CSMFO
2012 Annual Conference
Implementing GASB 54
(Fund Balance Reporting)
Presentation by
Gregory S. Allison, CPA
UNC School of Government
Why Change?
• Traditional focus of fund balance components
on resources available for appropriation
• New focus on two objectives
– Indication of constraints of how resources can be
spent
– Identification of the sources of those constraints
Components of Fund Balance
• Nonspendable
• Restricted
• Committed
• Assigned
• Unassigned
Nonspendable Fund Balance
• Portion of fund balance/net resources not in
spendable form or nonspendable for
foreseeable future
– Inventories
– Prepayments
– Long-term receivables
• Portion of fund balance/net resources
required to remain intact
– Permanent fund principle
Restricted Fund Balance
• Resources in a governmental fund subject
to externally enforceable constraints on
spending
– Debt covenants
– Grantors
– Contributors
– Enabling legislation (e.g., taxes raised for a
particular purpose)
Committed Fund Balance
• Formal legal constraints placed by the
governing board
– Formal action necessary to create OR rescind
• Constraints have to be in place no later than
the end of the fiscal period
• Similar to a high level designation
• Ability to rescind differentiates committed
from restricted net assets
Assigned Fund Balance
• Reflects a government’s intended use of
resources (i.e., earmarking – neither restricted or
committed)
– Assignments may occur anytime before the issuance
of financial statements
• Assignment ability may be delegated by the
board (commitments may not be)
– Less formal
• Default category for governmental funds except
general fund (unless those amounts are negative)
Unassigned Fund Balance
• Residual category for general fund
• Reflects deficit fund balance for other
governmental funds
• Impossible to report positive assigned fund
balance and negative unassigned fund
balance
– Assigned amount has to be eliminated before
negative unassigned may be reported
Why do we need fund balance?
• Volatility of revenues, expenditures, and the
economic environment in general
• Exposure to significant one-time outlays (e.g.,
disasters, capital needs, budget cuts)
• Need for general fund to provide availability to
other funds (or vice versa)
• Liquidity needs
• Commitment/assignment policies
Fund Balance Policy Sources
• GFOA Best Practices
• Local policies
• Local laws/ordinances
• State laws/ordinances
GFOA Best Practices
• Appropriate Level of Unrestricted Fund
Balance in the General Fund
– Adopted 2002, updated 2009
– Recommends adoption of formal policy
– Committee, assigned, and unassigned categories
represent unrestricted fund balance
– Focus of most policies will be the general fund
– Recommends a minimum of no less than 2
months revenues or expenditures, regardless of
size (~ 16%)
GFOA Best Practices (cont.)
• Appropriate Level...(cont.)
– Choice of revenue vs. expenditure should be
based on most reliable/predictable measure
– Laws or policies may actually dictate higher
amounts
– Some policies may focus on unassigned, rather
than including commitments and/or assignments
– Recognize the difference between GAAP and
budgetary fund balance
GFOA Best Practices (cont.)
• Replenishing Fund Balance in the General
Fund
– Adopted 2011
– Reiterates the two-month recommendation of
unrestricted fund balance
– Addresses how to replenish fund balance when
minimum amounts are breached
– Recommends governments adopt formal fund
balance policy
GFOA Best Practices (cont.)
• Replenishing...(cont.)
– Identify purposes for which portions of fund
balance are intended (e.g., working capital,
stabilization, unexpected events)
– Potentially identify sources of replenishment (e.g.,
non-recurring revenues, surpluses, excess
resources in other funds)
– Policy should reiterate that fund balance
replenishment a priority when conditions allow
(generally within one to three years)
GFOA Best Practices (cont.)
• Replenishing...(cont.)
– Factors that influence rate and time periods of
replenishment
•
•
•
•
•
•
•
Budgetary reasons/volatility of revenues
Recovery from an extreme event
Political continuity
Financial planning horizons
Long-term forecasts and economic conditions
Milestones for replenishment
External financing expectations
Common Elements of a Fund Balance
Policy
• Policy purpose
– General purpose
– Applicability to funds
• Definitions and classifications
– Governmental fund structure (if policy extends
past the general fund)
– Fund balance components
• Restricted vs. unrestricted
• Specific policy
Fund Balance Policy Guidance
• New questions in 2011/12 Comprehensive
Implementation Guide
– Z.54.23 (stabilization versus minimum fund
balance)
– Z.54.24 (levels of specificity required)
– Z.54.25 (laws dictating minimum fund balance)
– Z.54.29 (disclosure details related to minimum
fund balance being violated)
Stabilization Funds
• Represents formal arrangements “setting
aside” funds for budget/revenue stabilization,
working capital, contingencies, emergencies,
etc.
– May be restricted or committed
– Funds can only be accessed under specified
circumstances that are not considered routine
– Minimum fund balance policies generally do not
qualify
Selected Fund Balance Disclosures
• Committed and assigned policies and procedures
– Identify highest level of authority
– Formal actions to commit
– Policies that relate to assignment authority
• Stabilization arrangements
• Minimum fund balance policies
– Only where governing bodies have formally adopted a
policy (i.e., not if it is imposed upon the government)
Disclosures (cont.)
• Order in which government considers
restricted versus unrestricted amounts to be
spent when both are available
• Order in which committed, assigned, or
unassigned amounts are considered to be
spent
• Any aggregate displays on B/S should be
disaggregated in sufficient detail in notes
What about....???
• Encumbrances
– No longer separately identifiable on the face of
the financial statements
– Still considered a component of either
restricted, committed, or assigned
• Restricted and committed amounts indirectly
included in the calculations of the respective
resources
What about...???(cont.)
• Appropriation for subsequent year’s projected
budget shortfall
– Currently reflected as designated fund balance
– Now will be reflected as an assignment
• Formal action to create but no formal action to not use
• Limited to the projected deficit
What about...???(cont.)
• Stabilization amounts
– Formal establishment of “rainy day” or
“contingency” funds to only be used in specified
circumstances
– Categorized as restricted or committed
• Circumstances are specific and non-routine (e.g.,
“emergencies” would not qualify)
• Unassigned if not restricted or committed
Display Guidelines
• Nonspendable can be displayed in the
aggregate or by the two categories
– Nonspendable in form
– Required to remain intact
• Restricted can be broken down by “major”
restrictions or in the aggregate
• Committed and assigned may be reported
by “major” limitations or in the aggregate
Sample Balance Sheet Classifications
Nonspendable (any governmental funds)
Restricted for (any governmental funds)
Committed to (any governmental funds)
Assigned to (any governmental funds)
Unassigned (General Fund only, used for
negative residuals of other governmental
funds)