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Introduction to Governmental Accounting

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Presentation on theme: "Introduction to Governmental Accounting"— Presentation transcript:

1 Introduction to Governmental Accounting
Presented by Margie R. Toney, CPM, CGFM Finance Director, Alabama Dept. of Labor

2 Montgomery Chapter AGA
Overview Government: Authorities, Responsibilities, and Characteristics Government Management Cycle GASB Fund Accounting and Fund Categories Revenue and Expense Recognition Budgetary Accounting Financial Reporting Objectives & Characteristics CAFR Other reporting 3/9/2017 Montgomery Chapter AGA

3 Montgomery Chapter AGA
Our Government Government Sovereignty Highest level of power/freedom from external control Power derived from constitutions, charters, etc… BUT…accountable to citizens through popular sovereignty Levels of Government National, state, local, special-purpose, quasi-governmental Branches of Government Legislative – passes laws/ordinances Executive – administers laws Judicial – interprets laws, exercises judicial review 3/9/2017 Montgomery Chapter AGA

4 Authorities and Responsibilities of Government
National National defense, foreign relations, interstate commerce, federal courts, housing, health care, and educational opportunity State Public safety, property laws, protection of private property, education, marriage laws, commercial rules, and licensing Local Building codes, permits, prop. taxes, police, & fire 3/9/2017 Montgomery Chapter AGA

5 Characteristics of Government
Absence of a profit motive Financed by citizens, donors, and others who do not expect to receive benefits in proportion to the resources provided Raises revenue primarily through taxes No shareholders Relies on budget process to allocate resources Most directed/managed by elected officials 3/9/2017 Montgomery Chapter AGA

6 Government Management Cycle
Planning Programming Budgeting-provides resources and controls Operations Accounting ensures compliance with authorized purpose, time, and amount provides data needed for reports Reporting-communicates accomplishments and resources expended (demonstrates accountability) Auditing 3/9/2017 Montgomery Chapter AGA

7 Montgomery Chapter AGA
GASB Governmental Accounting Standards Board,1984 “The collective mission of the GASB, the FASB, and the FAF is to establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports and educate stakeholders on how to most effectively understand and implement those standards.” Researches, develops and issues accounting standards for state and local governments (SLGs) Jurisdiction between GASB and FASB – FASB standards don’t apply to SLGs unless GASB says so The AICPA recognizes GASB as the body that establishes generally accepted accounting principles (GAAP). 3/9/2017 Montgomery Chapter AGA

8 Montgomery Chapter AGA
Fund Accounting Self-balancing set of accounts (“checkbooks”) “A fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources…related liabilities, etc..” Fund has own accounting resources, liabilities, operating activity, and accounting records Different funds are used for different purposes Established in recognition of grant or contract provisions, constitutional provisions, legislation, discretion of government, etc… 3/9/2017 Montgomery Chapter AGA

9 Fund Categories and Uses
Proprietary Funds Enterprise Internal Service Fiduciary Funds Agency Pension Trust Governmental Funds General Special Revenue Capital Projects Debt Service Permanent 3/9/2017 Montgomery Chapter AGA

10 Revenue and Expense Recognition
Governmental Funds Current financial resources measurement focus, modified accrual basis Revenue (inflows of resources) must be measurable and available Expenditures are recognized when a liability is incurred, if payment requires the use of current financial resources Proprietary, Fiduciary Funds Economic resources measurement focus,accrual basis Revenue recorded when earned or due to the government Expenses are recorded when goods or services are consumed, regardless of when payment is made 3/9/2017 Montgomery Chapter AGA

11 Montgomery Chapter AGA
Budgetary Accounting The budgetary process is the primary control device in government The budgetary equation: Estimated beginning available fund balance (+) Estimated revenues (=) Amount available for appropriation (-) Appropriations (=) Estimated ending available fund balance 3/9/2017 Montgomery Chapter AGA

12 Budgetary Accounting (2 of 3)
Govt’s at the federal, state and local levels generally integrate budgetary accounts with their proprietary or financial accounting systems Proprietary/financial systems produce the financial statements that are subject to audit Budgetary accounting systems are prospective in nature Proprietary/financial systems are retrospective in nature 3/9/2017 Montgomery Chapter AGA

13 Budgetary Accounting (3 of 3)
Obligations and encumbrances are budgetary control tools A purchase order is an encumbering or obligating document, used to ensure that funds are available prior to entering into agreements 3/9/2017 Montgomery Chapter AGA

14 Financial Reporting Objectives
Provide information to assist users in Assessing accountability Evaluating operating results Assessing the level of services the government can provide Assessing the government’s ability to meet obligations The users The citizenry at large, including media and public interest groups Legislative and oversight bodies Investors and creditors 3/9/2017 Montgomery Chapter AGA

15 Characteristics of Effective Financial Reporting
Understandability Reliability Relevance Timeliness Consistency Comparability 3/9/2017 Montgomery Chapter AGA

16 External Financial Reporting
Minimum requirements Management’s Discussion and Analysis (MD&A) Required supplementary information Appears before the BFS Basic financial statements Auditor expresses opinions on these only Includes notes Comprehensive annual financial report (CAFR): recommended but not required Popular reporting – no standards Other reporting 3/9/2017 Montgomery Chapter AGA

17 Basic Financial Statements
Government-wide financial statements Provide information about the government as a whole except for fiduciary activities Two required government-wide statements Statement of Net Assets Statement of Activities Fund financial statements Presented for governmental, proprietary, and fiduciary funds Notes – for information that is necessary for fair presentation of statements but not displayed on the face of the statements Specific transactions may require additional disclosures 3/9/2017 Montgomery Chapter AGA

18 Comprehensive Annual Financial Report
The CAFR is the government’s official annual financial report. Consists of three sections: Introductory – Letter of Transmittal Financial – Auditor’s report, management’s discussion and analysis, basic financial statements, required supplementary information, combining statements Statistical – historical trends, demographics, etc. 3/9/2017 Montgomery Chapter AGA

19 Montgomery Chapter AGA
Other reporting Popular reporting – useful and user-friendly, for citizens Other external reporting – e.g., to grantor agencies Internal reporting – to executive and legislative branches, program managers, etc… 3/9/2017 Montgomery Chapter AGA

20 Montgomery Chapter AGA
Conclusion “The Board believes that financial reporting plays a major role in fulfilling government's duty to be publicly accountable in a democratic society. Public accountability is based on the belief that the taxpayer has a "right to know," a right to receive openly declared facts that may lead to public debate by the citizens and their elected representatives.” cited 3/7/17 3/9/2017 Montgomery Chapter AGA

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