CGFO: Accounting and Financial Reporting
What are the six goals of accounting?
Provide financial information that is
What does GAAP stand for?
Generally accepted accounting principles
What are the legislatively-sanctioned plans for
spending and
expected revenues needed to meet those outlays?
Operating and capital budgets
What is the record keeping framework in which to record (in journals) the transactions authorized by the budget and to reconcile (in ledgers) their cumulative financial impact?
Accounting system
What are the two most important financial documents?
Budget and annual financial report
(the accounting system links the two together by providing the
framework for
processing financial transactions)
What does GAAP outline?
The recording, reconciling, and reporting of transactions in
the
accounting system
What is GASB?
The Governmental Accounting Standards Board, a seven-person body
of
accounting professionals that is the primary source of such
standards, interpretations, and technical bulletins for state and
local governments
When was GASB created?
1984
Adopted in June 1999, which statement introduced sweeping changes to the structure of the basic financial statements for state and local governments and the way in which accounting information is recorded and reconciled?
Statement No. 34, “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments,”
What are the benefits of standardizing the accounting system?
How is GAAP for government different from private accounting?
Whereas a business combines the results of the operations of
all
its subsidiaries into one consolidated report, governments report
their results by groups of funds (the accounting entity)
What is a fiscal and accounting entity with a self-balancing set of
accounts?
Fund
Define Principle #1 of governmental accounting
Requires that accounts be maintained on a GAAP basis and
demonstrate
compliance with finance-related legal requirements
Define Principle #2 of governmental accounting
Specifies that funds must be the basis for maintaining accounting records
Define Principle #3 of governmental accounting
Identifies and defines the eleven basic types of funds used in governmental
accounting
Define Principle #4 of governmental accounting
Governments should maintain a minimum number of funds and only
those
required by law
Define Principle #5 of governmental accounting
A distinction should be maintained in the accounting records among
the capital
assets of proprietary funds, fiduciary funds, and
those of governmental funds.
Define Principle #6 of governmental accounting
The historical cost of capital assets (land, buildings, equipment,
infrastructure)
and long-term debt should be maintained in the
accounting records
Define Principle #7 of governmental accounting
Depreciation of capital assets should be recorded in the accounting records
Define Principle #8 of governmental accounting
The accounting records should maintain a clear distinction between longterm liabilities attributable to a specific fund and those to the general government.
Define Principle #9 of governmental accounting
The accrual basis of accounting should be used for the
government-wide
financial statements. The fund-specific financial
statements should use the modified accrual basis for governmental
funds and the accrual basis for proprietary and fiduciary funds
Define Principle #10 of governmental accounting
An annual budget should be adopted, budgetary control is provided by
the
accounting system, and an annual comparison of budget with
actual results of operations should be made
Define Principle #11 of governmental accounting
Interfund transfers must be recognized and reported depending on
whether the
transfer involves reciprocity or not
Define Principle #12 of governmental accounting
A common terminology and classification system should be used
throughout all
financial records
Define Principle #13 of governmental accounting
Interim financial reports should be prepared and the format of
the
comprehensive annual financial report (CAFR) should follow a
specified format
What are the two ways governments recognize accounting transactions?
Accrual and modified accrual method (for certain funds)
How can a fund be defined?
As a fiscal entity with a set of self-balancing accounts
How can a fund be viewed?
As a legal entity that receives inflows and incurs outflows of financial resources
How does a fund acquire a balance?
If the inflows exceed the outflows, the fund accumulates a balance; conversely a net outflow results in a reduction in fund balance
How is a fund created?
By law or an executive fiat
What is the primary operating account?
General Fund
What are the five Governmental Funds?
What are the two Proprietary (Business-type) Funds?
What are the four Fiduciary funds?
Which fund accounts for and reports financial resources that are restricted, committed, or assigned to expenditure for principal and interest of long-term, general debt?
Debt Service Fund
Which fund accounts for the proceeds of specific revenue sources that have been committed or restricted to expenditure for specified purposes other than debt service or capital projects?
Special Revenue Fund
Which fund accounts for and reports 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?
Capital Projects Fund
What happens to a Capital Projects Fund once the project is complete?
The fund may be closed out and the remaining balance transferred to other capital project funds or to a committed or restricted account in the General Fund
What is the function of a capital budget?
Provides authorization for the resources and expenditures of these
funds
and provides detail on each project's sources and uses of funding
What fund is 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
government or its citizenry?
Permanent Fund
Which fund accounts for services that derive a portion of their income through user charges?
Enterprise Fund
What are inflows to an enterprise fund?
Fees charged to users of the service
What are outflows to an enterprise fund?
The labor and operating costs incurred in providing the service
What are the requirements of GASB 34?
That an activity be accounted for in an enterprise fund if it is financed with debt that is backed by fees generated by that activity.
Which fund includes some service charge revenue but it is not used as collateral for Revenue Bonds used to finance the fee-for-service activity?
Special Revenue Fund
Example: The gross receipts tax is levied on a private cable company;
however,
the revenue is committed or restricted to a particular
purpose. What type of fund is it?
Special Revenue Fund
Which fund accounts for services provided by one department of government to another, i.e. services internal to the organization or in some cases by one unit of government to another?
Internal Service Fund
What is the advantage of an internal service fund?
It provides a mechanism for encouraging greater efficiencies in the use of such services by rationing the internal users and providing accountability.
Which funds account for resources that governments hold in trust for individuals, such as a pension fund, or other governments?
Fiduciary Funds
Which funds account for resources that are commingled by several governments and are held in trust by a sponsor, such as a county?
Investment Trust Funds
Which funds have the resources held in trust by a government on behalf of individuals, private organizations, or even other governments?
Private-purpose Trust Funds
Which funds are resources held in trust by a local government for payment of employee retirement benefits?
Pension Funds
Which funds holds taxes paid by other cities and report the debt
service transactions of a special assessment issue for which the
government is not
obligated in any manner rather than a debt
service fund to reflect the fact that the government’s duties are
limited to acting as an agent for the assessed property owners and the bondholders?
Agency Funds
What do reciprocal funds involve?
Interfund loans and reimbursable services provided by one fund to another
Define reciprocity
A fund reimburses another for the benefits it receives from the latter much as if it had purchased that service or incurred a loan from a source outside the government?
What activity includes interfund transfers and interfund reimbursements where reciprocity is not required?
Nonreciprocal transactions
What is a separate financial reporting unit for budget, management, and/or accounting purposes?
Account
What is the accounting equation for government funds?
Assets + Deferred Outflows of Resources = Liabilities + Deferred
Inflows of
Resources + Fund Balance
What is the accounting equation for proprietary funds and government-wide financial statements?
Assets + Deferred Outflows of Resources – Liabilities – Deferred
Inflows of
Resources = Net Position
Which accounts represent things of value?
Asset accounts
Which assets can be converted to cash within a year or less?
Current assets
Which assets represent the least liquid assets such as
land,
buildings, equipment, and other improvements and are
recorded based on their historical cost?
Capital assets
Where are capital assets reported?
The government-wide statement of net position and the proprietary funds statement of fund net position
What is defined as a consumption of net position that applies to a
future
period(s) and so will not be recognized as an outflow of
resources (expenses /expenditures) until then?
Deferred outflows of resources
Which accounts represent legal obligations that require the eventual transfer of assets?
Liability accounts
What is defined as the acquisition of net position/fund balance that
applies
to a future period(s) and so will not be recognized as an
inflow or resources (revenue) until that time?
Deferred inflows of resources
What defines fund balance for all accounts and net position for proprietary and fiduciary funds?
The difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources
What are the five types of accounts that can be included in a fund balance?
Which balance classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact?
Nonspendable
Which balance classification includes amounts that can be spent only for the specific purposes stipulated by external resource providers either constitutionally or through enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors or the laws or regulations of other governments?
Restricted
Which balance classification includes 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 should be reported as committed fund balance?
Committed
Which balance classification includes amounts that are constrained by
the government‘s intent to be used for specific purposes, but are
neither restricted nor committed, should be reported as assigned fund
balance,
except for stabilization arrangements?
Assigned
Which classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund?
Unassigned
Which fund can report a positive unassigned fund balance?
General Fund
What are the three components of Net Position?
Net investment in capital assets,
• Restricted (distinguishing
between major categories of restrictions)
• Unrestricted
Define net position
the difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources in proprietary and fiduciary funds
Which component of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of bonds, mortgages, notes, or other borrowings attributable to the acquisition, construction, or improvement of those assets?
Net investment in capital assets
Which component of net position is defined as restricted fund balance, however, the balances may be different due to the different measurement focuses and bases of accounting used in government-wide statement of net position and the government funds balance sheet?
Restricted net position
Which component of net position is the net amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or restricted net position?
Unrestricted net position
What are the five step sequence of accounting actions?
Step 1. Business transaction occurs
Step 2. Transaction logged in book of original entry
Step 3. Posting to General Ledger and Subsidiary Ledgers, such as Revenue Subsidiary Ledger Expenditure Subsidiary Ledger
Step 4. Closing entries entered in journal and posted to General Ledger
Step 5. Financial Statements prepared
Which financial report compares budget vs actual and provides guidance during city council meeting?
Operating statement
Explain flow of financial resources measurement focus for governmental funds
The focus is for current assets and current liabilities. The purpose is not to accumulate wealth but to spend funds for services
Explain flow of economic resources
The focus for proprietary and fiduciary funds accounting for capital assets. Purpose is to accumulate net wealth.
When are governmental funds recognized?
When they are measurable and available for use (generally 60 days after fiscal year-end)
This is also known as modified accrual
What are revenues that are measurable but unavailable for use
in
the current period?
Deferred inflow
What is the method for recognizing proprietary and fiduciary funds?
Accrual method: Revenues are recognized when they are earned, expenses are recognized whenever goods are used using depreciation and showing the difference as net income
What two reports serve as the basis of budget implementation? Which is the more important of the two?
interim and annual financial reports
Both tally the revenue and expenditures for the subsidiary ledgers of each fund. Interim are for internal use, therefore more important to city council decision making
How is the interim report arranged?
Name of Department - Appropriation - Current Period Expenditures - Year-to-Date Expenditures - Encumbrances = Unencumbered Balances
What does CAFR stand for?
Comprehensive annual financial report
Which report is created primarily for external stakeholders and provides a report on all funds managed by a government for the preceding fiscal year?
CAFR
What are the three components of a CAFR?
Introductory Section
• Financial Section
• Statistical Section
What does the Introductory Section of the CAFR contain?
1. Table of Contents
2. Letter of Transmittal
3.
Organizational Chart
4. List of Principal Officials
5.
Reproduction of Certificate of Achievement for Excellence for
Financial Reporting (if applicable)
What does the Financial Section of the CAFR contain?
1. Management discussion and analysis (MD&A)
2. Basic
financial statements including:
{a}Government-wide financial
statements
{b} Fund-specific financial statements (one set for
Governmental Funds, another for Proprietary Funds, and another for
Fiduciary)
{c}Notes to the financial statements
3. Required
supplementary information (RSI)
What is the purpose of the MD&A?
Gives management the opportunity to (1) describe the basic financial statements, (2) discuss trends in the overall financial condition of the jurisdiction as well as in key funds and fund types, (3) explain significant differences between the original and final approved budgets, (4) describe significant changes in capital assets and long term debt, and (5) any known events that may have a significant effect on the City’s financial condition
What are the two consolidated statements required by GASB?
Statement of Net Position and a Statement of Activities
What does the Statement of Activities report?
The expense of providing services by function
Which funds require individual statements?
The General Fund and any other "major funds" that meet the quantitative requirements
What statements are required for Proprietary Funds?
Statement of Net Position (balance sheet), Statement of Revenues, Expenses and Changes in Net Position, and a Statement of Cash Flows, all prepared on an accrual basis
What statements are required for Fiduciary Funds?
Statement of Net Position and Statement of Changes in Net Position are presented by fund type rather than individual funds
What three things should the budget comparison report?
(1) the original approved budget, (2) the final amended budget, which represents the ultimate appropriation authority for the fiscal year, and (3) the actual amounts (on a budgetary basis) for the same period. A column showing the variance between actual and final budget
What five elements might be included in an RSI (Required Supplementary Information)?
(1) If budgetary comparisons were not provided in the fund-specific
section, then they are to be included in the RSI as schedules
(2) Local governments must provide an assessment of
the
condition of such infrastructure and the cost required as
well as the actual amount expended to maintain this infrastructure at
a predetermined level of quality.
(3) Trend data on
postemployment benefits (postemployment benefit plans and employers
that participate in sole-employer or agent multiple-employer defined
benefit plans).
(4) Trend data on revenue and claims development
(public-entity risk pools)
(5) Pension schedules
What are the five objectives of the The Statistical Section of the CAFR?
Provide information on financial trends
• Provide information on
revenue capacity
• Provide information on debt capacity
•
Provide demographic and economic information
• Provide operating information
Which employee benefits are not part of a pension plan and paid out of an annual appropriation from a state or local government’s operating budget along with benefits to those currently employed?
Other post-employment benefits (OPEB
Which statement provided guidance on when certain organizations,
although not financially accountable to the primary government, should
be reported as a component of that government’s financial reports
based on the nature of their
relationship?
Statement 39
What is the criteria to determine if a component should be reported as a separate unit?
(1) The resources received by the separate organization are entirely
or almost entirely for the direct benefit of the parent government or
its components or constituents;
(2) The parent government or its
component units can access most of the resources held by the separate
organization;
(3) The resources held by the organization, that
the parent government is entitled to or has the authority to access,
are significant to the parent government.10
Which statement established standards for recognizing liabilities, deferred benefit payments, and pension payments?
Statement 68
Which statement defined "fair value" and "investment"?
Statement 72