Fund Balance Reporting and
Governmental Fund Type Definitions
Statement No. 54 of the Governmental
Accounting Standards Board
Suzanne E. Smith, CPA
November 3, 2010
A History of Fund Balances
• NCGA (National Council on Governmental
Accounting) Statement 1, Governmental
Accounting and Financial Reporting Principles,
established the fund balance classifications for
governmental funds.
AICPA Government Accountability
Brief
• “GASB Statement No. 54, Fund Balance
Reporting and Governmental Fund Type
Definitions, is a sleeping giant….. When
Statement No. 54 is implemented for years
beginning after June 15, 2010, it could unleash
the largest changes to governmental fund
financial statements since the implementation
of GASB Statement No. 54…..”
Problems with Statement 1 Fund
Balance Reporting Classifications
• There were differences in how governments
interpreted and applied the standards for fund balance
reporting.
• Different interpretations of certain aspects of the
definitions of governmental fund types reduced the
comparability of governmental fund financial
statements from government to government.
• The introduction of “restricted net assets” under GASB
Statement No. 34 led to more confusion when
comparing governmental funds balance sheets with
the entity-wide statement of net assets.
What the new Statement No. 54
proposes to do:
• Improve the usefulness of financial statement
information.
• Provide more clearly defined fund balance
categories to reveal the nature and extent of
constraints placed on a government’s fund
balance.
• Clarify the existing governmental fund type
definitions.
What Statement No. 54 Does…
• Statement No. 54 changes the way fund
balances are reported in governmental funds.
• Statement No. 54 does not change the
government-wide statement of net assets
(Exhibit A) or Fiduciary Fund accounting
(Exhibits E and F).
• Statement No. 54 changes the reporting
requirements,
not
the
recordkeeping
requirements.
Effective Date
• Periods beginning after June 15, 2010
• Fiscal Years ending June 30, 2011
• CAFR Statistical Section
– Retroactive is encouraged, but not required
Fund Balance Reporting
• “Fund balance for governmental funds should
be reported in classifications that comprise a
hierarchy based primarily on the extent to
which the government is bound to honor
constraints on the specific purposes for which
amounts in those funds can be spent.”
– GASB Statement No. 54 (paragraph 5)
• The constraints vary from “nonspendable” to
“unassigned.”
Fund Balance – Old Standards
• What is fund balance?
– The difference between fund assets and liabilities
• Reserved Fund Balance
• Unreserved Fund Balance
– Designated
– Undesignated
Example of Old Standards and
Financial Statement Placement
Major Funds
General
Fund
Fund Balances:
Reserved for:
Inventory
Capital projects
Debt service
Unemployment benefits
Forestry improvement purposes
Permanent fund purposes
Unreserved:
Designated for technology,
reported in:
General Fund
Undesignated, reported in:
General Fund
Special Revenues Funds
Total Fund Balances
Title I
Fund
Vocational
Fund
$
$
Other
Govt.
Funds
34,232
634,677
307,041
175,200
41,357
471,442
Total
Govt.
Funds
34,232
634,677
307,041
175,200
41,357
471,442
433,009
433,009
8,127,130
508,070
8,127,130
508,070
2,172,019
10,732,158
8,560,139
-
-
Fund Balance – Old Standards
• Fund Balance Allocation Objective
– To isolate that portion of fund balance that is not available
for the following period’s budget.
• Factors that make resources unavailable for
appropriation:
– By the very nature of the asset can never be spent (prepaid
assets, inventory, permanent fund corpus)
– Because of the timing of cash flows, cannot yet be spent
(e.g., long-term loans receivable)
– Can be spent but not at the government’s discretion
because the resources are externally restricted to a
specific use. (e.g., Fund balance in Foresty Escrow,
Unemployment Compensation, and Capital Projects funds)
Old Fund Balance Categories
• Reserved – a portion of fund balance not
appropriable for expenditure or legally
segregated for a specific use.
• Unreserved, designated – Indicates future
plans for the use of resources; subject to
change.
• Unreserved, undesignated – Remaining
amount after accounting for all reserved and
unreserved, undesignated amounts.
New Fund Balance Categories outlined
in Statement No. 54
•
•
•
•
•
Nonspendable fund balance
Restricted fund balance
Committed fund balance
Assigned balance
Unassigned balance
– Governments may not have all categories
applicable to a given year.
New Fund Balance Definitions
• Nonspendable Fund Balance – Amounts that
cannot be spent because they are either (a)
not in spendable form or (b) legally or
contractually required to be maintained intact.
– Examples: Inventories and prepaid items, the
corpus (or principal) of a permanent fund.
– May also apply to long-term receivables if the
receivable is not restricted, committed or
assigned.
New Fund Balance Definitions
• Restricted Fund Balance – Amounts that are restricted
to specific purposes. Amounts may be restricted
externally by creditors, grantors, contributors, or
• Imposed by law through constitutional provisions or
enabling legislation. Enabling legislation authorizes the
government to assess, levy, charged, or otherwise
mandate payment or resources and includes a legally
enforceable requirement that those resources be used
only for the specific purposes stipulated in the
legislation. (unspent grant funds, unspent bond
proceeds, funds held in debt service accounts for debt
payments)
New Fund Balance Definitions
• Committed Fund Balance – Amounts that can only be
used for specific purposes pursuant to constraints
imposed by formal action of the government’s highest
level of decision-making authority. The authorization
specifying the purposes for which amounts can be used
should have the consent of both the legislative and
executive branches of the government.
• The government’s intent to commit the fund balance
to a specific purpose should occur prior to the end of
the reporting period, but the amount, if any, which will
be subject to the constraint, may be determined in the
subsequent period.
New Fund Balance Definitions
• Assigned Fund Balance – Amounts that are
constrained by the government’s intent to be
used for specific purposes, but are neither
restricted nor committed. (Cannot assign an
amount if it would result in a deficit unassigned
fund balance amount)
• Intent should be expressed by (a) the governing
body itself or (b) a body or official to which the
governing body has delegated the authority to
assign amounts to be used for specific purposes.
New Fund Balance Definitions
• Unassigned Fund Balance – is the residual
classification for the general fund.
The
general fund should be the only fund that
reports a positive unassigned fund balance
amount.
Why is unassigned fund balance
reported only in the General Fund?
• Because unassigned fund balance represents
amounts that are not constrained in any way,
not even by an intention to use them for a
specific purpose, the general fund is the only
appropriate place to report this classification
of fund balance.
Example of New Standards and
Financial Statement Placement
Major Funds
General
Fund
Title I
Fund
Vocational
Fund
Other
Govt.
Funds
Total
Govt.
Funds
Fund Balances
Nonspendable:
Inventory
16th Section Investments
$
Restricted for:
Capital projects
Debt service
Unemployment benefits
Forestry improvement purposes
Grant activities
Committed to:
Technology, reported in:
General Fund
Unassigned
Total Fund Balances
$
34,232
471,442
34,232
471,442
634,677
307,041
175,200
41,357
508,070
634,677
307,041
175,200
41,357
508,070
433,009
433,009
8,127,130
8,127,130
8,560,139 -
-
2,172,019
10,732,158
New Fund Balance Classifications
Current Standard
New Standard
Current Categories
Essentially what is now reserved
Nonspendable
Restricted
Committed
Reserved for advances
Reserved for inventory
Reserved for prepaid items
Reserved for capital projects
Reserved for unemployment
Reserved for forestry improvement
Reserved for permanent fund
purposes
Essentially what is now
unreserved, designated
Assigned
Designated for capital
improvements
Designated for technology
purchases
Essentially what is now
unreserved, undesignated
Unassigned
Residual amount in General Fund
Determining the Components of Fund
Balance
• For most governments, determining the
components of fund balance will be an annual
exercise.
• Step 1: Determine the amounts that should be
reported as non-spendable and restricted.
• Step 2: Determine amounts committed in all
funds or assigned in general funds by reviewing
the constraints placed on available resources and
the government’s policies outlining the placing of
such constraints.
• Step 3 for non-general funds. Assigned fund balance is
the residual classification after amounts have been
classified as nonspendable, restricted or committed.
However, if there is a negative balance after classifying
amounts as nonspendable, restricted or committed,
the fund would report a negative amount as
unassigned. In this case there would be no amount
reported as assigned.
• Step 4 for general funds. Unassigned fund balance is
the residual classification after amounts have been
classified as nonspendable, restricted, committed or
assigned. Only general funds would report a positive
amount as unassigned.
• No funds should report a negative amount for
restricted, committed or assigned fund
balance.
Examples:
Food
Service
Fund
District
Maintenance
Fund
Title I
Fund
35,000.00
16th
Section
Principal Fund
Nonspendable
$
Restricted
$
450,000.00 $
Committed
$
150,000.00
$
450,000.00
Assigned
$
90,000.00
$
105,000.00
Unassigned
$
$
4,500,000.00
Total
$
$
5,140,000.00 $
-
-
725,000.00 $
-
$
85,000.00 $
$
-
400,000.00
400,000.00
More Examples
Special Revenue Fund
Capital Projects Fund
What is the total fund balance?
What is the total fund balance?
1. Determine amounts nonspendable
1. Determine amounts nonspendable
2. Determine amounts restricted
2. Determine amounts restricted
3. Determine amounts committed
3. Determine amounts committed
4. Remainder is assigned if positive and
unassigned if negative
4. Remainder is assigned if positive and
unassigned if negative
Numbers applied
Special Revenue Fund – Title I
Special Revenue Fund – EEF
Buildings and Buses
Total Fund balance at June 30 is Zero.
Total Fund Balance at June 30 is $75,000.
No amounts are nonspendable.
No amounts are nonspendable,
restricted, committed, assigned, or
unassigned.
$74,000 is restricted since it represents
state revenues restricted for buildings
and buses.
No amounts are committed. (No formal
board action)
$1,000 is assigned since the business
manager chose to allow the interest
income to remain in the fund for the
purpose of supplementing the state
revenues for the specific purpose of
improving buildings and buses.
More Examples
Unemployment Compensation
Fund
Bond Retirement Fund
Total Fund Balance $175,000
Total Fund Balance $100,000
Required Fund Balance $200,000
Restricted Fund Balance $100,000
Unassigned Fund Balance ($25,000)
More Examples
Permanent Fund – 16th Section
Principal
Mississippi Power Grant
Total Fund Balance: $2,000,000
($25,000 represents investment income
that will later be transferred)
Total Fund Balance: $1,500
Nonspendable – Investments $1,975,000
Restricted: $1,500
Restricted (or committed) – $25,000
Fund Balance Disclosures
• Governments should disclose the following
about their fund balance classification policies
and procedures in the notes to the financial
statements:
– A. For committed fund balance: (1) the
government’s highest level of decision-making
authority and (2) the formal action that is required
to be taken to establish (and modify or rescind) a
fund balance commitment)
Fund Balance Disclosures
• B. For assigned fund balance: (1) the body or
official authorized to assign amounts to a
specific purpose and (2) the policy established
by the government body pursuant to which
that authorization is given.
Fund Balance Disclosures
• C. For the classification of fund balances: (1)
whether the government considers restricted or
unrestricted amounts to have been spent when
an expenditure is incurred for purposes for which
both restricted and unrestricted fund balance is
available and (2) whether committed, assigned,
or unassigned amounts are considered to have
been spent when an expenditure is incurred for
purposes for which amounts in any of those
unrestricted fund balance classifications can be
used.
The Order of Spending
• Basically the order in which a government
assumes restricted, committed, assigned, and
unassigned amounts are spent when amounts
in more than one classification are available
for a particular purpose.
• A government policy on the order in which resources
are to be expended is an important factor in how
amounts are reported in fund balance. Under GASB
Statement No. 34, governments were required to have
a policy regarding whether it considers the use of
restricted or unrestricted resources first when both are
available for expenditure.
Most school districts
considered restricted resources to be spent first. This
new statement calls for a policy now applied at the
fund level for restricted and unrestricted (committed,
assigned and unassigned) resources.
What happens if there is no policy?
• If a government does not establish a policy,
the default approach assumes that committed
amounts should be reduced first, followed by
assigned amounts, and then unassigned
amounts.
Reporting Encumbrances
• Encumbrances should not be reported on the
face of the financial statements.
• Amounts encumbered for a specific purpose for
which amounts have not been previously
restricted, committed or assigned should be
classified as either committed or assigned, based
on the category criteria.
• Significant encumbrances at year-end should be
disclosed in the notes to the financial statements
as a commitment.
Details of Fund Balance Classifications
Displayed in the Aggregate
• If nonspendable fund balance is displayed in
aggregate on the face of the balance sheet,
amounts for the nonspendable components
should be disclosed in the notes to the
financial statements.
• If restricted, committed, or assigned fund
balances are displayed in the aggregate, the
component details should be disclosed in the
notes to the financial statements.
Fund Type Definitions
• Governmental fund types include the general
fund, special revenue funds, capital projects
funds, debt service funds, and permanent
funds.
Old Definitions – Governmental Funds
• General Funds – to account for all financial
resources except those required to be accounted
for in another fund.
• Special Revenue Funds – to account for the
proceeds of specific revenue sources that are
legally restricted to expenditure for specified
purposes.
• Capital Projects Funds – to account for financial
resources to be used for the acquisition or
construction of major capital facilities.
Old Definitions – Governmental Funds
• Debt Service Funds – to account for the
accumulation of resources for, and the
repayment of, general long-term debt
principal and interest.
• Permanent Funds – to account for resources
that are restricted to the extent that only
earnings, and not principal, may be used for
purposes that support the school district’s
programs.
General Fund – New Definition
• The general fund should be used to account
for and report all financial resources not
accounted for and reported in another fund.
Special Revenue Funds – New
Definition
• Special revenue funds are used to account for
and report the proceeds of specific revenue
sources that are restricted or committed to
expenditure for specified purposes other than
debt service or capital projects. One or more
specific restricted or committed revenues
should be the foundation for a special revenue
fund.
Special Revenue Funds – New
Definition
• Those specific restricted or committed
revenues may be initially received in another
fund and subsequently distributed to a special
revenue fund. Those amounts should not be
recognized as revenue in the fund initially
receiving them; however, those inflows should
be recognized as revenue in the special
revenue fund in which they will be expended
in accordance with specified purposes.
Special Revenue Funds – New
Definition
• The restricted or committed proceeds of
specific revenue sources should be expected
to continue to make up a substantial portion
of the inflows reported in the fund. Other
resources (investment earnings and transfers
from other funds) also may be reported in the
fund if those resources are restricted,
committed, or assigned to the specified
purpose of the fund.
A Look at Funds Currently Used
•
•
•
•
•
Funds 1130, 1140, 1145, and 2711.
Fund 1130 – Special Education Fund
Fund 1140 – Alternative School Fund
Fund 1145 – At-Risk Fund
Fund 2711 – Vocational Fund
Are the revenue sources in these funds restricted
for specific purposes? Are “Add-on” Components
of MAEP Funding restricted? What about Gifted
and Transportation Add-on components?
A Look at Funds Currently Used
• If the state or federal resources in funds are
truly “restricted,” then the funds should be
special revenue funds. The state or federal
revenue should be coded directly into these
funds and not shown as a subsequent transfer
from another governmental fund.
• Any remaining fund balance in these funds
would be assigned fund balance at balance
sheet date.
Final Analysis
• Add-on components for special education, alternative
education, at-risk, gifted, and transportation will be
reported in Funds 1130, 1140, 1145, and as a part of 1120
for gifted and transportation costs. The funds will be filled
by interfund transfers from the District Maintenance Fund
1120 (general fund). The MAEP revenues in those funds is
non-restricted revenues.
• Vocational add-on revenues will be accounted for in Fund
2711, along with the restricted revenues in the form of
state and federal vocational resources. MAEP allocations
for Fund 2711 should be reported as direct revenues of that
fund and not as operating transfers from the District
Maintenance Fund 1120 (general fund).
Special Revenue Funds
• Governments should discontinue reporting a
special revenue fund, and instead report the
fund’s remaining resources in the general
fund, if the government no longer expects
that a substantial portion of the inflows will be
derived from restricted or committed revenue
sources. (Example: Some districts are still
using Fund 2420 – Textbooks.)
Special Revenue Fund Disclosures
• Governments should disclose in the notes to
the financial statements the purpose for each
major special revenue fund - - identifying
which revenues and other resources are
reported in each of those funds.
Capital Projects Funds – New
Definitions
• Capital projects funds are used to account for
and report financial resources that are
restricted, committed, or assigned to
expenditure for capital outlays, including the
acquisition or construction of capital facilities
and other capital assets.
Permanent Funds – New Definitions
• Permanent funds should be used to account for
and report resources that are restricted to the
extent that only earnings, and not principal, may
be used for purposes that support the reporting
government’s programs - - that is, for the benefit
of the school district or its programs. Permanent
funds do not include private-purpose trust funds,
which should be used to report situations in
which the government is required to use the
principal or earnings for the benefit of
individuals, private organizations, or other
governments.
Fund Balance Disclosures – Minimum
Fund Balance
• If the school board has formally adopted a
minimum fund balance policy, the policy
should be disclosed in the notes to the
financial statements.
• There would be no separate amount shown as
committed or assigned for this disclosure on
the face of the financial statements.
Stabilization Arrangements
• Some governments set aside amounts for use in
emergency situations or when revenue shortfalls
arise. The authority to set aside those amounts
generally comes from statute, ordinance,
resolution, charter, or constitution.
• When such arrangements exist, the amounts may
be expended only when certain specific
circumstances exist. Such circumstances should
be identified and described in the formal action
that establishes such arrangements.
Stabilization Arrangements
• Those circumstances should be such that they
would not be expected to occur routinely.
• For purposes of reporting fund balance,
stabilization amounts should be reported in
the general fund as restricted or committed if
they meet the criteria set forth in GASB
Statement No. 54, paragraphs 8-11.
Stabilization Arrangements
• Such amounts would be restricted if they are
imposed by law through constitutional
provisions or enabling legislation.
• Such amounts would be committed if such
constraints are imposed by formal action of
the school board. This authorization should
have the consent of both the legislative and
executive branches of the district.
Stabilization Arrangements
• Stabilization arrangements that do not meet
the criteria to be reported within the
restricted or committed fund balance
classifications should be reported as
unassigned in the general fund.
What Do We Do Now?
• Consider your district’s use of Funds 1130, 1140,
1145, and 2711 and how MAEP revenue is
recorded in those funds.
• Add newly required board policies.
• Revise general ledger codes for fund balance
accounts. (Mississippi Department of Education)
• Any software changes for governmental funds
balance sheet presentation. (New categories for
presenting fund balance information on the
governmental funds balance sheet)
General Ledger Code Changes
GL Code Old Code Definition
GL Code New Code Definition
721
724
726
729
730
Reserved for Permanent Fund Purposes
Reserved for Advances
Reserved for Endowments
Reserved for Inventory
Reserved for Prepaid Items
721
724
726
729
730
Nonspendable - Permanent Fund Purposes
Nonspendable - Advances
Nonspendable - Endowments
Nonspendable - Inventory
Nonspendable - Prepaid Items
722
723
725
727
731
732
Reserved for Unemployment Benefits
Reserved for Forestry Improvements
Reserved for Capital Improvements
Reserved for Debt Service
Reserved for Ad Valorem
Reserved for Other Commitments
722
723
725
727
731
732
Restricted for Unemployment Benefits
Restricted for Forestry Improvements
Restricted for Capital Improvements
Restricted for Debt Service
Restricted for Ad Valorem
Restricted for Other Commitments
740 Committed
741 Unreserved/Designated
741 Assigned
751 Unreserved/Undesignated
751 Unassigned
New Board Policies
• A policy to outline how the district commits a
portion of fund balance for specific purposes,
including the specific actions required to
establish, modify, or rescind the fund balance
commitment. The school board, along with
district administration, must approve each
commitment prior to the end of the fiscal
year. Amounts may be determined after the
end of the fiscal year.
New Board Policies
• A policy to assign fund balance, detailing (1)
the body or official authorized to assign
amounts to a specific purpose.
New Board Policies
• A policy on the order in which resources are to
be expended.
– Basically the order in which a district assumes
restricted, committed, assigned, and unassigned
amounts are spent when amounts in more than
one classification are available for a particular
purpose.