C
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A
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2
Principles of Accounting and Financial Reporting for State and Local Governments
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Government & Not-for-Profit
vs
Business
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2
They have different purposes in society.
They are financed by resource providers who do not expect benefits proportional to the resources they provide.
Management has a special duty to be accountable for how resources are used in providing services.
Not-for-Profit Organizations
Not-for-profit organizations are legally separate organizations which are usually exempt from federal, state, and local taxation.
Examples?
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3
Financial Reporting Standards
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Learning Objectives
2-2 Explain the nature of the three major activities of a state or local government: governmental activities, business-type activities, and fiduciary activities.
Definition of fund. Types of funds in each fund category.
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5
1
Activities of Government
Governmental Activities:
Core services: police, fire protection, public works, culture and recreation facilities, educational and social services.
General administrative support: data processing, finance, and personnel.
Business-type Activities:
i.e. Public utilites, transportation systems, toll roads, hospitals, parking garages etc.
Fiduciary Activities
i.e. Serve as custodian or trustee for parties outside of the governments.
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All activities are managed in Funds
A fund is a separate fiscal entity
It has its own resources, its own liabilities, and its own operating activity for the fiscal period.
A fund is a separate accounting entity
It has its own set of accounting records allowing it to prepare separate financial statements.
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Fund
Types of Funds:
1) Governmental Funds: general activities of the government.
2) Proprietary funds: business-like activities of the government.
3) Fiduciary funds: fiduciary activities of the government.
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Fund Categories
(1 of 3)
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Governmental Funds
General Fund
main operating fund
Special revenue funds
Debt service funds
Capital projects funds
Permanent funds
Governmental Funds
General Fund (GF)
Only one per government
Most financial transactions related to general government operating activities
are recorded in the GF
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Governmental Funds (Cont’d)
Special Revenue Funds (SRF)
Are used when revenues are restricted or committed for specified operating purposes, such as maintenance of roads and bridges and operation of a library
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Governmental Funds (Cont’d)
Debt Service Funds (DSF)
Account for financial resources segregated to pay principal or interest on long-term general liabilities
I.O.U.
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Governmental Funds (Cont’d)
Capital Projects Funds (CPF)
Account for financial resources segregated to pay for purchase or construction of long-lived general capital assets
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Governmental Funds (Cont’d)
Permanent Funds
Account for resources provided by trust for which the principal is not spendable, but the earnings on the principal are required to be used for a public purpose
i.e. Endowment to provide art for public buildings
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Practice Problem — Matching
General fund? a) Construction of public building
Debt service fund? b) Administrative expenses of the city manager’s office
Capital projects fund?
c) Gifts in which the principal must be invested and preserved but the investment earnings can be used for public purposes.
Special revenue fund? d) Principal and interest payments on general long-term debt
Permanent fund?
e) Grant revenues restricted for particular operating purposes.
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Fund Categories
(2 of 3)
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Proprietary Funds
Internal service funds
Enterprise funds
Proprietary Funds
Internal Service funds (ISF)
Account for activities in which goods or services are provided to other departments of the same government for a charge
Examples: central stores, central computing, motor pools, and printing
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Proprietary Funds (Cont’d)
Enterprise Funds
Account for activities in which goods or services are provided to the general public for a charge
Examples: electric and water utilities, airports, parking garages, transportation systems, and golf courses
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Practice Problem — Matching
Internal service fund ? a) Costs of operating a municipal swimming pool
Enterprise fund? b) Costs of a central purchasing and warehouse function
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Fund Categories
(3 of 3)
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Fiduciary Funds
Custodial funds
Trust funds
Pension trust funds
Investment trust funds
Private-purpose trust funds
Fiduciary Funds
Custodial Funds
Account for financial resources for which the government is acting in an agency capacity
Examples: tax custodial funds and pass-through custodial funds
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Fiduciary Funds (Cont’d)
Investment Trust Funds
Account for external investment pools in which the assets are held for other (external) governments, along with funds of the sponsoring government
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Fiduciary Funds (Cont’d)
Private-purpose Trust Funds
To account for financial resources (expendable or nonexpendable) in which the government is acting in a trustee capacity for private individuals, organizations, or other governments
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Fiduciary Funds (Cont’d)
Pension (and other employee benefits)
Trust Funds (one or more)
To account for financial resources in which the government (or other designated trustee) is acting in a trustee capacity for the employees of the government to provide retirement benefits
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Practice Problem — Matching
Custodial fund? a) Gifts in which the principal must be invested and preserved, while the investment earnings must be used to provide scholarships to children of police officers who died in the line of duty
Investment trust fund? b) Assets held in trust to provide retirement benefits for municipal workers
Pension (and other employee benefit) fund? c) Taxes collected on behalf of another government unit
Private-purpose trust fund? d) Assets held for external government participants in the government’s investment pool for the purpose of earnings investment income
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P2-17
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Learning Objectives
2-3 Explain the Governmental Accounting Standards Board’s (GASB) integrated accounting and financial reporting model, including
Government-wide financial statements.
Fund financial statements.
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2
Financial Reporting Model
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Basic Financial Statements
Government-wide
Fund
State and Local Government Financial Reporting Model
Government-wide financial statements, which provide an aggregated overview of a government’s net position and change in net position and
Fund financial statements, which provide more detailed financial information about a government
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Government-wide Financial Statements
Assist in assessing operational accountability—whether government has used its resources efficiently and effectively in meeting service objectives.
ACCRUAL BASIS of ACCOUNTING
ECONOMIC RESOURCES MEASUREMENT FOCUS
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Proprietary funds report on business-like activities of the government
Fiduciary funds report on fiduciary (trust and agency) activities of the government
OPERATIONAL ACCOUNTABILITY
ACCRUAL BASIS of ACCOUNTING
ECONOMIC RESOURCES MEASUREMENT FOCUS
Fund Financial Statements
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GOVERNMENTAL FUNDS
Assist in assessing FISCAL ACCOUNTABILITY—whether the government raised and spent financial resources in accordance with budgetary constraints
Focus on FLOW OF CURRENT FINANCIAL RESOURCES
Current assets and current liabilities only
Inflow can be “revenues” or “other financing sources”
Outflow can be “expenditures” or “other financing uses”
Use the MODIFIED ACCRUAL BASIS of ACCOUNTING—
Fund Financial Statements
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Fund Financial Statements
GOVERNMENTAL FUNDS
Use the MODIFIED ACCRUAL BASIS of ACCOUNTING—
Revenues recognized when
Measurable and
Available for spending within current period or soon enough thereafter;
Expenditures recognized when an obligation is incurred that will be paid from currently available financial resources
Current operating items
Capital assets acquisitions
Interest and repayment of principal on long-term borrowing
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Fund Financial Statements
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Government-wide Financial Statements
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Statement of Net Position
Reports year end financial position
Balance sheet
Statement of Activities
Reports expenses and revenues
Separate columns for governmental activities, business-type activities, and component units
Separate columns for governmental activities, business-type activities, and component units
Income statement
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Statement of
Net Position
All assets +
Deferred outflows of resources
< All liabilities >
=
Net Position
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40
Fund Financial Statements
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41
Governmental Funds
Balance Sheet
Statement of Revenues, Expenditures, and Changes in Fund Balance
Statement of Net Position
Statement of Revenues, Expenses, and Changes in Fund Net Position
Fiduciary Funds
Statement of Fiduciary Net Position
Proprietary Funds
Statement of Cash Flows
Statement of Changes in Fiduciary Net Position
Governmental Funds
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Governmental Funds
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Governmental Fund Balance Sheet Accounts
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Current Assets
+
Deferred Outflows of Resources
Current Liabilities
+
Deferred Inflows of Resources
Fund Balances
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Governmental Fund
Fund Balance Classifications
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Nonspendable
Committed
Unassigned
Assigned
Restricted
Governmental Fund
Fund Balance Classifications
Nonspendable:
Not in a form that can be spent (e.g. inventory)
Cannot be spent because of law/contracts
Restricted
Restriction designated by external provider (creditors, bond holders, grant providers), constitutionally
Restriction due to enabling legislation
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Governmental Fund
Fund Balance Classifications
Committed
Restriction placed by a formal action of the government’s highest level of authority
Assigned
Intended to be used for specific purposes, but not restricted or committed
Special revenue, capital project, debt service, or permanent funds are considered assigned if not restricted or committed
Unassigned
General fund
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Learning Objectives
2-4 Discuss the nature of major fund reporting and the criteria used to determine whether a fund should be reported as a major fund.
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2
Major Fund Reporting
Governments may have many different funds, but users are likely to be most interested in information about funds with larger dollar amounts.
GASB requires separate columns for all major funds, while nonmajor funds may be grouped together and reported in a single column.
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Determination of Major Funds
General Fund is always a major fund
Any governmental or enterprise fund that a government considers of significant importance can be designated as a major fund
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Major Fund Determination
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Major Funds include the General Fund and any fund meeting both of the following:
Total assets, liabilities, revenues, or expenditures/expenses of that fund are at least 10 percent of the corresponding element total for all funds of that category or type.
The same element that met the 10 percent criterion is at least 5 percent of the corresponding element total for all governmental and enterprise funds combined.
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State and Local Government Financial Reporting Model
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M, D, and A
Management’s Discussion and Analysis
Provides an overview and analysis of the government’s annual performance, financial position, and financial operations.
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M, D, and A
Provides an overview of how the government-wide financial statements are reconciled with the governmental fund statements.
Provides an overall summary of the government’s revenues and expenditures that often includes budgetary highlights such as major increases or decreases in fund balances throughout the reporting period and the reasons for the change.
Provides an economic conditions and outlook section.
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M, D, and A
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GOVERNMENTAL REPORTING SUMMARY
Governmental Funds
Proprietary Funds
Fiduciary Funds
G
R
S
P
P
S
E
P
A
P
I
Fund Structure
G
ENERAL
R
EVENUE
(
SPECIAL
)
S
ERVICE
(
DEBT
)
P
ROJECTS
(
CAPITAL
)
P
ERMANENT
S
ERVICE
(
INTERNAL
)
E
NTERPRISE
P
ENSION
A
GENCY
P
RIVATE P
URPOSE
I
NVESTMENT
Fund accounting
Basis of accounting
:
M
easurement focus
:
S
pecialized accounting
:
Modified Accrual
Current Financial Resource
No
Fi
xed
A
ssets or
Long
–
term Debt
Budget / Activity / Encumbrances
Full Accrual
Economic Resources
N
one
Full Accrual
Economic Resources
None
GOVERNMENTAL REPORTING SUMMARY
Governmental Funds
Proprietary Funds
Fiduciary Funds
G
R
S
P
P
S
E
P
A
P
I
Fund Structure
General
Revenue (special)
Service (debt)
Projects (capital)
Permanent
Service (internal)
Enterprise
Pension
Agency
Private purpose
Investment
Fund accounting
Basis of accounting:
Measurement focus:
Specialized accounting:
Modified Accrual
Current Financial Resource
No Fixed Assets or Long-term Debt
Budget / Activity / Encumbrances
Full Accrual
Economic Resources
None
Full Accrual
Economic Resources
None
Management’s discussion
and analysis
(MD&A)
Government
–
wide
Fund financial
financial statements
statements
Notes to the financial statements
Required supplementary
information (other than MD&A)
Management’s discussion and analysis (MD&A)
Government-wide Fund financial
financial statements statements
Notes to the financial statements
Required supplementary information (other than MD&A)
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