Module 21 Flashcards
(99 cards)
1
Q
What is the Governmental Accounting Standards Board (GASB)?
A
Standard setting organization that has the authority to establish standards of financial reporting for all units of state and local governments.
2
Q
What is the hierarchy of GASB pronouncements?
A
- Officially established accounting principles – GASB Statements and Interpretations.
- GASB Technical bulletins and AICPA Industry Audit and Accounting Guides and Statements of Position cleared by the GASB.
- AICPA Practice Bulletins cleared by the GASB and consensus positions of groups of accountants organized by the GASB.
- Implementation guides published by the GASB staff and practices that are widely recognized and prevalent.
3
Q
GASB Concepts statement no. 1 establishes what?
A
the objectives of general purpose external financial reporting by state and local governmental entities and applies to both governmental-type and business-type activities
4
Q
Objectives for Financial Reporting?
A
The nature of the governmental environment affects the financial reporting of governmental-type activities. The governmental environment is characterized by representative forms of government with separation of powers, a prevalence of intergovernmental revenues, and services that are provided to taxpayers. The budget is very significant in accounting for government-type activities because it expresses public policy, funding intent, and provides control over government expenditures. Control over revenues and expenditures is also provided by the use of fund accounting.
5
Q
Concepts Statement No. 1 identifies three primary users of the external state and local governmental financial reports.
A
1- The citizenry
2- Legislative and oversight bodies,
3- Investors and Creditors
6
Q
What are Service Efforts and Accomplishments Reporting? (SEA Reporting)
A
The objective of SEA reporting is to provide more complete information about a governmental entity’s performance than can be provided by traditional financial statements and schedules. Such information is necessary for assessing accountability and making informed decisions.
Ideally a governmental entity should (1) establish and communicate clear, relevant goals and objectives, set measurable targets for accomplishments, and develop and report indicators that measure its progress. The elements of SEA reporting include measures of service effort, measures of service accomplishments, and narrative or explanatory information.
7
Q
What are the communication methods in general-purpose financial reports?
A
GASB Concepts statement No. 3 provides a conceptual basis for selecting communication methods to present items of information within general-purpose external reports that contain financial statements. The alternative methods of communication include recognition in the basic financial statements, disclosures in notes to the basic financial statements, presentation as required supplementary information, and presentation as supplementary information.
8
Q
5 elements of the Statement of Position?
A
1) Assets - Resources with present service capacity that the government presently controls
2) Liabilities - Present obligations to sacrifice resources that the government has little or no discretion to avoid.
3) Deferred Outflow or resources - a consumption of net assets by the government that is applicable to a future reporting period. This is similar to an assets (Prepaid Asset ) Regular Debit Balance
4) Deferred inflow of resources - an acquisition of net assets by the government that is applicable to a future reporting period. This is similar to a liability (Unearned revenue ) Regular Credit Balance.
5) Net position - The residual of all other elements presented in a statement of financial position
9
Q
2 Elements of the resource flows statement?
A
1) Outflow of resources - a consumption of net assets by the government that is applicable to the reporting period (Debit Balance)
2) Inflow of resources - an acquisition of net assets by the government that is applicable to the reporting period (Credit Balance)
10
Q
Governmental accounting focuses on two types of accountability. What are they?
A
1) Operational Accountability - demonstrated by government-wide financial statements which illustrate how effective and efficient the organization has been at using its resources and the resources available to meet its future obligations
2) Fiscal accountability - illustrated by fund financial statements which show the organizations compliance with laws and regulations affecting its spending activities.
11
Q
What are the minimum requirements for basic financial statements and required supplemental information
A
1) Management Discussion and Analysis
2) Government-Wide Financial Statements (Statement of net Position, and Statement of Activities.
3) Fund Financial Statement
Governmental Funds (Balance Sheet, Statement of Revenues, Expenditures, and Changes in fund balances)
Proprietary Funds (Statement of Net position, Statement of revenues, expenses, and changes in fund net position, Statement of Cash flows)
Fiduciary Funds ( Statement of fiduciary Net Position, Statement of Changes in Fiduciary Net Position)
4) Notes to the financial statements
5) Statement of Changes in Fiduciary Net Position.
12
Q
In addition to general purpose financial general-purpose governments may choose to provide certain other supplementary information including combining statements for non major funds. What is the report called that contains additional information?
A
Comprehensive Annual Financial Report (CAFR) contains 3 major sections.
First, An introductory sections, letter of transmittal, organization chart, and list of principle officials.
Second, A financial sections would be prepared including an auditor’s report. The required information, and other supplementary information listed above.
Third, a statistical sections, which would include a number of schedules such as a net position by component, changes in net position, revenue capacity, debt capacity, and demographic and economic statistics.
13
Q
What are Special-purpose governments?
A
Park districts, tollway authorities, school districts, and sanitation districts.
14
Q
What is a primary government? a component unit?
A
A Primary government is either (1) a state government, (2) a general-purpose local government or (3) a special purpose local government that has a separately elected governing body.
A Component unit - is a legally separate organization for which the elected officials of a primary government are financially accountable.
15
Q
Component units should be blended with the primary government figures in the following circumstances?
A
1) The governing body of the component unit is substantially the same as that of the primary government and (1) there is a financial benefit or burden relationship between the primary government and the component unit, or (2) the management of the primary government has operational responsibility for the component unit.
2) The component unit provides services entirely or almost entirely, for the primary government or for the benefit of the primary government.
3) The component unit’s total debt outstanding, including leases, is expected to be repaid entirely or almost entirely by the primary government.
If these criteria are not met, they are ‘discretely presented’
16
Q
What does MD&A include?
A
- a brief discussion of the financial statements
- condensed financial information from the government-wide financial statements and individual fund statements.
- An analysis of significant variations between the original budget, final budget, and actual results for the year.
- A description of significant capital assets and long-term debt activity for the year.
- A discussion by governments that use the modified approach to report infrastructure assets regarding the conditions of these capital assets and changes from prior year
- A description of any known facts, decisions, or conditions that would have a significant effect on the government’s financail position or results of operations
17
Q
What do Government-wide statements include?
A
They include the statement of net position and the statement of activities. Prepared on the accrual basis of accounting
18
Q
The statement of Net position is the following formula?
A
Assets + Deferred Outflows of resources - Liabilities - Deferred inflows of resources = net position
19
Q
What are some examples of deferred outflows of resources (Debits)?
A
- Grant expenditures paid in advance of meeting timing requirements
- Deferred amounts from refunding of debt
- Cost to acquire rights to future revenues
- Deferred loss from sale and leaseback
- Negative fair value of government hedge of a future transaction.
20
Q
What are examples of deferred inflows of resources (Credits)?
A
- Grant amounts received in advance of meeting timing requirements
- Deferred amounts from refunding debt
- Proceeds from sale of future revenues
- Deferred gain from a sale-leaseback transaction
- Positive fair value of government hedge of a future transaction
- Advance of revenue from imposed non exchange transactions
21
Q
Full accrual accounting is to be used on the statement of net position, including the recording and depreciation of fixed assets, including infrastructures.
A
Capital assets generally are presented in the asset section of the statement of net position net of related depreciation. Net position is broken down into three categories (1) Net investment in capital assets, (2) restricted, and (3) unrestricted.
22
Q
What is the net investment in capital assets?
A
it is computed by taking the value of capital assets, less accumulated depreciation, less the debt associated with the acquisition or improvement of those assets or the related debt should also be included in this component of net position.
23
Q
What does the term ‘restricted’ mean?
A
(a) externally imposed by creditors, grantors, contributors, or laws ore regulations of other governments, and (b) imposed by law through constitutional provisions or enabling legislation.
24
Q
What does the term ‘unrestricted’ mean?
A
Unrestricted net position is the ‘plug’ figure , computed by taking the total net position and subtracting the net investment in capital assets and the restricted net position.
25
The columns in the statement of net position are separated into columns. What are they?
1- Governmental Activities - Those that are financed primarily through taxes and other non-exchange transactions
2- Business-type activities - are those normally financed primarily through user charges
3- total primary government -
4- Component units -
26
What does the statement of activities do?
It reports revenues and expenses on the full accrual basis. It is a consolidated statement in that the inter-fund transactions are not eliminated
27
How are expenses and revenues reported on the statement of activities?
Expenses are reported by function. Revenues are also reported on the accrual basis and may be exchange revenues or non-exchange revenues
Exchange Revenues - Reported when goods or services are transferred for a payment of equal value
28
What is an extraordinary item?
Those that are both unusual in nature and infrequent in occurrence.
29
What is Special items?
Those events within the control of management that are either unusual in nature or infrequent in occurrence.
30
How is depreciation expenses for general infrastructure assets?
depreciation expenses should not be allocated but shown as an expense of that function that normally is used for capital outlay or as a separate line.
A government may chose to use a modified approach for recording eligible infrastructure assets. Under the modified approach eligible infrastructure assets are not required to be depreciated as long as the following two requirements are met;
(1) the government manages the eligible infrastructure assets using an asset management structure
(2) The government documents that the eligible infrastructure assets are being preserved approximately at a condition level established and disclosed by the government
31
GASB No. 68 Accounting and Financial Reporting for Pensions provides guidance?
when a state or local government has an employee pension plan administered through a trust or equivalent arrangement with the following characteristics;
- Contributions from employers and non-employers contributing entities to the pension plan and the related earnings are irrevocable
- Pensions plan assets are dedicated to providing pensions to plan members in accordance with the benefit terms
- Pension plans are legally protected from the creditors of employers and the pension plan administrators.
32
How is net pension liability measured?
as a portion of the actuarial present value of projected benefit payments attributable to past periods of employee services minus the pension plans's fiduciary net position. the net pension liability should be measured as of a date which should be no earlier than the end of the employer's prior fiscal period.
33
In developing the net pension liability the entity should use the following guidance;
1) T he selection of all assumptions should be in conformity with actuarial standards of practices issued by the actuarial standards board.
2) The PBO should include all benefits to be provided to current active and inactive employees through the pension plan in accordance with the benefit term and any additional-legal agreements to provide benefits including automatic or substantially automatic post-employment benefit changes and cost-of-living adjustments
3) The discount rate should be the single rate that reflects (a) the long-term expected rate of return on the pension plan investments expected to be used to finance the payment of benefits to the extent that the pension plan's fiduciary net position is projected to be sufficient to make the projected benefit payments and the pension plan assets are expected to be invested to achieve that return or (b) the yield or index rate for 20 yr, tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher to the extent the conditions in (a) are not met
4) The entry age actuarial cost method should be used to attribute the actuarial present value of projected benefit payments of each employee to periods
34
What must be recorded if the government has a cost-sharing defined benefit plan?
It must record a liability and expense equal to its proportionate share of the collective net pension liability and expense for the plan.
35
What must be recorded if the government has a defined contribution plan?
Pension expense should be accrued equal to the amount of contributions or credits to employees accounts that are defined by the benefit terms as attributable to current period service, net of forfeited amounts that are removed from employee's accounts.
36
In addition to government-wide statements, governmental accounting standards required a # of fund financial statements. Most governments use fund accounting internally and prepare the government-wide statements with a worksheet adjustment from this fund accounting base
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37
A Fund is defined by the GASB as?
A fiscal and accounting entity with ta self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities and balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations
38
Under GASB standards there are 11 fund types which are classified into three general categories?
1) Governmental Funds (modified accrual basis)
- General
- Special revenue
- Debt Services
- Capital projects
- Permanent
2) Proprietary Funds (Accrual)
- Internal service
- Enterprise
3) Fiduciary Funds (Accrual)
- Agency
- Pension and other employee benefit trust funds
- Investment trust funds
- Private-purpose trust funds
39
how are Fixed assets and long-term debt treated on fund financial statements?
They are not reported in the fund financial statements for governmental funds. They are only reported on the government-wide financial statements.
40
The fund financial statements for the governmental and enterprise fund categories report major funds, not all funds. The general fund is always a major fund. Other funds must be considered major when both the following conditions exist (1) total assets, liabilities, deferred inflows and outflow, revenues, expenditures/expenses of that individual governmental for enterprise fund constitute 10% of the governmental or enterprise category and (2) total assets, liabilities, deferred inflows and outflows, revenues, expenditures/expenses are 5% of the total of the governmental and enterprise category combined.
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41
What are governmental funds?
focus on the current financial resources raised and expended to carry out general government purposes.
42
What is the general fund?
Accounts for and reports all financial resources except those required to be accounted for and reported in another fund. The general fund includes expenditures for functions such as general government, public safety, culture and recreation, public works and engineering, and other activities not set aside in other funds
43
What are special revenue funds?
Are used to account for and report specific revenue sources that are restricted or committed to expenditures for specified current purposes other than debt service and capital projects.
44
What are debt service funds?
Are used to account for and report financial resources that are restricted, committed, or assigned to expenditures for the payment of general long-term debt principal and interest.
45
What is the Capital projects funds?
Are used to account for and report financial resources that are restricted, committed, or assigned to expenditures for capital outlaws, including the acquisition or construction of capital facilities and other capital assets. Capital projects funds exclude capital-related outflows financed by proprietary funds or for assets that will be held in trust funds.
46
What are the Permanent funds?
Are used to account for and report resources that are restricted to the extent that only earnings, and not principal, may be used to support government programs which benefit the government or its citizens
47
What financial statements are required for governmental fund types?
Balance Sheet
| Statement of Revenues, Expenditures, and Changes in Fund Balances
48
GASB Statement No 54 established fund balance classifications that are to be used by governmental funds based on the extent to which the government is obligated to observe constraints imposed upon the use of the resources?
Fund balance classifications are non-spendable, restricted, committed, assigned, and unassigned
49
What is a non-spendable fund balance?
includes amounts that cannot be spent because they are either (1) not in spendable form, or (2) they are legally or contractually required to be maintained intact
50
What are restricted fund balances?
Amounts that are restricted to specific purposes and should be reported as restricted when constraints placed upon the resources are either; (1) eternally imposed by creditors, contributors, or laws or regulations or other governments or (2) imposed by law through constitutional provisions or enabling legislation.
51
What are committed fund balances?
Amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government's highest level of decision-making authority
52
What are assigned fund balances?
Amounts that are constrained by the government's intent to be used for specific purposes by are neither restricted nor committed. It also includes any remaining positive amounts that are reported in governmental funds, other than the general fund that are not classified as non-spendable, restricted, or committed and amounts in the general fund that are intended to be used for a specific purpose
53
What are the unassigned fund balances?
the residual classification for the general fund. The unassigned committed, or assigned to specific purposes within the general fund.
54
What are proprietary funds?
Funds that focus on total economic resources, income determination, and cash flow presentation.
55
What are internal service funds?
Proprietary funds that report any activity that provides goods or services to other funds of hte primary government on a cost-reimbursement basis. Examples might include print shops, motor pools, and self-insurance activities. Internal service funds may incidentally provide services to other governments on a cost-reimbursement basis.
56
What are Enterprise funds?
Proprietary funds that may be used to provide goods or services to external users for a fee. Enterprise funds must be used if (1) the activity is financed with debt that is secured solely by a pledge of the net revenues from fees and charges of that activity, (2) laws or regulations require that thee activity's cost of providing services be recovered with fees and charges, rather than from taxes or similar revenues, or (3) the pricing policies of the activity establish fees and charges designed to cover its costs including capital costs.
57
What statements are required for proprietary funds?
Statement of Net position
Statement of Revenues, Expenses, and Changes in fund net position
Statement of cash flows.
58
How is the statement of cash flows prepared?
It contains several major differences.
1) Only the direct method is acceptable and reconciliation is required
2) The reconciliation is from the operating income to net cash flow from operating activities
3) GASB has 4 categories instead of the three required for FASB. They are Operating, non-capital financing, capital and related financing, and investing
4) cash receipts from interest as classified as investing
5) cash payments for interest are classified as financing
6) Purchases of capital assets are considered financing
59
What are fiduciary fund financial statements? and what do they provide?
They provide information, based on the economic resources measurement focus and accrual accounting, on resources held and used by governments for the benefit of individuals and entities other than the government.
They contain the statement of fiduciary net position, and the statement of changes in fiduciary net position
The four types of fiduciary funds are:
1) Pension trust funds,
2) Investment trust funds
3) private-purpose trust funds
4) agency funds
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What are Pension trust funds?
funds held in a trust for the payment of employee retirement and other benefits.
61
What are investment trust funds?
they are used to report the external portions of investment pools, when the reporting government is trustee
62
What are private-purpose trust funds?
are used to report all other trust arrangements where the principal must remain intact and the income generated is used to benefit individuals, private organizations, and other governments.
63
What are agency funds?
resources held by the reporting government in a purely custodial capacity. Agency funds report only assets and liabilities and are not included in the statement of changes in fiduciary net positon
64
What are some of the major disclosures required in the notes to the financial statements?
1) a summary of accounting policies
2) description of the reporting entity
3) Disclosures on cash and investments
4) information relating to fixed assets, long-term debt, pensions, commitments and contingencies
5) information on exceeding the budget at the legal level of control
6) disclosure of individual funds with deficit fund balances
7) risks related to deposits and investments
65
GASB requires four types of information that should be included immediately after the notes to the financial statements. What are they?
1) Pension schedules
2) schedules when the government sponsors a public entity risk pool.
3) budgetary comparison schedules
4) certain schedules when using the modified approach for reporting infrastructure
66
What is a budgetary comparison schedules?
they are required supplementary information for the general fund and all major special revenue funds for which an annual budget has been legally adopted by the governmental unit.
Budgetary comparison schedules include the original budget, the final appropriated budget, and the actual revenues and expenditures stated on the budgetary basis. A separate variance column to report the differences between the final budget and actual amounts is encouraged but not required.
67
How is the modified approach for reporting infrastructures reported in the required supplementary information.
If the governmental elects to not depreciate their infrastructure assets then they adopt the 'modified' approach for recording infrastructures.
Two requirement;
1) The government must manage the eligible infrastructure assets using an asset management system that has certain characteristics
2) government must document that the infrastructure assets have been preserved at the condition level prescribed by the government
Must disclose the basis for the condition measurement and the measurement scale used to assess the report condition, the condition level at which the government intends to preserve its eligible infrastructure reported using the modified approach.
68
What are the two types of measurement focus required by GASB?
1) Economic resources measurement focus and accrual basis of accounting - is a method similar to accounting for business enterprises, The objective is to measure all of the economic resources available to the governmental entity, including fixed assets, and subtracting long-term debt.
2) Current financial resources measurement focus and modified accrual basis of accounting - is to measure only the current financial resources available to the governmental entity. As a result governmental funds do not account for fixed assets or long-term debt withing the fund. Modified accrual accounting is used by governmental funds
69
How is nonexchange transactions defined per GASB?
transactions in which a government gives (or receives) value without directly receiving (or giving) equal value in exchange.
70
What are the four categories of nonexchange transactions?
1) Derived Tax Revenues -- taxes assessed by governments on exchange transactions (Sales taxes, income taxes, motor fuel taxes)
2) imposed nonexchange revenues -- taxes and other assessments that are not derived from underlying transactions (Property taxes, special assessments, fines, forfeits)
3) government mandated nonexchange transactions -- exist when the providing government requires the receiving government to expend funds for a specific purpose (example of states paying districts to include certain children in all programs for an additional state fee)
4) voluntary nonexchange transactions - grants, entitlements, financial guarantees provided from a government to another entity, where providing government does not impose specific requirements upon the receiving entity.
71
What are the four types of eligibility requirements that must be met for a nonexchange transaction to have a receivable and revenue recognized?
1) Required characteristics of the recipients - The recipient of resources must have the characteristics required by the provider.
2) Time requirements -- if a provider specifies that resources must be expended in a certain future period.
3) Certain grants from one government to another cannot be provided until the receiving government has expended the funds.
4) resources pledged that have a contingency are not to be recognized until that contingency is removed.
72
How are intangible assets treated for Governmental accounting?
GASB allows only identifiable intangible assets to be recognized as capital assets in the statement of net position (at historical cost)
Intangible assets should be amortized over their useful lives. An intangible asset without a limiting useful live should be considered to have an indefinite useful live and should not be amortized unless its useful life is later determined to no longer be indefinite.
73
How are internally generated intangibles treated for governmental accounting
GASB allows for them to begin to be capitalized when:
1- The government's specific objective for the project and the proposed service capacity has been determined
2- The feasibility of completing the project has been demonstrated
3- the government's intention to complete or to continue the development of the asset has been demonstrated
74
How are sales and pledges of receivables treated for GASB?
GASB statement no 48 established that a transaction is a collateralize borrowing unless the government both transfers the receivables or future revenues and has no continued involvement with them. Circumstances that would indicate continued involvement and prevent accounting for the transaction as a sale include;
- government or buyer can cancel the sale.
- government can limit the buyers ability to subsequently sell or pledge the receivables or future revenues
- government has access to the receivables, future revenues, or cash collected
- government can substitute for or reacquire certain receivables without buyers consent
- government is actively involved in the future generation of sold revenues
Receivables that meet the requirement s for sale should be removed from the assets of the selling governments financial statements. The difference between the carrying value of the receivables and the funds received is reported as a gain or loss.
75
How do governments account for derivative instrument?.
under GASB Statement no 53, derivative instruments are reported on the statement of net position at the fair value. If the derivative is an investment or in ineffective hedge, changes in fair value should be reported as investment revenue in the flow or resources statement. Changes in the values of hedging derivatives are reported as deferred inflows or deferred outflows in the statement of net position.
76
What are the recent changes in accounting for derivative instruments?
GASB no 64 amends GASB 53 to clarify whether an effective hedge of a financial instrument can be maintained after the replacement of the swap counterpart of the swap counter-party's credit support provider. GASB No 64 indicates that a heading relationship[ is maintained and hedge accounting should continue if there are no changes in terms of risk of the instrument other than a replacement of the counter party or the counter party's credit support provider.
77
How do governments account for pollution remediation obligations?
A government must estimate its expected outlaws for pollution remediation if it knows a site is polluted and any of the following recognition triggers occur
1- Pollution poses an imminent danger to the public or environment and the government has little or no discretion to avoid fixing the problem
2- A government has violated a pollution prevention-related permit or license
3- A regulator has identified the government as responsible or potentially responsible for cleaning up pollution or paying some of the cost of the cleanup
4- The government is named in a lawsuit to compel it to address the pollution
5- The government begins or legally obligates itself to begin cleanup or post-cleanup activities
78
What is a service concession arrangement?
It is agreement between a government unit and an operator in which
a) The government unit conveys to the operator the right and obligation to provide public services through the operation of a facility in exchange for considerations
b) the operator collects and is compensated by fees from third parties
c) The government unit has the ability to modify or approve the services to be provided, to whom the operator is required to provide the services, and the price of the services
If the facility associated with the arrangement is an existing facility, the government unit should continue to report the facility as a capital asset. If the facility is purchased, constructed or improved by the operator, the government should record (a) the new facility at its fair value when placed in operation, (b) any related contractual obligations as liabilities, and (c) a corresponding deferred inflow of resources equal to the difference.
Should disclose in the notes;
1. a general description of the arrangement including objectives
2. Nature of assets, liabilities, and deferred outflows and inflows of the agreement
3. Nature and extent of the rights retained by the government
4. The details of any related guarantees and commitments.
79
What is a governments responsibility relating to related party transactions?
State and local governments must disclose certain related-party transactions. In addition if the substance of a particular transaction is significantly different from its form because of the involvement of related parties, financial statements should recognize the substance of the transactions rather than its legal form.
80
What is a governments responsibilities relating to subsequent events?
If the events provides additional evidence about conditions that existed at the date of the statement of net position and affect the estimates in the financial statements, the effect of the event should be recognized in the financial statements. If the event provides evidence about conditions that did not exist at the date of the statement of net position but arose subsequent to that date, the event should be disclosed in the notes to the financial statements.
81
What are going concern considerations for state and local governments?
The financial reporting model assumes that the entity will be a going concern for a reasonable period of time (12 months from financial statement date)
If there is substantial doubt about a governmental entity's ability to continue as a going concern for a reasonable period of time, the notes to the financial statements should disclose details of the sources of the concerns and the government official's plan for dealing with those concerns.
when a governmental unit has been granted relief under the provisions of chapter 9 of the US Bankruptcy Code. The standard provides hat assets and liabilities should be remeasured in accordance with the court's plan of adjustment. In addition the statement requires disclosure of the details of the bankruptcy and how users can obtain a copy of the plan adjustment.
82
What are the 5 classifications for governmental fund expenditures?
1) Function -- Provides information on the overall purpose or objectives of expenditures
2) Organizational Unit -- Grouped according to the government's organizational structure
3) Activity -- Specific and distinguishable line of work performed by an organizational unit as part of one of its functions or programs
4) Character -- Classifies expenditures by the fiscal period benefited
5) Object -- Classified according to the types of items purchased or services obtained
83
What is the General Fund?
The general fund is the most significant governmental fund. It accounts for all transactions not accounted for in any other fund. Revenues come from many sources, and the expenditures cover the major functions of government.
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General fund account structure
REAL ACCOUNTS
Current assets (DR)
Current Liabilities (CR)
Fund Balance (CR) (Both Reserved and unreserved)
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NOMINAL ACCOUNTS
Revenues (Control account) (CR)
Other financing Sources (CR)
Expenditures (DR)
Other Financing Sources (DR)
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BUDGETARY ACCOUNTS
Estimated Revenues (DR)
Estimated Other financing Sources (DR)
Appropriations (CR)
Encumbrances (DR)
Estimated other financing uses (CR)
Budgetary Fund Balance (DR, CR)
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84
What is the Budgetary Comparison Schedule?
It is required supplementary Information presented after the notes to the basic statements. The format may be in accord with the budget or in accord with the statement of revenues, expenditures, and changes in fund balances. It compares budgeted amounts to actual amounts, and has another column for the variances.
85
What are special revenue funds?
they account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. The specific revenue is then used to finance various authorized expenditures.
Often reimbursement grants are used in which a state will give a grant only if the receiving government provides evidence that an appropriate expenditure has taken place
86
What are capital project funds?
They are funds that are restricted, committed, or assigned to expenditure for capital outlaw, including the acquisition and construction of capital facilities and other capital assets. Capital projects funds exclude capital-related outflows which are financed by proprietary of fiduciary funds.
an annual budget for capital projects funds are required, and they need not be formally recorded in the accounts.
Fixed assets are not recorded in the capital projects fund because the capital projects fund is a governmental fund and governmental funds are expendable and do not have a capital maintenance objective.
87
How do governments treat impairments of capital assets?
Governments must evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of the assets has occurred. Such events include evidence of physical damage, enactment or approval of laws or regulations, changes in environmental factors, technological changes or evidence of considered impaired if (1) the decline in the service utility of the asset is large in magnitude, and (b) t he event or change in circumstance is outside the normal love cycle of the capital asset.
88
How are impairment losses treated
1) Impaired capital assets that are no longer used should be reported at the lower of carrying value or FV
2) Impairments losses on assets that will continue to be used should be measured using the method that best reflects the asset's diminished service utility. (restoration cost) (Environmental factors, compare service units before an after impairment)
3) if the asset is affected by a change in the manner or duration of use, the loss generally should be measured using the service units approach or the depreciated replacement cost approach
89
What are Debt Service Funds?
funds that account for and report financial resources that are restricted, committed, or assigned to expenditure for the payment of general obligation long-term debt principal and related interest. General obligation debt is secured by the full faith and taxing power of the governmental unit. Repayment of debt financed by internal service and enterprise funds is accounted for in those individual funds.
Debt services funds are normally established as a result of issuing general obligation bonds for capital projects.
The bond liability to be extinguished is not recorded in the debt service fund until it matures
Outstanding general long-term debt is reported only in the government-wide financial statements (Statement of Net position)
For reporting purpose GASB Statement No 54 would require the fund balance reserved for debt service to reported as restricted, committed, or assigned.
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How is acocunting handled for special assessments
Land and other real estate held by an endowment for investment purposes should be reported at fair value at each reporting date. Changes in fair value during hte period should be reported as a part of investment income.
Special assessments are levied for projects to be paid primarily by the property owners who benefit from the improvement project.
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How are proprietary funds treated? and what are the two types of proprietary funds?
INTERNAL SERVICE FUNDS -- are established to account for the provision of goods and services by one department of the government to other departments within the government generally on a cost-reimbursement basis.(Central garages, motor pools, central printing, stores, self-insurance)
ENTERPRISE FUNDS -- account for activities for which the government provides goods and services that are (1) rendered primarily to the general public, (2) financed substantially or entirely through user charges, and (3) intended to be self-supporting. (Airports, toll roads, transit systems, golf courses, landfills)
Proprietary funds use the accrual basis of accounting and are non expendable; capital is to be maintained.
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What are fiduciary funds?
Fiduciary funds are used to account for assets held by the governmental unit as a trustee capacity or as an agent for individuals, private organizations, and other governmental units. Fiduciary funds include private-purpose trust funds which account for resources received under a trust agreement in which the investment income of an endowment is intended to benefit an external individual, private organization, or government. (Includes pensions trust funds, investment trust funds, and agency funds
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What are pension trust funds?
These are maintained when the governmental unit is trustee for the pension. Pension trust funds are required to have two financial statements. The pension trust funds are included in the (1) statement of fiduciary net position and the (2) statement of changes in fiduciary net position. GASB no 67 provides guidance on the presentation of financial statements of pension trust funds.
Governmental pension plans do not include the accrued actuarial liability in the statement of fiduciary net position. Rather, the actuarial liability is reported in the schedules and notes. Extensive note disclosures are required including (1) Descriptive info about the plan, (2) info about the plan investments, (3) info about the terms of receivables and nature of reserves, (4) components of pension liability, (5) Significant assumption used to measure pension liability, (6) The measurement date.
Additional Required supplementary information includes
1) 10 yr schedule of changes in pension liability
2) 10 yr schedules of the amounts of total pension liability, fiduciary net position, net pension liability, the covered-employee payroll, and selected ratios
3) 10 yr schedule of the actuarial computed required contribution, the required contribution, the actual contribution to the plan, and selected ratios
4) 10 yr schedule of the annual money weighted return on pension plan assets.
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What is the requirement for a defined contribution plan?
the government is liable only for the required contributions not made, and disclosure requirements are less extensive.
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What is an investment trust fund?
A Fiduciary funds that are required when a government sponsors an external investment pool (Example, when a county sponsors an investment pool for all cities, school districts, and other governments within its borders.
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What is a private pension trust fund?
A Fiduciary fund that represent all other trust arrangement under which principal and income benefit external individuals, private organizations, or other governments. Private-purpose trust funds may be nonexpendable or expendable. A nonexpendable trust fund is one in which the principal cannot be expended but which provide that income may be expended for some agreed-upon purpose (Endowment).
Another use of a private-purpose trust fund is for escheat property. Escheat property is property taken over by a government, usually state government, when the property is abandoned and the legal owners cannot be found.
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What are agency funds?
Fiduciary funds that are used to account for activities where the government is acting as an agent for others. Agency funds have only assets and liabilities; no fund equity, revenue, or expenditures accounts are used. The GASB requires the use of agency funds for special assessments where the government is not obligated in any manner for ht especial assessment debt.
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How do you convert fund financial statements to Government-Wide financial statements?
Most state and local governments will keep their books on a fund basis in order to facilitate the preparation of fund financial statements and to prepare the budget-actual schedule as a part of RSI. This will mean that governments will record transactions on the modified accrual basis for government funds and on the accrual basis for proprietary and fiduciary funds. Many governments will make changes, on a worksheet basis, in order to prepare the government-wide financial statements. The following are the worksheet changes that will be necessary to convert from governmental fund statements to the governmental activities portion of the government-wide statements.
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There is a series of worksheet JE's on page 945 that should be reviewed again.
Do it.
