GOVERNMENTAL ACCOUNTING: What You
Don’t Know Could Hurt You
Karen Tenace CPA, CMACity of Tucson
Objectives
What makes governmental accounting different than private sector?
Budgetary Accounting What’s a fund? Measurement Focus & Basis of
Accounting
How is Government different from Private
Sector?PRIVATE SECTOR
Exists to enhance owners wealth
Are free to provide only those goods and services they feel will enhance their profits
Harmony in purpose-make a PROFIT
Are NOT restricted to use resources in certain areas of their business
Budgets are used for INTERNAL purposes and are NOT the force of law
Continuity in leadership
GOVERNMENT Exist to provide goods and
services to their constituents
Are required by law to provide certain services
LACK harmony in purpose-different agendas and different politics
Financial resources have restrictions
Budgets are used BOTH internally and externally and ARE a force of law
Do NOT have a continuity of leadership?
Users of Accounting Information
PRIVATE SECTOR Shareholders Securities
Exchange Commission
Lending Institutions
Internal Management
GOVERNMENT Taxpayers Donors Investors Bond Rating
Agencies Grantors Political Groups
Principles and Standards
FASAB- Federal Accounting Standard
Advisory Board
Recommends financial reporting standards for the
federal government
Principles and Standards
GASB- Governmental Accounting Standards BoardStandard making
board for STATE AND LOCAL
governments as well as GOV’T
RELATED NFP’S
Principles and Standards Cont.
FASB- Financial Accounting Standards BoardLays out rules for both profit seeking businesses as well as NONGOV’T NFP
entities.
Other Acronyms…
FAF- Financial Accounting Foundation oversees GASB and FASB
GAAP- Generally Accepted Accounting Principles
FAF
GASB FASBFASAB
GAAP
Objectives of Financial Reporting
Fulfill government’s duty to be publicly accountable to constituents
Evaluate operating results for the year
Assess level of services provided Assess financial position Disclose restrictions and risk
potential loss of revenue sources
Budgetary Accounting
Budgets are Used Internally & Externally and are a Force of Law
Budget Accounts Integrate with General Ledger (GL)
Budgetary Accounts in GL
Estimated Revenues Appropriations- authorized
estimated expenditures Encumbrances- commitment of
budgetary resources
Encumbrance Accounting
An extra step in the procurement process to ensure that governments do NOT spend more than what’s appropriated.
An encumbrance is an obligation NOT a liability (Think Purchase Order)
Example: Public Safety Budget
July 1, 2007Total Total Total Unencumbe
red
Appropriations Encumbrances Expenditures
Balance
$1,000,000 $0 $0 1,000,000
Example: Public Safety Budget
Sally issues P.O. for Vehicles
Total Total Total Unencumbered
Appropriations Encumbrances Expenditures
Balance
$1,000,000 $200,000 $0 $800,000
Example: Public Safety Budget
George runs payroll (600k)Total Total Total Unencumbe
red
Appropriations Encumbrances Expenditures
Balance
$1,000,000 $200,000 $600,000
$200,000
Example: Public Safety Budget
Sarah runs A/P (150k)Total Total Total Unencumbe
red
Appropriations Encumbrances Expenditures
Balance
$1,000,000 $200,000 $750,000
$50,000
Chief wants to buy a $60k SWAT Vehicle-Can he do
it?Total Total Total Unencumbe
red
Appropriations Encumbrances Expenditures
Balance
$1,000,000 $200,000 $750,000
$50,000
Example: Public Safety Budget
Vehicles Rec’d; Paid For *Total Total Total Unencumbe
red
Appropriations Encumbrances Expenditures
Balance
$1,000,000 $0 $950,000
$50,000
*3 WAY MATCH = PO, RECEIVER, INVOICE
Unique Characteristics of Governmental Accounting
1. Use of Fund Accounting
2. Measurement Focus and Basis of Accounting or MFBA
Full Accrual AND Modified Accrual
What’s a Fund?
Fund: A self contained accounting entity with its own asset, liability, revenue, expenditure or expense and fund balance or other equity accounts.
Fund Types
GOVERNMENTAL FUNDS
1. General Fund2. Special Revenue Fund3. Capital Project Fund4. Debt Service Fund5. Permanent Fund
PROPRIETARY FUNDS
1. Enterprise Funds2. Internal Service Funds
FIDUCIARY FUNDS
1. Agency Funds2. Pension Funds3. Investment Trust Funds4. Private Purpose Trust
Funds
Governmental Funds
General Fund- day to day operations; can only have ONE General Fund
Special Revenue Funds- accounts for proceeds of specific revenue sources that should be used for specific purposes (HURF)
Capital Project Funds- accounts for financial resources used for acquisition or construction of major assets
Governmental Funds Cont.
Debt Service Fund- to account for accumulation of resources that will be used to pay general long-term debt
Permanent Fund- used to report resources that are legally restricted to the extent that only earnings, not principal, can be spent. Program must benefit the government or its citizenry, not a specific group or organization.
Proprietary Funds
Enterprise Funds- may be used to report any activity for which a fee is charged to EXTERNAL users for goods and services. Must be used if:
1. Debt is secured solely by a pledge of net revenues
2. Laws or regulations require fees to cover full cost of providing the service
3. Pricing policies require full cost recovery
Proprietary Funds Cont.
Internal Service Fund- accounts for the financing of goods and services provided by one department or agency to other INTERNAL departments or agencies of a governmental unit. Fees are charged with the intent to BREAK EVEN.
Fiduciary Funds Pension Fund- to account for
resources that are required to be held in trust for the members and beneficiaries of pension and/or benefit plans.
Private Purpose Trust Funds- to account for all other trust arrangements under which principal and income benefit individuals
Fiduciary Funds Cont.
Investment Trust Funds- to account for the external portion of investment pools reported by a sponsoring government.
Agency Funds- used to report resources held by the reporting government in a purely custodial capacity. Assets = Liabilities
Measurement Focus & Basis of Accounting (MFBA)
Measurement Focus tells you WHAT to recognize
Basis of Accounting tells you WHEN to recognize it
Two Types of MFBA’s in Governmental Accounting #1
Economic Resources Measurement Focus and Accrual Basis of Accounting
WHAT: Economic resource measurement focus considers ALL inflows, outflows and balances affecting or reflecting on an entity’s net assets.
1. Full Accrual Basis Cont.
WHEN: Accrual basis of accounting recognizes the financial effect of transactions, events, and interfund activities when they occur, regardless of the timing of related cash flows.
Two Types of MFBA’s in Governmental Accounting #1
Current Financial Resources Measurement Focus and Modified Accrual Basis of Accounting
WHAT: Current financial resource measurement focus only considers SHORT-TERM or CURRENT inflows, outflows and balances of expendable financial resources.
Two Types of MFBA’s in Governmental Accounting #2
Modified Basis Cont.
WHEN:Modified accrual basis of accounting in which:- Revenues are recognized in the accounting
period in which they become available and measurable.
- Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable.
Two Types of MFBA’s in Governmental Accounting #2
Fund Types
GOVERNMENTAL FUNDS(Current
Resources/Modified)
1. General Fund2. Special Revenue Fund3. Capital Project Fund4. Debt Service Fund5. Permanent Fund
PROPRIETARY FUNDS(Economic Resources/Full Accrual)
1. Enterprise Funds2. Internal Service Funds
FIDUCIARY FUNDS(Economic Resources/Full Accrual)
1. Agency Funds2. Pension Funds3. Investment Trust Funds4. Private Purpose Trust
Funds
Exercise
Turn PowerPoint presentation over – No peaking
Pull out exercise handout Get with neighbor or two Compare/Contrast pg 1 vs. pg 2 Compare/Contrast pg 3 vs. pg 4
How can you tell MFBA by looking at a financial
statement?Modified
Expenditures (Capital Outlay and Principal Payments)
Assets-Liabilities=Fund Balance
Only Current Assets and Current Liabilities Shown
Myopic View * No Long-term Assets means
no Depreciation Expense
Full Accrual Expenses Assets-Liabilities=Net
Assets Current AND Long-Term
Assets and Liabilities Shown Long-term View * Depreciation Expense
Included in Operating
•What You Don’t Know Could Hurt You!!!
See Handout
Governmental FundFinancial Statements
Current Resources; Modified Accrual
Balance Sheet
Statement of Revenues, Expenditures and Changes in Fund Balance
Proprietary FundsFinancial Statements
Economic Resources; Full Accrual
Statement of Net Assets or Balance Sheet
Statement of Revenues, EXPENSES, and Changes in Fund Net Assets
Statement of Cash Flows
Fiduciary FundsFinancial Statements
Economic Resources; Full Accrual
Statement of Fiduciary Net Assets
Statement of Changes in Fiduciary Net Assets
Let’s Make Gov’t Look More Like Private Sector-GASB 34
(2002)
GASB Statement No. 34The “New” Model
PRE-GASB 34: General Purpose F/S Emphasis on FUND
TYPE Governmental Fund
Financial Statements were ONLY presented using modified accrual accounting basis
POST-GASB 34: Basic F/S Emphasis on MAJOR
Fund vs. NONMAJOR Fund
Governmental Fund Financial Statements presented in BOTH modified and full accrual accounting basis
GASB 34Modified AND Full Accrual – Governmental Fund Impact
Capital Assets have to be shown in the financial statements for the first time!
Infrastructure had to be shown on the financial statements for the first time!
Depreciation had to be shown in the financial statements for the first time!
Long-term liabilities shown for the first time!
Other GASB 34 Impacts
New Fund Type-Permanent Fund Required Management Discussion
and Analysis (MD&A) New “Entity-wide”/”Government-
wide” Statements:1. Statement of Net Assets2. State of Activities
CAFRComprehensive Annual Financial Report
3 Things to Comply with GAAP
MD&ABasic Financial
StatementsRequired
SupplementaryInformation
Conclusion: What You Don’t Know WillWill Hurt You!
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