Unique Accounting and Financial
Reporting Issues in Governments
Carr, Riggs & Ingram
Brian Barksdale and Jason Harpe
GFOAA Summer Conference
August 21, 2014
Congratulations!!
YOU ARE UNIQUE !!
Well, at least your accounting and reporting
requirements in governments are unique
when compared to other types of entities
What makes things unique
• Modified Accrual and Full Accrual
– measured similar to cash basis accounting – just throw in a few accruals like
accounts receivable and accounts payable. Otherwise – most transactions are
revenue or expense. FUND STATEMENTS!
– Full Accrual recognizes short term AND long term assets and liabilities – like fixed
assets, debt and compensated absences. GOVERNMENT-WIDE STATEMENTS!
• Measurement Focus and Basis of Accounting
– Fund statements – emphasis on the measurement of current financial resources
(revenues when measureable/available to pay current liabilities). No fixed assets
and no long-term debt.
– Government-wide statements – emphasis on economic resources (revenues when
earned and expenses when a liability is incurred, regardless of when the related
cash flows take place.
• Government regulatory environment
–
–
–
GASBs
A-133 Single Audits
Budget environment
Debt issuance
• Fund Statements
– FULL proceeds are
recorded on Fund Income
statement. Avoid recording
net proceeds – i.e. only the
cash that was received.
– Principal payments, as well
as interest, are expensed
as debt service.
– Record premiums and
discounts on Fund Income
statement.
– Record debt issuance costs
as administrative expenses.
– Almost never a Fund
balance sheet liability.
Debt issuance
• Government-wide statements
– FULL proceeds are recorded on balance sheet as a
long term liability.
– Principal payments reduce the liability and are not
expensed.
– Interest payments are expensed on a full-accrual
basis.
– Premiums and discounts are recorded on the balance
sheet as an asset or liability and are amortized over
the life of the related debt.
– Issuance costs are fully expensed.
Debt defeasance
• Means that bonds have been
paid off or refinanced at
different terms.
• Current refunding
• Advance refunding (“in
substance defeasance”)
• Gross proceeds are recorded
on the Fund statements from
new bond issue that “pays off”
old bond issue.
• There is a debt service
expense on the Fund
statements that reflects the
“pay off” of the old bond
issue.
• Related premiums or
discounts of the old issue are
expensed on the Governmentwide statements.
• Disclosures are necessary that
explain the defeasance along
with any irrevocable trust
details for advance refundings.
Compensated absences
• Represent a liability for earned
and payable vacation and
possibly sick leave that is due
employees.
• Government-wide, full accrual
differs significantly from Fund,
modified accrual presentation.
• The ENTIRE liability is recorded
on the Government-wide full
accrual balance sheet.
• There is a “current” portion and
a “long-term” portion of the
ENTIRE liability recorded on the
Government-wide full accrual
balance sheet.
• The “current” portion of the
ENTIRE liability should
represent what the government
expects to pay out in the
upcoming 12 month period.
Compensated absences
• The “long-term” portion of the
ENTIRE liability should
represent the difference
between the “current” portion
and the ENTIRE liability.
(Current – ENTIRE liability =
Long Term)
• ONLY the portion that is due to
separated/terminated
employees at year end is
recorded as a liability on the
FUND statements.
• Generally, this is much lower
and will almost always be a
different amount than what is
recorded on the Governmentwide statements.
• REMEMBER – 3 different
amounts!!
– Government-wide CURRENT
– Government-wide LONG-TERM
– Fund PAYBLE TO SEPARATED
EMPLOYEES at year end
Pension and OPEB liabilities
• Record any Annual Required
Contribution (ARC) payments
due at year-end as a liability on
the Government-wide
statements. Consider Fund
statement recording if liability
will be current.
• ARC is the annual amount due
the RSA for pensions or an OPEB
trust for retirement benefits
other than pensions that
haven’t been paid by year end.
• Generally, RSA is always paid.
OPEB ARCs haven’t been
consistently paid - so, an
amount is accrued on the
government-wide statements
for the OPEB ARC. The OPEB
ARC payable usually won’t be
paid in the short term by the
government, so, usually no
accrual for the OPEB ARC is
made on the Fund statements
Pension and OPEB liabilities
• Beginning in 2015, the UNFUNDED net pension liability will be
recorded on the Government-wide statements. BIG NUMBER. The
initial recording will be a credit to a long term liability and a debit to
net position.
• Eventually, the UNFUNDED net OPEB liability will be recorded in a
like manner. Exposure Draft has been issued on this
pronouncement and a final GASB will most likely be issued in the
upcoming year.
Donated assets
• Mainly infrastructure donated
by a developer.
• Land, roads, curbing, sewers,
etc. from a new development
within a government.
• Sometimes houses are
donated to schools.
• Land can be donated from
estates for parks.
Donated assets
• No transaction is recorded for donated assets in the Fund
statements. (no capital outlay nor are there any proceeds) BUT, if
asset is donated and being “held for sale”, the donated asset
would be recorded at fair value at the date of donation as an
asset of the fund and as revenue.
• A capital asset and corresponding miscellaneous revenue should
be recorded in the Government-wide statements. (debit to land,
infrastructure, etc. and credit to miscellaneous revenues)
• This will be a reconciling item between Fund statements and
government wide statements.
Tax refunds, rebates, and incentives
• Many governments offer certain tax refunds, rebates or
incentives for socio-economic reasons or economic
development reasons.
• Taxes should be recorded net of any refund, rebate, or
incentive.
• Taxes should be also be recorded net of any estimated
uncollectible amounts.
GASB 54 – Fund balance restraining
categories
• FUND BALANCE = UNSPENT
REVENUES
• Non-spendable
• Assigned
– Management constraint. City
manager, CFO, CSFO, City Clerk,
City Treasurer
– Prepaid and inventory
amounts. Money has already • Unassigned
been spent.
– No constraints
• Restricted
• Remember – ONLY GENERAL
FUND can have unassigned fund
– Government to government
restrictions.
balance. All other funds have
some restraint. UNLESS there is
– Mainly revenues from grants.
negative fund balance and then
• Committed
a non-general fund fund should
– Self imposed constraint.
have “negative” unassigned
– HAS TO HAVE FORMAL
fund balance.
DOCUMENTATION!!
Ordinance, resolution, etc.
HIGHEST ACTION by the
governing body.
Purchase Orders
• Is a function of internal control.
No “GASB” dictates Purchase
Order procedures.
• IF purchase orders are used, the
government may use
encumbrance accounting
(optional).
• Policies are usually set by
management or governing
body.
• Policies and procedures manual
should describe Purchase Order
procedures and dollar
limitations on orders necessary
for approval.
• Should be an internal control
tool. Careful thought should be
given to the requirements of
Purchase Orders so as not to
create “work around” of the
Purchase Order System.
• Consider Purchase Order
internal audits during the year
for compliance within
departments.
Major fund determination
• Four financial statement elements
are used for the major fund
measurement:
– Assets + deferred outflows of
resources
– Liabilities + deferred inflows of
resources
– Revenues
– Expenditures
• Two points of reference for judging
proportionality are:
– Governmental funds in total
– Governmental funds and
enterprise funds in total
• For ONE of the four groupings of
financial statement elements
identified, does an individual
governmental fund report BOTH of
the following:
– At least 10% of the total for
governmental funds AND
– At least 5% of the combined
total for governmental +
enterprise funds?
Major fund determination
• Major funds CAN be based on other QUALITATIVE factors!
– A government can elect to reflect a fund as major even if it
doesn’t meet the quantitative factors above if the government
officials believe separate presentation of the fund is particularly
important to a financial statement users.
– An example might be a fund that bounces in and out of
quantitative major presentation and a government decides to
present it as major for consistency. (This happens to Capital
Projects funds frequently.)
Matching grant funds
• Most municipal grants function
on a revenue matching basis.
• To receive certain grants, the
government must come up with
a percentage of the total grant
award – usually 20%.
• The government that ultimately
benefits from the total grant
should recognize the total grant
revenue from the matching
granting agency (the other 80%)
as revenue in the period when
payments are made by any third
party (State of Alabama on
behalf of a municipality, etc.)
• The total grant expenditure
should equal the 20% local
government portion plus the
80% on-behalf payment.
Budgeting
• Remember to let the general ledger drive any budget differences.
• Carefully consider any reclassifications of expenditures to different
general ledger expenditure accounts within a department to
maintain budget integrity. Department heads may pressure this
method of accounting.
• Make certain elected officials know of any general ledger
accounting changes that affect their adopted budget.
• Don’t get caught between Department heads and management.
Investments
• Any fair value adjustments run through a government’s income statement
(Fund and Government-wide).
• Unrealized adjustments usually arise from fair value adjustments – i.e.
marking investments to market.
• Realized adjustments arise from actual investment sales or maturities.
• Record all realized earnings from investments through the income
statements (gains, losses, interest, etc.)
• Don’t forget to record any management fees.
• Make sure to keep investments within prescribed policies – i.e. no
investments in equities or derivatives.
• Make sure to obtain management’s (Mayor, Council, Board, etc.) approval
before buying/purchasing or selling any investment.
Yellow Book and Single Audits
• “the Yellow Book”
• Involves 3 elements:
1. Financial statement audit
2. Internal controls over financial
reporting (no audit opinion)
3. Compliance with laws, regs,
etc. that could have a direct &
material effect on the
statements (no audit opinion)
• Single Audit
A. Required when expenditures of
Federal $ exceeds $500K for the
year.
B. Major program determination
required
C. Involves 3 elements:
1.
Financial statement audit
2.
Compliance related to major
programs.
3.
Internal control over compliance
related to major programs.
JOIN OUR CONVERSATION
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www.CRIcpa.com
• Blog Site
http://blog.CRIcpa.com
Contact Information
Jason Harpe, CPA
Brian Barksdale
Carr, Riggs, & Ingram
Phone: 205-949-8670
Email:
Carr, Riggs, & Ingram
Phone: 205-949-8601
Email:
jharpe@cricpa.com
bbarksdale@cricpa.com