Financial Accounting & Reporting 9 Financial Accounting

88 Pages·2008·0.7 MB·English

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1. Governmental accounting (part B)....................................................................................3
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2. Not-for-profit organizations...........................................................................................41
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3. Appendix: Internal reporting for not-for-profit organizations (fund accounting).....................78 n
4. Homework reading: Governmental accounting GASB #39..................................................81 u
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5. Class questions...........................................................................................................83
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Becker CPA Review Financial Accounting & Reporting 9

GOVERNMENTAL ACCOUNTING (PART B)

I. GOVERNMENTAL FINANCIAL REPORTING REQUIREMENTS OF GASB 34
A. OVERVIEW
1. Governmental Reporting Standards
The governmental reporting standards established by GASB 34 require presentation of
basic financial statements and required supplementary information. Basic financial
statements are defined as government-wide financial statements, fund financial
statements, and notes to the financial statements. Supplementary information covers a
wide range of information, including management's discussion and analysis and
supporting schedules.
2. Accountability
Governmental reporting focuses on two important types of accountability:
a. Operational Accountability
OPERATIONAL
The focus of government-wide financial statements is to report ACCOUNTABILITY
the extent to which the government has met its operating
objectives efficiently and effectively, using all resources available for that
purpose, and the extent to which it can continue to meet its objectives for the
future.
b. Fiscal Accountability FISCAL
ACCOUNTABILITY
The focus of the fund financial statements is to demonstrate that
the government entity's actions in the current period have complied with public
decisions concerning the raising and spending of public funds in the short-term
(usually one budgetary cycle or one year).
3. Integrated Approach
INTEGRATED
The integrated approach requires financial accounting and disclosure APPROACH
that not only shows operational and fiscal accountability but also
shows the relationship between operational and fiscal accountability. Governmental
financial data therefore, integrates the statements relative to complementary reporting
objectives, as illustrated below:

Management's discussion
and analysis

Government-wide Fund financial
financial statements statements

Notes to the financial statements

Required supplementary
information (other than MD&A)

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Financial Accounting & Reporting 9 Becker CPA Review

a. The integrated approach requires a reconciliation of the fund financial statements
to the government-wide financial statements.
(1) This reconciliation may appear on the face of the fund financial statements
or in the notes to the financial statements if summarized aggregated
information does not fully disclose the relationship of operational and fiscal
accountability.
(2) The purpose of the reconciliation is to link the two levels of financial
reporting.
b. Major funds are the focus of the fund statements. Fund type summaries do not
in and of themselves provide useful information. Major funds highlight the more
significant components of governmental activities.
B. REPORTING FOR GENERAL PURPOSE GOVERNMENTAL UNITS (E.G., STATES,
COUNTIES, CITIES, TOWNS, MUNICIPALITIES, AND VILLAGES)
1. Required
a. Management's Discussion and Analysis (MD&A) (required supplementary
information)
b. Government-Wide Financial Statements
(1) Statement of Net Assets
(2) Statement of Activities
c. Fund Financial Statements (major funds shown individually, non-major
funds shown in total)
(1) Governmental Funds
GRASPP
(a) Balance Sheet
(b) Statement of Revenues, Expenditures, and Changes in Fund
Balances
(2) Proprietary Funds
SE-PAPI
(a) Statement of Net Assets (or Balance Sheet)
(b) Statement of Revenues, Expenses, and Changes in Fund Net
Assets (or Fund Equity)
(c) Statement of Cash Flows
(3) Fiduciary Funds
SE-PAPI
(a) Statement of Fiduciary Net Assets
(b) Statement of Changes in Fiduciary Net Assets
d. Notes to Financial Statements
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Becker CPA Review Financial Accounting & Reporting 9

e. Required Supplementary Information (RSI) other than REQUIRED
Management's Discussion and Analysis SUPPLEMENTARY
INFORMATION RSI
(1) Pension
(a) Schedule of Funding Progress (for entities reporting pension trust
funds)
(b) Schedule of Employer Contributions (for entities reporting pension
trust funds)
(2) Budget
(a) Budgetary Comparison Schedules (originally adopted budget and
comparison of final amended budget to actual)
(3) Infrastructure
(b) Information about Infrastructure Assets (for entities reported using
the modified approach)
f. Other Supplementary Information (optional)
(1) Combining Statements for Non-major Funds
(2) Variance between originally adopted budget and final amended budget.
(3) Variance between final amended budget and actual.
2. Optional
a. Comprehensive Annual Financial Report
COMPREHENSIVE
(1) Introductory Section (unaudited) ANNUAL FINANCIAL
REPORT CAFR
(a) Letter of Transmittal
(b) Organizational Chart
(c) List of Principal Officers
(2) Basic Financial Statements and Required Supplementary Information
(audited)
(a) Management's Discussion and Analysis
(b) Government-wide Financial Statements
(c) Fund Financial Statements
(d) Notes to the Financial Statements
(e) Required Supplementary Information
(3) Statistical Section
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II. THE FINANCIAL REPORTING ENTITY
The financial reporting entity consists of the primary government (i.e., general purpose
governmental units), organizations for which the primary government is financially accountable (i.e.,
special purpose governmental units), and certain other specially-defined organizations (i.e.,
component units).
GASB 34 establishes specific minimum reporting criteria for general purpose governmental units,
special purpose governmental units, and component units.
A. GENERAL PURPOSE GOVERNMENTAL UNITS
The focus of the government-wide financial statements should be on the primary government.
1. Primary Government Defined
The primary government consists of all organizations that make up the legal
PRIMARY
government entity. The primary government is considered the nucleus of the financial
GOVERNMENT
reporting entity.
2. Primary Government Entities
a. State governments
b. General purpose local governments (e.g., a city or a county)
c. Special purpose local governments (e.g., a hospital authority or a school district)
that meets all of the following criteria:
(1) Has a separately-elected governing body
(2) Is legally separate, and
(3) Is fiscally independent of other state and local governments.
3. A Primary Government Reports "By Itself" (i.e., it applies the "SELF" mnemonic
above)
B. SPECIAL PURPOSE GOVERNMENTAL UNITS
Special purpose governmental units that are not primary governments are organizations that
are financially accountable to a primary government. They are typically entities engaged in:
1. Governmental activities,
2. Business-type activities,
3. Fiduciary activities, and
4. Governmental and business-type activities.
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Becker CPA Review Financial Accounting & Reporting 9

C. COMPONENT UNIT
A component unit of the primary government is a legally separate organization COMPONENT
for which the elected officials of the primary government are financially UNIT
accountable. It may also be a separate organization, but its nature and the
significance of its relationship with the primary government are such that exclusion of the
unit's financial information would cause the primary government's financial statements to be
misleading or incomplete.
1. Blended Presentation
a. Some component units are so intertwined with the primary
government that they are, in substance, the same as the primary BLENDED
government. PRESENTATION
b. In these cases, blended presentation is preferred.
(1) The blended presentation combines financial information with the primary
government.
(2) Financial information of the component units is not presented in separate
columns.
c. The blended method is used in either of the following circumstances:
(1) A board of the component unit is substantively the same as that of the
primary government.
(2) The component unit serves the primary government exclusively or almost
exclusively.
2. Discrete Presentation (or separate presentation)
a. Financial statements of the reporting entity should provide an
overview of the entity based on financial accountability. DISCRETE
PRESENTATION
b. Discrete presentation is used when the criteria for blended
presentation are not met.
c. Most component units should use discrete presentation.
d. Discrete presentation displays component units in separate columns.

PASS KEY
Discrete presentation is the default method when the criteria for blended presentation have not been met.
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Financial Accounting & Reporting 9 Becker CPA Review

GOVERNMENTAL REPORTING SUMMARY

Governmental Funds Proprietary Funds Fiduciary Funds
G R S P P S E P A P I
Fund Structure
G ENERAL () REVENUE SPECIAL () SERVICE DEBT () PROJECTS CAPITAL PERMANENT () SERVICE INTERNAL ENTERPRISE PENSION A GENCY P RIVATE PURPOSE INVESTMENT
Fund accounting

Basis of accounting Modified Accrual Full Accrual Full Accrual
Measurement focus Current Financial Resource Economic Resources Economic Resources
Specialized accounting No Fixed Assets or LTD None None
Budget / Activity / Encumbrances

Accountability objective; Government-Wide Financial Statements
Government-wide reporting Operational Accountability

Business
Government Type
Classifications Governmental Activities Activities Activities Fiduciary Funds

Financial statements Balance Sheet Balance Sheet Not Reported
Income Statement Income Statement Not Reported

Full Accrual
Basis of accounting Full Accrual
Economic Resources
Measurement focus Economic Resources

Accountability objective; Fund Financial Statements
Fund reporting
Fiscal Accountability

Classifications Major Funds Major Funds Major Funds
Accounting Fund Accounting Fund Accounting Fund Accounting
Budgetary reporting Included in RSI (B v A + Adopted v Final) N/A N/A
Specialized disclosures Reconciliation to Government-wide Reconciliation to
Financial Statements Government-wide FS

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Becker CPA Review Financial Accounting & Reporting 9

III. THE FINANCIAL REPORTS
The following is an overview of the various items required in the government reporting model.

Management's Discussion & Analysis (MD&A)
Government-wide Financial Statements
Fund Financial Statements
Notes to Financial Statements
Required Supplementary Information
Other Supplementary Information

MANAGEMENT'S
A. MANAGEMENT'S DISCUSSION AND ANALYSIS (REQUIRED DISCUSSION
AND ANALYSIS
SUPPLEMENTARY INFORMATION)
Management's discussion and analysis (MD&A) is a narrative that provides a brief, objective,
and easily readable analysis of the government's financial activities based upon currently
known facts, decisions, and conditions. It provides the financial management of the
government with the opportunity to present both a short-term and a long-term analysis of
activities. The following should be included:
1. A Description of the Financial Statements
a. An easily readable analysis of the government's financial activities based on
currently known facts, decisions, and conditions.
b. Condensed financial statement information derived from the government-wide
financial statements used to support the government's overall financial position
and results of operations.
c. Analysis of overall financial position and results of operations including reasons
for changes from the prior year.
d. Analysis of balances and transactions of individual funds including limitations on
future uses of funds.
e. Analysis of significant variations between original and final budget.
f. A description of the significant assumptions and implications of use of the
modified approach for accounting for infrastructure.
2. The Identity of the Primary Government and Discrete Component Units
3. Economic Conditions and Outlook
A description of the impact of the economy on the financial statements.
4. Major Initiatives
This section describes capital asset and long-term debt activity during the year.
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Financial Accounting & Reporting 9 Becker CPA Review

Management's Discussion & Analysis (MD&A)
Statement of Net Assets
Government-wide Financial Statements
Statement of Activities
Fund Financial Statements
Notes to Financial Statements
Required Supplementary Information
Other Supplementary Information

B. GOVERNMENT-WIDE FINANCIAL STATEMENTS
There are two statements included in a set of government-wide financial statements: the
GOVERNMENT-
Statement of Net Assets and the Statement of Activities. These statements aggregate
WIDE FINANCIAL
STATEMENTS information for all governmental and all business-type activities. GASB 34 requires the
use of the economic resources measurement focus and the full accrual basis of accounting
for both statements. Government-wide financial statements include all assets and liabilities
over which a government has control or responsibility; therefore, fiduciary funds are excluded
and the component units are included.
1. Statement of Net Assets (This is a consolidated statement.)
a. Net Assets Format
NET ASSET
FORMAT
Assets
<Liabilities>
Net Assets

b. Three Components of Net Assets
Net assets are divided into each of three components as applicable.
COMPONENTS
OF NET (1) Invested in Capital Assets, Net of Related Debt
ASSETS
This component of net assets groups all capital assets (including
infrastructure) and is then reduced by accumulated depreciation and the
outstanding balances of the debt that are attributable to the acquisition,
construction, or improvement of those assets.
(2) Restricted Net Assets
Restricted net assets are assets subject to external restrictions imposed by
creditors, grantors, contributors, laws or regulations of other governments,
and restrictions imposed by law through constitutional provisions or
legislation.
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