Certified Government
Finance Officer Program
Accounting & Financial Reporting
Exam Review
November 20, 2013
1
Accounting & Financial
Reporting
Exam Review
PRESENTED BY:
Kelly Rae Strickland, CPA, CGFO
Deputy Finance Director
City of Sarasota
Kelly,strickland@sarasotagov.com
Sarah C. Koser, CPA, CGFO, CPFO
Deputy Finance Director
The Villages Community Development Districts
Sarah.Koser@DistrictGov.org
2
Overview


Prepare you for the Exam.
Increase your Professional
body of knowledge.
3
3
Accounting & Financial Reporting
Exam Review - Overview


Question distribution accurate
Questions updated & validated*
 References



Documented
Included in review materials
75 Questions
 Bank of 100+ questions


Multiple versions of exam
Test bank cross referenced to
slides
*2013 Update
4
Accounting & Financial Reporting
Exam Review - Overview

All questions multiple choice or true/false

Can choose order to take parts of exam
 Plan your work & work your plan

Review sessions do not replace individual
study
5
Accounting & Financial
Reporting Exam Review
Topics Covered:
1.
Accounting / Internal Controls / Capital Assets
30%
2.
Financial Reporting (Internal & External)
30%
3.
Auditing
15%
4.
State of Florida Policies & Regulations
15%
5.
CAFR
10%
6.
Source Material
N/A
TOTAL
100%
6
Accounting,
Internal Controls
&
Capital Assets
7
Overview

Accounting Basics:






Standard Setting in the U.S.
Objectives of Financial Reporting
Terminology
Fund Accounting
Measurement Focus
Basis of Accounting
8
Overview

Accounting Basics:






Liabilities
Debt
Debt Refunding
Capital Assets
Budgets
Odds & Ends
9
Standard Setting in the U.S.
 Financial
Accounting Foundation – FAF
Final
authority (1973) for accounting & reporting
standards in both the public & private sectors
Appoints FASB & GASB board members
Both
establish accounting and financial reporting
standards for respective constituents
Currently
addressing permanent funding options
for GASB
10
Standard Setting in the U.S.
Governmental
Accounting
Standards Board – GASB (1984/1989)
State
and Local Governments
Governmental Not for Profits
Financial
Accounting Standards
Board – FASB (1973)
For-profit
& non governmental Not for Profits
SEC designee for issuers
11
Standard Setting in the U.S.
Both
use due process
Discussion
Memorandum, Invitation to
Comment, Preliminary Views, Exposure
Drafts, etc. made available to
constituents
Comments
solicited & all submitted to
board for consideration in standard
setting deliberations
Process really does work
12
Standard Setting in the U.S.

American Institute of Certified Public Accountants (AICPA)

Establishes audit & attest standards for non-issuers

Officially recognizes FASB & GASB as authoritative
standard setting bodies for Generally Accepted Accounting
Principles (GAAP) in their respective sectors*.
Role of the Federal Accounting Standards Advisory Board
(FASAB) is intentionally omitted.
*GAAFR 2012 Page 23
13
Standard Setting in the U.S.
GASB #55
The Hierarchy of Generally
Accepted Accounting Principles for
State & Local Governments
Effective Date: On issuance (March 2009)
14
Standard Setting in the U.S.

GAAP Hierarchy (GASB # 55)


GASB Statements & Interpretations
GASB Technical Bulletins




AICPA Industry Audit & Accounting Guides*
AICPA Statements of Position*
AICPA Practice Bulletins*
Implementation Guides published by GASB
staff
*If made applicable & cleared by GASB
15
Objectives of Financial
Reporting

GASB Concepts Statement No. 1


Public accountability
Information for decision making
16
Objectives of Financial
Reporting

Public accountability


Sufficient current revenues for services
Compliance




Budget
Finance-related legal/contractual requirements
Service Efforts & Accomplishments (SEA)
Other accomplishments
17
Objectives of Financial
Reporting

Public accountability

Presumes taxpayers are entitled to know




What government is doing & how
What government did & how well
What government plans to do & why
Intergenerational/interperiod equity
18
Objectives of Financial
Reporting

Accounting data used for decision making

Financial reporting should be:
 Understandable
 Reliable
 Relevant
 Timely
 Consistent
 Comparable
19
Objectives of Financial
Reporting

Primary Users of External Financial
Reports

Citizens

Legislative and oversight bodies

Investors and creditors
20
Terminology
Fund Accounting – Definition
Fund accounting is an accounting system
emphasizing accountability rather than profitability,
used by non-profit organizations and governments.
In this system, a fund is a self-balancing set of
accounts, segregated for specific purposes in
accordance with laws and regulations or special
restrictions and limitations*.
*Leon E. Hay (1980). Accounting for Governmental and Nonprofit Entities, Sixth edition,
page 5.
21
Terminology

Asset
Something owned by entity

Liability
Obligation of the entity

Fund Balance
Difference between assets &
liabilities

Revenue
Fees charged for services

Expenses
Cost of providing services
22
Terminology

Normal Account Balances:

Debit balances for asset &
expense/expenditure accounts

Credit balances for liability, revenue & Fund
equity accounts

Debits must equal credits
23
Terminology

Normal account balances:

Typical debit balances



Paid vacation leave
Capital assets (in service)
Typical credit balances



Unpaid (accrued) vacation leave
Fines & judgments (when known)
Property tax revenue (any revenue)
24
Terminology

Current Assets


Used in operations or converted to cash within
1 year
Capital Assets


Benefit the organization for more than 1 year
(service life)
Includes intangible assets*
*GASB #51 – Accounting for Intangible Assets
– periods beginning after 6/15/2009 i.e. FY 2010
25
Terminology

Current Liabilities


Obligations due within 1 year (includes
current portion of Long Term Debt)
Non-Current Liabilities

Obligations due more than 1 year hence
26
Terminology

Total assets minus total liabilities

Net assets


Fund balance*


Fund level for proprietary & fiduciary funds
Fund level for governmental funds, i.e. unreserved fund
balance
Owner’s Equity (private business)
*GASB #54 – Fund Balance Reporting and Governmental Fund Type Definitions
Periods beginning after June 15, 2010 (FY 2011)
27
Fund Accounting (GASB#54)

Nonspendable Fund Balance

Cannot be spent because of:



Form (e.g. inventory, prepaid assets)
Must be maintained intact (e.g. principal of endowment
fund)
Restricted Fund Balance

Externally enforceable limitations on use


By creditors, grantors, contributors, laws,
By law- constitutional or enabling legislation
28
Fund Accounting (GASB#54)

Committed Fund Balance




Assigned Fund Balance


Limitation in place before end of period
Limitation is self imposed (e.g. carryovers)
Must be removed by same “highest level” that imposed it
Limitation results from intended use
 “Intended use” delegated to lower level
 May be removed by same level that received delegation
Unassigned Fund Balance


Residual net resources
Balance in excess of:
Nonspendable/restricted/committed/assigned i.e. surplus
29
Fund Accounting

Use “minimum number” necessary for
management & accountability

Three broad fund classifications:

Governmental funds (5)
Proprietary funds
(2)
Fiduciary funds
(4)

11 fund types – (most important)


30
Fund Accounting

Governmental Funds (5 types)
1. General




To account for & report all financial resources not
(required to be)* accounted for & reported in
another fund
Only fund required by GAAP
Only one ‘General Fund”
Small Local Government may have only a General
Fund
*GASB #54 – definition update drops this phrase
31
Fund Accounting

Governmental Funds (5 types)
2. Special Revenue

Account for & report the proceeds of specific
revenue sources that are restricted or committed
to expenditure for specified purposes other than
debt service or capital projects
32
Fund Accounting

Governmental Funds (5 types)
3. Debt Service
 Resources accumulated to pay long term debt
 Principal & interest
4. Capital Projects
 Acquisition/construction of major capital assets*

i.e. not equipment units financed by proprietary funds
5. Permanent
 Resources restricted to extent that earnings and not
principal may be used for support of entity programs
*GASB #54 updates
33
Fund Accounting

Proprietary Funds (2 types)
1. Internal Service
Services provided by one agency, etc. to another on
a cost reimbursement basis
2. Enterprise

Operations financed & operated similar to private
business


i.e. user fees
Accountability (not “profit “makers)
34
Fund Accounting

Fiduciary Funds (4 types)
1. Pension Trust Fund

Resources held in trust for others (Other Peoples
Money)
2. Investment Trust Fund


Pooled resources of legally separate entities
Entity holds investments on behalf of others
35
Fund Accounting

Fiduciary Funds (4 types)
3. Private-purpose Trust Fund

Principal & income benefit specific
individuals or organization
4. Agency Fund

Pass-through funds (Other Peoples
Money)

e.g. utility deposits
36
Measurement Focus
WHAT
transactions are measured
 Economic
resources
 Proprietary
 Current
& fiduciary funds
financial resources
 Governmental
funds
37
Measurement Focus
 Economic
resources (Proprietary &
Fiduciary Funds)
 Measure
inflows & outflows of economic
resources

Current (i.e. financial ) & noncurrent (i.e. economic)

Capital assets & long-term debt
 Focuses

on operational accountability
Whether management efficiently uses resources in
providing services
38
Measurement Focus
 Current
financial resources
(Governmental Funds)
 Measure
inflows & outflows of current financial
resources
 Cash & other liquid assets
 Payables from cash & other liquid assets
 Focuses
on fiscal accountability
 Whether
managers have met budgetary & other
legal financial requirements
39
Basis of Accounting

The technical term that describes the
criteria governing the timing of the
recognition of transactions and events is
basis of accounting.


Revenues are recognized when available and
measurable
Expenditures are recognized when:



a liability is incurred
the amount is determinable
the liability will be paid from current resources
40
Basis of Accounting
WHEN
transactions are measured
Accrual
Modified
accrual
Cash
41
Basis of Accounting
Accrual

basis
Recognizes the financial effects of transactions,
events and interfund activities when they occur,
regardless of the timing of related cash flows
 Revenues - When earned
 Expenses - When incurred
Example - proprietary funds
42
Basis of Accounting
 Modified

Revenues


accrual basis
When measurable & available
 60 day criteria
Expenditures

Expected to be liquidated with current financial resources i.e.
recognized in period governments liquidate the related liability
rather than when the liability is first incurred.
Example - governmental funds
43
Basis of Accounting
Cash
 Recognizes
transactions/events when
related cash amounts received or
disbursed
 Individual
taxpayers
44
Basis of Accounting
Measurement
Focus
Basis of
Accounting
Economic
Resources
Accrual
Current Financial
Resources
Modified
Accrual
Proprietary fund
statements
Economic
Resources
Accrual
Fiduciary fund
statements
Economic
Resources
Accrual
Government wide
statements
Governmental fund
statements
45
Liabilities

Claims & Judgments


Occurrence probable & reasonable estimate of
amount is available
TANs/RANs



Tax anticipation notes
Revenue anticipation notes
Fund liability even if maturity exceeds 12
months
46
Debt

General Obligation (GO) Bonds



Voter approval
No specific pledge other than “full faith & credit”
Revenue Bonds



Pledge of specified revenue source* or
Restricted asset use or asset set aside
Typically associated with enterprise borrowings but
also used for governmental borrowings
*GASB #48 – Sales and Pledges of Receivables and Future Revenues and Intra-Entity
Transfers of Assets and Future Revenues
47
Debt

GAAP generally requires recognition of
expenditures when debt service payments are
due

Can recognize before due if due early in next FY and the
following are met:




Using a debt service fund
Advance provision of resources is mandatory
Payment due in short time period (one month maximum)
Government-wide transactions

Reconcile D/S expenditures to interest expense &
reductions of LTD
 Accrual of interest
48
Debt Refunding

Why done




Lower market interest rate available
Eliminate onerous bond covenants
Free up current pledged revenues
Types of refunding


Advance Refunding
Current Refunding
49
Debt Refunding

Advance Refunding


Old debt not yet callable
New debt issued, proceeds placed in irrevocable
trust/escrow to meet debt service payments of old
debt



Old debt technically outstanding until call date or
maturity
New debt proceeds = “other financing sources”
Trust/escrow payments = “other financing uses”
50
Debt Refunding

Current Refunding



Old issue is callable & retired with proceeds of
new debt
New debt proceeds = “other financing sources”
Payment of old debt = “debt service expenditure”
51
Debt Refunding

Debt defeasance – advanced refunding

In-substance defeasance



Proceeds placed in irrevocable trust
Liability removed (issuer contingently liable)
Legal defeasance



Proceeds placed in irrevocable trust
Debt legally satisfied even though not repaid
Matter of law
52
Debt Refunding

Accounting Basics: Debt Refunding

Arbitrage

Practice of investing low-yielding tax-exempt
bond proceeds in higher-yielding taxable
instruments

Highly technical area

Liability recognition may be required
53
Capital Assets

Capital assets

Governmental funds



Do not depreciate at fund level
Reconcile from fund level to government wide
level
Proprietary & fiduciary funds


Depreciate at fund level
Depreciation at government wide level is
arithmetic total of funds
54
Capital Assets

Benefit is more than a single fiscal period

Reported at:



Actual/estimated historical cost
Fair value (FV) if donated
Interfund transfers at lower of Net Book Value
(NBV) or FV
55
Capital Assets

Special issues

Infrastructure




Post-closure care for landfills


Immovable fixed assets
Of value only to the government (GAAP)
Modified approach (if used i.e. RSI)
Recognized over life of landfill
Intangibles*

Easements; ”in-house” software
*GASB #51 – Accounting & Financial Reporting for Intangible Assets
- periods beginning after 6/15/2009 (FY 2010)
56
Capital Assets

Special issues

Leased assets

Accounting at fund level


Inception & subsequent
Capitalized interest

Proprietary & fiduciary fund assets only
57
Budgets

Types of budgets




Operating Budget
Capital Budget
Project Budget
Cash
58
Budgets

Operating Budget



Adopted (legal) annual/biennial budget
Typically “fixed”
 Formal amendment required to change
Capital Budget



Linked to Capital Improvement Plan (CIP)
Can be multi-year
Current year can be incorporated into operating
budget
59
Budgets

Project budget




Adopted for length of specific project
Can be multi-year
Current year can be incorporated into operating
budget
Cash budget


Operating budget
Capital projects
60
Odds and Ends
 Reporting
entity
 GAAP


Statement No. 14
Statement No. 39
 Primary

States/local governments


government
General or special purpose
Including fiduciary funds
 Component

units
Financial accountability
61
Odds & Ends

Reporting entity:
Primary
government is financially accountable
for another organization if
It

appoints a voting majority of the
organization’s governing board AND
It can either
Impose its will on that organization
OR

Potentially provide specific financial benefits to or
impose a financial burden on the other
organization
62
Odds & Ends

Reporting Entity

If Primary Government DOES NOT appoint
majority of governing board, it is financially
accountable for another organization if other
organization:
Is
fiscally dependent on Primary Government
OR



Holds economic resources entirely/almost entirely for
PG AND
PG entitled to/has ability to access majority of economic
resources being held by other organization AND
Resources being held are significant to PG
63
Odds & Ends

Reporting Entity
A




Joint Venture is/has:
Contractual agreement
Joint control of assets
On-going financial relationship
Not a component unit
64
Odds & Ends

Non-Exchange transactions include:

Derived Tax Revenues


Imposed non-exchange revenues


Property tax (Ad valorem & personal), fines
Government mandated non-exchange transactions


Sales tax, income tax, fuel tax
Formula grants
Voluntary non-exchange transactions

Reimbursement grants & donations
65
Odds & Ends
NEW STATEMENTS:
 GASB # 57 - OPEB Measurements by Agent Employers
and Agent Multiple-Employer Plans
 GASB # 58 - Accounting and Financial Reporting for
Chapter 9 Bankruptcies
 GASB # 59 - Financial Instruments Omnibus
 GASB # 60 - Accounting and Financial Reporting for
Service Concession Arrangements
66
Odds & Ends
 NEW STATEMENTS:
 GASB # 61 - The Financial Reporting Entity: Omnibus—an
amendment of GASB Statements No. 14 and No. 34
 GASB # 62 - Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November 30, 1989
FASB and AICPA Pronouncements
 GASB # 63 – Financial Reporting of Deferred Outflows of
Resources, Deferred Inflows of Resources and Net Position
 GASB # 64 – Derivative Instruments: Application of Hedge
Accounting Termination Provisions – an amendment of
GASB Statement No. 53
67