FAR - Notes Chapter 9 http://www.cpa-cfa.

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Governmental Accounting Part B

Operational accountability government wide F/S has met its objectives efficiently and effectively Fiscal accounting ability fund F/S demonstrate that the govts entitys actions have been responsible Must reconcile fund F/S to govt wide F/S Re uired in F/S M!"# $re uired supplemental information %ovt wide F/S & Statement of net assets & Statement of activities Fund F/S & %overnmental funds $%RaS''( a) *alance Sheet b) Statement of revenues+ e,penditures+ and changes in fund balances & 'roprietary funds $S-( a) Statement of net assets b) Statement of revenues+ e,penses and changes in fund net assets c) Statement of cash flows & Fiduciary funds $'#'.( a) Statement of fiduciary net assets b) Statement of changes in fiduciary net assets /otes to F/S Re uired supplementary information Optional information 0omprehensive #nnual Financial Report $0#FR( & .ntroductory section $unaudited( & *asic F/S and re uired supplementary information $audited( & Statistical section 'rimary government entities State governments %eneral purpose local governments $city or a county( Special purpose local governments $hospital or school district( has to meet the 1 criteria2 SE Separately elected governing body L Legally separate F Fiscally independent of other state and local governments Component unit unit of primary govt that is a legally separate organi3ation4 elected officials of the primary government are financially accountable Blended presentation used in either of the following situations & # board of the component unit is substantively the same as that of the primary government & 0omponent unit almost e,clusively serves the primary government 5hen the criteria for a blended presentation has not been met+ then a discrete presentation is used Discrete presentation separate presentation+ most common Managements Discussion & Analysis (MD&A) Re uired supplementary information 1

FAR - Notes Chapter 9 http://www.cpa-cfa.org

/o reconciliation of fund F/S to the %ovt wide F/S !escription of the F/S & easily readable analysis & condensed F/S information & analysis of overall financial position including reasons for changes from the prior year & analysis of balances and transaction of individual funds and limitations on future uses of funds & analysis of significant variations between original and final budget 6he identity of the primary government and discrete component units -conomic conditions and outloo7 Major initiatives Government wide F/S Statement of net assets Statement of activities Statement o net assets (F!"!) /et assets 8 assets liabilities /et assets is composes of 1 components & unrestricted net assets & restricted net assets & invested capital+ net of related debt .nfrastructure assets streets+ bridges+ gutters and other govt assets & reported only on the govt wide F/S 9 depreciation approaches Re uired approach depreciation e,pense specifically identified with a functional category should be included in the direct e,penses of that function Modified approach infrastructure assets are not re uired to be depreciate if two 9 re uirements are met2 $under this approach infrastructure e,penditures are reported as e,penses+ unless the outlays are additions or improvements in which case they would be capitali3ed 1. %ovt assets mgmt system 7eeps up&to&date info on amount+ condition and ma7e yearly estimates on maintenance to preserve the assets 9) :ave documentation to prove number ; #ccounting changes $changes in estimate( %oing from re uired to modified $visa versa( depreciation method .mpairment determination %ovt should capitali3e artwor7 and historical treasures at historical cost or fair value at donation date %ovt should capitali3e but is not re uired to when the collection meets the following criteria & collection is held for public e,hibition & collection is protected & proceeds from sales of collection are used to ac uire other items for the collection Statement o activities <se full accrual /et revenue and e,pense for each function or program is classified into 1 categories 'rimary govt governmental activities %RaS'' = S 'rimary govt business type activities & 0omponent units rescue s uad or board of education 2

FAR - Notes Chapter 9 http://www.cpa-cfa.org

0ategory 6ypes S 0harges for services & charges for services to customers or applicants who directly benefit from goods or services & charges for services to other governments & fines and forfeitures O C Operating grants and contributions restricted for use in a particular program Capital grants and contributions & restricted for use in a particular program

SOC these revenue sources away #ctivity resulting from internal service funds should be reported in the governmental activities column unless the governments enterprise funds are the primary recipient of internal service fund services F!"#$ statement o activities% do & need to 'now t(e layout Fund Financial Statements 6o be considered a major fund that re uires reporting must meet $both( 9 criteria2 ;) Fund must comprise ;>? of total revenues+ e,penditures+ assets or liabilities of & all government funds or enterprise funds $the separate columns( 9) Fund must comprise @? of revenues+ e,penditures+ assets or liabilities & all government fund and all enterprise funds $the total columns( 5hen determining is a fund ualifies as a major fund+ remember that aggregate fund balance/ e uity $net assets( is not used in either test 6he govt wide F/S must reconcile2 6he differences in the fund balances of governmental funds and net assets in the govt wide F/S 6he differences in net change in fund balances of governmental funds and the change in net assets for governmental activities 6o prepare the reconciliation use the following mnemonic B/S ) GALS BARE G GRaS'' fund balance =A Assets $non&current( &L Liabilities $non&current( =S .nternal service fund net assets #djustments B Basis of accounting A Accrued R Revenues E E,penses Statement o revenues% e*penditures and c(anges in und +alance GOES BARE G GRaS'' net change in fund balance &O Other financing sources =E E,penditure capital outlay $net of depreciation( =S .nternal service fund net income #djustments B Basis of accounting A Additional #ccrued 3

FAR - Notes Chapter 9 http://www.cpa-cfa.org

R E

Revenues E,penses

Statement o Cas( Flows Similar to normal statement of cash flows e,cept A differences2 ;) !irect method is re uired $indirect method not allowed( 9) Reconcile operating income $not /.( to net cash provided by operations 1) Financing section is split into 9 sections $so B in total( & 0apital and related financing activities & /on&capital financial activities B) .nterest income and cash receipts are reported are investing activities $not operating( @) .nterest e,pense/cash payments are including in one of the financing sections A) 0apital assets purchases are reporting in capital financing activities $not investing( ,otes to F/S #re considered integral to the F/S !isclosures should include & description of govt wide activities noting the e,clusion of fiduciary funds $'#'.( & policies relating to elimination of internal activity & description of the modified approach for reporting infrastructure if used & length of time defined for CavailableD in revenue recognition under modified accrual $usually A> days( & actions ta7en to correct material non&compliance with finance related or legal compliance -e.uired Supplementary &n ormation (ot(er t(an MD&A) .ncludes2 budget+ infrastructure and pension information *udgetary comparisons that show the original budget+ the final amended budget and the actual amounts 0omputation of variances is optional *udgetary comparison may use either %##' or budgetary formats or basis of accounting+ but must include a reconciliation to %##' F/S prepared in accordance with the provisions of %#S* 1B #sses condition of infrastructure -stimated annual amount to maintain and preserve infrastructure for each of the past @ years 'resentation of A years of pension information & schedule of funding progress & schedule of employer contributions /t(er Supplementary &n ormation (optional) 0ombining statements for non&major funds .nterfund activity represents the flow of resources between funds and between primary governmental and its component units Reciprocal interfund activity & .nterfund loans temporary e,tensions of credit to other funds & .nterfund services provided and used /on&reciprocal interfund activity & .nterfund transfers & .nterfund reimbursements 4

FAR - Notes Chapter 9 http://www.cpa-cfa.org

.nterfund activities should only reported between the primary government and its fiduciary fund For all other relationships+ eliminate interfund activities

Not-For-Profit Organizations
<se F#S* not %#S* $SF#S ;;E(+ so use full accrual Overall emphasis is on basic information for the organi3ation as a whole Re uired F/S Statement of financial position $*/S( Statement of activities $./S( Statement of cash flows Statement of functional e,penses $re uired for health and welfare organi3ations(

Statement o inancial position (B/S) /et assets not for profits put their net assets into these categories <nrestricted net assets & internally board designated funds are considered unrestricted 6emporarily restricted net assets donor imposed stipulations either e,pire with time or by an action of the organi3ation 'ermanently restricted net assets 6hese are different then the governmental net asset categories & .nvested & Restricted & <nrestricted Statement o activities (&/S) Four elements presented in statement of activities 0hange in total net assets 0hange in unrestricted net assets 0hange in temporarily restricted net assets 0hange in permanently restricted net assets 0ontributions with donor imposed restrictions are recorded as restricted revenue when received and increase either temporarily or permanently restricted net assets 'ledge receivable ,, #llowance for doubtful accounts ,, Restricted revenue ,, 5hen the restriction is satisfies+ reclassify the asset <nrestricted net assets ,, Restricted net assets ,, 6hen when used Operating e,pense ,, <nrestricted net assets ,, .f donor imposed restrictions are met in the same period they are received they may be recorded as unrestricted net assets as long as the organi3ation discloses it -,penses are reported as decreased in unrestricted net assets) 1 categories ;) 'rogram services 5

FAR - Notes Chapter 9 http://www.cpa-cfa.org

9) Support services 1) 0ombined costs Statement o cas( lows 0an use either direct or indirect method Operating activity gross receipts $contributions+ program income+ interest and dividend income(+ board designated unrestricted revenue for construction or purchase of F6 asset are operating Financing activity cash transactions related to borrowing+ increases to an endowment+ purchases of assets or annuity agreements .nvesting activities sale or purchase of art+ investment in e uipment -,clude donor restricted securities that may otherwise meet the cash e uivalent definition in commercial acctg Statement o unctional e*penses (re.uired or (ealt( and wel are organi0ations) 1 main functional classifications ;) 'rogram support e,penses 9) Fund raising e,penses unsolicited merchandise given out( 1) Management and general Resource inflows in not&for&profit organi3ations are generally classified in the F/S as revenue or other support Revenues typically represent e,change transactions in which the not&for&profit organi3ation earnes resources in e,change for a service performed Other support typically represents operating income that is donated $contributed( as part of the central ongoing activities of the organi3ation 0ash contributions received are recogni3ed as revenue <nconditional promises/pledges are recogni3ed as revenue 0onditional promises/pledges are recogni3ed as revenue when its earned $conditions are substantially met( Multiyear pledges current amount collected is contribution revenue+ the 'G of future collections are temporarily restricted revenues #llowance for uncollectible pledges net reali3able value Split interest agreements are shares with other beneficiaries & measured at fair value & displayed as temporarily restricted !onated services should be recorded at fair value and must meet the following criteria S Speciali3ed s7ills re uired and possessed by the donor O Otherwise needed by the organi3ation M Measurable E Easy to determine fair value( -,pense or asset ,, 0ontribution non operating revenue 6 ,,

FAR - Notes Chapter 9 http://www.cpa-cfa.org

Golunteers who solicit are classified as fund raising e,penses regardless if they meet the SOM- criteria !onated collection items are artwor7 and historical treasures) 6hey are not re uired to be recorded is they meet all the following criteria & collection is held for public e,hibition & collection is protected & proceeds from sales of collection are used to ac uire other items for the collection Record donated materials at fair value %ifts in 7ind non cash contributions+ measured at fair mar7et value Agency transaction the organi3ation has little or not discretion $variance power( over the funds $organi3ation basically acts li7e an agent) & displayed in liabilities $not restricted revenues( Reciprocal transfers each party receives and sacrifices something of appro,imately same value is termed an e,change transaction 0ost of premiums $calendars+ coffee mugs( given to potential donors as part of fundraising is classified as fund raising e,pense 5hen donors purchase goods for a premium $cause they 7now it goes to a good cause( they difference between the premium and the product fair value is classified as a contribution /on&for profit has no variance power acts li7e an agent #sset ,, Refundable advance ,, $liability( %ranted variance power acts li7e an agent but has some power+ assets recogni3ed as contribution revenue #sset ,, 0ontribution revenue ,, *eneficiaries of the assets 5hen financially interrelated e uity .nterest in net assets ,, - uity transaction ,, $statement of activities( Recogni3ed beneficial interest pools of assets revenue *eneficial interest ,, 0ontribution revenue ,, Recogni3ed receivable revenue Receivable ,, 0ontribution revenue ,, %ains/losses on investments are reported in the statement of activities and increases or decrease in unrestricted net assets unless the use of the investment is restricted !erivatives $same as %##' rule( recogni3e change in fair value in the period of change .nterest+ dividend income is reported in the period earned as increases in unrestricted net assets unless the use of the investment is restricted 1ndowment und permanently restricted net assets+ principal must be retained 2ermanent endowment 0orpus $principal( is not permitted to be spent 7

FAR - Notes Chapter 9 http://www.cpa-cfa.org

3erm endowment held for a specified term then you can spend it 4uasi"endowment internal governing board $not the donor( has determined that the funds are to be retained and invested for a specific purpose $not restricted( College and 5niversities Revenues tuition and fees+ shown gross so scholarships+ tuition wavers+ cancelled classes are reductions to gross revenue 6ealt(care /rgani0ations 1 main revenue sources ;) 2atient service revenue established using standard rates+ even if the full amount is not e,pected to be collected+ shown gross+ so subtract deductions to get gross revenue & !eductions & contractual adjustments for third party payments & policy discounts & administrative adjustments & 0harity care not recorded as a receivable or revenue 9) Other operating revenue & donated supplies and e uipment & medical transcription fees & cafeteria revenue 1) /on&operating revenue & donated services 7oluntary 6ealt( and 8el are /rgani0ations Main income source is derived from contributions and pledges from the general public Fundraising e,penses must be shown separately on the face of the F/S as wither an e,pense or deduction from revenues $not as a simple net amount(