Section 3 - Ch4

Question 1

Federal Financial Statements

Answer 1

Federal Financial Statements: Include assessment on operating performance (what goods provided at what cost—accrual), budgetary info (whether resources allocated/used IAW budgetary law), and sustainability of current policies/programs (i.e. statement of social insurance).

Principal Financial Statements

1. Balance Sheet
2. Statement of Net Cost
3. Statement of Changes in Net Position
4. Statement of Budgetary Resources
5. Statement of Custodial Activity
6. Statement of Social Insurance
7. Statement of Changes in Social Insurance
8. Notes Disclosures

GAGAS – General Accepted Governmental Auditing Standards: standards used to audit government stmts.

Question 2

Balance Sheet

Answer 2

Balance Sheet:

• Assets – Liabilities = Net Position
• Net Position:unexpended appropriations and cumulative results of operations (each broken out by “earmarked funds” or “other funds”)

Question 3

Statement of Net Cost

Answer 3

1. Statement of Net Cost: Only earned exchange revenue (from fees), less full cost of programs. Reports the amount that must be financed through taxes or other financing sources after fees collected fm programs. Costs – Earned Revenue (exchange only) = Net cost of operations.

Question 4

1. Statement of Changes in Net Position (SCF) (I/S):

Answer 4

1. Statement of Changes in Net Position (SCF) (I/S): “Net change in cumulative results of operations” – financing sources (BOTH earned and non-exchange revenue) in excess of net cost of operations + other adjustments (i.e. prior period).

Presents 2 sections to provide “Total Net Position”:

• Increase/Decrease in “unexpended appropriations”
• Cumulative “net” results of operations
  
  • Includes: ALL Financing Sources (appropriations used, non-exchange revenue & earned revenue).

Question 5

Statement of Budgetary Resources

Answer 5

• Statement of Budgetary Resources (disaggregated is also in RSI): provides information about how budgetary resources were made available as well as the status of resources at the end of the period. (budget execution)
• • Uses à Budgetary Resources = Status of Budgetary Resources
    
    • Essentially the same as the SF-133

Question 6

Statement of Custodial Activity

Answer 6

1. Statement of Custodial Activity: required for reporting entities that collect “non-exchange revenue” on behalf of the general fund of the Department of Treasury. Amounts in this statement are NOT reported as “revenue” by the collecting entity.
   
   • This statement is for “collection agents”.
   • Sections: Revenues on behalf of the federal government, disposition of revenue, net custodial activity (which should = 0).

Question 7

Statement of Social Insurance & Changes in Social Insurance:

Answer 7

1. Statement of Social Insurance & Changes in Social Insurance: include Social Security, Medicare, Railroad Retirement Benefits, Black Lung benefits, Unemployment Insurance. Should demonstrate whether benefits are sustainable and what their effect on the government’s financial condition will be.
   
   • NPV of future benefits and taxes associated with Social Insurance Programs (provides key drivers in NPV)

• Statement of Social Insurance provides information regarding the NPV of future benefits and taxes associated with social insurance programs (e.g. Soc Sec)
• Statement of Changes in Social Insurance allows readers to understand key drivers that change the projected NPV.

Question 8

Note Disclosures

Answer 8

1. Note Disclosures:
   
   • Three types of footnotes:
     
     • First note disclosure: “Summary of Significant Accounting Policies”
     • Add’l info about individual lines of Financial Statements: Fund balances, Cash, Investments, A/R, taxes receivables, loans, inventory, PPE, assets and liabilities analysis, debt, leases, adv/defer rev, reconciliation of net cost to budget, etc.
     • Matters affecting entity as a whole: commitments/contingencies, subsequent events, fiduciary/custodial activities, employee benefits, budgetary information (UDO’s), funds from dedicated collections
   • Note disclosure regarding Statement of Financing:now presented as a note disclosure (in lieu of a statement)
     
     • Explains differences between an “obligations based budgetary result—net obligaitons” and “accrual based net cost”. Sections:
       
       1. Net cost financed by non-budgetary resources (such as imputed financing and donations)
       2. Financing sources funding items that are not part of net cost (such as capital asset acquisitions)
       3. Net cost containing items that do not require or generate resources in the current period (such as dep’n.)

Question 9

Management’s Discussion and Analysis (MD&A) [Required as RSI]

Answer 9

Management’s Discussion and Analysis (MD&A) [REQUIRED as RSI]: is RSI. Important for:

• Communicating manager’s insights about the reporting entity
• Increasing the understandability and usefulness of the general purpose financial report, and
• Providing understandable and accessible information about the reporting entity and its operations, service levels, accomplishments, challenges and future.

Review OMB A-136

(from outline)

Management’s Discussion and Analysis (MD&A) [REQUIRED]: is RSI. Important for:

• Addresses: mission & organization, accomplishments & challenges. (Also: performance goals/results, analysis of fin statements, status of stystems/controls, future effects of existing demands/risks)
• Communicating manager’s insights
• Increasing understandability/ usefulness of report

Question 10

Required Supplementary Information (RSI)

Answer 10

Required Supplementary Information (RSI)

• Statement of Budgetary Resources: is disaggregated in RSI
• Deferred Maintenance: required to report in RSI:
  
  • ID each major class of asset with deferred maintenance
  • The Method used to measure Def. Maint.:condition assessment OR life-cycle cost forecasts
  • The Amount of Def. Maint. (critical and non-critical amounts)
• Segment Information: each fund not separately reported shall report in RSI.

Question 11

Requirements for Consolidated Reporting

Answer 11

Requirement for Consolidated Reporting

• The Government Management Reform Act (GMRA) requires the Treasury to produce an annual Consolidated Financial Report (CFR).The CFR reports consolidated info on executive, legislative, and judicial branches.

Question 12

CFR Statements Required

Answer 12

CFR Statements Required:

• Statement of Net Cost
• Statement of Operations and Changes in Net Position
• Reconciliation of Net Operating Cost and the Unified Budget Deficit
• Statement of Changes in Cash Balance from Unified Budget and Other Activities
• Balance Sheets
• Statement of Social Insurance

Question 13

Inter-entity and Imputed Costs

Answer 13

• Inter-entity costs: The fed gov is structured such that certain support and other services are provided by central fed entities to benefit all or most agencies. These are called inter-entity activities and the costs are referred to as “inter-entity costs”
• Imputed costs: Both under-reimbursed and unreimbursed inter-entity costs may be reported by agencies. Where the full cost is not billed, the benefitting entity may recognize unbilled amounts as “imputed costs”.
  
  • Imputed costs are recognized by the federal entity that benefits from the service, even though the entity does not have to pay for the service.

Question 14

Specific inter-entity costs not fully reimbursed as imputed costs

Answer 14

To ensure that significant inter-entity costs are recognized, accounting standards require recognition of three specific inter-entity costs that are not fully reimbursed as imputed costs.

1. Unreimbursed cost of employee benefits
2. Treasury Judgment Fund costs to settle litigation
3. Un- or under-reimbursed inter-entity costs incurred to support business-type activities