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CHAPTER 24. GOVERNMENTAL ACCOUNTING: BASIC PRINCIPLES AND THE GENERAL FUND. FOCUS OF CHAPTER 24. The Governmental Accounting Standards Board The Nature and Diversity of Activities The Objectives of Governmental Financial Reporting Measurement Focus and Basis of Accounting - PowerPoint PPT Presentation



  • FOCUS OF CHAPTER 24The Governmental Accounting Standards BoardThe Nature and Diversity of ActivitiesThe Objectives of Governmental Financial ReportingMeasurement Focus and Basis of Accounting Basic Principles of the GASB CodificationThe General Fund

  • The Governmental Accounting Standards Board (GASB)GASB:Created in 1984.A sister organization to the FASB.Establishes GAAP for state and local units.No authority to establish GAAP for the federal government.Seven memberssimple majority vote needed (4 votes).

  • Jurisdictional Arrangement Between GASB and FASB GASB has primary responsibility for state and local governmental units.State and local governmental units:Must follow FASB rules if GASB says so.May elect to follow a FASB rule if GASB has not addressed a specific issue. If election is made, must use ALL such rules.

  • The Government Finance Officers Association (GFOA): Its FunctionGFOA:The equivalent of the AICPA for the private sector.Publishes or provides the following to enhance and promote professional management of governmental units:Books, periodicals, monthly newsletter.Services to members.Software.

  • GAAFR: The Blue Book Stands for Governmental Accounting, Auditing, and Financial Reporting.Published by the GFOA.Neither prescribes nor authoritatively interprets GAAP for governmental units.Provides detailed guidance (many examples) for applying governmental GAAP.Widely used by governmental units.

  • The Nature & Diversity of Governmental ActivitiesAbsence of a Profit Motive:What to measure?Revenues & costs of providing services?Inflows and outflows of all resources?Inflows and outflows of certain resources?

  • The Nature & Diversity of Governmental ActivitiesExtensive Legal Requirements:Constitutions, charters, and statutes regulate governmental units.Some legal provisions pertain to accounting and financial reporting matters:Keeping separate books for certain activities.Being audited by outside CPAs.

  • The Nature & Diversity of Governmental ActivitiesDiversity of ActivitiesOperations are classified as:Governmentalthese activities DO NOT resemble commercial activities.Proprietary typethese activities DO resemble commercial activitiesCan measure profitability or capital maintenance.Fiduciaryholding and managing assets owned by others (e.g., pension assets).

  • Use of Fund AccountingFund Accounting:Accounting for certain activities separately from all other operations.Fund defined: A fiscal and accounting entity with a self-balancing set of accounts (like a branch or a division of a commercial entity).The General Fund: The main and largest fundrecords most routine transactions.

  • Use of Fund AccountingFund Accounting (cont.):The difference between a funds ASSETS and LIABILITIES is called: Governmental and ProprietaryFiduciary-Type Funds Funds

    FUND BALANCE Net Assets

  • Use of Fund AccountingSpecific General Ledger Accounts Used: Governmental and Proprietary Fiduciary-Type Funds Funds Fund Balance: Net Assets: Reserved for encumbrances Invested in capital Unreserved assets, net of related debt Restricted Unrestricted

  • The Objectives of Governmental Financial ReportingGASB Concepts Statement No. 1Financial Reporting should:Assist in fulfilling accountability and enabling users to assess accountability.Assist users in evaluating operating results.How has the financial condition changed?Assist users in assessing service level capabilities and ability to meet obligations as they become due.

  • Measurement Focus And Basis Of Accounting (MFBOA)Measurement Focus:WHAT flows to measure for operations.Basis of Accounting:WHEN should transactions and events be recognized in the financial statements.

  • MFBOA: Proprietary ActivitiesMeasure flow of ALL ECONOMIC RESOURCES (both reporting levels): Present a Statement of REVENUES and EXPENSESreveals the CHANGE IN THE ECONOMIC CONDITION.Use accrual basis of accounting (needed in order to report ALL revenues & expenses).Also present a Statement of Cash Flows.

  • MFBOA: Governmental ActivitiesMeasure flow of CURRENT FINANCIAL RESOURCES at the fund-based reporting level:Present a Statement of Revenues and Expenditures and Changes in Fund Balancereveals:Financial resources received and spent.Change in net financial resources available for spending in the near future.Use modified accrual basis of accounting.

  • MFBOA: Current Financial ResourcesCurrent Financial ResourcesTypical Items:Cash, property tax receivables, prepaids, and supplies inventories.Claims Against Current Financial Resources Typical Items:Wages, payroll taxes, payables to vendors, and liabilities expected to be paid in the NEAR FUTURE (typically within 60 days after the year-end).

  • MFBOA: What is lacking at the Fund-Based Reporting Level?A Statement of Revenues and Costs of Providing ServicesIt would:Reveal the flow of all economic resources.Be a true operating statement.Include ALL expensesnot just those actually paid and expected to be paid in the near future.Reveal the change in economic condition.

  • Basic Principles of the GASB Codification: Grouped into 7 CategoriesAccounting & Reporting CapabilitiesTypes of FundsBasis of AccountingFinancial ReportingLong-Term LiabilitiesCapital AssetsBudgets and Budgetary Accounting

  • Basic Principles: Category 1Accounting & Reporting CapabilitiesPresent financial statements on a GAAP basis.When conflicts exist between GAAP BASIS and LEGAL REQUIREMENTS:Demonstrate legal compliance by either:Additional schedules and narrative explanations orA separate legal basis report.

  • Basic Principles: Category 2Types of FundsGovernmental Funds:General FundAccounts for all activities not required to be accounted for in another fund.Special Revenue FundA clone of the General Fund.Capital Projects FundsDebt Service FundsPermanent Funds

  • Basic Principles: Category 2Types of Funds & Account GroupsProprietary Funds:Enterprise FundsProvides services PRIMARILY to nongovernmental users (city-owned utilities are prime example).Internal Service FundsProvides services SOLELY governmental departments.

  • Basic Principles: Category 2Types of Funds & Account Groups Fiduciary Funds:Trust Funds:Pension (and similar) Trust FundsInvestment Trust FundsPrivate-Purpose Trust Funds (these activities do not benefit the government unit)Agency Funds

  • Basic Principles: Category 3Basis of AccountingAccrual Basis Funds:Proprietary fundsEnterprise FundsInternal Service FundsFiduciary funds (3 Trust & 1 Agency)The two propriety funds and the three trust funds have either a profitability or capital maintenance orientation.

  • Basic Principles: Category 3Basis of AccountingModified Accrual Basis Funds:Governmental fundsGeneral FundSpecial Revenues FundCapital Projects FundsDebt Service FundsPermanent Funds

  • Basic Principles: Category 3Basis of AccountingModified Accrual Basis Defined:REVENUES: Recognize in period in which they become available and measurable.Available means: Collectible within the current period or soon enough thereafter to be used to pay current period liabilities.

  • Basic Principles: Category 3Basis of AccountingPointers on Recognizing REVENUES:Revenues STAND ALONE.Revenues are not earned as in the private sector.The delivery of services requires expendituresbut delivery does not generate revenues.

  • Basic Principles: Category 3Basis of AccountingModified Accrual Basis Defined:EXPENDITURES: Recognize in the accounting period in which the fund liability is incurred. One exception exists for interest on general long-term liabilities.

  • Basic Principles: Category 3Basis of AccountingPointers on recognizing EXPENDITURES:Liabilities are recorded when they are incurred.The offsetting debit will usually be to:Expenditures (and thus reported in the current operating statement) ORThe Net AssetsUnrestricted account in the GCA-GLTL g/lthe debit balance will be reported as expenditures in a later future period.

  • Basic Principles: Category 4(A)Financial ReportingThe BasicsTHE BALANCE SHEETDisplay restrictions of the fund balance in the following manner: Fund Balance: Reserved for encumbrances.... $ 33,000 Unreserved................................. 417,000 Total Fund Balance.............. $450,000Numerous types of restrictions can existthus several types of reservations are used.

  • Basic Principles: Category 4(A)Financial ReportingThe BasicsTHE OPERATING STATEMENTUse the all-inclusive format that includes the analysis of the fund balance (modified accrual basis funds) or net assets (accrual basis funds) for the period: Revenues (inflows) Expenditures (outflows) Excess of Revenues over Expenditures Fund Balance, 1/1/06 Fund Balance, 12/31/06

  • Basic Principles: Category 4(B)Financial ReportingBond ProceedsBOND PROCEEDSFor governmental funds, report in a special category in the operating statement as follows: Revenues (inflows) Expenditures (outflows) Other Financing Sources and Uses: Bond proceeds (an inflow)

  • Basic Principles: Category 4(B)Financial ReportingInterfund TransfersINTERFUND ACTIVITIESReport in one of