Fund Balance Reporting and Governmental Fund Type Definitions

Fund Balance Reporting and Governmental Fund Type Definitions Robert M. Apple, CPA, MSA

Fund Balance Reporting and Governmental Fund Type Definitions Understanding GASB statement number 54

Certified continuing professional education class � 1 -hour credit �Must remain for the entirety of the class to receive CPE credit �Must sign in and sign out to receive CPE credit �Certificates of attendance will be emailed for CPE credit

Fund Balance Reporting and Governmental Fund Type Definitions �Who/what are Governmental Accounting Standards Board (GASB) and Generally Accepted Accounting Principles (GAAP)? �Clearer definitions of governmental fund types �Establish clear fund balance classifications �Observing governmental reported resources �Effective June, 2010

What is GAAP? �Proper accounting �Decades of accounting practice �No authoritative book

What is GAAP? �Does not account for every situation �Make the best choice �Rule makers leave room for options

What is GAAP? �The grey area of materiality �Qualitative aspects �Quantitative aspects

Who Sets Up GAAP? �GASB sets the GAAP rules �GASB provides: • Accounting principles • Interpretations • Guidance for implementation

GASB Statement No. 76 � Category A • GASB Statements � Category B • GASB Technical Bulletins • GASB Implementation Guides • American Institute of Certified Public Accountants (AICPA) literature cleared by GASB

GASB Statement No. 76 �If not Specified in Category A or B • AICPA literature not cleared by the GASB • Practices widely practiced by state and local government agencies • Literature from professional organizations, regulatory agencies, and authoritative accounting texts

Statement Objective GASB Statement No. 54

Statement Objective �GASB Statement No. 34 clarity Financial Statements and MD&A – Basic • Clearer fund balance classifications. • Fund balance information consistently applied • Clarifying existing governmental fund type definitions

Part 1 Fund Balance Reporting GASB Statement No. 54

Nonspendable Fund Balance Reporting GASB Statement No. 54

Nonspendable Fund Balance �Identify amounts that cannot be spent �Assets not expected to be converted to cash �Inventories �Prepaid amounts �Long-term loan receivable �Property acquired for resale

Nonspendable Fund Balance �Cannot be spent because • Legally required to be maintained intact • Permanent fund as example �An endowment �Principal has to remain intact but interest can be spent

Restricted Fund Balance Reporting GASB Statement No. 54

Restricted Fund Balance �GASB 34: Specific purposes stipulated by • Constitutional law provisions • External resource providers (e. g. , creditors or grantors) • Enabling legislation mandating resources used for a specific purpose

Committed Fund Balance Reporting GASB Statement No. 54

Committed Fund Balance �Used only for specific purposes �Determined by government’s decision making authority �Can be changed and redeployed through legislation

Assigned Fund Balance Reporting GASB Statement No. 54

Assigned Fund Balance �Used for specific purposes �Didn’t meet criteria for restricted or committed �Does not require the highest level of decision-making authority

Assigned Fund Balance �Includes all remaining amounts except for negative balances • Negative balances - discussed later in classifying fund balance amounts �Specific fund purpose amounts in the general

Unassigned Fund Balance Reporting GASB Statement No. 54

Unassigned Fund Balance �Residual classification for the government’s general fund �Spendable amounts not contained in other classifications �Deficit balance for all other funds from overspending

Disclosures �Processes through which constraints are imposed on amounts • Committed classifications • Assigned classifications

Classifying Fund Balance Amounts Fund Balance Reporting GASB Statement No. 54

Classifying Fund Balance Amounts �Required and appropriate classification and amounts of residual balances �Disclose accounting policies of spending for • Restricted • Assigned • Or Unassigned

Classifying Fund Balance Amounts �Can result in a negative balance • Amounts assigned to other purposes in that fund reduced to eliminate deficit • Negative residual amount classified as unassigned fund balance

Stabilization Arrangements Fund Balance Reporting GASB Statement No. 54

Stabilization Arrangements �Setting aside resources to withstand unexpected revenue shortfalls or expenditure needs �Classifying on the balance sheet as committed or restricted �Disclosures on stabilization arrangements • Describe and identify specific circumstances

Displaying Fund Balance Classifications on the Face of the Balance Sheets Fund Balance Reporting GASB Statement No. 54

Nonspendable Fund Balance �Two components of nonspendable fund balance • Not in spendable form • Legally or contractually required intact or �Presented in aggregate

Restricted Fund Balance �Distinguishing major purposes or �Displayed in aggregate

Committed and Assigned Fund Balances �Displayed in sufficient detail or �Each classification displayed in aggregate

Part 2 Fund Balance Disclosures GASB Statement No. 54

Fund Balance Classification Policies and Procedures Fund Balance Disclosures GASB Statement No. 54

Fund Balance Classifications Policies and Procedures �Committed fund balance • Who is the government’s highest level of decision- making authority • What is the required action to modify

Fund Balance Classifications Policies and Procedures �Assigned fund balance • Who is the official or body authorized to assign amounts • Policy established by governing body authorization given to

Fund Balance Classifications Policies and Procedures �Classification of fund balances • When the government considers amounts to have been spent for expenditures for the purpose of: �Restricted or unrestricted amounts �Committed, assigned, or unassigned amounts

Reporting Encumbrances Fund Balance Disclosures GASB Statement No. 54

Reporting Encumbrances �Significant encumbrances by major fund and nonmajor fund in the aggregate �Disclosed in conjunction with other significant commitments

Details of Fund Balance Classifications Displayed in the Aggregate Fund Balance Disclosures GASB Statement No. 54

Details of Fund Balance Classifications Displayed in the Aggregate �Amounts for both nonspendable components separately disclosed �Restricted, committed, or assigned fund balances specific purposes disclosed

Stabilization Arrangements Fund Balance Disclosures GASB Statement No. 54

Stabilization Arrangements �Disclose the authority establishing �Requirements for additions to the amount �Conditions when may be spent �The balance unless apparent on the financial statements

Minimum Fund Balance Policies Fund Balance Disclosures GASB Statement No. 54

Minimum Fund Balance Policies �If adopted in lieu of stabilization amounts �Describe the policy established by the government

Part 3 Governmental Fund Type Definitions GASB Statement No. 54

General Fund Governmental Fund Type Definitions GASB Statement No. 54

General Fund �Accounts for and reports all financial resources not accounted for and reported in another fund

Special Revenue Funds Governmental Fund Type Definitions GASB Statement No. 54

Special Revenue Funds �Legally established to collect revenue used for a restricted or committed specific project �Specific purpose inflows comprising of • a substantial portion of restricted • or committed inflows making the foundation.

Capital Projects Funds Governmental Fund Type Definitions GASB Statement No. 54

Capital Projects Funds �Committed, restricted, or assigned resources �Acquisition or construction of major capital assets that clearly are facilities • Building improvements • Infrastructure

Debt Service Funds Governmental Fund Type Definitions GASB Statement No. 54

Debt Service Funds �Committed, restricted, or assigned financial resources to expenditure for principal and interest �Legally mandated �Accumulated financial resources for future year maturing of principal and interest

Permanent Funds Governmental Fund Type Definitions GASB Statement No. 54

Permanent Funds �Resources restricted to only earnings and not principal �For purposes that support government/citizenry programs

Closure �Improves financial reporting by providing • Fund balance categories • Easily understood classifications �Required consistency of classifying amounts �Useful disclosures for understanding processes �Definitions reduce uncertainty on reporting

Questions? GASB Statement No. 54