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Transcript of Chapter 02 state and local government principles
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State and Local
Government
Accounting Principles
Chapter 2
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Learning Objectives
Discuss major aspects of government financialreporting model
Define fundand examine broad categories
Identify MFBA used in financial statements
Analyze effects of transactions
Discuss budgetary accounting and reporting
Understand fund categories and types of funds
found in each category Understand basic financial reporting
requirements
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GASBS 34: Basis for
Financial Reporting Issuance in 1999 marked a major
change in governmental financial
reportingCreated dual perspective reporting:
Fund financial statementsdetailed
presentations
Government-wide financial statements
condensed consolidated overview
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Basic Financial Statements:
Overview
Notes to the Financial Statements
Fund
Financial Statements
Fiduciary
Funds
Proprietary
Funds
Governmental
Funds
7 - 8 Financial Statements
Links
[Worksheets]
Reconciliations
(Explanations)
Government-wide
Financial Statements
Total
Primary Government
Business-Type
Activities
Governmental
Activities
2 Financial Statements
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Minimum Requirements for
External Financial Reporting:
The GASBs View
Management'sdiscussion and
analysis
Required supplementary information
(other than MD&A)
Government-widefinancial statements
Notes to the financial statements
Fund financialstatements
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Fundamentals of SLG Accounting
and Financial Reporting
1. GAAP and legal compliance
2. Fund accounting
3. Fund categories
4. Types of funds
5. Comparative financial statement formats
6. Annual financial reporting
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GAAP and Legal Compliance
GAAP Reporting
Ensures that the financial reports of all
SLGs contain the same types of financialstatements and disclosures for the same
types of funds and activities
Requires full disclosure
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GAAP and Legal Compliance(continued)
Legal Compliance
Ranges from simple to complex
requirements May be simple if budgeting on a GAAP
basis
More complex if cash or encumbrance
budgeting is required
Identifying the budgetary basis is key
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GAAP and Legal Compliance(continued)
Reconciling GAAP and legal requirements
Maintain budgetary accounting control
during the yearClearly distinguish between budgetary
basis from GAAP basis
Prepare statements and schedules usingboth bases and reconcile differences
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Fund Accounting
Most distinctive feature of governmental
accounting
Use of fund accounting allows for Proper accounting controls
Demonstrating compliance
Must understand fund structure, fund
model, and interrelationships between
funds
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Definition of a Fund
Independent accounting entity with a
self-balancing set of accounts
Similar to a business accounting entity Business entity captures all reported
attributes for the entire business and all its
transactions
Fund captures all reported attributes of aportion of the governments activities and
resources accounted for in that fund
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Fund Categories
Proprietary Funds
Governmental Funds
Fiduciary Funds
Plus the Nonfund Accounts
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Proprietary Funds
Similar to accounting for businesses
Accounting measures net position,
changes in net position, and cash flows
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Proprietary Funds:Accounting Equation
Current Assets
+
Noncurrent Assets
+
Deferred Outflows
Current Liabilities
+
Long-Term Liabilities
+
Deferred Inflows
Net Position =
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Proprietary Funds: MFBA
Measurement Focus (MF)
Economic resources
Financial statement recognition of allassets and all liabilities
Basis of Accounting (BA)
Accrual
Recognize revenues when earned and
expenses when incurred
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Governmental Funds
Used to account for sources, uses, and
balances of general government
financial resources Funds represent segregations of general
government net financial assets
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Governmental Funds:
Accounting EquationFinancial Assets
+
Deferred Outflows
Fund
Balance
Related Liabilities
+
Deferred Inflows
=
Assets
+
Deferred Outflows
Fund
Balance
Liabilities
+
Deferred Inflows
+=
Reporting Format
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Governmental Funds:
Accounting Equation Terms Financial Assetsrefers primarily to
cash, investments, and receivables
Related Liabilitiesrelated to the currentyear and normally paid for available
current financial resources
Fund Balance
Net financial assets of fund
Difference in financial assets and related
liabilities
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Governmental Funds: MFBA
Measurement focuscurrent financial
resources
Basis of accountingmodified accrual
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Governmental Funds:Recognition CriteriaRevenues
Earned during or levied for the period
Objectively measurable
Collected in period or soon enoughthereafter (usually 60 days) to pay
liabilities incurred for expenditures of the
period (available)
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Governmental Funds:Recognition CriteriaExpenditures
When operating or capital outlay
liabilities to be paid currently from
governmental funds are incurredWhen debt service (principal and
interest) payments on long-term
liabilities are due
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Expenditure/Expense Comparison
Expenditures(net financial assets
expended)
Expenses(cost of goods or
services used)
OperatingSalaries,supplies,
utilities, etc.
Salaries,supplies,
utilities, etc.
Capital Outlay Acquisition Depreciation
Debt ServicePrincipal and
InterestInterest
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Deferred Outflows and
Deferred Inflows Introduced in GASB Concepts Statement
No. 4
Included in standards on derivatives andservice concessionaire arrangements
Financial statements expanded to
include classifications in GASBS 63
Broader application made in GASBS 65
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Deferred Outflows and
Deferred Inflows: DefinedDeferred Outflowconsumption of net
assets by the government that is
applicable to a future reporting periodDeferred Inflowacquisition of net
assets by the government that is
applicable to a future reporting period
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Common Examples of Deferred
Inflows in Governmental Funds
Taxes collected in advance of the period
for which they are levied
Taxes levied in the current period tofinance next period
Revenues deferred due to availability
criterion
Other specific examples will be discussed
when certain conditions arise in text
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Nonfund Accounts
General Capital Assetsnot financial
resources available for expenditure, but
must maintain accountabilityGeneral Long-Term Liabilities
unmatured principal that does not
require current appropriation or
expenditure of fund financial resources
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Nonfund Accounts:General Capital Assets
Capital assets used in general
government activities
Not assets of any fund but of thegovernmental unit as a whole
Inclusion in governmental fund financial
statements would increase fund balance
and could mislead users
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Nonfund Accounts:General Long-Term Liabilities
Secured by the general credit and
revenue-raising powers of the
governmentNot liabilities of any fund but of general
government as a whole
If included as governmental fund liability
would be misleading and dysfunctionalto current period management control
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Nonfund Accounts:Accounting Equation
General CapitalAssets (GCA)
NetPosition
(NP)
Unmatured GeneralLong-Term Liabilities
(GLTL)
=
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Fiduciary Funds
Accounts for assets held by government
in trustee or agency capacity for others
Not used to report assets held forgovernments own use
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Fiduciary Funds:Accounting Equation
Assets
+
Deferred Outflows
Liabilities
+
Deferred Inflows
Net Position =
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Fiduciary FundsMFBA
Measurement focuseconomic
resources
Basis of accountingaccrual
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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
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Types of Proprietary Funds
Enterprise Fundscustomers are usually
the general public (as well as businesses
and other entities besides the governments
own departments or agencies (Chapter 10)
Internal Service Fundscustomers are
predominantly other departments or
agencies of the government (Chapter 11)
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Types of Governmental Funds
General Fundused to account and
report all financial resources not
accounted for and reported in anotherfund (Chapters 36)
Special Revenue Fundsused to
account for the proceeds of specific
revenue sources that are restricted orcommitted to expenditure for specified
purposes (Chapters 36)
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Types of Governmental Funds(continued)
Capital Projects Fundsused to account
for and report financial resources that
are restricted, committed, or assigned toexpenditure for capital outlays, including
acquisition or construction of capital
facilities or other capital assets
(Chapter 7)
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Types of Governmental Funds(continued)
Debt Service Fundsused to account
for and report financial resources that
are restricted, committed, or assigned toexpenditure for principal and interest
(Chapter 8)
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Types of Governmental Funds
Permanent Fundsused to account for
and resources that are legally restricted
to the extent that only earnings, and notprincipal, may be used for purposes that
support the reporting governments
programsthat is, for the benefit of the
government or its citizenry
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Types of Fiduciary Funds
Pension (and other employee benefit)
Trust Fundsestablished to account for
resources that are required to be held intrust for the members and beneficiaries
of defined benefit pension plans, defined
contribution plans, other post-
employment benefit plans, and otheremployee benefit plans
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Types of Fiduciary Funds(continued)
Investment Trust Fundsused to
account for the external portion of
investment pools held by the sponsoringgovernment
Private-Purpose Trust Fundsused to
account for all other trust arrangements
under which principal and/or incomebenefit individuals or groups outside the
government
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Types of Fiduciary Funds
Agency Fundsestablished to account
for resources held in a purely custodial
capacity for others
All Fiduciary Funds are discussed in
Chapter 12
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Interfund Transactions
Interfund loans
Interfund services provided and used
Interfund reimbursements Interfund transfers
Of particular interest here are loans andtransfers
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Loans
Amounts provided
by one fund toanother with a
requirement for
repayment
Affects only balancesheet accounts
Transfers
Flows of assets from
one fund to anotherwith no requirement
for repayment
Affects balance sheet
and operatingstatement accounts
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Comparative Operating Statements
Proprietary Funds
Accrual-based
Must distinguish between
operating and non-operating revenues and
expenses
Separate reporting for
capital contributions,
special and extraordinaryitems, and transfers
Change in Net Position
Governmental Funds
Modified accrual-based
Report revenues by
source and expendituresby character
Other Financing Sources
and Uses for other
resource flows, including
transfers Special and extraordinary
items reported separately
Change in Fund Balance
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Comparative Balance Sheets
Proprietary Funds
Current and
Noncurrent Assets
Deferred Outflows
Current and
Noncurrent Liabilities
Deferred Inflows
Net Position
Governmental Funds
Financial Assets
Deferred Outflows
Related Liabilities
Deferred Inflows
Fund Balance
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Annual Financial Reporting
Comprehensive Annual Financial Report (CAFR)
Should be prepared for all governmental
entities Sections include:
Introductorylittle GAAP for this section
Financialmost GASB standards apply to
this section
Statisticalsee recently issued GASBS 44
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Annual Financial Reporting
Notes
Nonmajor Fund Combining FinancialStatements
Individual Fund Financial Statements
& Schedules
Transaction Data
(the accounting system)
CAF
R
MD&A
Government-
Wide
Financial Statements
Major Fund & CU
Financial Statements
Other RSI
MEFR
BFS
CAFR--Comprehensive Annual Financial Report
BFS--Basic Financial Statements
MEFR--Minimum External Financial ReportingCopyright 2001, G. Robert Smith, Jr.C
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Annual Financial Reporting
Minimum reporting requirements
Managements Discussion and Analysis
Basic Financial Statements Government-wide financial statements
Fund financial statements
Notes to the financial statements
Required supplementary information
other than MD&A
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Annual Financial Reporting
Financial Reporting Entity consists of
Primary government (PG)
Organizations for which the PG isfinancially accountable
Other organizations whose omission
would cause financial statements to be
misleading
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Annual Financial Reporting
Managements Discussion and Analysis
Brief discussion of financial statements
Condensed government-wide financial
informationAnalysis of position and results of operations
Analysis of individual funds
Budget analysis
Significant capital assets and LTL events Modified approach
Description of currently known facts
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Annual Financial Reporting
Government-wide financial statements
should include separate columns for
Governmental Activities, Business-Type
Activities, Total column for PG, and
discretely presented component units
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Annual Financial Reporting
Fund Financial Statements include major
funds individually and nonmajor funds in
the aggregate
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Annual Financial Reporting
Financial Reporting Entity
Nucleus is the PG
Other activities include: Discretely presented component units
Blended component units
Joint ventures
Jointly governed organizations
Related organizations
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Annual Financial Reporting
Government-wide Financial Statements
Statement of Net Position
Statement of Activities
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Annual Financial Reporting
Governmental Fund Statements (Schedules)
Balance Sheet
Statement or Revenues, Expenditures,and Changes in Fund Balance
Statement or Revenues, Expenditures,
and Changes in Fund BalanceBudget-
to-Actual (may be either BFS or RSI)
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Annual Financial Reporting
Proprietary Fund Statements
Statement of Net Position / Balance
Sheet Statement of Revenues, Expenses, and
Changes in Net Position
Statement of Cash Flows
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Annual Financial Reporting
Fiduciary Fund Financial Statements
Statement of Fiduciary Fund Net
Position Statement of Changes in Fiduciary Fund
Net Position
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Preparation Process: Step 1
TransactionData
Start with the transaction datathe basic building
blocks for everything in the ComprehensiveAnnual Financial Report (CAFR)
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Preparation Process: Step 2
TransactionData
Schedules
Individual Fund
Statements
1
From the transaction data, prepare
the individual fund financial
statements and schedules. Also,some of the transaction data will be
used later in the CAFR preparation
process.
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Preparation Process: Step 3
TransactionData
Schedules
Individual Fund
Statements
Major Fund
Determination
1
2
3
Determine the major funds (this
process will be discussed later).
Also, information from the individual
fund statements and schedules will
be used later in the process.
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Preparation Process: Step 4
TransactionData
Schedules
Individual Fund
Statements
Major Fund
Determination
Nonmajor Fund
Combining
Statements
Major Fund
Statements
1
2
3Once the major funds have been determined,
the nonmajor fund combining statements can
be prepared. The total column from these
statements becomes a single column in the
major fund statements along with a separatecolumn for each major fund.
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Preparation Process: Step 5
TransactionData
Schedules
Individual Fund
Statements
Major Fund
Determination
Nonmajor Fund
Combining
Statements
Major Fund
Statements
Conversion
Process
CU
Statements
Govt.-wide
Statements
1
2
3
The major funds statements undergo a conversion processand are combined with the component units financial
statements to complete the government-wide statements.
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Preparation Process: Step 6
TransactionData
Schedules
Individual Fund
Statements
Major Fund
Determination
Nonmajor Fund
Combining
Statements
Major Fund
Statements
Conversion
Process
Govt.-wide
Statements
Notes
1
2
2
3
3
CU
Statements
Information from all the financial statements and theschedules are used to prepare the notes to the financial
statements. This process completes the Basic Financial
Statements (BFS).
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Preparation Process: Step 7
TransactionData
Schedules
Individual Fund
Statements
Major Fund
Determination
Nonmajor Fund
Combining
Statements
Major Fund
Statements
Conversion
Process
Govt.-wide
Statements
Notes
Other
RSI
Budget
Personnel
Dept.
Heads
Program
Managers
MD&A
1
1
2
2
3
3
CU
Statements
Information from the transaction data, individual fundstatements, and schedules are used to complete the
Other RSI. Then information from all sources
combine to provide data for the MD&A.