Review
Chapters 1 - 5
1
What is GASB Statement no. 34?
 Biggest change in governmental GAAP in
decades.
 Intent of project
-Fiscal accountability (“we have”)
-Operational accountability (“we need”)
 Practical effect – “face” of the financial
statements changes substantially.
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Fiscal Accountability
Defined as government’s responsibility to
justify actions in current period
concerning raising and spending of public
funds in the short term
-Achieved through annual budget
-Achieved through focus on the
“checkbook” (e.g., fund accounting)
-Focus on current spending flexibility
3
Operational Accountability
• Defined as government’s responsibility
to report on the extent to which
operating objectives have been met
effectively and efficiently and whether
objectives can continue to be met.
– Focus on economic resources
– Focus on net worth
– Focus on “the big picture”
4
The Intent of the Current Model
• Provide forum to retain strengths of the
current financial statements yet report both
fiscal and operational accountability
• Similar to private-sector accounting
• Two “perspectives”
– Government-wide financial statements (the
current/new)
– Fund financial statements (the old)
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Government-wide Statements
• Level of reporting
– Governmental activities
– Business-type activities
• Two statements
– Statement of Net Assets
– Statement of Activities
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Statement of Net Assets
•
•
•
Presents the overall “net worth” of the entity’s
governmental and business-type activities.
NOT a spending focus statement.
Presents all assets and liabilities
– Assets include infrastructure assets
– All short and long-term liabilities are
reported
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Statement of Net Assets (cont’d)
•Equity is not fund balance and cannot be
interpreted as such
– Invested in capital assets, net of related
debt
– Restricted
– Unrestricted
NOTE: THIS STATEMENT SHOULD
NOT BE USED TO DETERMINE
AVAILABILITY OF FUNDS
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Statement of Activities
• Designed to identify the full cost of providing
various functions and services.
• Identifies net program (cost) or revenue.
• Not intended to be interpreted as a “profit/loss”
scenario.
• Highlights taxation “subsidy” in the
governmental activities.
• Statement is not “budget based”.
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Fund Financial Statements
•
•
•
•
Level of presentation = traditional fund categories
and fund types
– Governmental
– Proprietary
– Fiduciary
Governmental funds report fund balance consistent
with budgetary approach
Again, fund balance ≠ net assets in governmentwide statements
A reconciliation between the two is required.
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Fund Financial Statements (cont’d)
• Fund balance does represent spendable
available resources
– Reserves
– Designations
• Operating statements for governmental funds
and budget statements for enterprise funds
similar to a “checkbook” approach
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12
GASB and Revenue Recognition
Earning Revenue the government way!!
• Revenues are EARNED if the government has a
legal claim to the resources and the resources
raised were intended to finance expenditures
during the current or prior periods
• Examples:
– Levying a tax establishes a government’s claim to
taxes it assesses (e.g., property taxes)
– A business making a taxable sale establishes a taxing
government’s legal claim to sales taxes
– Taxpayers earning taxable income establishes a
taxing government’s legal claim to income taxes
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Nonexchange Transactions
•
1.
2.
3.
4.
GASB 33: Four Categories of
Nonexchange Transactions
Imposed nonexchange transactions
Derived tax revenues
Government-mandated nonexchange
transactions
Voluntary nonexchange transactions
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Imposed Nonexchange Transactions
• These are assessments imposed on
individuals and business entities.
– Property taxes
– Fines
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Two Types of Limitations
• Time Requirements. These specify the
period in which resources must be used or
when use must begin (e.g. property taxes;
certain grants).
• Purpose restrictions. These specify the
purpose for which the resources must be
used (e.g. dedicated taxes; restricted
grants).
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The modified accrual “layer” for
funds-based statements
• For funds: revenues are recognizable ONLY if
• They are susceptible to accrual, which means
BOTH
– Objectively measurable, and
– Available to finance current period expenditures
• An item is available only if it is BOTH
– Collected in the current period or soon enough
thereafter to be used to pay liabilities of the current
period, and
– The money collected is legally available to finance
current period expenditures
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Recognition Standards
• Imposed Nonexchange Transactions
• The asset is recognized when the government
has an enforceable legal claim or when the
resources are received, whichever comes first
– Government-wide: The revenue is recognized in the
period in which the government has an enforceable
legal claim to the resources and the relevant time
requirements have been met
– Funds-based: The revenue must also be available
and is recognized in the earliest period in which both
“available” criteria are met
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Recognition Standards - applied
• Imposed Nonexchange Transactions
– Property taxes would normally be
recognized as an asset when levied and
as revenue during the period for which
they were levied (government-wide) and
available (funds-based)
– Parking tickets – receivable after protest
date has passed. If protested, not
enforceable until judge rules on case.
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Derived Tax Revenues
• These are derived (i.e. result) from
assessments on exchange transactions
carried on by taxpayers.
– Sales taxes (derived from sales transactions)
– Income taxes on wages
– Other taxes on earnings or assets (derived
from various commercial transactions)
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Government Mandated and Voluntary
Nonexchange Transactions
– Asset is recognized when all eligibility
requirements have been met, or when
resources are received, whichever comes first
– Government-wide: The revenue is recognized
in the period when all eligibility (and time)
requirements have been met
– Funds-based: The revenue must also be
available and is recognized in the earliest
period in which both “available” criteria are
met
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Exchange and “exchange-like”
Transactions
• Fees for licenses and permits, passenger
facility charges, certain tap fees and
certain developer contributions should be
considered exchange rather than
nonexchange transactions, even though
the party making the payment may receive
less in value than it surrendered.
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Modified Accrual Accounting
also applies to expenditures
(in government-type funds)
Criteria : Measurable and Available
 Measurable : Government is able to
determine or reasonably estimate the
amount.
 Available : Collectible within the current
period or soon enough thereafter to be
used to pay liabilities of the current period.
Chapter 5
Granof-5e
23
Expenditures

Closely tied to cash flows and near-cash
flows

Governmental funds report only current
liabilities and not long-term liabilities.

Expenditures recognized when cash is
paid or fund liability accrued* for
goods/services received.
 * next slide . . .
Chapter 5
Granof-5e
24
Expenditures vs. Expenses
Expenditures
 Definition: “measure of fund liabilities liquidated with current
resources”
 Decreases net current financial resources (i.e.
Fund Net Assets)
 Used in Modified Accrual Basis
--i.e. Fund Financial Statements
Expenses
 Definition: “measure of costs expired or consumed during a
period”
 Reduction in net economic resources (overall net
assets)
 Used in Full Accrual Basis
--i.e. Government-wide Statements
Chapter 5
Granof-5e
25
. . . liability accrued*


“Revised” Expenditure Definition:
---Decreases in net current financial resources (i.e. Fund Net
Assets) NOT resulting from Transfers (and refunding
transactions)
NORM – Recognize when FUND Liability is incurred
* Exceptions include:
--Debt Service Expenditures on Government Long Term Debt
-Recognize when Legally Due
--Materials, Supplies, and Prepaid Items
-Recognize based on either Purchases or Consumption
Basis
--Pensions, Claims and Judgments, Compensated Absences
-Recognize when Payable from Available Expendable
Financial Resources
--Capital Leases
-Recognize based on Substance vs. Form Basis
Chapter 5
Granof-5e
26
Modified vs Full Acrual
7 Major differences
1) Compensated absences (Chs. 5 & 8)
2) Pension accounting (Ch. 10)
3) Claims and Judgments (Ch. 8)
4) Inventory accounting
5) Prepayments
6) Accounting for capital assets (Chs. 6 & 7)
7) Accounting for interest and principal
(Chs. 6 & 8)
Chapter 5
Granof-5e
27
Additionally
Discussed all of the critical concepts:
– Funds
– Different types of funds, basis of accounting
– Budgeting entries
– Budgeting accounts
– Closing entries
– Property Taxes
– Introductory level discussion of not-for-profit
entities (multiple choice only)
– Reporting Entity: Primary Government and
Component Units (multiple choice only, if any
discussed more in later chapters)
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