Chapter 1
Chapter 1
Financial Reporting for Governmental and Not-for-Profit Entities
Dr. Chula King
The University of West Florida
{ Identify and explain the characteristics that distinguish governmental and not-for-profit entities from for-profit entities.
{ Identify the authoritative bodies responsible for setting GAAP and financial reporting standards for all governmental and not-for-profit entities.
{ Compare and contrast the objectives of financial reporting for state and local governments, the federal government, and not-for-profit organizations.
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{ Explain how management’s discussion and analysis
(MD&A), basic financial statements, and required supplementary information (RSI) of state and local governments relate to their comprehensive annual financial reports
{ Explain the different objectives, measurement focus, and basis of accounting of the governmentwide financial statements and fund financial statements of state and local governments.
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Chapter 1
Governmental and Not-for-Profit
Organizations
{ General Purpose Governments
{ States, counties, municipalities and townships
{ Provide numerous categories of services to residents
{ Special Purpose Governments
{ Provide only a single function or a limited number of functions, e.g., school systems, fire departments, utilities authorities.
{ Not-for-Profit Organizations
{ Provide numerous functions, such as private universities, hospitals, professional and trade associations, religious organizations, social organizations.
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Governmental and NFP Organizations versus Business Organizations
{ Very different accounting and financial reporting
{ Benefits are not proportional to resources provided
{ Lack of a profit motive
{ Absence of transferable ownership rights
{ Power ultimately rests in the hands of the people
{ People vote and delegate that power to public officials
{ Created by and accountable to a higher level government
{ Power to tax citizens for revenue.
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GAAP and Financial Reporting Standards
FASB
Financial
Accounting
Foundation
GASB
Comptroller General
Director of OMB
Secretary of Treasury
FASAB
Federal government and its agencies and departments
Business
(for-profit) organizations
Nongovernmental not-for-profit organizations
State and local governmental organizations
Governmental not-for-profit organizations
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Chapter 1
When Not-for-Profit Organizations Become
Governmental
{ Public corporations and bodies corporate and politic
{ Other organizations with one or more of the following characteristics:
{ Popular election of officers, or appointment of a controlling majority of the governing body by officials of another government
{ Potential dissolution by a government with net assets reverting to a government
{ Power to enact and enforce a tax levy.
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Objectives of Financial Reporting-SLG
(GASB Con. 1)
{ Financial reports are used primarily to
{ Compare actual financial results with legally adopted budget
{ Assess financial condition and results of operations
{ Assist in determining compliance with finance-related laws, rules and regulations
{ Assist in evaluating efficiency and effectiveness
{ “Accountability is the cornerstone of all financial reporting in government” ( GASB Concepts
Statement No. 1, par. 56 ).
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{ Arises from the citizens’ “right to know”
{ Imposes a duty on public officials to be accountable to citizens for
{ raising public monies
{ how public monies are spent.
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Chapter 1
{ A government’s obligation to disclose whether current-year revenues were sufficient to pay for current-year benefits – or did current citizens defer payments to future taxpayers.
Objectives of Financial Reporting-Federal
Government (FASAB Con. 1)
{ Accountability is also the foundation of federal government financial reporting
{ Assist users, both internal and external in evaluating
{ Budgetary integrity
{ Operating performance
{ Stewardship
{ Adequacy of systems and controls
{ Focuses on both cost accounting and financial accounting and reporting.
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Objectives of Financial Reporting – Notfor-Profit Organizations (FASB Con. 4)
{ Emphasis is on decision usefulness as opposed to financial accountability
{ Decision Usefulness
{ Making resource allocation decisions
{ Assessing services and ability to provide services
{ Assessing management stewardship and performance
{ Assessing economic resources, obligations, net resources, and changes in them.
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Chapter 1
General Purpose External Financial Reports per GASB No. 34
Management’s discussion and analysis
Government-wide financial statements
Fund financial statements
Notes to the financial statements
Required supplementary information
(other than MD&A)
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Comprehensive Annual Financial Report
(CAFR)
{ Official Annual Report
{ Introductory Section
{ Financial Section
{ Statistical Section.
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{ Title page
{ Contents page
{ Letter of transmittal
{ Other (as desired by management).
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Chapter 1
{ Auditor’s report
{ Management’s discussion and analysis
{ Basic financial statements
{ Required supplementary information (RSI) – Note:
This is in addition to the MD&A
{ Other supplementary information such as combining and individual fund statements and schedules.
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Management’s Discussion and Analysis
{ Brief objective narrative providing management’s analysis of the government’s financial performance.
{ Government-wide Financial Statements
{ Statement of Net Assets (Ill. 1-4)
{ Statement of Activities (Ill. 1-5)
{ Fund Financial Statements
{ Notes to the Financial Statements.
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Chapter 1
{ A fiscal and accounting entity with a self-balancing set of accounts
{ Records cash and other financial resources together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.
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{ Governmental – all funds other than proprietary and fiduciary, e.g., general fund.
{ Proprietary – Sometimes referred to as incomedetermination, business-like, or commercial-type funds of a state or local governmental unit, e.g., the civic center.
{ Fiduciary – Any fund held by a governmental unit in a fiduciary capacity for an external party, ordinarily as agent or trustee. Also called trust or agency funds, e.g., retirement plan for employees.
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{ Balance Sheet (Ill. 1-6)
{ Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds (Ill. 1-7) with reconciliation (Ill. 1-8)
{ Statement of Net Assets – Proprietary Funds (Ill. 1-
9)
{ Statement of Revenues, Expenses, and Changes in
Fund Net Assets – Proprietary Funds (Ill. 1-10).
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{ Statement of Cash Flows – Proprietary Funds (Ill.
1-11)
{ Statement of Fiduciary Net Assets (Ill. 1-12)
{ Statement of Changes in Fiduciary Net Assets (Ill.
1-13).
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{ Tables and charts showing multiple year trends in financial and socioeconomic information.
{ Reports financial information for separate selfbalancing sets of accounts, segregated for separate purposes or to account for resources restricted as to use by donors or grantors
{ Funds are separate accounting and fiscal entities
(see Chapters 2-9 for more detail).
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Chapter 1
{ In this course, you will become familiar with current GASB, FASB, and FASAB standards relative to governmental and not-for-profit organizations
{ Accounting and reporting for governmental and not-for-profit entities differ from those of for-profit entities because each type of entity has different purposes and reporting objectives.
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{ Look at the CAFR for Escambia County for fiscal year ended September 30, 2004. Answer the questions on the CAFR assignment located on the web site under Chapter 1. Submit your answers no later than midnight central daylight time, May 15.
{ Look at problem 1-2 at the end of Chapter 1.
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