What are the basic sections of external financial reports for govermental entities using the integrated reporting model established by GASB #34?
Management's discussion and analysis (MD&A) (required supplementary information)
-The following 3 are the basic financial statements-
Government-wide financial statements
Fund financial statements (reported to government-wide financials)
Notes to the financial statements
Required supplementary information (RSI)
What sections of the external financial reporting model represent the basic financial statements?
Government-wide financial statments
Fund financial statements
Notes to the financial statements
For govenmental entities, what are the detailed external financial reporting requirements?
Reporting government-wide statements
• Statement of net position
• Statement of activities
Reporting governmental fund financial statements
• Balance sheet
• Statement of revenues, expenditures, and changes in fund balances
• Reconciliation to the government-wide statements
Reporting proprietary fund financial statements
• Balance sheet/Statement of net position
• Statement of revenues, expenses, and changes in fund position
• Statement of cash flows, direct format
Reporting fiduciary fund financial statements
• Statement of fiduciary net position
• Statement of changes in fiduciary net position
Combining statements for major component units
• Statement of net position
• Statement of activities
Notes to the financial statements
• Schedule of changes in capital assets
• Schedule of changes in long-term liabilities
Required supplementary information
• Management’s discussion and analysis
• Budgetary comparison schedules
• Pension and infrastructure information
What is CAFR?
What does it include?
CAFR: Comprehensive Annual Financial Report
- Letter of transmittal
- Organizational chart
- List of principle officers
Basic financial statements and required supplementary information (GASB #34)
- Management's discussion and analysis
- Government-wide financial statements
- Fund financial statements
- Notes to the financial statements
- Required supplementary information
What are the minimum disclosure requirements on the government-wide statement of net position?
- Government activities
- Business-type activities
- Total primary government activities
Discretely presented component units
What are some of the major topics included in Management's Discussion & Analysis (MD&A)?
Description of the basic financial statements
- Identity of the primary government and discrete component units
- Economic conditions and outlook
- Major initiatives
Identify the three components of net position displayed on government-wide financial statements.
Invested in capital assets, net
- Restricted (by category)
Define infrastructure assets, and describe where they are reported.
Infrastructure assets refer to streets, bridges, gutters, water systemss, and other assets of the government.
They are reported as assets in the government-wide statements, at historical cost and depreciated unless certain conditions are met for reporting using the modified approach.
What is the appropriate reporting treatment of donated works of art and historical treasures held by a governmental organization?
Governments may elect not to capitalize donated works of art if works are protected and displayed and proceeds from any future sales are going to be reinvested in other works.
When are eliminating entries made as part of preparing government-wide financial statements?
Interfund activities between funds that are consolidated within governmental or business-type activity reporting categories are eliminated when preparing government-wide financial statements.
List the components of program revenues in the statement of activities.
Operating grants and contributions
Captial grants and contributions
State the reporting treatment of internal service funds.
Activity resulting from internal service funds are reported in proprietary funds but should be reported in the governmental activities column of the government-wide financial statements unless the government's enterprise funds are the primary recipient of internal service fund services.
What is the format of the government-wide statement of activities?
The government-wide statement of activities is presented in a net cost format defined as follows:
- Revenues separated into program revenues (SOC) and general revenues.
- Expenses are reduced by program revenues resulting in net (expense) revenue and changes in net position.
- General revenues, extraordinary items, and special items are reported separately.
- Result is change in net position.
What is the threshold for identification as a major fund?
Total assets and deferred outflows of revenue, liabilities and deferred inflows of revenue, revenues, or expenditures/expenses of the indivdual fund are:
- At least 10% of the corresponding total for fund category to which the major fund belongs; and
- At least 5% of hte corresponding total for all governmental and enterprise funds combined.
Name some significant potential reconciling items between fund balance accounts displayed on the balance sheet of the governmental funds' financial statements and net position displayed in the government-wide balance sheet.
Reconciling items may result from differences in measurement focus or basis of accounting. (GALS BARE)
Governmental Fund Equity (Fund Balances)
+ Assets (noncurrent)
- Long-term debt
+ Internal Services Fund net position
Basis of accounting
Accrual differences resulting in receivables or payables for
Revenue converted from modified to full accrual or
Name some significant potential reconciling items between changes in fund balance displayed on the statement of revenues expenditures and changes in fund balance in the govenmental funds' financial statements and the change in net position displayed in the government-wide statement of activities.
Reconciling items may result from differences in measurement focus or basis of accounting. (GOES BARE)
Governmental fund changes in fund balance
- Other financing sources (debt proceeds)
+ Expenditure--Capital outlay (net of depreciation)
--Principal payments on debt
+ Service (Internal) fund change in net position may need to be added
Basis of accounting
Accrual differences resulting in revenues or expenses for
Revenue converted from modified to full accrual (e.g., accrual of earned tax revenues even though collected more than 60 days after year-end.)
Expenditures converted to expense (e.g., accrual of interest expenses)
The statement of cash flows is prepared for which funds?
What are the sections of the statement of cash flows?
A statement of cash flows is prepared for propreitary funds.
- Cash flows from operating activities
- Cash flows from noncapital financing activities
- Cash flows from capital and related financing activities
- Cash flows from investing activities
List the types of interfund transactions.
Reciprocal interfund activity:
- Interfund loans
- Interfund services provided and used
Nonreciprocal interfund activity:
- Interfund transfers
- Interfund reimbursements
Define a primary government.
Primary governments are usually represented by a general-purpose government, such as a state, country, city, or other jurisdiction that can stand by itSELF:
Legally separate entity
Define a component unit.
Component units are those governmental or not-for-profit organizations that either do not meet the criteria of a primary government or are so intertwined with the primary government that exclusion from the primary government's financial statements would cause the primary government's financial statements to be misleading.
What two methods are available for reporting component units of a primary government in the primary government's financial statements?
Blended: Consolidated with the primary government
Discrete: Shown in a separate column as a component unit
Define the criteria for discrete and blended presentations of component units.
Blended: When the component unit is, in substance, the same as the primary government:
- A board of the component unit is "substantively the same as that of the primary government."
- The component unit serves the primary government exclusively or almost exclusively.
- The component unit is not a legal entity.
Discrete: When the criteria for blended presentation are not met.
Identify the basis of accounting for not-for-profit organizations.
Accrual basis of accounting
Name the primary authoritative source for GAAP for not-for-profit organizations.
Financial Accounting Standards Board
What financial statements are prepared for nongovernmental not-for-profit entities?
Statement of financial position
- Statement of activities
- Statement of cash flows
- Statement of functional expenses (required for voluntary health and welfare organizations, optional but encouraged for all others)
Name the classifications of net assets.
Identify the four required elements in the statement of activities for not-for-profit organizations.
Change in total net assets
Change in unrestricted net assets
Change in temporarily restricted net assets
Change in permanently restricted net assets
Name the classifications of the statement of cash flows for not-for-profit organizations.
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Name the functional classification of expenses commonly used in not-for-profit organizations.
- Fundraising expenses
- Management and general
What are the recognition criteria for:
- Cash contributions
- Unconditional promises
- Conditional promises
- Multi-year pledges
As revenues or gains in the period in which they are received, measured at fair value at the date of gift
Unconditional promises (pledges):
Recorded at its fair value when received
Conditional promises (pledges):
Recognition occurs when future event occurs (condition met)
Recorded at net present value at the date the pledge is made, with future collections considered temporarily restricted (by time)
How are pledges accounted for?
Unconditional promises to contribute in the future (pledges) are reported as restricted support (time restriction), at the present value of the estimated future cash flows using a discount rate commensurate with the risks involved.
When are donated services displayed as revenue and expense (or capital improvement) on the financial statements of not-for-profit organizations?
Donated services are recongized as revenue of the financial statements of not-for-profit organizations SOME of the time. Recognized donated services must meet the following criteria:
The services creates or enchances nonfinancial assets or:
Specialized skill was required to deliver the service and it was delivered by an individual possessing those skills;
Otherwise needed service (would have been purchased by the organizations anyway);
Measured Easily (the accurate valuation of the service is easy).
How are donated materials accounted for?
Donated materials are recorded as revenue at fair value on date of receipt, if the fair value can be objectively determined.
Contributions of works of art, historical treasures, etc., need not be recognized as revenue if they are protected by the organization, held by the organization for display and, if sold, the proceeds of the sale are designated for the acquisitions of other works.
What does the term variance power mean in the context of not-for-profit accounting and reporting?
Variance power defines the extent to which an organization has discretion over the use of the resources it receives. The presence or absence of variance power governs the recognition of the asset received as revenue or a liability.
In considering transferring assets from a recipient organization to a beneficiary organization, when are the assets received recognized as liabilities by the recipient organization?
When assets are transferred without variance power, so that the recipient organization does not have the unilateral authority to redirect assets to another beneficiary, those transfers are recognized as liabilities.
In considering transferring assets from a recipient organization to a beneficiary organization, when are the assets received recognized as revenue by the recipient organization?
When assets are transferred with variance power, which gives the recipient organization the unilateral authority to redirect assets to another beneficiary, the transfer is recognized as revenue.
How are marketable securities reported?
All debt securities and those equity securities that have readily determinable fair values are measured at fair value.
Where are gains and losses on investments reported?
Gains and losses on investments are reported in the statement of activities as increases or decreases in unrestricted net assets, unless the use of the investment is restricted by explicit donor stipulations or by law.
Is depreciation expense recorded in the financial statements of a not-for-profit organization?
Depreciation expense and accumulated depreciation are recorded.
For a university, identify common unrestricted revenues.
Student tuition and fees, at gross
- Government aid, grants, and contracts
- Gifts and private grants
- Endowment income
- Sales and services of educational departments
- Revenues of auxiliary enterprises
If student tuition and fees are displayed at gross amount, what happens to scholarships and tuition waivers?
Scholarships and tuition waivers may be displayed as expenditures or as a contra revenue line item.
For health care entities, identify the revenue accounts.
Patient service revenue, including patient services and other operating revenue.
- Other operating revenue, including tuition from schools, educational programs, donated supplies and equipment, and specific purpose grants.
- Nonoperating revenue, gains and/or losses, including unrestricted interest and dividend income from investment activities, unrestricted grants, donated services, etc.
Describe how patient service revenue is recorded?
Patient service revenue is recorded on the gross basis using established rates. Note that charity care does not qualify for recognition as revenue.
Provisions for contractual adjustments and discounts are then deducted to arrive at net service revenue.
The allowance for uncollectibles is treated as an expense for the period during which the services are provided.
Describe the treatment of charity care in a health care organization.
Charity care is not recognized as either revenue or expense on the financial statements of a health care organization.
Charity care represents services for which the health care organization does not anticipate any cash flows.