Chapter 9 Section 1: Governmental Accounting

Question 1

What are the two types of accountability, and how is each focused on?

Answer 1

Operational Accountability - emphasized in the government-wide financial statements
Fiscal Accountability - emphasized in the fund financial statements

Question 2

What goes into basic financial statements?

Answer 2

Gov’t-Wide financial statements
Fund financial statements: gov’t, proprietary, fiduciary
Notes to financial statements

Question 3

What is required for reporting in gov’t-wide financial statements?

Answer 3

MD and A
Gov’t-wide financial statements
Fund financial statements
Notes to financial statements
Required supplementary information other than MD&A
Other supplementary information (optional)

Question 4

What goes into optional reporting?

Answer 4

Comprehensive annual financial report (CAFR)

Question 5

What is included in the CAFR?

Answer 5

1. Introductory section
   - letter of transmittal
   - organizational chart
   - list of principal officers
2. Basic financial statements and required supplementary information
   - MD&A
   - Gov’t-wide financial statements
   - Fund financial statements
   - Notes to the financial statements
   - Required supplementary information
3. Statistical section

Question 6

What are the requirements to qualify as a primary government entity?

SELF

Answer 6

Separately elected governing body
Legally separate
Fiscally independent of other state and local gov’ts

Question 7

Define component unit

Answer 7

An organization for which the elected officials of the primary gov’t are financially accountable.
Cannot be excluded from the primary gov’ts financial statements without making the primary gov’ts financial statements misleading

Question 8

What are the two options for component unit presentation?

Answer 8

Blended and discrete

Question 9

Explain the blended presentation method

Answer 9

Units are so intertwined with the primary gov’t that they are, in substance, the same as the primary gov’t
Has any of the following characteristics:
1. board of the component unit is substantively the same as that of the primary gov’t
2. Component unit serves the primary gov’t exclusively
3. Component unit is not a separate legal entity
Do not present the financial information of the component units separately

Question 10

Explain the discrete presentation method

Answer 10

Used when the criteria for blended presentation are not met
Display the component units in separate columns
This is the most common presentation

Question 11

Which funds are reported in the gov’t wide financial statements?

Answer 11

GRSPP+S

E is reported as well, but in the business-type section

Question 12

Define MD&A

Answer 12

It comes before the financial statements, and is a narrative analysis of the economic position and activities

Question 13

What are the two gov’t-wide financial statements?

Answer 13

Statement of net position

Statement of activities

Question 14

Which set of funds is excluded from gov’t-wide financial statements?

Answer 14

Fiduciary, because the gov’t doesn’t have control over them

Question 15

What are the components of net position?

RUN

Answer 15

Restricted
Unrestricted
Net investment in capital assets

Question 16

How should capital assets be valued?

Answer 16

At cost, including ancillary charges

Question 17

Do you capitalize construction period interest?

Answer 17

It’s not required

Question 18

Define infrastructure, and how accounting for it is different

Answer 18

It includes things like streets, bridges, and gutters
They should be recorded as general capital assets, and only reported on gov’t-wide financial statements
They are accounted for using the modified approach - they are not required to be depreciated as long as they meet certain conditions.

Question 19

How are ongoing infrastructure expenditures reported?

Answer 19

As expenses usually

Question 20

What are the two conditions to use the modified approach?

Answer 20

The asset management system needs to keep an up-to-date inventory with a condition assessment and a yearly estimate of the amount necessary to maintain the infrastructure
The complete condition assessment needs to happen at least every three years, and give support to show that the assets are presented accurately and at a condition that meets their standards.

Question 21

What if you change to or from the modified approach?

Answer 21

It’s just a change in estimate

Question 22

How should artwork and historical treasures be handled?

Answer 22

They should usually be capitalized at their historical cost (or FV at the date of donation)
Sometimes they can not capitalize them.

Question 23

What conditions must be met to elect to not capitalize works of art?

Answer 23

The collection is held for public exhibition, is protected, and if it is sold, the proceeds will be used to buy more.

Question 24

What do you do with interfund activities?

Answer 24

Eliminate them

Question 25

What are the three categories that expenses and revenue for each function are split into?

Answer 25

Primary gov't governmental activities Primary gov't business-type activities Component units

Question 26

What are the three program revenue types? SOC

Answer 26

Charges for services (includes fines) Operating grants and contributions Capital grants and contributions

Question 27

What are the two tests for qualifying as a major fund?

Answer 27

1. 10% or all gov't funds or all enterprise funds 2. 5% of all gov't AND enterprise funds General is always a major fund, and internal service never goes into the calculation

Question 28

What are the steps to reconcile the balance sheet? GALS BARE

Answer 28

GRaSPP - fund balance + Assets (noncurrent) - Liabilities (noncurrent) + Service (internal) net position Basis of accounting = Accrued Revenues and Expenses

Question 29

What are the steps to reconcile the statement of revenues, expenditures, and changes in fund balance? GOES BARE

Answer 29

GRaSPP - change in fund balance - Other financing sources (borrowings) + Expenditures - capital outlay (net of depreciation) + Service (internal) fund net income Basis of accounting = Additional accrued Revenues and Expenses

Question 30

How is the statement of cash flows (for proprietary funds) different?

Answer 30

1. Direct method is required 2. Reconcile op income to net cash provided 3. Four categories: Operating, capital financing, noncapital financing, investing 4. Financing and investing switched orders 5. Interest income/cash receipts is an investing activity (not operating) 6. Interest expense/cash payments can be capital financing or noncapital financing. 7. Capital asset purchases are financing activities

Question 31

What is the difference between capital and noncapital financing?

Answer 31

Capital includes debt, capital grants, capital asset activity Noncapital includes regular grants, property taxes, and operating transfers

Question 32

What goes into required supplementary information?

Answer 32

Budgetary information, like comparison schedules showing original, final, and amended budgets, as well as actual amounts. Don't have to do variances.

Question 33

What can go in the other supplementary information?

Answer 33

Combining statements for nonmajor funds

Question 34

What are the two types of interfund activities? Define them.

Answer 34

Reciprocal: exchange-type transactions like loans and services Nonreciprocal: non-exchange transactions like transfers and reimbursements

Question 35

What do you do with a transaction between primary gov't and fiduciary funds?

Answer 35

Leave it - because fiduciary isn't included