Section 2 - Ch1

Question 1

Complete Budgetary Accounting Equation for State/Local Gov

Answer 1

Complete Budgetary Accounting Equation for SLG

Question 2

Is GASB Required?

Answer 2

State and local governments are “sovereign entities” and are NOT required to follow GASB.

Must follow GAAP to get unqualified opinion on audits.

Question 3

Governmental Accounting Standards Board (GASB)

Answer 3

Governmental Accounting Standards Board (GASB)

• GASB: responsible for accounting and reporting principles for state and local governments.
• Ethics Rule 203: ethics standard that recognizes GASB as body that establishes GAAP for state and local gov’t.

Question 4

Users of Financial Reports (external users ONLY)

Answer 4

Users of Financial Reports (external users ONLY):

1. Citizens at large including the Media
2. Legislative and oversight bodies
3. Investors and Creditors

Question 5

Objectives of Financial Reporting for state and local (SLG)

Answer 5

Objectives of Financial Reporting for state and local:

• Accountability (most important) -> both fiscal and operational
• Assist users in evaluating operating results
• Assist users in assessing level of services that can be provided

Question 6

Hierarchy of Governmental Accounting Standards

Answer 6

Hierarchy of Governmental Accounting Standards:

Obtained from auditing standard issued by the Auditing Standards Board (ASB) of the AICPA.

Statement of Auditing Standards No. 91 (SAS 91) from the ASB: (hierarchy)

• Category (a):GASB statements.Included are AICPA and FASB statements made applicable by GASB.
• Category (b):GASB Technical Bulletins and others made applicable by GASB.
• Category (c):AICPA Accounting Standards Executive Committee Practice Bulletins made applicable by GASB.
• Category (d):GASB published Implementation Guides

Question 7

Financial Reporting Entity

Answer 7

Financial Reporting Entity

As set forth in GASB Codification Section 2100: The financial reporting entity consists of:

• Primary Government (PG): any state gov’t or general purpose local government.
  
  • Special Purpose Government (SPG): may also be a “Primary Government” if it meets all criteria:
    
    • Is legally separate (right to have a name, sue, buy property, issue debt)
    • Has separately elected governing body
    • Is fiscally independent of other state and local governments (most important factor)
      
      • Determine its own budget
      • Levy taxes or set rates without approval
      • Issue bonded debt without approval
• Component Units (CU): organizations which the primary government is financially accountable
  
  • Criteria: Legally separate, tax exemptà Discretely presented as component unit

Question 8

Ways a Primary Gov can impose its “will” over a Component Unit:

Answer 8

Ways a Primary Gov can impose its “will” over a Component Unit:

• Ability to remove appointed members of governing body
• Ability to modify the budget
• Ability to modify fee changes
• Ability to veto decisions of CU
• Ability to appoint, hire or reassign personnel

Question 9

Methods for Displaying Component Units

Answer 9

Methods for Displaying Component Units in the Financial Statements of the Primary Government:

• Blending: CU data is blended with PG data in financial statements
• Discrete Presentation: CU reported separately from PG’s data (separate columns)
  
  • Criteria: Legally separate, tax exemptà Discretely presented as component unit
• Note Disclosure

Discrete vs. Blending

• Are there 2 governing boards with different composition of members?If yes -> Discrete, If no -> blended.
• Does CU provide services for PG primarily?If yes -> Blended, If no -> Discrete.

Question 10

External Financial Reporting Minimum Requirements

Answer 10

External Financial Reporting minimum requirements:

• MD&A
• Financial Statements
• Required Supplementary Information (RSI ~ Notes)

GASB recommends, but does not require, governments to issue a CAFR (state and local usually do).

Question 11

Basic Financial Statements (BFS)

Answer 11

*Basic Financial Statements (BFS):

1. Government-Wide financial statements
2. Fund financial statements
3. RSI
4. Notes to financial statements

(subject to check)

Question 12

Basic Financial Statements

Answer 12

1. Government-wide financial statements (ACCRUAL):

• Provide info as a whole except fiduciary activities
  
  • Required (ACCRUAL):
    
    • Statement of Net position (BS):general fund, debt service fund, capital projects fund
    • Statement of Activities

2. Fund Financial Statements:

• Governmental Fund (MODIFIED ACCRUAL)
• Proprietary Fund (ACCRUAL)
  
  • Enterprise Fund
  • Internal Service Fund
• Fiduciary Fund (ACCRUAL)

3. Notes to financial statements:

• 1. First in the notes is the “Summary of Significant Accounting Policies” (TEST)
     * Also called “Descriptions of transactions included in program revenues”

Question 13

Summary of Significant Accounting Policies (Test)

Answer 13

• First in the notes is the “Summary of Significant Accounting Policies” (TEST)
  
  • Also called “Descriptions of transactions included in program revenues”
  • SF Example

Summary of significant accounting policies, including:

1. a. A description of the government-wide financial statements, noting that fiduciary funds (including fiduciary component units) are not included.
2. b. A brief description of the component units, including their relationship to the primary government.
3. c. Basis of presentation—government-wide financial statements and fund financial statements.
4. d. Basis of accounting.
   
   1. i. Accrual—government-wide financial statements.
   2. ii. Modified accrual—governmental fund financial statements, including the length of time used to define available for purposes of revenue recognition.
   3. iii. Accrual—proprietary and fiduciary fund statements.
5. e. Assets, liabilities and net position, and fund balances described in the order of appearance in the statements of net position/balance sheet.
6. f. Revenues, expenditures/expenses.

Question 14

CAFR must contain

Answer 14

*Comprehensive Annual Financial Report (CAFR): (must contain):

• Audited financial statements and notes
• Combined statements for nonmajor funds for primary government and discretely presented CU’s.
• Individual fund statements for funds of PG and blended CU’s

Question 15

CAFR - 3 Sections (Test)

Answer 15

CAFR 3 sections (TEST):

1. Introductory

• Includes all basic information about the organizational unit
• Letter of Transmittal (most important element): contains accounting standards, description of component units, local economy, long range planning, cash management, risk financing, independent audit, and awards.

1. Financial
   
   • Auditor’s report, MD&A
   • Basic Financial Statements
     
     • Govt-wide financial statements
       
       1. Statement of net position
       2. Statement of activities
     • Governmental Funds
       
       1. Balance Sheet
       2. Statement of revenues, expenditures, and changes in fund balances
       3. Budgetary comparison statement
     • Proprietary Funds
       
       1. Statement of net position
       2. Statement of revenues, expenses, and changes in fund net position
       3. Statement of cash flows
     • Fiduciary Funds
       
       1. Statement of fiduciary net position
       2. Statement of changes in fiduciary net position
   • Notes to financial statements
     
     • Describe the basis of accounting (accrual for gov’t wide financial statements, and all fund statements except Gov’t Fund statements which are modified accrual)
     • For Gov’t fund statements modified accrual: describe length of time used to define “available” for revenue recognition (i.e. 60 days property tax, 90 days San Fran, or 120)
   • RSI (Required supplementary information other than MD&A
   • Info on individual non-major funds and other non-required supplementary info
2. • Objective of statistical section is to provide users with additional historical perspective, detail, and an understanding to assess economic condition of the entity.
     
     • 5 categories:Financial trends, Revenue capacity, Debt capacity, Demographic and economic, and Operations (info for current period + 9yrs prior usually req)
     • Narrative Explanations

Question 16

Other Reporting (Popular Reporting)

Answer 16

Popular Reporting: also called “Summary Financial Information” à user friendly presentation of information for users/citizens to make the information more useful to lay readers. Can be presented in a different basis of accounting from the CAFR.

~Popular reports are not regulated by the GASB… nor are external or internal reports.