Chapter: 9 Governmental Accounting (Part B) 1. Overview a. Reporting stan ar s – require presentation of basic financial statements (government-wide, fund FS, and notes to FS) and required supplementary information !. Accounta!ilit" • • Operational (govt.#wi e $%) – meets objectives efficiently effectively $iscal (&un $%) ' entity!s actions in current period "ave complied wit" public decisions concerning raising spending of public funds in t"e s"ort-term c. (ntegrate approach – requires reconciliation of t"e fund FS to t"e government-wide FS • #ajor funds are focus of fund statements

). Re*uire to report the &ollowing a. +,-A (re*uire supplementar" in&o) !. Government#wi e $% (statement o& net position - activities) c. $un $% • • • Governmental ($S % statement of revenues e&penditures c"anges in fund balances) Proprietar" ( Statement of 'et (osition –$S, % statement of revenues e&penditures c"anges in Fund 'et (osition, statement of )F) $i uciar" (Statement of Fiduciary 'et (osition ($S), % statement of c"anges in fiduciary net (osition) . .otes to $% e. Re*uire supplementar" other than +,-A  (ension, budget, infrastructure (s"ow sc"edules) /. Primar" government entities a. %tate governments !. General purpose local governments (cit"0count") c. %pecial purpose local that meet A11 o& the &ollowing criteria * +%21$, • %eparatel"-2lecte governing body


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1egall" separate $iscall" independent

-. Component unit – legally separate organi.ation for w"ic" t"e elected officials for w"ic" t"e elected officials of t"e primary government are financially accountable a. Blen e presentation – component units are intertwined • • • • $oard of t"e component is substantively t"e same as t"at of t"e primary govt. )omponent unit serves t"e primary govt. e&clusively or almost e&clusively

b. ,iscrete presentation – separate presentation /se w"en criteria for blended presentation are not met 0&ample* board of education or rescue squad

Governmental reporting summar" starts here: 3. +,-A (no reconciliation o& $un $% to government#wi e $% a. 0asily readable analysis b. )ondensed FS information c. 1easons from c"anges from prior year d. 2nalysis of balances transactions, limitation on uses of future funds e. 2nalysis of significant variations between original and final budget f. 34 primary government and discrete components unit g. 0conomic conditions and outloo5 ". #ajor initiatives 4. Government#wi e $% (statement o& net assets (B%) an statement o& activities) • • • • 1equires economic measurement focus and full accrual 3nclude all assets and liabilities (must "ave control) Fiduciary funds (+(2(3,) are e&cluded6 component units are included

a. %tatement o& net assets Assets ' 1ia!ilities 5 .et Assets  can be invested, restricted, or unrestricted


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Capitali6ation – include all c"arges to place asset in location use6 construction period interest is not required for capital assets used in govt. activities ,eprecation (re*uire or mo i&ie approach) o Re*uire  e&pense t"at can be specifically 34 wit" a functional category s"ould be included in t"e direct e&penses of t"at function o +o i&ie  infrastructure e&penditures typically reported as e&penses and not depreciated, unless additions improvements, t"en capitali.ed

Accounting changes o Re*uire  #odified 7 c"ange in accounting estimate

o +o i&ie  1equired 7 c"ange in accounting estimate • Artwor708istorical 9reasures o )apitali.e at "istorical cost or F#8 of donation o 0ncouraged, but .O9 re*uire to capitali.e w"en* collection "eld for public, protected, policy requires proceeds of collection to be used to acquire ot"er collections !. %tatement o& activities (income statement) • $unctions0programs o Govt. governmental activities  +912S(( S, o Business#t"pe activities  0 ('o +(2(3:, o Component units  rescue squad or board of education • • 0&penses reported on t"e full accrual basis Program revenue reporte on the &ull accrual !asis o Categor" t"pes (:%OC;)  c"arges for services, operating grants contributions, capital grants contributions • 3nternal service funds s"ould be reported in t"e governmental activities column unless enterprise funds are t"e primary recipient of internal service fund services <. $un $inancial %tatements a. #ajor fund rules (!oth must !e met)  li5e segment reporting


1=> or more correspon ing to total revenues? e@pen itures0e@penses? assets0lia!ilities o&: o 2ll governmental funds OR enterprise funds  +separate column,

3> or more correspon ing to total revenues? e@pen itures0e@penses? assets0lia!ilities o&: o 2ll governmental funds A., all enterprise funds  +total column,

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;;;aggregate fund balance equity is not used in eit"er test;;;

c. Governmental $% reconciliation :GRA%PP; Balance sheet +GA1% BAR2 , +912S(( < S, < 2ssets (noncurrent) (=iabilities noncurrent) < Service (internal) fund net assets Basis o& Accounting 2ccrued, 1evenues, and 0&penses  adjustments • %tatement o& revenues? e@pen itures? an changes in &un !alance +GO2% BAR2 , 912S(( – net c"ange in fund balance (>t"er financing sources) < 0&penditure – capital outlay (net of depreciation) Service (internal) fund net income Basis o& Accounting 2dditional accrued, revenues, and e&penses o %hown on either &ace or notes . Proprietar" $un s Reconciliation :%2; • • • Statement of net (osition ($S) Statement of revenues, e&penses, and c"anges in fund net position %tatement o& cash &lows (prepare in similar manner as enterprise version? e@cept 4 i&&erences) o 4irect met"od is required


o 1econciliation of operating income is required (not net income) o >perating, investing, capital and non-capital financing activities o 3nterest income cas" receipts are reported as investing activities o 3nterest e&pense cas" payments are eit"er capital or non-capital financing o )apital asset purc"ase are reported as financing activities e. $i uciar" $un s Reconciliation :PAP(;  not inclu e in government#wi e $% • • Statement of fiduciary net position ($S) Statement of c"ange in fiduciary net assets (3S)

A. .otes to the $inancial %tatements a. %ome things to isclose are: • • • • • 4escription of government-wide activities noting t"e e&clusion of fiduciary funds (olicies relating to elimination of internal activity 4escription of modified approac" for reporting infrastructure 91* ?@ days to determine if it is available measureable 2ctions ta5en to correct material non-compliance wit" finance-related or legal compliance 9. Re*uire %upplementar" (n&ormation (other than +,-A) a. Bu getar" in&ormation • • • • • )omparison sc"edules )omputation of variances is optional )omparison may use 922( or budgetary format, but must include a reconciliation to 922( FS in accordance wit" provisions of 92S$A'otes to required supp. 3nformation s"ould disclose e&cess e&penditure over appropriations !. (n&rastructure in&ormation • • 2ssessed condition of infrastructure 0stimated annual amount to maintain and preserve for eac" of past B years


c. Pension in&ormation • • • • 1equires presentation of ? years of data Sc"edule of funding progress Sc"edule of employer contributions 'otes to sc"edule

1=. Other %upplementar" (n&ormation (optional) a. )ombining statements for non-major funds b. 8ariances between budgets Governmental reporting summar" en s here: CC. (nter&un Activit" – represents flow of resources between funds and between primary govt. and its component units and is eit"er reciprocal or non#reciprocal a. Reciprocal (e@change#t"pe transactions !etween &un s) • • (nter&un loans – temporary e&tensions of credit (nter&un provi e an use – sales purc"ases between funds at e&ternal prices (sale of water sewer services  accounted for as revenues and e&penses e&penditures) !. .on#reciprocal (non#e@change !etween &un s) • • (nter&un trans&ers – +ot"er financing sources, and non-operating revenues e&penses (nter&un reim!ursements ' payments of e&penses made by one fund on be"alf of anot"er fund are accounted for as reimbursements c. $% ispla" an • ,ispla"s o 9overnmental activities and business-type activities s"ould be eliminated on t"e govt.-wide FS o ;;;$etween primary govt. and fiduciary funds  reported as if between e&ternal parties;;; • ,isclosures ((nter&un loans an trans&ers) o 2ny amounts not e&pected to be repaid wit"in C year o Dransfer t"at do not occur on a routine basis isclosure


o (urpose description of eac" loan or transfer .ot#$or#Pro&it Organi6ations C. Generall" ivi e into B categories* "ealt"care, educational (not affected by F2S$CCE), voluntary "ealt" welfare organi.ations, ot"er private not-for-profit organi.ations a. Re*uire $% statements  $S (position), 3S (activities), Statement of )as" flows, Statement of Functional 0&penses (required for voluntary "ealt" welfare, encourage for ot"er organi.ations) • 922( requires t"at not-for-profits report on full accrual basis

). %tatement o& $inancial Position (B%) a. ,ivi e into assets? lia!ilities? an net assets (e*uit") • 4isplay from most liquid to least liquid

b. .et assets (restricte or unrestricte )  +PC9, • • Cnrestricte – available to finance general obligations (i.e. internal board designated funds) 9emporaril" ' donor-imposed stipulations eit"er e&pire by passage of time or can be fulfilled and removed by actions of t"e organi.ation o 4isplayed as a deficit o 2ny over-e&penditure classified as a reduction of unrestricted net assets • Permanentl" – limited by donor-imposed stipulations t"at neit"er e&pire by passage of time nor can be fulfilled and or ot"erwise removed by actions of t"e organi.ation /. %tatement o& Activities ((%) a. B re*uire elements • • • • )"ange in total net assets )"ange in +PC9,

!. 2@amples Permanent0temporar" restrictions  savings account Cnrestricte  operating c"ec5boo5


c. 9iming • • • ,onor#impose restrictions  recorded as restricted revenue in t"e period in w"ic" t"ey are received ,onor restriction is satis&ie  reported on t"e statement of activities 4onor-imposed restriction t"at are met in t"e same period t"ey are received may be recorded as unrestricted support . 2@penses ' (reporte as ecreases in unrestricte net assets) categori6e as: • • • Program – day care, universities, union, "ospitals %upport – fund raising, administration, management, members"ip development Com!ine – fund raising % universities

B. %tatement o& Cash $lows ( irect0in irect metho ma" !e use ) a. Operating activities • 3nclude applicable agency transactions

!. $inancing activities (cash &lows relate to !orrowing that are t"picall" &oun in commercial statements o& C$) • • • • )as" received wit" donor-imposed restrictions suc" as increases in endowments

c. (nvesting activities (roceeds from sale of wor5s of art of purc"ases of wor5s of art 3nvestment in equipment

. Cash an cash e*uivalent 0&clude donor-restricted securities t"at may ot"erwise meet t"e cas" equivalent definition in commercial accounting 3. %tatement o& $unctional 2@penses (re*uire &or voluntar" health0wel&are organi6ations) ' total amount isclose a. $unctional classi&ication o& e@pense • • Program support e@penses – i.e. cancer researc"  only researc" e&penses s"ould be classified $un #raising e@pense (unsolicite merchan ise sent out) – i.e. cost of transmitting appeals


+anagement0general – overall direction of t"e organi.ation and general e&penses (budgeting)

4. Accounting &or Contri!utions Receive an Contri!utions +a e a. Cash contri!utions – received 7 revenue b. Cncon itional promises – pledge 7 revenue • 41* asset6 )1* contribution support revenue

c. Con itional promises – earned 7 revenue . +ulti#"ear ple ge (Present Dalue) • • .ow 7 revenue $uture 7 temporary restricted revenue

e. Allowance &or uncollecti!le ple ges – '18 7 full accrual f. %plit interest contri!utions – measured at F8, displayed as temporarily restricted (unless t"ere is a permanent restriction establis"ed by t"e donor) <. ,onate %ervices a. Contri!ution o& services are recogni6e :%O+2; o& the time: • • • • Speciali.ed s5ills are required and possessed by t"e donor >t"erwise needed by t"e organi.ation #easureable 0asily (at F8)

!. ,onate collection items (contri!ute wor7s o& art or historical treasures) ' not re*uire to !e recor e ($: • • • • • • 3tem is part of collection, w"ic" is "eld for public viewing )ollection is cared for Sale of donated items to be reinvested in ot"er collection items 3F all A '>D met, t"en recogni.ed as asset and revenue

c. Recor ing promises to contri!ute Cnrestricte contri!utions - in future are reported as restricted support at t"e (8 Restricte contri!utions - +spend it 7 earn it, remove restriction


d. 2@change transactions ' eac" party receives e&c"anges somet"ing of appro&imate equal value • • )ost of premiums given to potential donors as part of a fund-raising appeal is classified as fund-raising e&pense 2mount Dransferred – F8 4ues (urc"ases 7 Contri!ution Revenue

A. 9rans&ers o& Assets to a .ot#&or#Pro&it Organi6ation or Charita!le 9rust 9hat Raises or 8ol s Contri!utions $or Others  >ne organi.ation "as t"e ability to influence t"e operation financial decisions of t"e ot"er 2'4  'et assets of t"e ot"er Recipient Accounting a. 1eceipt accounting w o variance power • • • • 2ssets are valued at F8 2ssets are recogni.ed as liability to t"e beneficiary

!. Grante variance power 2ssets are value at F8 2ssets recogni.ed as contribution revenue w"en received and e&pensed w"en distributed to beneficiary c. $inanciall" interrelate ' grante variance power • • 2ssets are valued at F8 2sset recogni.ed as contribution revenue w"en received and e&pensed w"en distributed to beneficiary Bene&iciar" Accounting d. 1ecogni.e rig"ts to asset "eld by ot"ers unless t"e recipient is e&plicitly granted variance power e. 1ecogni.ed interest – financially interrelated 7 e*uit" f. 1ecogni.ed beneficial interest – pool of assets 5 revenue g. 1ecogni.ed receivable and contribution revenue 7 revenue 9. Other (ssues (reali6e an unreali6e )


a. (nvestments in securities • • • 1eported in t"e statement of activities as increases or decrease in unrestricted net assets unless t"e use of t"e investment is restricted 2 not-for-profit s"ould recogni.e t"e c"ange in F8 of all derivatives in t"e period of c"ange (same as 922( rule) (nvestment income is reported in t"e period earned as increases in unrestricted net assets unless t"e use of t"e investment is restricted, eit"er temporarily or permanently, by e&plicit donor stipulations or by law • ,onor#restricte investment income is reported as an increase in temporarily permanently restricted net assets !. Basis o& assets • • • • Same as 922( For5s of art or "istorical treasures are not depreciated

c. %pecial $un s in .ot#&or#Pro&it (nternal Accounting $un accounting - only appropriate for internal reporting of private not-for-profit organi.ations 2n owment &un – used to account for donate assets, principal of w"ic" must be retained intact o Permanent – corpus is not permitted to be spent o 9erm – "eld for specified term o Euasi – use w"en t"e internal governing board of an institution "as determined t"at funds are to be retained and invested for a specified purposed. D"ey are appropriations of unrestricted net assets 1=. %peci&ic (n ustr" Applications a. Colleges an Cniversities • • • Student tuition and fees s"ould be reported at gross amount 2ssessed Student Duition and Fees – )ancelled )lasses 7 Gross Revenue  unrestricted net assets 1estricted revenues and gains reported in statement of activities

!. 8ealthcare organi6ations


Patient service revenue – accounted for on accrual basis. 4eductions are made from gross revenue. o )"arity care is not recorded as a receivable, revenue, or bad debt e&pense o 4eductions include* contractual adjustments, policy discounts, administrative adjustments

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Other operating revenue – i.e. donated supplies and equipment .on#operating revenue – unrestricte grants, gifts, interest dividend income and donated services

c. Doluntar" health0wel&are organi6ations • (ncome – depend upon contributions and pledges from t"e general public to support t"e activities of t"e organi.ation o )ontributions may be in cas" or pledges and unrestricted or restricted o )ontribution collected by ot"er organi.ations and earmar5ed for a voluntary "ealt" welfare organi.ation s"ould be accounted for as receivables • %tatement o& &unctional e@penses 5 man ator"