Advanced financial accounting by baker chapter 18

Governmental Funds Worksheetsreport two fund-based financial statements: – The balance sheet – The statement of revenues, expenditures, and changes in fund balance... Permanent Fundscas

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required by law and the specific operating

and management needs of the government entity

accounted for in the general fund unless

specifically required by law or the different

measurement focus used for proprietary

and fiduciary funds

Overview

Governmental Funds Worksheets

report two fund-based financial statements:

– The balance sheet

– The statement of revenues, expenditures,

and changes in fund balance

Special Revenue Funds

proceeds of specific revenue sources that are restricted for specified purposes

operations, such as public libraries, when a separate tax is levied for their support

same as for the general fund

Capital Projects Funds

resources that are specified for the

acquisition or construction of major capital

facilities or improvements that benefit the

public

– A separate capital projects fund is created at

the time the project is approved and ceases at its completion

– Uses the modified accrual basis of accounting

Capital Projects Funds

– No fixed assets or depreciation are recorded

– No long-term debt is recorded

– Typically do not have annual operating

budgets

– A capital budget is prepared as a basis for

selling bonds to finance a project, and the

capital budget is the control mechanism for the length of the project

– The capital budget for the project may, or may

not, be formally recorded in the accounts

– The fund records capital outlays as

Debt Service Funds

accumulation and use of resources for the

payment of general long-term debt principal and interest

– Serial bonds

– Term bonds

– Special assessment bonds

– Notes and warrants

– Capital leases

Debt Service Funds

debt service funds are the same as for the

general fund

used

– Only that portion of the long-term debt that

has matured and is currently payable is recorded

– Interest payable on long-term debt is not

accrued; interest is recognized as a liability only when it comes due and payable

Permanent Funds

cases in which there is a donor restriction

that the fund principal must be preserved

but the income from these permanent funds

is required to be used to benefit the

government’s programs or its general

citizenry

used in this fund and the financial

statements for the permanent funds are the same as for all other governmental funds

Governmental Funds Financial

Statements

the governmental funds balance sheet and (2) the governmental statement of

revenues, expenditures, and changes in

fund balance

– The statements will be prepared for each

individual governmental fund and these individual fund statements are the foundation for the financial statements prepared for the governmental entity

Governmental Funds Financial

Statements

– The fund-based financial statements for the

governmental entity’s annual report separately report only major governmental funds, not

necessarily individually each of the five

governmental funds

– GASB 34 specifies that the general fund is

always a major fund

– Some of the other governmental funds may

not be determined to be major funds, and

these non-major funds are aggregated and

reported in a single column as other

governmental funds

Governmental Funds Financial

Statements

• Both of the following criteria should be met to be

classified as major :

1 10 percent criterion: Total assets, liabilities, revenues,

or expenditures/expenses of that individual governmental or enterprise fund are at least 10 percent of the corresponding total for all funds of that category or type

2 5 percent criterion: Total assets, liabilities, revenues,

or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5 percent of the corresponding total for all governmental plus enterprise funds combined

Enterprise Funds

governmental units that charge for services provided to the general public

– They have a measurement focus of all

economic resources and use the accrual basis of accounting

– They report fixed assets, which are

depreciated, and long-term debt, if issued, – They focus on income determination and

capital maintenance

Enterprise Funds

funds are very similar to those for

commercial entities:

1 The statement of net assets (balance sheet),

2 The statement of revenues, expenses, and

changes in fund net assets (income statement)

3 The statement of cash flows

the same role as in commercial entities

Enterprise Funds

funds

– If a governmental entity has more than one

enterprise fund, each must be individually assessed by both the 10 percent criterion and the 5 percent criterion tests to determine

whether it is a major fund

Enterprise Funds

– Proprietary funds report their own fixed

assets, investments, and long-term liabilities– GASB 34 specifies that the net assets section

be separated into three components:

1 Invested in capital assets, net of related debt

2 Restricted because of restrictions beyond the

government’s control

3 Unrestricted

Enterprise Funds

changes

– A separation of operating and nonoperating

revenues and expenses is made to provide more information value regarding the

operations of the proprietary funds

Enterprise Funds

– Because of the large number of capital asset

acquisition and financing transactions, the GASB specified four sections:

1 Cash flows from operating activities

2 Cash flows from noncapital financing activities

3 Cash flows from capital and related financing

activities

4 Cash flows from investing activities

Internal Service Funds

financing of goods or services provided by

one department or agency to other

departments or agencies on a

cost-reimbursement basis

– These services are not available to the

general public, making it different from the enterprise fund

– Accounting and financial reporting for internal

service funds are the same as for enterprise funds or for commercial entities

Internal Service Funds

revenue and expenses

– The balance sheet may include fixed assets,

which are depreciated, and long-term debt, if issued

– The statement of revenue, expenses, and

changes in fund net assets reports the income for the period

– The statement of cash flows is also required

Trust Funds

accounts for resources held by a

government unit in a trustee capacity

for monies or properties held on behalf of

individuals, employees, or other

governmental agencies

Trust Funds

– The financial statements required are the

statement of fiduciary net assets, and the statement of changes in fiduciary net assets– The statement of fiduciary net assets includes

all trusts and agency funds– The statement of changes in fiduciary net

assets includes only the trust funds because agency funds do not have a net asset balance

Trust Funds

agreements for which the principal and/or

income benefits specific individuals, private organizations, or other governments

Agency Funds

accounts for resources held by a

governmental unit as a custodial agent for

individuals, private organizations, other

funds, or other governmental units

– Uses the accrual basis of accounting

– Because these funds are custodial in nature,

assets always equal liabilities and there is no fund equity

– The financial statement for agency funds is

the statement of fiduciary net assets

The Government Reporting Model

entity?

– The primary government

– A component unit for which the primary

government is financially accountable– Any organization that has a significant

relationship with the primary government

The Government Reporting Model

– Financial accountability is evidenced when the

primary government appoints a majority of the organization’s governing board

– Financial accountability may also exist if the

organization has a separately elected or appointed board but fiscally depends on the primary government for the financial

resources required to operate

The Government Reporting Model

included in the reporting entity?

– GASB 14 specifies a third category of

organizations to be evaluated to determine if they are part of the reporting entity with the primary government

– These are legally separate, tax-exempt

entities for which the primary government is not financially accountable

The Government Reporting Model

component units be reported?

– A choice between two methods:

primary government’s financial statements

organization’s results into the primary government’s financial results

The Government Reporting Model

– The annual report of a governmental entity is

termed the comprehensive annual financial report (CAFR)

The Government Reporting Model

– The government-wide financial statements

include:

– GASB 34 requires that government-wide

financial statements be prepared on the economic resources measurement focus with the accrual basis of accounting

The Government Reporting Model

• Reconciliation schedules

– Required to reconcile the net change in the total

amounts reported on the governmental funds statements with the amounts reported on the government-wide statements

• Reconciliation schedule for Statement of Net Assets

• Reconciliation schedule for Statement of Activities

• Budgetary comparison schedule

– This should be presented as required supplementary

information for the general fund and for each special revenue fund that has a legally adopted annual budget

The Government Reporting Model

– MD&A should be included in the required

supplementary information of the wide financial statements to provide an

government-analytical overview of the government’s financial and operating activities

statements

– GASB 34 specified a number of required note

disclosures

The Government Reporting Model

– Governmental entities generally are not

required to publish interim reports, although many prepare monthly or quarterly reports– Internal management control instrument

– Most entities are audited annually

– Different from the audit of a commercial entity– Single Audit Act of 1984

Additional Considerations

plans

OPEB plan benefits