to report depreciation on infrastructure assets?

A

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

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28
Q

If a government has a collection of works of art, or historical treasures, etc., then should they capitalize it?

A

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
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29
Q

Should collection items be depreciated?

A

Yes, unless they are inexhaustible (and thus can’t be depreciated)

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30
Q

When should a capital asset be considered impaired?

A

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

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31
Q

How is it reported if there is an insurance recovery related to an asset impairment?

A

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)

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32
Q

How is a government-wide statement of activities formatted?

A

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
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33
Q

How do the left four columns on a GW statement of activities affect the right four columns?

A

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

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34
Q

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?

A

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)

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35
Q

Besides a section for program revenues and expenses, what else is present in the GW statement of activities?

A

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

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36
Q

What is at the very bottom of the GW statement of activities?

A

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

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37
Q

What are the columns for a fund financial statement?

A
  • column for General Fund
  • separate columns for major funds
  • column to aggregate nonmajor funds
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38
Q

Are governmental and proprietary funds combined in the same statement?

A

No, they are on separate statements since their accounting is different

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39
Q

What are the criteria for determining a fund as major?

A

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)

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40
Q

If a fund does not meet the two ordinary criteria to be a major fund, can it still be classified as a major fund?

A

Yes, if the government’s officials believe it is particularly important to users

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41
Q

Which two financial statements are required for governmental fund financial statements?

A

Fund Balance Sheet

Statement of Revenues, Expenditures, and Changes in Fund Balances

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42
Q

How should fund balance be reported for governmental fund financial statements?

A

With classifications according to how much the gov’t is restricted to spend the money

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43
Q

What comprises the Nonspendable Fund Balance category?

A
  • 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

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44
Q

What comprises the Restricted Fund Balance category?

A

Amounts restricted by external parties (e.g. creditors, contributors) or by law

45
Q

What comprises the Committed Fund Balance category?

A

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

46
Q

What comprises the Assigned Fund Balance?

A

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

47
Q

Besides funds intended to be spent a particular way, what is included in the Assigned Fund Balance?

A

(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

48
Q

What comprises the Unassigned Fund Balance?

A

All remaining funds in the general fund

49
Q

Which is the only fund that reports a positive unassigned fund balance amount?

A

General fund

All others may have a negative amount, if expenditures for a specific purpose > amounts restricted to that purpose

50
Q

If there is an expenditure for which funds from different fund balances (assigned, restricted, etc.) can be spent, how is it applied?

A

According to the government’s accounting policies

If no policy, then Committed is reduced first, then Assigned and Unassigned

51
Q

When should the amount for the Nonspendable Fund Balance be determined?

A

Before classifying amounts according to Restricted, Committed, and Assigned fund balances

52
Q

What happens if an amount constrained for some purpose is less than the expenditures for that purpose?

A

Amounts constrained to other purposes are first reduced

If a deficit still remains, then it is a (negative) unassigned fund balance

53
Q

What are stabilization arrangements?

A

Amounts set aside for emergencies or to provide extra revenue if the budget doesn’t balance

Stabilization is considered a specific purpose

54
Q

What fund balance are stabilization arrangements classified under?

A

Restricted or committed (in the general fund) if they meet the criteria, otherwise unassigned

55
Q

What are different ways in which fund balances can be split up on the statements?

A

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

56
Q

Which three financial statements are required in proprietary fund statements?

A

Statement of Net Assets (or Balance Sheet)

Statement of Revenues, Expenses, and Changes in Fund Net Assets/Fund Equity

Statement of Cash Flows

57
Q

How are enterprise funds reported in proprietary fund statements?

A

Divided into all major funds, and nonmajor funds are aggregated

These funds are then the column headers for the different statements

58
Q

How are internal service funds reported in proprietary fund statements?

A

Reported in aggregate in a separate column after all the enterprise funds

59
Q

In the proprietary fund statements, what is required for the Statement of Net Assets/Balance Sheet?

A

Net assets should be reported in same categories as in government-wide statements

60
Q

In the proprietary fund statements, what is required in the Statement of Revenues, Expenses, and Changes in Fund Net Assets?

A

(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

61
Q

In the proprietary fund statements, what is the required format for the Statement of Cash Flows?

A

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)

62
Q

Which two financial statements are required for fiduciary funds?

A

Statement of Fiduciary Net Assets

Statement of Changes in Fiduciary Net Assets

63
Q

How are fiduciary statements formatted?

A

Include separate columns for different fiduciary fund types

64
Q

In the governmental funds balance sheet, what is reported instead of equity?

A

Fund Balances

The fund types are the columns, and the rows are assets, liabilities, and then fund balances

65
Q

What are the two main sections of a fiduciary funds operating statement?

A

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

66
Q

What are the two major differences between the GASB and FASB format for the statement of cash flows?

A

GASB uses four categories (splitting up financing activities)

GASB requires direct method

67
Q

What are the four categories of a GASB statement of cash flows?

A

Operating, noncapital financing, capital and related financing, and investing activities

68
Q

How are proceeds from quasi-external transactions classified in the statement of cash flows?

A

Under operating activities

69
Q

When are loans considered operating activities?

A

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

70
Q

How are taxes, duties, fines, and other fees or penalties classified on the statement of cash flows?

A

Under operating activities

71
Q

What is included in noncapital financing activities?

A

Borrowing (inflow) for purposes other than for capital assets, such as bonds

Repaying (outflow) borrowings, both principal and interest

72
Q

How are receipts from grants classified on the statement of cash flows?

A

Depends on their purpose

If given for operating activities, then operating; if given for capital assets, then capital financing; otherwise they are noncapital financing

73
Q

How are tax revenues and expenses classified on the statement of cash flows?

A

Taxes paid are operating

Taxes received are in financing activities – capital financing if restricted for capital purposes, otherwise noncapital financing

74
Q

How are fund transfers classified on the statement of cash flows?

A

Quasi-external transactions are operating, but otherwise transfers are noncapital financing activities

75
Q

What is included in investing activities?

A

Inflows – receipts from loan collections. returns on investments, withdrawals from investment pools

Outflows – loans made to others, purchases of securities, deposits into investment pools

76
Q

What is included in other required supplementary information (RSI)?

A

Budgetary Comparison Schedule (BCS) and Infrastructure Schedules

RSI is presented after the financial statements

77
Q

What is the budgetary comparison schedule?

A

Presented for general fund and each major special revenue fund with a budget

Accompanied by a reconciliation of budgetary information to GAAP information

78
Q

What are infrastructure schedules?

A

They provide info on the assessed condition of infrastructure and the annual estimated amounts to maintain its condition

79
Q

What are the different sections of the comprehensive annual financial report (CAFR)?

A
  1. Introduction
  2. Financial
  3. Statistical
  4. Financial Trends
80
Q

What is included in the introduction section for the CAFR?

A
  • title page & table of contents
  • report of independent auditor
  • letter of transmittal
81
Q

What is included in the financial section of the CAFR?

A
  • MD&A
  • basic financial statements
  • RSI
  • combining statements (for nonmajor funds)
  • individual fund statements & schedules
82
Q

What is included in the statistical section of the CAFR?

A
  • financial trends
  • revenue capacity
  • debt capacity
  • demographic and economic
  • operating

^^^This is all intended to give context for users to interpret the financials

83
Q

What is included in the financial trends information section of the CAFR?

A

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

84
Q

What are the criteria for legally separate, tax-exempt entities to be component units for a government?

A

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

85
Q

When should governments recognize revenue?

A

In the period it “becomes available and measurable”

available = collected or collectible within ~60 days of the period

86
Q

What are imposed nonexchange transactions?

A

Payments required from nongovernmental entities

In other words, taxes

87
Q

When are assets recognized for imposed nonexchange transactions?

A

When the gov’t has an enforceable legal claim, or when the asset is received, whichever is earlier

Exception to this: property taxes

88
Q

What is the name for the date when an asset claim is legally enforceable?

A

Lien date, or assessment date

89
Q

When and how are revenues recognized for property taxes?

A

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

90
Q

What are government-mandated nonexchange transactions?

A

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

91
Q

What are voluntary nonexchange transactions?

A

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

92
Q

How do governmental funds record capital leases?

A

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

93
Q

Why and how is a debt service fund used to record capital leases?

A

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

94
Q

What are the JEs to record the lease inception and repayments?

A

Inception (in governmental fund):
Dr: Expenditures
Cr: OFS – Capital Leases

Repayment (in DSF):
Dr: Expenditures
Cr: Cash

95
Q

What role do proprietary funds have in capital leases?

A

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

96
Q

What are the JEs for lease inception and repayment in the related proprietary fund?

A

Inception:
Dr: Equipment
Cr: Capital Leases Payable

Repayment:
Dr: Expenses – Interest
Dr: Capital Leases Payable
Cr: Cash

97
Q

What are MSWLFs?

A

Municipal solid waste landfills

EPA has procedures for closing, post-closing, and maintaining

98
Q

How should costs for MSWLFs be recognized?

A

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

99
Q

What is the purpose of GASB Concepts Statements?

A

They provide a framework in which GASB can develop standards – but they do not establish standards themselves

100
Q

What is GASB Concepts Statement No. 1?

A

“Objectives of Financial Reporting”

Emphasizes accountability

101
Q

What is GASB Concepts Statement No. 2?

A

“Service Efforts and Accomplishments Reporting”

102
Q

What is GASB Concepts Statement No. 3?

A

“Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements”

103
Q

What is GASB Concepts Statement No. 4?

A

“Elements of Financial Statements”

Identifies 5 elements for statement of financial position and 2 elements for resource flow statements

104
Q

What is GASB Concepts Statement No. 5?

A

“Service Efforts and Accomplishment Reporting”

amends no. 2

105
Q

When should governments accrue liabilities for vacation leave?

A

(1) if the liability is for past services

(2) if it is probable that the employer will compensate the employee for it

106
Q

When should governments accrue liabilities for sick leave?

A

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)

107
Q

How is accounting for sabbaticals done?

A

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

108
Q

What is the schedule of funding progress?

A

Used to track governmental postemployment benefits

Reports actuarial value of plan assets, actuarial accrued liability, and the relationship between the two over time

109
Q

What is the schedule of employer contributions?

A

Used to track governmental postemployment benefits

Provides info on employer’s annual required contributions (ARCs)

110
Q

What is the basic criterion in determining a governmental reporting entity?

A

Financial accountability

FAR (26 decks)

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