Basic Financial Statements: Overview

Principle 1: Accounting & Reporting Capabilities  Present fairly and with full disclosure funds and activities in conformity with GAAP  Determine and demonstrate compliance with finance-related legal and contractual provisions

GAAP Requirements  Trying to assure comparability among and between governments  Full disclosure may result in much more information than “adequate” disclosure required by FASB

Categories and Types of Funds GOVERNMENTAL FUNDS  General Fund  Special Revenue Funds  Capital Projects Funds  Debt Service Funds  Permanent Funds PROPRIETARY FUNDS  Enterprise Funds  Internal Service Funds FIDUCIARY FUNDS  Pension Trust Funds  Investment Trust Funds  Agency Funds  Private Purpose Trust Funds

Governmental Funds  Most basic type of fund – use basic fund format defined earlier  Used to account for general government activities  Accounting equation does not allow for capital assets and long-term liabilities – necessitates use of nonfund accounts: General Capital Assets General Long-Term Liabilities

Nonfund accounts  General Capital Assets – property, plant, & equipment used in general operation of government  General Long-term Liabilities – debt used to finance capital assets and other long-term liabilities not recognized in the governmental funds

Proprietary Funds  Used to account for business-like activities of the government: Golf courses Maintenance operations Airports Utilities  May use more “traditional” accounting equation: Current Assets + Capital Assets Current + Long-term Liabilities Net Assets–=

Fiduciary Funds  Accounts for assets held by government in trustee or agency capacity for others  Not used to report assets held for government’s own use

Principle 5: Reporting Capital Assets Must know which fund type is using capital assets:  Proprietary fund – reported at fund and government-wide level  Fiduciary fund – reported only at fund level  Governmental Fund – reported only at government-wide level and in notes to financial statements

Principle 6: Valuation of Capital Assets  Report at historical cost (may use estimated cost of historical cost cannot be determined)  Cost of capital asset included charges to get it to intended location and ready for use  Donated capital assets reported at fair value at time of donation, plus charges to get it to intended location and ready for use

Principle 7: Depreciation of Capital Assets  Capital assets depreciated over useful lives  Inexhaustible capital assets (land and some land improvements) should not be depreciated  Infrastructure assets may be accounted for using the “modified approach”

Reporting depreciation depends on fund category  Proprietary fund – reported at fund and government-wide level  Fiduciary fund – reported only at fund level  Governmental Fund – reported only at government-wide level and in notes to financial statements

Principle 8: Accounting for Long-Term Liabilities Must know type of fund incurring liability  Proprietary Fund – report at fund and government-wide level  Fiduciary Fund – report only at fund level  Governmental Fund: Unmatured – report at government-wide level & in the notes Matured – report as fund liabilities

Principle 9: Measurement Focus (MF) and Basis of Accounting (BA) Government-Wide Financial Statements  Measurement focus is on economic [all] resources  Basis of accounting is accrual  Revenues, expenses, gains, losses, assets, & liabilities recognition depends on transaction: Exchange – when exchange takes place Nonexchange – according to GASBS 33

Principle 9: Measurement Focus (MF) and Basis of Accounting (BA) Governmental Fund Financial Statements  Measurement focus is on current financial resources  Basis of accounting is modified accrual  Revenues recognized in period they become available and measurable  Expenditures recognized when liability is incurred, except for interest on long-term debt which is recognized when due

Principle 9: Measurement Focus (MF) and Basis of Accounting (BA) Proprietary Fund Financial Statements  Measurement focus is on economic [all] resources  Basis of accounting is accrual  Revenues, expenses, gains, losses, assets, & liabilities recognition depends on transaction: Exchange – when exchange takes place Nonexchange – according to GASBS 33

Principle 9: Measurement Focus (MF) and Basis of Accounting (BA) Fiduciary Fund Financial Statements  Measurement focus is on economic [all] resources  Basis of accounting is accrual  Exception for certain liabilities of defined benefit pension plans and certain postemployment healthcare plans

Revenue Recognition Rules – Must be:  Earned or levied  Measurable  Available Collected in current period or soon enough thereafter to pay liabilities of the current period – usually considered to be 60 days If not collected within this period, reported as deferred revenues in current period and revenues in year when they become available

Expenditure Recognition Rules  For current operations & capital outlay, when liabilities to be paid currently by governmental funds are incurred  For debt service (principal and interest) when payments on long-term liabilities are due

Reporting Interfund Activity: Reciprocal interfund activity  Interfund loans (asset / liability) Short-term (due from / due to) Long-term (advance to / advance from)  Interfund services provided and used – recognized as revenue in providing fund and expenditure/expense in using fund

Reporting Interfund Activity: Nonreciprocal interfund activity  Interfund transfers Reported in governmental funds as Other Financing Sources / Uses Reported in proprietary funds after nonoperating revenues and expenses  Interfund reimbursements Repayment from one fund to another – increases expenditures / expenses in paying fund while decreases them in receiving fund Not separately reported in financial statements

Principle 13: Annual Financial Reports Minimum reporting requirements  Management’s Discussion & Analysis  Basic Financial Statements Government-wide financial statements Fund financial statements Notes to the financial statements  Required supplementary information other than MD&A

Principle 13: Annual Financial Reports Government-wide Financial Statements  Statement of Net Assets  Statement of Activities

Principle 13: Annual Financial Reports Governmental Fund Statements (Schedules)  Balance Sheet  Statement or Revenues, Expenditures, & Changes in Fund Balance  Statement or Revenues, Expenditures, & Changes in Fund Balance – Budget-to- Actual (may be either BFS or RSI)

Principle 13: Annual Financial Reports Proprietary Fund Statements  Statement of Net Assets / Balance Sheet  Statement of Revenues, Expenses, & Changes in Net Assets  Statement of Cash Flows

Principle 13: Annual Financial Reports Fiduciary Fund Financial Statements  Statement of Fiduciary Fund Net Assets  Statement of Changes in Fiduciary Fund Net Assets