Governmental Reporting

Question 1

What are the governmental accounting objectives?

Answer 1

Operational accountability and fiscal accountability

Has the govt entity been effective & efficient in its operations?
Has the govt entity compiled and achieved its budgets?

Question 2

What are the four types of governmental funds requiring fund financial statements?

Answer 2

1) governmental funds
2) proprietary funds
3) fiduciary funds
4) component units

Question 3

What elements are required by GASB to be presented in government financial statements?

Answer 3

MD&A (mgmt discussion & analysis)
Government-wide financial statements
Fund financial statements
Notes to financial statements
RSI (required supplementary information)

Question 4

What levels of government follow GASB?

Answer 4

State & local. Fed does not follow GASB

Question 5

What accounting basis do govt-wide and fund financial statements follow?

Answer 5

Govt-wide: accrual
Funds
- govt funds: modified accrual
- proprietary funds: accrual
- fiduciary funds: accrual
- component units: accrual

Question 6

What are governmental entity funds?

gov’t entity funds

Answer 6

General governmental activities, often funded by tax or other mandatory payments which are unique to goverments
E.g. highway construction, police dept

Question 7

What are the five types of governmental funds?

gov’t entity funds

Answer 7

GenSpCapDebPerm

1) general funds
2) special revenue funds
3) capital projects funds
4) debt service funds
5) permanent funds

Question 8

What are special revenue funds?

gov’t entity funds

Answer 8

Specific revenue funds earmarked to finance a specific purpose.

Special revenue funds used to account for and report the proceeds of specific revenue resources that are restricted/committed to specified purposes (other than debt service or capital projects). e.g. nicotine tax earmarked to fund schools

If the a govt activity is designed to be covered 50% or more by user fees, then it does NOT get accounted for in special revenue funds. If it is 50% or less, then special revenue fund.
Think of the objective of govt accting; operational/fiscal accountability. If less than 50% user fees fund the activity, then there should be separate accountability of for that fund.

Question 9

What are capital projects funds?

gov’t entity funds

Answer 9

Funds used to account for the acquisition/use of financial resources to construct or acquire major long-lived general government capital assets (does not include capital assets for enterprise or fiduciary funds).
e.g. construction of townhall, park, or courthouse

Question 10

What are the revenue sources for special revenue funds?

gov’t entity funds

Answer 10

Fees, grants, specific taxes, and other earmarked revenue sources

Question 11

What are the revenue sources for capital project funds?

gov’t entity funds

Answer 11

Special tax revenue, capital grants

Question 12

What are debt service funds?

gov’t entity funds

Answer 12

Account for accumulation of resources used to pay general long-term debt principal and interest liabilities

Most bond indentures will require separate funds for debt service revenues.

Question 13

What are revenue sources for debt service funds?

gov’t entity funds

Answer 13

Can include a percentage of property taxes

Question 14

What are permanent funds?

gov’t entity funds

Answer 14

Endowments received by the government where entities are not allowed to spend the principal. Only the earnings on the principal may be used to support the programs.

Question 15

What are the revenue sources for permanent funds?

gov’t entity funds

Answer 15

Investment earnings

Question 16

What are proprietary funds?

proprietary funds

Answer 16

Activities where the government entity provides goods/services for a charge (like commercial entities).

Question 17

What are internal service funds?

proprietary funds

Answer 17

Funds that report any activity providing goods/services internally to other funds/depts/agencies of the govt and its component units, or to other govts on a cost-reimbursement basis.
e.g. maintenance dept, IT dept

Question 18

What are the types of proprietary funds?

proprietary funds

Answer 18

1) internal service funds

2) enterprise funds

Question 19

What are revenue sources for internal services funds?

proprietary funds

Answer 19

Includes billings for services, grants, and interest earnings

Question 20

What are enterprise funds?

proprietary funds

Answer 20

Funds that report any activity for which a fee is charged to external users for goods/services.
e.g. city-operated utilities, airports, transit systems, public hospitals/universities

Question 21

What are the criteria to use enterprise funds?

proprietary funds

Answer 21

A fund s/b an enterprise fund when any ONE of the following are met:

• pledge revenues: activity is financed with debt secured by a pledge of the net revenues
• law requires fees to cover: law requires that the activity’s cost of providing services be recovered w/ fees & charges, rather than with taxes or similar revenues
• designed for fees to cover: pricing policies of the activity establish fees & charges designed to recover its costs

Question 22

What are revenue sources for enterprise funds?

proprietary funds

Answer 22

Include charges for services, interest, and investment income

Question 23

What are fiduciary funds?

fiduciary funds

Answer 23

Used to report assets held by the govt as a trustee/agent for others, and therefore, cannot be used to support govt programs.
Govt is acting as the fiduciary

Question 24

What are the types of fiduciary funds?

fiduciary funds

Answer 24

1) pension trust funds
2) investment trust funds
3) private purpose trust funds
4) custodial funds

Question 25

What is a pension trust fund?

fiduciary funds

Answer 25

Fund used to report resources that are required to be held in trust for the members and beneficiaries of pensions and post-employment plans. Generally covers govt employees

Question 26

What is an investment trust fund?

fiduciary funds

Answer 26

Fund where multiple govt entities pool resources/finances. One govt makes investment on behalf of other govts

Question 27

What is a private purpose trust fund?

fiduciary funds

Answer 27

Fund where the govt acts as a trustee for a fund set-up for private purposes. The resources are restricted to the benefit of third parties (not the govt). e.g. scholarship fund
Endowment funds are the most common type.

Question 28

What is a custodial fund?

fiduciary funds

Answer 28

Used to report resources held by a govt entity in a purely custodial capacity. Govt is simply acting as a conduit to collect and disburse funds. Govt has no equity in these funds. E.g. property taxes collected by the state for the local municipalities

Question 29

What are component units?

component unit funds

Answer 29

Autonomous legally separate unit satisfying either of the following:

1) Primary govt is financially accountable for the unit. The unit raises/holds economic resources for the direct benefit of the primary govt. e.g. school district raises money which benefits the govt operating the school
2) The unit has a close financial relationship with the primary govt, such that exclusion of the unit from the govt FS would cause them to be misleading.

Question 30

Why do governmental funds use modified accrual accounting?

modified accrual accting

Answer 30

Accrual accounting is designed to have revenues match expenses. Governmental entities don’t have revenues (taxes are imposed, not earned).
Govt’s need to have expenditures match the taxes, so they use modified accrual accting.

Question 31

What is the current financial resources approach of govt fund accounting?

modified accrual accting

Answer 31

Modified accrual accounting ignores all future periods, only considering the current period.

• expenses in the current period should be covered by revenues/taxes in the current period.
• goal is to ensure current period expenditures are not paid by future taxpayers

Question 32

When is revenue recognized under modified accrual accounting?

modified accrual accting

Answer 32

When measurable and available to be spent

Revenue is not earned by govts. Therefore, revenue is recognized then measurable and available to be spent (collectible this year or within 60-days of year-end)

Question 33

When are expenditures recognized in govt fund accounting?

modified accrual accting

Answer 33

In the current period only. I.e., purchase of fixed assets are not capitalized/depreciated. They are an expenditure during the period in which the money is spent.

Debt is not capitalized as a liability. It is treated as other financing sources in the year received.

Question 34

What are the financial statements for govt fund accounting?

modified accrual accting

Answer 34

Balance sheet - to present the financial position

Statement of Revenues, Expenditures, and Changes in fund balances - income/expense statement

Question 35

What are the accounting types in govt fund accounting?

modified accrual accting

Answer 35

Budgetary accounting: ensure compliance w/ budget
Activity accounting: account for transactions (what happened)
revenues, expenses, assets, debt
Encumbrances accounting: account for issue of purchase orders; to control reckless expenditures

Question 36

What are the fund balances in govt fund accounting?

modified accrual accting

Answer 36

1) Reserved:
- non-spendable
- restricted
- committed
- assigned

2) Unreserved

Fund balances are the corollary to equity in commercial accounting

Question 37

What are the four types of reserved fund balances in govt fund accounting?

modified accrual accting

Answer 37

Non-spendable
Restricted
Committed
Assigned

Question 38

What is a non-spendable fund balance?

modified accrual accting

Answer 38

Reserved fund balance that cannot be spent as they are not in a spendable form. I.e., inventory, prepayments

Question 39

What is a restricted fund balance?

modified accrual accting

Answer 39

Reserved fund balance that is externally restricted for a specific purpose

Question 40

What is a committed fund balance?

modified accrual accting

Answer 40

Reserved fund balance that is reserved for a specific purpose by a formal action from the govt entity

Question 41

What is an assigned fund balance?

modified accrual accting

Answer 41

Reserved fund balance that is not restricted or committed, but is intended to be used for a specific purpose.