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Published byEdmund Grant Modified over 7 years ago
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Governmental Accounting from Easy Street to Life in the Fast Lane
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Agenda Modified Accrual vs. Full Accrual Reconciliations
Governmental Funds Government Wide Reconciliations Balance Sheet to the Statement of Net Position Statement of Revenues and Expenditures to the Statement of Activities
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Basis of Accounting Cash basis Modified accrual Full Accrual
Transactions recorded when cash is exchanged Not GAAP Modified accrual Revenues recognized when measurable and available; expenditures when incurred Unique to state and local governments Full Accrual Records effects of transactions/events when they occur, regardless of the timing of related cash flows Used by business enterprises and non-profits
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Current financial resources
Overview Governmental Fund f/s Modified accrual Current financial resources Government-wide f/s Full accrual Economic resources
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Measurement Focus Current financial resources Economic resources
Reports all near-term inflows, outflows, and balances of expendable resources Unique to state and local governments Economic resources Reports all inflows, outflows, and balances affecting net position Used by business enterprises and non-profits
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FUND Financial Statements Overview
Governmental funds Balance Sheet Revenues, Expenditures, and Changes in Fund Balances Modified accrual basis of accounting Current financial resources measurement focus Basis of accounting = when does something get reported in the fs = criteria governing the timing of the recognition of transactions and events Measurement focus = what gets reported in the fs = types of transactions and events that are reported in the operating stmt What are the transactions of events of the period that have increased or decreased the resources available for spending in the near future? Revenues are recognized when they are available and measurable. Expenditures are recognized when liabilities are incurred. Period of availability typically 60 days.
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FUND Financial Statements Overview
The fund financial statements focus on near-term inflows of spendable resources and are useful in evaluating the government’s near-term financing requirements. Revenues are recognized when they are available and measurable. Expenditures are recognized when liabilities are incurred. Period of availability typically 60 days. Governments use fund accounting to ensure and demonstrate compliance with finance-related legal requirements.
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Basic Financial Statements Overview
Fund Financial Statements Proprietary funds Statement of net position Statement of revenues, expenses and changes in fund net position Statement of cash flows Accrual basis of accounting If you entity presents proprietary funds – which are comprised of enterprise funds and internal service funds, these are the three basic financial statements that are required. Because these funds operate more like business enterprises, they are reported on the accrual basis of accounting. Activities in proprietary funds account for activities that receive significant support from fees and charges received either externally or internally.
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Statement of Revenues and Expenditures
Revenues – inflows that are measurable and available Expenditures – are measurable and should be recorded when the exchange takes place Debt service expenditures recorded before payment is due if it is due and payable in one to several days after year end Other financing sources (uses) Interfund Transfers General obligation and/or refunding bond issuances Capital lease agreements Other financing sources/uses exist so as not to skew regular operational numbers….
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Basic Financial Statements Overview
Fund Financial Statements Fiduciary funds Statement of fiduciary net position Statement of changes in fiduciary net position Accrual basis of accounting Moving on to fiduciary funds, which account for resources your government holds on behalf of an outside party and cannot be used to support the government’s own programs, listed here are the required basic financial statements. A common example of a fiduciary fund of the Agency Fund type for school districts is student activities, where we are accounting for monies held on behalf of our student clubs. If your school system only reports agency funds, then you will not report a statement of changes in fiduciary net position, as agency funds do not report net position, as assets are equal to liabilities.
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Government-wide Financial Statements Overview
- Statement of Net Position - Statement of Activities Accrual basis of accounting Economic resources measurement focus All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows.
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Government-wide financial statements help users…
GASB Statement No. 34 Government-wide financial statements help users… Assess the finances of the government in its entirety See the cost of providing services to its citizenry Understand the extent to which the government has invested its capital assets, including buildings, equipment, and infrastructure
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Government-wide Financial Statements Overview
-Assets -Deferred outflows of resources -Liabilities -Deferred inflows of resources -Net position Statement of Net Position
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Statement of Net Position
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Fund Balance to Net Position
Deferred Inflows (Period of Availability) Long term Assets (Capital Assets, Restricted Cash) Long term Liabilities (Bonds, Capital Leases, Pension) Long Term Deferred Inflow/Outflow (Pension, Refunding) Net Position
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Restricted net position to the lowest level possible.
Net Investment in Capital Assets (NICA) – Capital assets, net of depreciation, less any debt used to acquire the capital assets. Restricted net position to the lowest level possible. Unrestricted – deficit balances and remainder.
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Government-wide Financial Statements Overview
-Expenses -Program revenues -General revenues -Extraordinary/special items -Change in net position Statement of Activities
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Statement of Activities
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Program Revenues
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General Revenues
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Reconciliations Balance Sheet – Governmental Funds to the Statement of Net Position Statement of Revenues, Expenditures and Changes in Fund Balance – Governmental Funds to the Statement of Activities
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Modified accrual vs. full accrual – main differences between Balance Sheet and Statement of Net Position Statements include NONCURRENT assets and liabilities Capital assets reported and depreciated Net position reported rather than fund balance Differences highlighted on a reconciliation in the basic financial statements BIGGEST DIFFERENCES BETWEEN MODIFIED ACCRUAL AND ACCRUAL ACCOUNTING These differences will be highlighted on the reconciliations
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Reconciliation Items – BS to SNP
Capital (Fixed) Assets Capital Leases Payable Notes or Bonds Payable Unavailable Revenues Certain deferred inflows/outflows of resources
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Other financing sources and uses eliminated
Modified accrual vs. full accrual – main differences between the Statement of Revenues, Expenditures and Changes in Fund Balances and the Statement of Activities Debt payments recorded as reduction of associated liability – NOT as an expense Unavailable revenues deferred in governmental statements may be recognized as revenue Other financing sources and uses eliminated Differences highlighted on a reconciliation in the basic financial statements BIGGEST DIFFERENCES BETWEEN MODIFIED ACCRUAL AND ACCRUAL ACCOUNTING These differences will be highlighted on the reconciliations
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Reconciliation Items – R/E to Activities
Capital outlay expenditures Donations of assets Depreciation & amortization expense Unavailable Revenues Repayments on long-term debt Debt issuance costs
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Government-Wide Elimination of Internal Activity
Eliminate Interfund Balances and Transfers between Governmental Funds. Eliminate Interfund Balances and Transfers between Business Type Funds. Internal Service Funds Include assets and liabilities except interfund balances. Allocate the “net income/loss” of the fund before significant investment income, interest expense, and with transactions outside the primary government.
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Capital Assets Capital outlay recorded as expenditures on the fund financial statements On the government-wide statements, assets are recorded Dr Capital Outlay Expenditures Cr Cash Dr Asset (Building, VF&E) Cr Cash BIGGEST DIFFERENCES BETWEEN MODIFIED ACCRUAL AND ACCRUAL ACCOUNTING These differences will be highlighted on the reconciliations
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Capital Assets BIGGEST DIFFERENCES BETWEEN MODIFIED ACCRUAL AND ACCRUAL ACCOUNTING These differences will be highlighted on the reconciliations
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Long-term Debt – Bonds Payable
Principal retirement recorded as expenditures on the fund financial statements On the government-wide statements, long-term liabilities are reduced Dr Principal Retirement Dr Interest expense Cr Cash Dr Bonds Payable Dr Interest expense Cr Cash
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Long-term Debt – Bonds Payable
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Amortization of Bond Premium
Bond is issued above par value - premium On the government-wide f/s, premium is amortized over the life of the debt In the fund financials, proceeds from the sale of the bond are recorded, but no premium Dr Bond Premium (liability) Cr Interest expense
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Miscellaneous Items Federal Loan Program is Transferred/Given Back
On the government-wide f/s, repayment of debt is a reduction of a liability In the fund financials, Debit other financing source, Credit cash Dr Loan Payable (liability) Cr Other Financing Source
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Timing of Revenues Revenue received in October; year end is June 30
Revenue is recorded when earned on government-wide f/s Revenue is measurable, but not available (to pay “current” obligations) – record as unavailable revenue (DI) Record revenue
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Are we done yet? Not quite……..
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Governmental Accounting: A Dive Into Revenues
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Agenda Exchange vs. Nonexchange revenues Revenue Recognition
Revenue Sources Accounting Financial Statement Presentation Reporting Complexities
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Exchange vs. Nonexchange Revenues
Transaction between two parties in which things that are equal value are exchanged Revenue is recognized when the exchange takes place Nonexchange Transaction in which the government gives a benefit to another party without directly receiving equal value in exchange Revenue is recognized in accordance with GASBS 33
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Revenue Recognition Under Basis of Accounting
Modified Accrual Basis Current financial resources measurement focus – used in governmental fund financial statements Recognize revenues when they become measurable and available Accrual Basis Economic resources measurement focus – used in government-wide and proprietary financial statements Recognize revenues when earned All revenues are reported net of related discounts and allowance for uncollectible amounts.
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Deferred Inflows and Unearned Revenue
Under Modified Accrual revenues not meeting recognition criteria are accounted for in two ways: Revenues that do not meet the availability criteria Deferred Inflow of Resources Revenue is recognized on the government wide statements Revenues received prior to meeting eligibility criteria Unearned Revenues Revenue is not recognized on the government wide statements.
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Four Classes of Nonexchange Transactions
Derived-tax assessments on exchange transactions examples include sales and use taxes Imposed assessments on non-exchange transactions examples include property taxes and fines Voluntary entered into willingly between governmental or non-governmental entities examples include certain grants and donations Government-mandated government requires another government to provide funding for a program examples include state mandated road improvements
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Asset – When enforceable legal claim has arisen
Derived tax revenues Asset – When underlying exchange has occurred or resources received, whichever is first Revenue – When underlying exchange has occurred Imposed nonexchange Asset – When enforceable legal claim has arisen Revenue – First period that use is permitted (for example, period for which levied) and Voluntary Government-mandated Asset – When all eligibility requirements have been met Revenue – When all eligibility requirements have been met
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Revenue Sources for Local Governments
Taxes Property taxes Sales taxes Special Assessments Licenses, permits, fees, fines and forfeits Intergovernmental revenues (entitlements, shared revenues, grants, and on-behalf payments) Contributions Sales and services charges Miscellaneous revenues
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Property Taxes Imposed nonexchange revenue
Also called ad valorem taxes Levied on real (land, buildings) or personal property (vehicles, machinery) Property is subject to a lien Allowances are generally minimal
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Property Tax Calendar in Arizona
August – 3rd Monday of the Month – Taxes are levied October 1 – First half of taxes are due November 1 – First half of taxes are delinquent if not paid March 1 – Second half of taxes are due May 1 – Second half of taxes are delinquent if not paid January 1 - Lien attaches to the property
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Accounting for Property Taxes
Modified Accrual basis Receivable should be recognized in the period for which it is levied Revenue recognized when levied provided they are also available GASB Cod. Sec. P70 defines availability period – should not exceed 60 days after year-end Report deferred inflows for assets not received within period of availability
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Accounting for Property Taxes
Accrual basis Revenue should be recognized in the period for which it is levied, regardless of when it is due or collected
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Presentation of Property Taxes in the Financial Statements
Government-wide Financial Statements General Revenues Proprietary Fund Financial Statements Nonoperating Revenues Governmental Fund Financial Statements May be reported within Tax Revenues or broken out into a separate line item.
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Property Tax Financial Reporting Considerations
Since property taxes are collected by the County, there is a lag in receipt of the revenues. Receivable and unavailable should be reported for revenues not received within the period of availability. Review receivable to ensure it is adjusted when the County adjusts the levy.
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Sales Taxes Derived: Imposed by government based on underlying exchange transaction (such as sale of retail items) May be imposed on all good or services sold (except those that are exempt) May be imposed on specific items (ex. hotel occupancy)
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Accounting for Sales Taxes
Modified Accrual basis Should be recognized when the underlying exchange (sale of goods) takes place and the resources are available Purpose restrictions do not affect revenue recognition, but may require reporting in a specific fund Report revenues net of estimated refunds and uncollectible amounts
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Accounting for Sales Taxes
Accrual basis Should be recognized when the underlying exchange (sale of goods) takes place
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Presentation of Sales Taxes in the Financial Statements
Government-wide Financial Statements General Revenues Proprietary Fund Financial Statements Nonoperating Revenues Governmental Fund Financial Statements May be reported within Tax Revenues or broken out into a separate line item
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Sales Tax Financial Reporting Considerations
Receivable and unavailable should be reported for revenues not received within the period of availability. This may require consultation with sales tax department regarding delinquent accounts/tax audits. Review lag schedule of sales taxes receivable to determine if allowance is reasonable
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Special Assessments Service-type – Exchange Transactions
Examples include: charges for street cleaning, snow removal, landscape maintenance Capital – May be Exchange or Imposed Nonexchange Improve or add infrastructure related to specific properties Examples include: roads, sidewalks, curbs
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Accounting for Service-Type Special Assessments
Modified Accrual basis Report revenue when the service is provided and amounts are available Report deferred inflows for revenues not received during period of availability
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Accounting for Service-Type Special Assessments
Accrual basis Report revenue when the service is provided GASB Implementation Guide No , Question , report with charges for services on Government- Wide Statements
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Accounting for Capital Special Assessments
Modified Accrual basis If debt is issued and government is obligated in some manner for the debt – record receivable and unavailable revenue/revenue If government is not obligated – no receivable is recorded, activity is recorded in an agency fund If capital improvements are financed with existing funds – record receivable and unavailable revenue/revenue in the fund that provided the resources Recognize prepayments as revenue when collected
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Accounting for Capital Special Assessments
Government-Wide Reporting When government is obligated: Recognize revenue when the government has an enforceable legal claim When government is not obligated: Report a capital contribution equal to the debt proceeds
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Presentation of Special Assessments in the Financial Statements
Government-wide Financial Statements Capital Contributions Proprietary Fund Financial Statements Governmental Fund Financial Statements Typically reported as a separate line item
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Intergovernmental Revenues
Government mandated or voluntary nonexchange transactions Revenues should be recognized when all four types of eligibility requirements specified in GASBS No. 33 Required characteristics of recipients Time requirements Reimbursements Contingencies
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Intergovernmental Revenue Types
Shared Revenues Example – Highway User Revenues, State Shared Sales Tax Entitlement Payment based on an allocation formula Grants and Other Financial Assistance Usually restricted Generally must be applied for Example – federal grant for police equipment
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Shared Revenues Considered continuing appropriations “once established, are automatically renewed without further legislative action, period after period, until altered or revoked”. The time eligibility is continuously (automatically) met and revenues are reported in the period in which the sales take place.
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Accounting for Intergovernmental Revenues
Modified accrual Report revenue when all eligibility requirements have been met and amounts are available Report unearned revenues for resources received prior to meeting eligibility requirements GASB No. 33 provides that governments should not delay revenue recognition pending completion of purely routine requirements such as filing of claims for allowable costs for reimbursement-type grants
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Accounting for Intergovernmental Revenues
Accrual Report revenue when all eligibility requirements have been met Report unearned revenues for resources received prior to meeting eligibility requirements
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Presentation of Intergovernmental Revenues in the Financial Statements
Government-wide Financial Statements If restricted – Operating or Capital Grants If not restricted - General Revenue Proprietary Fund Financial Statements Nonoperating Revenues Governmental Fund Financial Statements Typically reported as a separate line item and the various types of intergovernmental revenues are broken out Taxes - Intergovernmental Federal Grants State Grants
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Intergovernmental Revenue Financial Reporting Considerations
Review receivables at year end to ensure all are included even if the revenues did not come in by FYE or shortly thereafter Unrecorded receivables have unfortunate side effects on recognition of federal awards Investigate funds with deficit balances at fiscal year end to ensure that no receivable exists.
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Licenses, Permits, Fees, Fines and Forfeits
Revenue can be reported on the cash basis in the governmental fund financial statements Typically not a significant source of revenues Exception could be courts Fines – GASB Implementation Guide No Undisputed fines should be recognized when they are paid or when the statutory time allowed for dispute lapses, whichever occurs first.
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Presentation of Licenses, Permits, Fines in the Financial Statements
Government-wide Financial Statements Charges for Services Governmental Fund Financial Statements Typically reported as a separate line item
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Contributions Most are voluntary nonexchange transactions
Revenues should be recognized when all eligibility requirements are met (and available in governmental funds)
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Presentation of Contribution Revenues in the Financial Statements
Government-wide Financial Statements If restricted – Operating or Capital Grants If not restricted - General Revenue Proprietary Fund Financial Statements Nonoperating Revenues Governmental Fund Financial Statements Either miscellaneous line item or separately classified as contributions, gifts or donations
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Sales and Service Charges
Exchange Transactions Recognize revenue when the exchange takes place Report revenues net of discounts and allowances Primary source of revenue for proprietary funds Unbilled services charges require accrual
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GASB Projects Financial Reporting Model
Invitation to Comment issued December 2016 Presents potential improvements to recognition approaches (measurement focus and basis of accounting) Revenue and Expense Recognition Currently in Initial Deliberations Addresses exchange transactions not specifically addressed in existing statements Post-implementation review of Statements 33 and 36
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Questions? Michael L. Lauzon, CPA, MBA
Jill A. Shaw, CPA
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