GASB Statement No. 54: Fund
Balance and Governmental Fund
Types
Joseph J. Welch, CPA Partner
Purvis Gray & Company LLP
Sarasota, Florida
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GASB #54, paragraph 55……. Those users want to know
about the character of residual amounts. They want to know
the extent to which the use of amounts reported in
governmental funds is constrained and how binding those
constraints are. Are they enforceable by parties external to the
government? Does the government itself have the ability
through some specified level of due process to remove or modify
the constraints? Or are they less-binding or even nonbinding
constraints that are simply indications of management's intent
to use resources for specific purposes, with management having
the power to change their intentions through a less rigorous
process?
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Effective date
Display and disclosure
– Starting for the fiscal period ending June 30, 2011.
– Earlier application encouraged – (Too late)
– Will need to address in FY11 Budget!
Statistical section
– Retroactive implementation encouraged, but not
required (provide explanation if amounts not
restated)
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Why GASB Statement No. 54?
To improve the consistency
and usefulness of fund balance
information…..
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Focus of classification
“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)
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What Does it Change/Clarify?
Fund balance presentation – fund
level – governmental funds
Definitions for governmental funds
May no longer be able to use certain
“activity-focus” special revenue funds
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What Else Does it Require?
Requires disclosure of your policies
and procedures over committing or
assigning fund balances – i.e., Who
says it is (reserved) for this?
TRANSPARENCY of Fund Balances
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New Fund Balance Classifications
The classification hierarchy is “based primarily on the extent to which the government
is bound to honor constraints on the specific purposes for which amounts…can be
spent”
Essentially
what is now
unreserved
Nonspendable
Restricted
Committed
Assigned
Unassigned
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Essentially
what is now
reserved
Experience
Essentially
what is now
designated
8
Fund Balance Presentation –
Old Method
Reserves = unavailable or legally restricted
Legally restricted reserves were not shown unless
they were “narrower than the purpose of the fund”
In practice, generally meant an external restriction
(as opposed to self-imposed)
Also included certain encumbrances (unavailable)
Reserves could create a negative unreserved
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Fund Balance Presentation –
Old Method
Unreserved = designated or undesignated
Designations represented “management’s
tentative spending plans”
Generally should reflect actual spending plans
approved by at least senior management
Reflected self-imposed limitations
Designations cannot cause
unreserved/undesignated to be negative
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Fund Balance Presentation –
New Method
Nonspendable
Spendable (header not used) – Classifications
reflect a hierarchy, indicating the relative strength
of the constraints:
Restricted
Committed
Assigned
Unassigned
1. Nonspendable Fund Balance
Not in spendable form
Cannot ever be spent (e.g., supplies inventories)
Cannot currently be spent (e.g., long-term loans
receivable and nonfinancial assets held for resale)
Not spendable legally
Legally or contractually must be kept intact (e.g.,
principal of an endowment or revolving loan fund)
2. Restricted Fund Balance
Same definition used now for restricted net
assets
Constraint on use must be legally enforceable,
and was either:
Externally imposed by creditors, grantors,
contributors, or laws or regulations of other
governments, or
Imposed through constitutional provisions or enabling
legislation
2. Restricted Fund Balance
Imposed Through Enabling Legislation:
The government can mandate a payment
From external resource providers.
It includes a legally enforceable requirement
That the resources be used only for the specified
purpose
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3. Committed Fund Balance
Use constrained by limitations that the
government “imposes upon itself” through
A formal action (e.g., statute, ordinance, probably
resolution) – before year-end
Of the highest level of decision making authority
(governing board)
Which can only be reversed by the same type of
formal action,
And commits the resource to a “specified purpose.”
Difference Between
Restricted and Committed
Par. 74 – Basis for Conclusions:
With restricted, there is an (implicit) “contract”
with the resource providers, that the resources
will only be expended for the specified purpose
And it is legally enforceable – committed is not
Legally enforceable may be a gray area – you
won’t be able to test it
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Difference Between
Restricted and Committed
Legally enforceable means:
The government can be compelled by an external
party – e.g., citizens, public interest groups, the
judiciary – to use the resources for the specified
purpose
The distinction on enabling legislation may be
whether the purpose restriction was in the
authorizing (e.g., impact fees) or enabling
legislation (e.g., local fee or charge)
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4. Assigned Fund Balance
Intended use of resources – general fund
– Established by the governing body itself or by a
body or official delegated by the governing body
– Less formality necessary than for a commitment
– Action may be taken after YE, but before issuance
of financial statements
– Subsequent years’ budget deficit
Residual category in SRFs, CPFs and DSFs
(unless negative - unassigned)
Difference Between
Committed and Assigned
Committed requires:
 The commitment be made by the governing body
 The action be formal and reversible only by the same
action
 A specified purpose
Assigned really only for specified purposes in the
general fund – allows for management’s intentions
In other funds, assigned is simply a residual for
amounts that don’t meet the committed criteria
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5. Unassigned Fund Balance
Only appropriate for:
– The general fund
– Negatives in other governmental funds - take
assigned to zero first
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Special Case - Encumbrances
(Only if they don’t lapse…)
If Paid From Restricted, committed or
Assigned Revenues:
– Put in that classification – don’t separately
state
If Not Identifiable:
– Could be committed or assigned
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Recap - Classification of Fund Balance
Nonspendable
Restricted
Committed
enforceable)
Form or legal limitation
Externally enforceable
limitations
Self-imposed limitations
(not externally
Assigned
Intended use
Unassigned
Residual
Examples
 Gas Taxes – Restricted by law/reg. of other government
 Infrastructure surtax – same
 Bond money – restricted by external party (creditor)
 Grants – restricted by external party (grantor)
 Road impact fee – restricted by enabling ordinance – legally
enforceable
 Building permit fees – restricted by statute
 Alarm fees for police services – committed by enabling
ordinance – probably not legally enforceable
 Garbage collection fees – no requirement to spend –
unassigned
 Parks fees – no requirement to spend on parks – unassigned
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Examples
 MSTU – statutorily must be spent in unincorporated area –
committed to public safety
 General fund grant match transferred into SRF per budget –
assigned (residual)
 General fund supplemental funding of road project – authorized
in budget and CIP – assigned b/c the budget/CIP can expire
 Balance in general capital projects – assigned, absent formal
governing board approval and specified purpose
 General fund allocation for a municipal pool – assigned
 Encumbrance to be paid from a restricted, committed or
assigned resource – restricted, committed or assigned (not
separately stated)
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Examples
 Encumbrance (source unclear) – committed or assigned,
depending on who approved
 Stabilization arrangement (rainy day fund) that meets the
restricted criteria – restricted
 Stabilization arrangement that meets the committed criteria –
committed
 Subsequent years’ budget deficit – general fund - assigned
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Multiple Categories
A fund could have multiple categories
Will need to adopt a “Flow Assumption”
– Already have restricted v. unrestricted
– Within unrestricted, identify liquidation order for:
• Committed
• Assigned
• Unassigned
If no flow assumption, defaults to above order
Fund Balance Presentation
Total by major classification
(nonspendable, restricted, committed,
assigned, unassigned)
Further detail on face permitted (or
disclosed in Notes)
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Disclosures
The process through which constraints are
imposed for committed and assigned
And how they are modified or eliminated
“The reader should be able to identify residual
balances and to what level they are
constrained”
– Cite the Ordinance/Policy
– Name the Official’s position
Disclosures
Detail breakdown of each classification (if not on
face)
Expand policy on flow assumption
For stabilization arrangements – the authority, req’ts
for additions, conditions for spending, ending
balance (even if not displayed)
Minimum fund balance policies
Encumbrances by major fund and total non-major (in
commitment note)
Purpose of each major SRF and which revenues are
reported therein
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Fund type definitions
Special Revenue Funds
“…to account for the proceeds of specific
revenue sources … that are restricted or
committed to expenditure for specified
purposes (other than DSFs or CPFs).”
Old definition really just clarified
But may cause the disqualification of certain
“activity focus” SRFs
Special Revenue Funds
Restricted or committed proceeds must
comprise a “substantial portion of the inflows”
The proceeds must be recorded directly to
this fund (not transferred in)
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Capital Projects Funds
Old:
– ...to account for financial resources to be used for
the acquisition or construction of major capital
facilities…”
New:
– ...to account for resources that are restricted,
committed, or assigned to expenditure for capital
outlays”
Debt Service Funds
...to account for resources that are restricted,
committed, or assigned to expenditure for
principal and interest”
– When legally mandated, or
– For financial resources being accumulated for
principal and interest
Can be restricted, committed or assigned
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SRF’s That Don’t Meet the Definition
GASB prefers you move the activity to the
general fund
Could move to an enterprise fund (change MF
and BOA)
Could roll into another SRF
Could adopt an ordinance/policy to commit
the resources (before FYE 11)
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Consistency with Government-Wide
SONA
Fund restricted +/- accrual adjs = EW
restricted
Fund committed/assigned/unrestricted (+
ISFs) +/- accrual adjs = EW unrestricted
Fund nonspendable (available) = “follow the
rest of the fund”
Fund nonspendable (legally) = EW restricted
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Will GASG #54 Work?
Improve the usefulness of governmental fund
balance information
Common definition of restricted enhances
consistency and avoids confusion between
fund level and EW
Clearer classification definitions enhances
benchmarking
Needed info re: “level of constraints” on fund
balance for users
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What to do Tomorrow
Review SRF’s for continued qualification
Do a practice run on prior year fund balances
for the new classifications
Prepare practice note disclosures
Review/shore up policies for committed and
assigned amounts, stabilization arrangements
Generate PY info for the statistical section, if
you want to apply retroactively
Get WPs ready for your auditors
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To Restrict or Not Restrict?
It is no longer a question
Be careful what you wish for
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The End
Joe Welch, Partner
Purvis Gray & Company
jwelch@purvisgray.com
(941) 907-0350
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