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CPA > FAR - Becker F9 > Flashcards

FAR - Becker F9 Flashcards

1
Q

Governmental reporting focuses on two important types of accountability:

A
  1. Operational accountability – the focus of “government wide financial statements” is to report the extent to which the government has met its operating objectives “efficiently” and “effectively”, using all resources available for that purpose, and the extent to which it can continue to meet its objectives for the future
  2. Fiscal accountability – The focus of the “fund financial statements” is to demonstrate that the government entity’s actions in the current period have “complied” with public decisions concerning the rising and spending a public funds in the short-term (usually one budgetary cycle or one year)
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2
Q

The integrated approach

Show relation between operational and fiscal accountability

Governmental Financial reporting integrates complementary accountability objective as follows:

A

Management discussion and analysis (MD&A)(narrative analysis)
—>
Government wide financial statements “reconciled” to fund financial statements (BASIC FINANCIAL STATEMENTS)
—>
Notes to the financial statements
—>
Requires supplementary information (other than MD&A)
-pension, budgets, & infrastructure

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3
Q

Governmental financial reporting requirements of GASB 34:

A

Require presentation of basic financial statements and required supplementary information. Basic financial statements are defined as government wide financial statements, find financial statements, and notes to the financial statements. Required and other supplementary information covers a wide range of data and presentations, including management’s discussion and analysis, which precede the basic financial statements and other schedules related to budget, pension, and infrastructure

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4
Q

The focus of the government wide financial statements should be on the primary government.

Primary government defined:

A

The primary government consists of all organizations that make up the legal government entity. The primary government is considered the nucleus of the financial reporting entity

PRIMARY GOVERNMENT ENTITIES:

  1. State governments
  2. General purpose local governments (city or county)
  3. Special purpose local governments (hospital authority or a school district- hey governmental unit that has a single or special purpose) that meet the following criteria:
    1) has a separately elected governing body
    2) is legally separate
    3) is fiscally independent of other state and local governments

SELF

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5
Q

Component unit of the primary government is:

A

But organization for which the elected officials of the primary government are financially accountable. It may also be an organization that by its nature in the significance of its relationship with the primary government cannot be excluded for the primary governments financial statements without making a primary governments financial statements misleading or complete

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6
Q

Component unit of the primary government parts:

Blended presentation

A
  1. Blended presentation - The blended method is used in the following circumstances:
    1) A board of the component unit is substantiatively the same as that of the primary government OR
    2) The component unit serves the primary government exclusively or almost exclusively OR
    3) the component unit is not a separate legal entity

NOTE- in these cases, blended presentation is preferred:

1) The blended presentation combines financial information with the primary government
2) Financial information of the component units is not presented in separate columns

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7
Q

Component unit of the primary government parts:

Discrete presentation

(Most common)
Board of education
Rescue squad

A

Is used when the criteria for blended presentation are not met
1) discrete presentation displays component units in separate columns

2) most component units should use discrete presentation
3) Financial statements of the reporting entity should provide an overview of the entity based on financial accountability

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8
Q

Criteria for discrete presentation

Legally separate, tax-exempt organization should be reported as discrete component unit if they meet all of the following criteria:

A
  1. Resources held by the tax-exempt organization or for the near exclusive benefit of the primary government (benefits standard)
  2. The primary government has access to a majority of the resources held by the tax-exempt organization (access standard)
  3. Resources held by the tax-exempt organization or significant to the primary government (significance standard)
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9
Q

Criteria for other component unit presentation

Legally separate, tax-exempt organizations meeting the criteria of a financially integrated entity should be classified as a component unit of the primary government if their relationship to the government is so significant as to make the financial statements misleading without component unit treatment:

A
  1. Organizations meeting the more generalized criteria associated with financial integration should be presented on either a blended or discrete basis depending on the circumstance
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10
Q

Disclosures and foots notes are apart of ——— in government wide financial statements?

A

A part of the financial statements

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11
Q

Optimal reporting of government wide financial statement

COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR)

NOT GAAP!

It is a GFOA designed presentation that adds an introductory section and a statistical section to the beginning and end of a GASB 34 presentation

A
  1. Introductory section (unaudited)
    1) letter of transmittal
    2) organizational chart
    3) list of principal officers
  2. Basic f/s and required supplementary information (audited)
    1) MD&A
    2) Government wide financial statements
    3) fund financial statements
    4) Notes to the financial statements
    5) require supplementary information
  3. Statistical section (not f/s)
    1) 10 years of selected financial data
    2) 10 years of economic data (mileage rates ,etc)
    3) other data
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12
Q

Financial government reporting model

  1. Management’s discussion and analysis (MD&A)

(Before financial statements)

NO:

  • Variance analysis
  • reconciliation of fund F/S to government wide F/S
A

MD&A is a narrative that provides a brief, objective, and easily readable analysis of the governments financial activities based upon currently known facts, decisions, and conditions. It provides the financial management of the government with the opportunity to present both a short-term in a long term analysis of activities. The following should be included:

  1. An easily readable analysis of the governments financial activities based on currently known facts, decisions, and conditions
  2. Condensed financial statement information derived from government wide financial statements used to support the governments overall financial position and results of operations. Three years of data are required that the basic financial statements are comparative
  3. Analysis of overall financial position and results of operations, including reasons for changes from the prior year
  4. Analysis of balances and transactions of individual funds, including limitations on future uses of funds
  5. Analysis of significant variations between original and final budget
  6. A description of the significant assumptions and implications of use of the modified approach for accounting for infrastructure
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13
Q

Financial government reporting model

  1. Management’s discussion and analysis (MD&A)

Other parts:

A
  1. Identity of the primary government and discrete component units
  2. Economic conditions and outlook – a description of the impact of the economy on the financial statements
  3. Major initiatives - this section describes capital asset and long-term debt activity during the year
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14
Q

Financial government reporting model

  1. Government wide financial statements
  • Statement of net position
  • Statement of activities (later)

FIDUCIARY FUNDS EXCLUDED!

A
  1. Statement of net position (consolidated statement)

Net position = RUN

  • 3 components of net position
    1. Restricted - consist of restricted assess reduced by liabilities and deferred inflow of resources related to those assets
    2. Unrestricted - includes the net amount of the assets, deferred outflow of resources, liabilities and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position
    3. Net investment - Consists of all capital assets, net of accumulated depreciation, reduced by the outstanding balances of bonds, mortgages, notes, or other borrowing that are attributable to the acquisition, construction, or improvement of those assets. Deferred outflows of resources and deferred inflows of resources that are attributable to these transactions should be included in this component
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15
Q

Financial government reporting model

  1. Government wide financial statements

Statement of net position
Capital assets – capitalization and depreciation

GASB 34 reporting model requires that capital assets, including infrastructure assets, be included in the government wide financial statements

A
  1. Valuation – the cost of capital assets should include all ancillary charges necessary to place the asset into its intended location and condition of intended use
  2. Construction period Interest – capitalization of construction period Interest is not required for capital assets used in governmental activities
  3. Infrastructure – the term infrastructure as it refers to streets, bridges, gutters, and other assets of the government
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16
Q

Financial government reporting model

  1. Government wide financial statements

Statement of net position
Capital assets – capitalization and depreciation

Modified approach: ( treated as a change in estimate)

A

Infrastructure assets that are part of a network or sub system of a network or not required to be depreciated provided the feature of its two requirements are met:

  1. The government asset management system meet certain conditions
    1) inventory of eligible infrastructure assets is up to date
    2) a summarized condition assessment of the eligible infrastructure assets is performed and the results use a measurement scale
    3) each year, and estimate is made of the amount necessary to maintain and preserve the eligible infrastructure assets at the condition level establish and is disclosed by the government
  2. The government documentation should include data on asset preservation
    1) A complete condition assessment of eligible infrastructure assets must be performed in a consistent manner at least every three years
    2) reasonable assurance that the results of the three most recently completed condition assessment support assertions that the eligible infrastructure assets are being presented at (or above) the condition level established and disclosed by the government
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17
Q

Financial government reporting model

  1. Government wide financial statements

Statement of Net position
Capital assets – capitalization and depreciation

Artwork and historical treasure may not be capitalized when ALL conditions are met:

A
  1. “The collection is held for public exhibition”, education, or research in furtherance a public service, rather than financial gain
  2. “The collection is protected”, Unencumbered, cared for, and preserved
  3. The collection is subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections

NOTE: will apply the same to not-for-profit

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18
Q

Financial government reporting model

  1. Government wide financial statements
    - statement of activities

Program approach:

A

Did government wide statement of activities uses a net program costs format that is not consistent with commercial accounting. The format provides cost information about the primary functions of the government and indicates each programs dependence on general revenues of the government. Total cost by function to arrive at the net cost that must be defrayed by tax revenues

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19
Q

Financial government reporting model

  1. Government wide financial statements
    - statement of activities

Functions/programs:

A

The net expense or revenue for each function or program is classified into one of these categories:

  1. Primary government governmental activities
    (GRaSPP + S)
  2. Primary government business type activities
    (E)
  3. Component units
    (Rescue squad and Board of education)
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20
Q

Financial government reporting model

  1. Government wide financial statements
    - statement of activities

Expenses:

A

Expenses are reported by function on the full accrual basis. This category represents expenses directly associated with each of the functions or programs listed

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21
Q

Financial government reporting model

  1. Government wide financial statements
    - statement of activities

Program revenue category types:

“SOC away these revenues

A
  1. Charges for services - charges for services to customers or applicants who directly benefit from goods or services, charges for services to other governments, and fines and forfeitures
  2. Operating grants and contributions - Grant revenue in support of specific programs, restricted for use in a particular program
  3. Capital grants and contributions - Grant revenue in support of specific programs, restricted for use in a particular program
22
Q

Financial government reporting model

  1. Fund financial statements

Governmental fund
Balance sheet

Meeting Major fund rules:

A
  1. To meet the 10% test, the individual GRAPP funds are individually compared to the total of all governmental funds and the enterprise funds are individually compared to the total of all enterprise funds

Temper cent one more of the corresponding total revenues, expenditures for/expenses, assets and deferred outflows of resources, or liabilities and deferred inflows of resources of 1) all governmental funds OR 2) all enterprise funds (SEPARATE COLUMNS)

AND

  1. To meet the 5% test, the GR S PP funds are individually compared to the total of all the governmental funds and enterprise funds and each enterprise fund is individually compared to the total of all enterprise fund and governmental funds to meet the 5% test.

5% or more of revenues, expenditures/expenses, assets and for outflows our resources, or liabilities and deferred inflows the resources of 1) all governmental funds AND 2) all enterprise funds ( TOTAL COLUMN)

23
Q

When determining if a fund qualifies as a major fund, remember that aggregate fund balance/equity is not used in either test

Info

A

Info

The internal service funds will not be considered in the evaluation of major and nonmajor funds

24
Q

The general fund will always be a major fund?

T/F?

A

True

25
Q

Reconciliation of governmental fund financial statements to government-wide financial statements

The financial statements must reconcile:

A
  1. The differences in the fund balances of governmental funds and net position in the government-wide financial statements
  2. The difference in the net change in fund balances of governmental funds and the change In net position for governmental activities
26
Q

Use the following mnemonics to prepare the reconciliation:

Balance sheet = GALS BARE

statement of revenues, expenditures, and changes in fund balance = GOES BARE

A

G - GRaSPP fund balance
+ A - assets (noncurrent)
- L - liabilities (noncurrent)
+ S - service (internal) fund net position

B - basis of accounting
A - accrued
R - revenues
E - expenses

G - GRaSSP - net change in fund balance
- O - other financing sources
+ E - expenditures- capital outlay (net deprec)
+ S - service (internal) fund net income

B - basis of accounting
A - additional accrued
R - revenues
E - expenses

27
Q

The statement of cash flow’s for governmental reporting is prepared in a similar manner as the commercial enterprise version, with the following 7 differences:

A
  1. The direct method is required
  2. A reconciliation of operating income (not net income) to net cash provided by operations is required
  3. There are four categories (instead of the three categories in commercial accounting):
    1) operating activities
    2) capital and related financing activities
    3) non-capital financing activities
    4) investing activities
  4. The order of financing in investing activities categories are reversed. Governmental entities present the financing category before investing. Commercial entities present the investing category before financing
  5. Interest income/cash receipts are reported as “investing activities” (not as operating activities)
  6. Interest expense/cash payments are either:
    1) Capital and related financing
    2) non-capital financing
  7. Capital asset purchases are reported as “financing activities” (not as investing activities)
28
Q

Government notes to the financial statements

A

Notes to the financial statements are essential to fair presentation and consider integral to the financial statements. Note should focus on the primary government, specifically:

  1. Governmental activities
  2. business type activities
  3. major funds
  4. nonmajor funds in the aggregate
  5. additional information regarding discreetly presented component units
29
Q

Generic governmental disclosures:

A
  1. A description of government wide activities, noting the exclusion of fiduciary funds
  2. Policies relating to elimination of internal activity
  3. Description of the modified approach for reporting infrastructure, if used
  4. Segment information on enterprise funds meeting the following definition of a segment:
    1) Enterprise represents an identifiable activity
    2) Enterprise has a one or more debt issues outstanding with the revenue streams pledge in support of that debt
30
Q

Financial government reporting model

  1. Required supplementary information (other than MD&A)

BUDGETARY:

A
  1. Budgetary information - budgetary comparison schedules must be prepared for the general fund and for each major special revenue find that has a legally adopted annual budget and may be presented as either required supplementary information or in the basic financial statements

1) budgetary comparison schedules must show the original budget, the final amended budget, and actual amounts
a. Computation of variances between budget and actual is optional (INFLOWS/OUTFLOWS & BALANCES)
b. Computation of differences between original and final amended budget is optional (USE BUDGETARY BASIS)

2) budgetary comparison may use either GAAP for budgetary formats, or basis of accounting, but must include a reconciliation to GAAP
3) Notes to required supplementary information should disclose excess of expenditure over appropriations in individual funds presented in the budgetary comparison
4) budgetary comparison schedules should be prepared for the general fund and all special revenue funds that require a budget

31
Q

Financial government reporting model

  1. Required supplementary information (other than MD&A)

Infrastructure information:

A
  1. Modified approach for reporting infrastructure assumed significant required supplementary disclosures derived from the items described in the section titled capital assets
  2. Require supplementary information for all eligible infrastructure assets reported using the modified approach should include schedules that disclose:
    1) assess the condition of infrastructure
    2) estimated annual amount to maintain and preserve infrastructure for each of the past five years

Additional disclosures for infrastructure would include:

1) The basis for condition measurement
2) the condition level at which the government plans to maintain its infrastructure

32
Q

Financial government reporting model

  1. Required supplementary information (other than MD&A)

PENSION INFORMATION:

A

The following are required supplementary information should be presented for each of the 10 most recent fiscal year:

  1. Sources of changes in the net pension liability
  2. Information about the components of the net pension liability and related ratios including:
    1) The pension plans fiduciary net position as a percentage of the total pension liability
    2) The net pension liability as a percentage of the covered employee payroll
    3) actuarially determine conservation
    4) the amount of contributions
  3. Significant methods in assumptions used to calculate the actuarially determine contributions
  4. Annual money weighted rate of return or pension plan investments for each of the 10 years presented
  5. Explanation of trends in amounts reported in the supplementary schedule such as:
    1) changes in benefit terms
    2) changes in the population
33
Q

Financial government reporting model

Other supplementary information

A

OPTIONAL

  1. Combining statements for nonmajor funds
  2. Variance originally adopted budget and final
    Amended budget
  3. Variance between final amended budget and actual
34
Q

Government Interfund activity

A

Interfund activity represents the flow of resources between funds and between the primary government and its components units. The accounting associate it with interfund activity can be a classified as follows:

  1. Reciprocal Interfund activity
  2. nonreciprocal interfund activity

Interfund activity is subject to specific requirements related to financial statement display and disclosure

35
Q

Reciprocal Interfund activity

Reciprocal Interfund activity includes exchange type transactions between funds

A
  1. Interfund loans – represent temporary extensions of credit to other funds that are expected to be repaid in our accounted for as interfund receivables and payables (due from/due to)
    - unrealizable balances are reclassified as transfers
  2. Interfund services provided and used - Interfund services represent sales and purchases between funds at external pricing

EXAMPLE: include sales of water and sewer services by and enterprise fund to the city and internal service fund activities

Transactions of this type or accounted for as revenues and expenses/expenditures

36
Q

Nonreciprocal Interfund activity

Generally, nonreciprocal interfund activity represents nonexchange transactions between funds

A
  1. Interfund transfers – flows of assets between funds without the exchange of equivalent value represent interfund transfers.

EXAMPLES:

1) Payment in lieu of taxes made by a proprietary fund to the general fund
2) the budget transfer of pledged revenues from a special revenue fund to a debt service fund to meet bond covenant requirements

Transfers are normally displayed as other financing sources and uses after non-operating revenues and expenses

  1. Interfund reimbursements – payment of expenses made by one fund on behalf of another fund are accounted for as reimbursements.
    1) The expenditure originally made is reimbursed by the fund actually responsible for the disbursement.
    2) Interfund reimbursement serve to reclassify the expenditure or expense associated with the original transaction to the fun ultimately responsible for the obligation satisfied

Interfund reimbursements are not displayed as interfund transactions

37
Q

Government financial statement display and disclosure

A

Financial statement this place:

  1. Within the governmental activities column of the government wide financial statements - activity within a particular column displayed on the financial statements should be eliminated
  2. Within the business type activities column of the government wide financial statements - activity within a particular column displayed on the financial statements should be eliminated
  3. Between the governmental activities and business type activities displayed on the government wide financial statements - The internal balances should be displayed as an internal balance on the face of each financial statement and align with each other to eliminate for purposes of total primary government financial statements
  4. Between the primary government and its fiduciary funds – the transaction should be reported as if between external parties
38
Q

Not-for-profit is FASB and NOT GASB?

T/F?

A

True

Full accrual basis of accounting

39
Q

Not for profit have 4 categories:

A
  1. Health care organizations
  2. Educational institution
  3. Voluntary health and welfare organizations
  4. Other private (not governmental) not for profit organizations
40
Q

Not for profit required f/s

A
  1. Statement of financial position
  2. Statement of activities
  3. Statement of cash flows
  4. Statement of functional expenses (required for voluntary health and welfare organizations, although not mandatory for others
41
Q

Not for profit net assets =

PUT

A

Permanently restricted

Unrestricted

Temporarily restricted

42
Q

Not for profit

Statement of activities 4 required elements:

A
  1. Change in total net assets
  2. Change in unrestricted net assets
  3. Change in temporarily restricted net assets
  4. Changed in permanently restricted net assets
43
Q

Not for profit

Statement of activities EXPENSES

Expenses are reported as decreases in unrestricted net assets. Detail functional classification must be presented either on the face of the financials or the notes to the financial statements.

Expenses are categorized as:

A
  1. Program services (charted organizations)
    1) universities- education and research
    2) hospitals- patient care and education
    3) union - labor negotiations and training
    4) day care - child care
  2. Support services
    1) fundraising
    2) administration
    3) management and general
    4) membership development
  3. Combined costs - not for profit organizations that combined fundraising efforts with educational services should allocate the combined cost between functions
44
Q

Not for profit

Statement of cash flow is required

Use direct or indirect

Started with change in net assets(not net income or operating income)

A

Operating activities

Financing activities (also certain restricted contributions) (such as restricted to acq of property)

Investing activities

45
Q

Not for profit

Statement of functional expenses

Functional classification of expenses:

A
  1. Program support expenses
  2. Fundraising expenses (unsolicited merchandise sent out)(St Jude stamps)
  3. Management and general costs
  4. multiple cost items
46
Q

Not for profit

Revenue recognition:

Typical J/E

A
  1. Cash contributions:
    received = revenue
    FMV
  2. Unconditional promises:
    Pledge = revenue
    FMV @ pledge (written or verbal)
  3. Conditional promises:
    Earned = revenue
    Depends on future and uncertain event
  4. Multiple year pledges:
    Net PV,
    - Money received now = revenue
    - Money receive in the future = temporary restricted revenue

NOTE: HAS ALLOWANCE FOR UNCOLLECTIBLE PLEDGES

47
Q

Not for profit

Split interest contributions:

A
  1. FMV at date of acquisition

2. Displayed as temp restricted (unless permanent applies)

48
Q

Not for profit

Donated services:

At FMV

A

Donated should be recorded as contribution revenue and expense at fair value of the services meet the following criteria:

  1. Create or exchange a non financial asset
  2. Required specialized skills that the provider possesses and would otherwise have been purchased by the organization
Mnemonics SOME
S - specialized skills are possessed 
O - otherwise needed 
M - measurable
E - Easily( determine FMV)

DR- expense or asset
CR - contributions - non operating revenue

49
Q

Not for profit

General principles: recipient accounting

  • without variance power

“NFP acts as agent/no benefit or power”

A

An organization that accepts assets from a donor and agrees to use or manage them on behalf of a specified beneficiary WITHOUT VARIANCE POWER accounts for assets received as follows

  • FMV
    DR - asset
    CR - refundable advance
  1. Assets transferred to recipient organizations are not contributions and are accounted for as liabilities when anyone of the following conditions are met:

1) The resource provider can change the beneficiary
2) The resource providers asset transfer is conditional or otherwise revocable or repayable
3) The resource provider control of the recipient organization and specifies an unaffiliated beneficiary
4) The resource provider specifies itself or his affiliate as a beneficiary does not qualify for equity accounting

50
Q

Not for profit

General principles: recipient accounting

  • granted variance power

“NFP acts as agent/has power”

A

DR - ASSET
CR - contribution revenue

Assets recognized when received and expensed distribution to beneficiary

51
Q

Not for profit

General principles: beneficiary accounting

  • recognition rule
  • recognized rights
A
  1. Specified beneficiaries recognize their rights to assets held by others (the recipient) unless the recipient is explicitly granted variance power
  2. Rights, when recognized, will be recorded as any one of the following:
    1) an interest in the net assets of the recipient
    2) a beneficial interest
    3) a receivable and contribution revenue

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