Govt. Accounting Part 2 Flashcards
Accountability
Two types of accountability
1. Operational Accountability - Govt. wide financial statement
- Fiscal Accountability - Fund financial statements.
Govt. Reporting Standards
GASB 34 require presentation of basic F/S and required supplemantary information. Basis F/S are defined as government- wide F/S, fund F/S and notes to the F/S.
Notes to F/S
Required Supplementary information (RSI) other than MD & A ( After F/S)
Pension - sources of changes in net position liability ( last 10 years ), information about the components of the net pension liability and related ration ( last 10 years )
Budget - Budgetary comparison schedule
Primary Govt. defined
The primary government consist of all organization that make up the legal government entity. The primary government is considered the nucleus of the financial reporting entity. Example state governments, general purpose local Govt. , Special purpose local government that meet all the following criteria
- Has a Separately Elected governing body
- Is Legally separate and
- Is Fiscally independent of other state and local government
Mnemonic - SELF
Special Purpose Governmental unit
Special purpose governmental unit that are not primary governments are organizations that are financially accountable to a primary government. They are typically entities engaged in
- Governmental Activities
- Business Type Activities
- Fiduciary Activities
- Governmental and business tip activities
Component unit
A component unit of the primary government is usually an organization for which the elected officials of primary government are financially accountable. It may also be an organization that by its nature and the significance of its relationship with the primary government cannot be excluded from the primary governmental F/S without making the primary governments F/S misleading or incomplete
Blended Presentation
Some components units are so inter-winded with the primary government that they are , in substance, the same as the primary government
The blended method is used in the following circusmtances
1. A board of the component unit is substantively the same as that of the primary Government Or
2. The component units serves the primary government exclusively or almost exclusively
OR
3. The component unit is not a separate legal enity
Discrete Presentation ( Separate presentation )
Discrete presentation is used when the criteria for blended presentation are not met ( most common)
- Displays component unit in separate columns
- Most components should use discrete presentation
- provide overview of the entity base on financial accountability
Discrete presentation is the default method when the criteria for blended presentation have not been met.
Reporting Not-for-profit entities as a component unit of government
Not for profit organizations that provide ongoing support to a primary government or to component unit of the that primary government may also be a component unit of the primary government. Example include
- Private foundation associated with state universities
- Private foundation associated with public health care facilites
Not for profit entities criteria for classification
In order to be a discrete component unit of a primary government are all three of the following must meet.
- benefit - the private organization must be for near exclusive benefit of the primary government
- Acces - the primary government must have access to the resources of the private not for profit organization
- Significance - Resources of the private not for profit organization must be significant to the primary government.
MD & A ( Required supplementary information)
MD & A is a narrative that provides a brief, objective, and easily readable analysis of the government’s financial activities based on upon currently known facts, decision, and condition. It provides the financial management of the governments with the opportunity to present both a short-term or a long-term analysis of activities. The following should include
1. condensed F/S
No Variance analysis
No Reconciliation of fund F/S -to Govt. Wide F/S
Components of Net position
Net investment in capital assets
Restricted - restricted assets reduced by liabilities and deferred inflows of resources related to those assets
Unrestricted
note Capitalization of construction period interest is not required for capital assets used in governmental activities
Infrastructure assets should be recorded as general capital assets
Identifying and Valuing Impairment
Governments are required to determine if impairment of an asset has occurred. Different types of impairment use different measurement techniques. Insurance recoveries are netted against the loss.
Artwork and Historical Treasures
Government should capitalize works of art, historical reassures and similar assets at their cost or FV at date of donation whether they are held as individual items or in collection.
Under certain circumstances, governments have the alternative not to capitalize works of art, regardless if whether collection items are donated or purchased however has to meet following
1. Public exhibition, eduction , research in furtherance of public service, rather than financial gain. 2. collection is protected, kept unencumbered, preserved 3. policy requires the process from sales of collection to be used acquire other item
Govt. Wide F/S
It includes all assets and liabilities which a government has control or responsibility. It is important to note that
- Fiduciary funds are not included
- Components units are included
Govt. Wide statement of activities - Program approach
The government wide statement of activities uses a net program cost format that is not consistent with commercial accounting. The formant provides cost information about the primary functions of the government and indicates each program’s dependance on general revenues of the governments. Total costs by function are compared to program revenue associated with each function to arrive at the net cost that must be defrayed by tax revenues
Program Revenue Category Types
- Charges for Services
- Operating grants and contribution
- Capital Grants and contribution
Fund Financial Statement - Required Fund Financial Statements
GASB 34 emphasizes reporting by major fund rather than fund type. Major funds are specially defined as follows: a major fund must meet the 10% criteria within its category and also meet 5% criteria associated with both categories.
Major Fund Rules - Two Criteria (both must be met)
To meet 10% test, the indiviudal GRaSPP funds are individually compared to the total of all governmental funds. The enterprise Funds are individually compared to the total of all enterprise funds
10% or more of the corresponding total revenues, expenditures/expenses, assets and deferred outflows of resources, or liabilities and deferred inflows of resources of
- All governmental funds OR
- All enterprise funds
Major Fund Rules - Two Criteria (both must be met)
Continued
To meet the 5% test, the GRaSPP funds are individually compared to the total of all the governmental funds and enterprise funds. Each Enterprise fund is individually compared to the total of all enterprise funds and governmental funds to meet the 5% test
5% or more of the corresponding total revenues, expenditures/expenses, assets and deferred outflows of resources, or liabilities and deferred inflows of resources of
- All Governmental funds and
- All enterprise funds
Application to Financial Statements
The impact of measurement focus and basis of accounting differences must be considered in reconciling two features of financial statement presentation
B/S Reconciliation
+Assets ( Non Current)
- Liabilities ( Non-Current)
+Service ( internal ) fund net position
Statement of Revenues, Expenditures, and changes in fund balance
GRaSPP - Net change in Fund balance
-Other financing sources ( borrowing )
+Expenditure -Capital outlay ( net of depreciation)
+Service (internal ) fund net income
Proprietary Funds- Statement of cash flows
The direct method is required
A Reconciliation of operating income to net cash provided by operation is required
There are four categories ( instead of 3 in commercial)
A. Operating Activities B. Capital and related financing activities C. Non-capital financing activities D. Investing activities
The ordering of financing and investing activities are reversed.
Proprietary Funds- Statement of cash flows
Interset income/Cash receipt are reported as investing activities
Interest expense / cash payment either
1. Capital and related financing
2. Non-Capital financing
Notes to the Financial Statements
Notes to the financial statements are essential to fair presentation and considered internal to the financial statements. Notes should focus on the primary government, specifically
- Governmental activities
- Business -type activities
- Major funds
- Non-major funds in aggregate
- Additional information regarding discretely presented component unit
Inter-fund Activity
Inter-fund activity represents the flow of resources between funds and between the primary governments and its component unit. The accounting associated with inter fund activity can be classified as follows
- Reciprocal inter-fund activity
- Non-reciporal inter-fund activity
Reciprocal inter-fund activity & Non-receporal inter fund activity
Reciprocal inter-fund activity included exchange type transactions between funds such as inter fund loans and inter fund services provided and used
Generally, non-receiprocal inter fund activity represents no-excahgne transactions such as inter fund transfers and inter fund reimbursements
Treatment of inter fund Receivables and Payables
Inter-fund receivables and payables should be eliminated except for the net residual balances of amounts due and payable between governmental activities and business type activities
Receivables and payables to fiduciary funds should be treated like assets and liabilities derived from external sources
Governmental cash flows - Operating Activities
Cash inflows from sales of goods and services
Cash outflows to suppliers or employees
Cash inflows from inter-fund reimbursement and exchanges including payments in lieu of taxes
Cash transactions not meeting the definition of the other categories
Governmental Cash flows - Investing activities
Cash inflows and outflows associated with loans to others
Cash inflows and outflows associated with equity transactions
Governmental Cash flows - Capital and related financing activities & Non capital financing activities
Cash flows from issuing debt associated with capital assets
Cash inflows from capital grants
Cash inflows from contribution activity associated with capital assets
Cash activity related to special assessments associated with capital assets
*Non-Capital financing activities
Cash receipts from grants or subsidies
Cash received from property taxes
Operating transfer
