Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Introduction to Governmental and Not-for-Profit Accounting, 7e Chapter 11: Federal Government Accounting and Reporting

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Chapter 11 Topics Federal Accounting – Background The Federal Accounting and Financial Reporting Model Recording Transactions and Events Federal Agency Financial Reporting

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Introduction Federal Accounting Standards Advisory Board (FASAB) –Establish federal accounting principles 1997: first audited consolidated federal statements –Including necessary notes and supplementary information –No audit opinion expressed

Agencies with Financial Management Oversight Responsibilities Office of Management and Budget (OMB) –Assists in preparing budget and overseeing its execution Treasury –Provides central payment services for federal government agencies General Accountability Office (GAO) –Legislative auditor Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-*

The Federal Budgetary Process Begins 18 months before fiscal year (October 1 st ) –Policy issues identified, budget projections made –Preliminary program plans presented to President –President establishes policy guidelines Agencies prepare budgetary requests Department heads and OMB review requests Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-*

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* The Federal Budgetary Process - Continued President transmits budget proposal to Congress 8 months before year begins Congressional review –Concurrent resolution by budget committees of House of Representatives and Senate Establish levels for total receipts, total budget authority and oulays –Appropriation bills initiated by House of Representatives –Then, Senate reviews and approves

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* The Federal Budgetary Process - Continued President approves or vetoes Additional background terms: –Anti-Deficiency Act: cannot overspend appropriation –Obligation (“undelivered order”): like local encumbrance When good or services received, undelivered orders become delivered orders—unpaid Payment directly by Treasury via disbursement schedule

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Federal Accounting – Background: Comparison to State and Local Both use budgetary accounting Both use funds –Federal: revenues, modified cash basis; expenses, full accrual Financial reports –Federal: consolidated & separate for each agency Agency reports cover a portion of a fund

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Federal Accounting – Background: Comparison to State and Local Fund balances –Federal: multiple agencies within one fund –Must segregate net assets by agency Terms: net position, unexpended appropriations, cumulative results of operations Use of cash –State and locals use banks –Federal: U.S. Treasury is the bank Account name: fund balance with U.S. Treasury

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Federal Accounting - Background: Types of Funds Used Two types: earmarked funds, nonearmarked funds General fund: nonearmarked, most of budget Earmarked: specifically identified revenues, designated purposes –Special funds: specific sources, specific purposes –Trust funds: Social Security, Medicare –Public enterprise revolving funds: business-type activities

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Federal Accounting – Background: Federal Accounting Standards Inventory: items for resale, operating materials –Values at historical cost –Most inventory with Defense Department

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Federal Accounting – Background: Federal Accounting Standards Property, plant, and equipment (PP&E): –General: ≥ 2 year life, acquisition cost, straight-line depreciation Most PP&E with Defense Department –Heritage, stewardship assets: note disclosure only –Deferred maintenance disclosed

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Federal Accounting – Background: Federal Accounting Standards Liabilities: accrual for exchange transactions –Nonexchange: recognize liability for unpaid amounts Social insurance programs: recognize liabilities due and payable at end of period –Deviation from full accrual –Additional sustainability data requirements

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Consolidated U.S. Government Financial Statements Statement of net cost Statement of operations and changes in net position Reconciliation of net operating cost and unified budget deficit Balance sheet Statement of social insurance Extensive notes and supplementary data

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Consolidated U.S. Government Financial Statements: Characteristics Nonexchange (taxes) revenue recognized when collected Statement of net costs: all costs less revenues from goods/services provided Statement of operations and changes in net position = operating statement President’s budget is cash basis Reported deficit much greater if social programs fully accrued

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Accounting Within the Federal Agencies: Overview To help meet budget, reporting requirements To help accomplish program objectives Help fulfill stewardship responsibilities Accrual basis of accounting Two-track system: –Self-balancing set of budgetary accounts –Self-balancing set of “proprietary” accounts

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Accounting Within the Federal Agencies: Opening Entries

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Accounting Within the Federal Agencies: Opening Entries

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Accounting Within the Federal Agencies

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Accounting Within the Federal Agencies

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Accounting Within the Federal Agencies

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Accounting Within the Federal Agencies

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Accounting Within the Federal Agencies

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Accounting Within the Federal Agencies

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Accounting Within the Federal Agencies

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Accounting Within the Federal Agencies

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* Federal Agency Financial Reporting Requirements Annual Performance and Accountability Report –Financial section Balance sheet Statement of net cost Statement of changes in net position Statement of budgetary resources If applicable, statement of custodial activity, a statement of social insurance, and a statement of changes in social insurance

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall11-* All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.