Learning Objective 7
Understand and explain the
financial reporting of
proprietary funds.
13-1
The Financial Statements of Proprietary Funds
 Financial statements for the proprietary funds

Can be major funds


If a governmental entity has more than one
enterprise fund, each must be individually
assessed
Must meet either the 10 percent criterion or the 5
percent criterion.
13-2
The Financial Statements of Proprietary Funds
 The financial statements for proprietary
funds are very similar to those for
commercial entities
1. The statement of net assets (balance sheet)
2. The statement of revenues, expenses, and
changes in fund net assets (income statement)
3. The statement of cash flows
 Budgeting in the proprietary funds also has
the same role as in commercial entities
13-3
The Financial Statements of Proprietary Funds
 Statement of net assets


Proprietary funds report their own fixed assets,
investments, and long-term liabilities
GASB 34 specifies that the net assets section be
separated into three components:
1. Invested in capital assets, net of related debt
2. Restricted because of restrictions beyond the
government’s control
3. Unrestricted
13-4
The Financial Statements of Proprietary Funds
 Statement of Revenues, Expenses, and
Changes

A separation of operating and nonoperating
revenues and expenses is made to provide more
information value regarding the operations of
the proprietary funds.
13-5
The Financial Statements of Proprietary Funds
 Statement of Cash Flows

Because of the large number of capital asset
acquisition and financing transactions, the GASB
specified four sections:
1. Cash flows from operating activities
2. Cash flows from noncapital financing activities
3. Cash flows from capital and related financing
activities
4. Cash flows from investing activities
13-6
Practice Quiz Question #7
Which of the following statements is true
about the financial reporting of proprietary
funds?
a. The financial statements are identical to
those of the general fund.
b. Proprietary funds do not need to meet
the 10% or 5% tests to be major funds .
c. Enterprise funds are always major funds.
d. Internal service funds are not required
to provide a statement of cash flows.
e. Proprietary funds provide financial
statements very similar to those of
commercial businesses.
13-7
Learning Objective 8
Make calculations and record
journal entries for internal
service funds.
13-8
The Proprietary Funds: Internal Service Funds
 Purpose: to account for activities that
provide services solely to other departments.
 These services are not available to the
general public, making it different from the
enterprise fund.
 Accounting like business accounting.


Measurement focus on all economic resources
and the accrual basis of accounting.
Report fixed assets, which are depreciated, and
long-term debt.
13-9
Practice Quiz Question #8
Which of the following an example of an activity
that would be accounted for in an internal
service fund?
a. A public swimming pool.
b. A municipal golf course with a club house
used for weddings and other public
gatherings.
c. A maintenance department that provides
services to various government offices.
d. A state beach or park.
e. A city recreation center with weight rooms, a
workout facility, and a pool available to
citizens of the community.
13-10
Learning Objective 9
Make calculations and record
journal entries for trust funds.
13-11
The Fiduciary Funds
 Two categories (four types of funds)


Trust Funds

Pension (and other employee benefit) Trust Funds

Investment Trust Funds

Private-Purpose Trust Funds
Agency Funds
13-12
The Fiduciary Funds: Trust Funds
 Purpose: to account for the
investing and using of money in
accordance with stipulated
provisions of trust indenture
agreements or statutes.



Pension (and other employee benefit)
Trust Funds
Investment Trust Funds (created by
GAS 31)
Private-Purpose Trust Funds
13-13
The Fiduciary Funds: Trust Funds
 Private-purpose Trust Funds account for
property held under trust arrangements which
benefit:

Individuals

Private organizations

Other governments
13-14
The Fiduciary Funds: Trust Funds
 Trust funds use the accrual basis of
accounting.
 Financial statements required:

The statement of fiduciary net assets


includes all trusts and agency funds
the statement of changes in fiduciary net assets.

includes only the trust funds because agency funds
do not have a net asset balance.
13-15
Practice Quiz Question #9
Which of the following is NOT true trust
funds?
a. Trust funds use the accrual basis of
accounting.
b. Trust funds can account for money that
belongs to employees.
c. Trust funds are not required to provide
financial statements.
d. Pension funds are an example of a trust
fund.
13-16
Learning Objective 10
Make calculations and record
journal entries for agency funds.
13-17
The Fiduciary Funds: Agency Funds
 Agency Funds serve as conduits for the
transfer of money.

This role is purely custodial in nature.
 Since the assets belong to someone else,
assets always equal liabilities.
A = L
 The following items do not exist for agency
funds:

A fund balance/equity

An operating statement
13-18
The Fiduciary Funds: Agency Funds
 Agency funds account for resources held by a
governmental unit as a custodial agent for

individuals,

private organizations,

other funds, or

other governmental units.
 Agency funds use the accrual basis of
accounting.
 The financial statement for agency funds is
the statement of fiduciary net assets.
13-19
Practice Quiz Question #10
Which of the following is a good example of
an activity that would be accounted for in an
agency fund?
a. A public parking lot available to all citizens
that charges a fixed daily or monthly rate.
b. A county tax assessment agency that
collects property taxes for all cities in the
county.
c. A county owned ski resort that is available
to both county residents and nonresidents.
d. A public water utility providing services to
all residents of the county.
13-20
Learning Objective 11
Understand and explain the
preparation of government-wide
financial statements.
13-21
The Government Reporting Model
 GASB 34 specifies the reporting model
 What organizations comprise the
reporting entity?



The primary government
A component unit for which the primary
government is financially accountable
Any organization that has a significant
relationship with the primary government
13-22
The Government Reporting Model
 What constitutes financial accountability?


Financial accountability is evidenced when the
primary government appoints a majority of the
organization’s governing board.
Financial accountability may also exist if the
organization has a separately elected or
appointed board but fiscally depends on the
primary government for the financial resources
required to operate.
13-23
The Government Reporting Model
 What other organizations should be
included in the reporting entity?


GASB 14 specifies a third category of
organizations to be evaluated to determine if
they are part of the reporting entity with the
primary government.
These are legally separate, tax-exempt entities
for which the primary government is not
financially accountable.
13-24
The Government Reporting Model
 How should the financial results of the
component units be reported?

A choice between two methods:


Discrete presentation in a separate column of the
primary government’s financial statements
Blended presentation by combining the
organization’s results into the primary government’s
financial results
13-25
The Government Reporting Model
 The Comprehensive Annual Financial
Report (CAFR)
 The CAFR

Government-wide statements (2)

Fund-based statements (7)
13-26
The Government Reporting Model
 Two government-wide statements:

The Statement of Net Assets


includes all GCA and GLTL.
The Statement of Activities

includes depreciation expense.
 Presented on the accrual basis.
 Measure the flow of economic resources

Like statements for a commercial enterprise.
 These two statements are presented in addition to
the 7 Fund-Based Financial Statements.
13-27
The Government Reporting Model
 The two government-wide statements must
distinguish between:
1. Governmental activities and
2. Business-type activities.
 The total primary government must be discretely
presented in addition to the component units
reported in separate columns.
 Fiduciary activities are excluded from the
government-wide statements if their resources are
not available to finance the government’s
programs.
13-28
The Government Reporting Model
 Important features of the government-wide
Statement of Net Assets:



Reports all “general capital assets”—including
infrastructure.
Reports all debt—including GLTL.
Reports net assets in 3 categories:
1. Invested in capital assets, net of related debt
2. Restricted
3. Unrestricted

In general, interfund balances (loans, advances,
and due to and due from accounts) are
eliminated.
13-29
The Comprehensive Annual Financial Report
13-30
Government-wide Statement of Net Assets
13-31
Government-wide Statement of Activities
13-32
Practice Quiz Question #11
Which of the following is NOT true about the
CAFR?
a. Government-wide financial statements are
similar to the balance sheet and income
statement disclosed by businesses.
b. Government-wide financial statements are
based on the modified accrual basis of
accounting.
c. Since governments provide the two
government-wide financial statements, they
are not required to provide fund statements.
d. Governmental reporting requires a
government-wide statement of cash flows.
13-33
Learning Objective 12
Understand and explain the
additional disclosures that
accompany government-wide
financial statements.
13-34
The Government Reporting Model
 Reconciliation schedules

Required to reconcile the net change in the total
amounts reported on the governmental funds
statements with the amounts reported on the
government-wide statements

Reconciliation schedule for Statement of Net Assets

Reconciliation schedule for Statement of Activities
 Budgetary comparison schedule

This should be presented as required supplementary
information for the general fund and for each special
revenue fund that has a legally adopted annual budget.
13-35
The Government Reporting Model
 Management’s Discussion and Analysis

MD&A should be included in the required
supplementary information of the governmentwide financial statements to provide an
analytical overview of the government’s
financial and operating activities.
 Notes to the government-wide financial
statements

GASB 34 specified a number of required note
disclosures.
13-36
The Government Reporting Model
 Interim reporting


Governmental entities generally are not required
to publish interim reports, although many
prepare monthly or quarterly reports
Internal management control instrument
 Auditing governmental entities

Most entities are audited annually

Different from the audit of a commercial entity

Single Audit Act of 1984
13-37
Additional Considerations
 Special-purpose governmental entities
 Financial reporting for pensions and
OPEB plans
 Employer accounting for pensions and
OPEB plan benefits
 Accounting for termination benefits
13-38
Practice Quiz Question #12
Which of the following is true about
required supplemental disclosures of
governmental entities?
a. Governments are autonomous and need
not provide any specific disclosures.
b. The CAFR must include management
discussion and analysis.
c. No one reads governmental financial
reports, so it doesn’t really matter what
is disclosed.
d. Governments must provide quarterly
interim reports as part of the CAFR.
13-39