Cpa Review- Far 9-1 (Governmental Accounting: Part B)

Front 1

Governmental Reporting Standards

Back 1

-Established by GASB 34, require basic F/S's* and required supplementary information.

Hint 1

-Government-wide F/S's, fund F/S's, and notes to the F/S's.

Front 2

Accountability

Back 2

1. Operational Accountability: focus of government-wide F/S's is to report the extent to which the government has met its operating objectives efficiently and effectively, using all resources available for that purpose, and the extent to which it can continue to meet its objectives for the future.

Hint 2

2. Fiscal Accountability: focus of the fund F/S's is to demonstrate that the government entity's actions in the current period have compiled with public decisions concerning the raising and spending of public funds in the short-term (usually one budgetary cycle or one year).

Front 3

Integrated Approach

Back 3

-Requires operational and fiscal accountability individually and to show the relationship between the two through a reconciliation.

Hint 3

-This reconciliation link the accountability objectives between the two levels of reporting.
-See figure below

Front 4

Required Reporting for General Purpose Governmental Units

Back 4

1. Management's Discussion and Analysis (MD&A)
2. Government-wide F/S's*: Statement of Net Assets and Statement of Activities
3. Fund F/S's*: Governmental, Proprietary, and Fiduciary Funds
*Reconciliation

Hint 4

4. Notes to the F/S's
5. Required Supplementary Information (RSI): Pension, Budget, Infrastructure
6. Other Supplementary Information (optional)

Front 5

Optional Reporting for General Purpose Governmental Units

Back 5

-Comprehensive Annual Financial Report (CAFR): not a GAAP requirement, it is a GFAO designed presentation.
1. Introductory Section (unaudited): letter of transmittal, organizational chart, list of principal officers.

Hint 5

2. Basic F/S's and Required Supplementary Information (audited): MD&A, Government-wide F/S's, Fund F/S's, Notes to the F/S's, Required supplementary information.
3. Statistical Section (not part of basic F/S): Ten years of selected financial data, and 10 years of economic data, other data.

Front 6

Primary Government

Back 6

-Consists of all organizations that make up the legal government entity, considered the nucleus.
1. State governments
2. General Purpose Local Governments

Hint 6

3. Special Purpose Governments (that meet all criteria): (1) Has a separate-elected governing body, (2) Is legally separate, and (3) Is fiscally independent of other state and local governments.

Front 7

Special Purpose Governmental Units

Back 7

-(That are not primary governments) are organizations that are financially accountable to a primary government. Typically engage in:

Hint 7

1. Governmental activities
2. Business-type activities
3. Fiduciary activities
4. Governmental and business-type activities.

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Component Unit

Back 8

-Usually an organization for which the elected official of the primary government are financially accountable. May also be an organization that by its nature and the significance of its relationship w/ the primary government, cannot be excluded from the primary government's F/S's w/out making the primary government's F/S's misleading or incomplete.

Hint 8

1. Blended Presentation: so intertwined w/ primary government that they are basically the same. Used when: (1) a board of the component unit is substantively the same as that of the primary government, OR (2) the component unit serves the primary government almost exclusively or exclusively, (3) the component unit is not a separate legal entity. Combines the financial information with the primary government.
2. Discrete Presentation: used when criteria for blended presentation are not met. Displays component units in separate columns and most component units should use this presentation.
-See figure below

Front 9

Reporting NFP Entities as a Component Unit of Government

Back 9

-NFP organizations provide ongoing support to a primary government or to a component unit that may also be a component unit of the primary government (Ex's: private foundations associated w/ state universities or public health care facilities).
1. Criteria for Discrete Presentation:
(1) Resources held by the tax-exempt organization are for the near-exclusive benefit of the primary government (benefit standard).

Hint 9

(2) The primary government has access to a majority of the resources held by the tax-exempt organization (access standard).
(3) Resources held by the tax-exempt organization are significant to the primary government (significance standard).
2. Criteria for Other Component Unit Presentation: legally separate, tax-exempt organizations meeting the criteria of a financially integrated entity should be classified as a component unit of the government if their relationship is so significant as to make the F/S's misleading w/out component unit treatment.

Front 10

Management's Discussion and Analysis

Back 10

-Required supplementary information before the F/S's. Narrative that provides a brief, objective, and easily readable analysis of the government's financial activities based upon currently known facts, decisions, and conditions. Presents both a short-term and long-term analysis.

Hint 10

1. Description of the F/S's: easily readable analysis, condensed F/S information (3 years of data required if comparative), analysis of overall financial position and results of operations, analysis of balances and transactions of individual funds, analysis of significant variations, description of significant assumptions.
2. Identity of the Primary Government and Discrete Component Units
3. Economic Conditions and Outlook
4. Major Initiatives: describes capital and LTD activity during the year.

Front 11

Government-Wide F/S's

Back 11

-Statement of Net Assets and the Statement of Activities. GASB 34 requires the use of the economic resources measurement focus and the full accrual basis of accounting for both statements.

Hint 11

-Government-wide F/S's include all assets and liabilities over which a government has control or responsibility; therefore fiduciary funds are excluded and the component units are included.

Front 12

Statement of Net Assets- Net Assets

Back 12

-Format: Assets - Liabilities = Net Assets.
-3 Components of Net Assets
1. Invested in Capital Assets, Net of Related Debt: groups all capital assets and is reduced by accumulated depreciation and outstanding debt.

Hint 12

2. Restricted Net Assets: assets subject to external restrictions imposed by creditors, grantors, contributors, laws, or regulations.
3. Unrestricted Net Assets: controlled by management and can be modified or removed. As restrictions are satisfied or terminated, restricted net assets should be reclassified as unrestricted.

Front 13

Capitalization of Assets

Back 13

-Capital assets, including infrastructure assets should be capitalized and depreciated.
1. Valuation: cost of capital asset should include all ancillary charges necessary to place the asset into its intended location and condition of intended use.

Hint 13

2. Construction Period Interest: capitalization of construction period interest isn't required.
3. Infrastructure: (ex: streets, bridges) should be recorded as general capital assets. They are only reported on the government-wide F/S's b/c of the incompatibility of recording these assets at the fund level w/ the governmental fund focus.

Front 14

Required and Modified Approach

Back 14

1. Required Approach: all assets meeting capitalization requirements should be recorded and depreciated. Depreciation expense that can be specifically identified with a functional category should be included in the direct expenses of that function.
-Governments may not have sufficient records to meet the standards for the required approach

Hint 14

2. Modified Approach: Infrastructure assets that are part of a network or subsystem of a network (eligible infrastructure assets) are not required to be depreciated provided the features of its two requirements (below) are met.
-Under this approach, ongoing infrastructure expenditures are typically reported as expenses, unless the capital outlays result in additions or improvements, in which case they would be capitalized.

Front 15

Capitalization Alternatives- Modified Approach

Back 15

-Governments may use the modified approach is they meet the following requirements.
1. Government's Asset Management System Meets Certain Conditions: (1) Inventory of eligible infrastructure assets is up-to-date, (2) A summarized condition assessment is performed, (3) Each year, an estimate is made of the amount necessary to maintain and preserve the eligible infrastructure assets.

Hint 15

2. Government Documentation Should Include Data on Asset Preservation: (1) A complete condition assessment is performed at least every 3 years, (2) Assessments support assertions that the eligible infrastructure assets are being presented at (or above) the condition level established and disclosed by the government.

Front 16

Modified Approach- Reporting and Changes

Back 16

1. Reporting Requirements: (1) a schedule reporting the condition of the government's infrastructure, and (2) a comparison schedule of needed and actual expenditures to maintain the infrastructure.

Hint 16

2. Accounting Changes: change from depreciation (required approach) to modified as well as vice versa, should be treated as a change in accounting estimate.

Front 17

Identifying and Valuing Impairment

Back 17

-Governments are required to determine if impairment of an asset has occurred. Insurance recoveries are netted against the loss.
1. Physical Damage: measured using the restoration cost approach. Loss is equal to the estimated cost to restore the asset and loss value is used to write down historical cost.

Hint 17

2. Enactment of Laws or Obsolescence: measured using the service units approach. Loss is estimated based on the productive units available before and after the impairment. Unit values are used to quantify the impairment write off.
3. Asset Life (Duration) or Reduced Utility: measured using the service units approach.

Front 18

Artwork and Historical Treasures

Back 18

-General rule, governments should capitalize works of art, historical treasures, and similar assets at their historical cost or FV at date of donation (estimated if necessary). Under certain circumstances, governments have the alternative not to capitalize works of art. Regardless of whether they are donated or purchased, they can elect not to capitalize when collections meet the following criteria:

Hint 18

1. The collection is held for public exhibition.
2. The collection is protected.
3. The collection is subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections.

Front 19

Statement of Net Assets- Miscellaneous

Back 19

1. Interfund Receivables and Payables: elimination of interfund activities within major activity categories should be prepared to avoid "grossing up" balances of assets and liabilities.

Hint 19

2. Internal Service Funds: generally should be reported in the governmental activities column.
3. Government-wide F/S's includes all liabilities and assets over which a government has control or responsibility. This includes component units. Fiduciary funds (PAPI) are not included.

Front 20

Statement of Activities

Back 20

-Like the I/S, revenues and expenses are reported here.

Hint 20

-Is a consolidated statement of all governmental and business-type activities.

Front 21

Program Approach, Functions / Programs

Back 21

1. Program Approach: government-wide statement of activities uses a net program cost format that is not consistent with commercial accounting. It indicates each program's dependence on general revenues of the government. Total costs by function are compared to program revenue associated w/ each function to arrive at the net cost.

Hint 21

2. Functions/Programs: net expense for each function or program is classified into one of 3 categories: (1) Primary government governmental activities (GRaSSP + S), (2) Primary government business-type activities (E), and (3) Component Units.

Front 22

Program Revenue Categories

Back 22

1. Charges for Services: revenues based on exchange or exchange-like transactions including: (1) Charges for services to customers or applicants who directly benefit from them, (2) Charges for services to other governments, and (3) Fines and forfeitures.

Hint 22

2. Operating Grants and Contributions: mandatory and voluntary non-exchange transactions w/ other governments, organizations, or individuals restricted for use in a particular program.
3. Capital Grants and Contributions: same as above.
-"SOC" away these revenues.

Front 23

Net (Expense) Revenue and Changes in Net Assets

Back 23

-The net expense or revenue is presented in three categories and a total column.
1. Primary government governmental activities column (GRaSPP + S).

Hint 23

2. Primary government business-type activities column (E).
3. Total column (1 & 2)
4. Component unit column

Front 24

Miscellaneous

Back 24

1. General Revenues: presented separately in the same 3 categories as above.
2. Special Items: reported separately, they are separate or infrequent.
3. Changes in Net Assets: computed by deducting the general revenues from net (expenses) revenues.
4. Internal Service Funds: activity should generally be reported in the governmental activities column.

Hint 24

5. Eliminations: generally, internal transactions that artificially "double up" on activity should be eliminated.
-Interfund services (water, utilities) shouldn't be eliminated.
-Internal activity associated w/ blended component units should be reclassified as interfund activity.
-Internal activity associated w/ discretely presented component units should be reported as external transactions.

Front 25

Government-Wide Statement of Activities

Back 25

-Is the operating statement of the government. Uses full accrual, identical to commercial accounting.

Hint 25

-The net program cost format is generally not used in commercial accounting and reporting.

Front 26

Fund Financial Statements

Back 26

-GASB 34 emphasizes reporting by major fund rather than fund type. Reporting by major fund provides more meaningful information.

Hint 26

-Major Funds are specifically defined as follows: a major fund must meet the 10% criteria within its category and also meet the 5% criteria associated w/ both categories.

Front 27

Major Fund Rules- 2 Criteria

Back 27

-(both must be met)
1. 10% Test: to meet, the individual GRaSPP funds are compared to the total of all governmental and enterprise funds. The enterprise funds are individually compared to the total of all governmental and enterprise funds.
-Must have 10% or more of the corresponding total revenues, expenditures / expenses, assets, or liabilities of (1) all Governmental funds OR (2) Enterprise funds (the "separate columns")
-Like segment reporting

Hint 27

2. 5% Test: to meet, the GRaSPP funds are individually compared to the total of governmental funds and enterprise funds. Each enterprise fund is individually compared to the total of all enterprise funds and governmental funds.
-5% or more of revenues, expenditures / expenses, assets, or liabilities of (1) All Governmental funds AND (2) All Enterprise funds (the "total columns").

Front 28

Other Major Fund Rules

Back 28

-Government officials may elect to report a fund as major regardless of the quantitative criteria. The general fund is always considered a major fund.

Hint 28

-Internal service funds aren't considered in the evaluation of major and non-major funds. The only proprietary funds used in the determination of major and non-major are the enterprise funds.

Front 29

Reconciliation of Government Fund to Government-Wide

Back 29

1. Full Accrual = Modified Accrual ± Adjustments
2. Basis of Accounting Differences: involves increasing revenues to show revenues earned rather than only those measurable and available and recognizing expenses when incurred.

Hint 29

3. Measurement Focus Differences: involves adjustment of capital asset and LTD accounts. Loan proceeds (net of principal payments on debt) must be eliminated from resource inflows on the governmental fund operating statement and the related LTD must be added to the B/S. Current period capital expenditures (net of depreciation) must be eliminated from resource outflows on the governmental fund operating statement and the related capital asset (net of A/D) must be added to the B/S.

Front 30

Application to F/S's

Back 30

-Must reconcile: (1) the differences in fund balances of governmental funds and net assets in the government-wide F/S's,* & (2) The differences in the net change in fund balances of governmental funds and the change in net assets for governmental activities.**
-*Difference in Measurement Focus: (1) add non-current assets, (2) add internal service fund net assets, (3) subtract non-current liabilities.

Hint 30

-Difference in Basis: adjust for accrual of revenue and adjust for accrual of expenses.
-GALS BARE, see figure below
**Difference in Measurement Focus: (1) Add capital outlay (net of depreciation expense), (2) Subtract debt proceeds, (3) Add internal service fund changes in net assets accounted for in the proprietary funds.
-Basis of Accounting: adjust for accrual of revenue and expenses.
-GOES BARE, see figure below

Front 31

Proprietary Funds- Statement of CF's (Differences)

Back 31

1. Direct method is required
2. A reconciliation of operating income (not net income) to net cash provided by operations is required.
3. There are 4 categories (instead of 3 in commercial): Operating, Investing, Capital and related financing activities, Non-capital financing activities.

Hint 31

4. Interest income / cash receipts are reported as "investing activities" (not as operating).
5. Interest expense / cash payments are either: Capital and related financing, or Non-capital financing (not operating).
6. Capital asset purchases are reported as "financing activities" (not as investing).

Front 32

Notes to the F/S's

Back 32

-Essential to fair presentation and considered integral to the F/S's. Notes should should focus on the primary government, specifically:

Hint 32

-Government activities, Business-type, Major funds, Non-major funds in the aggregate, Additional information regarding discretely presented component units.

Front 33

Generic Governmental Disclosures

Back 33

1. A description of government-wide activities, noting the exclusion of fiduciary funds.
2. Policies relating to elimination of internal activity.

Hint 33

3. Description of the modified approach for reporting infrastructure, if used.
4. Segment information.

Front 34

Specific Governmental Disclosures (GASB 34)

Back 34

1. Description of major activities for: major funds, internal service funds, and fiduciary funds.
2. Length of time used to define "available" in determining revenue recognition under the modified accrual basis (measurable and available, GR- 60 days).

Hint 34

3. Actions taken to correct material non-compliance w/ finance-related or legal compliance.
4. Schedule of short-term debt.
5. Analysis of interfund account balances and analysis of A/R and A/P.

Front 35

Required Supplementary Information

Back 35

-(other than MD&A)
1. Budgetary Information: budgetary comparison schedules for the general fund and for each major special revenue fund that has a legally adopted annual budget. Most show original budget, final amended budget, and actual amounts. Computation of variances and differences between budget/original and actual/final is optional. Must include a reconciliation to GAAP.

Hint 35

2. Infrastructure Information: schedules that disclose assessed condition of infrastructure and estimated amount to maintain and preserve it for each of the past 5 years.
3. Pension Information: requires presentation of 6 years of data. Schedule of funding progress, schedule of employer contributions, notes to schedule.
4. Other supplementary information (like combining statements for non-major funds) is optional.

Front 36

Interfund Activity

Back 36

1. Reciprocal Interfund Activity: includes exchange-type transactions between funds. (1) Interfund Loans: unrealizable balances are reclassified as transfers. (2) Interfund Services Provided and Used: accounted for as revenues and expenses / expenditures.

Hint 36

2. Non-Reciprocal Interfund Activity: non-exchange transactions between funds. (1) Interfund Transfers: normally displayed as other financing sources and uses after non-operating revenues and expenses. (2) Interfund Reimbursements: not displayed as interfund transactions.

Front 37

Interfund Activity- F/S's

Back 37

-Display and disclosure of interfund activities is meant to isolate meaningful relationships w/out needlessly grossing up transactions.
1. Within the governmental (and business-type) activities column of the government-wide F/S's they should be eliminated.

Hint 37

2. Between the governmental activities and business-type activities (on gov't-wide F/S's) they should be eliminated.
3. Between the primary government and its fiduciary funds, the transaction should be reported as if between external parties.
-F/S disclosures should include interfund loans and transfers.