GASB Statement No 54 Fund Balance Reporting and

GASB Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definitions

GASB Statement No. 54 Karen Mc. Connell, Director of Business Affairs: Central Dauphin School District Jill Gilbert, Partner: Trout, Ebersole & Groff, LLP

Presentation outline n Background and Summary n Fund Balance Classifications n Current n Under GASB 54 Governmental Fund-Type Definitions n Fund Balance Reporting and Disclosures n

Background and Summary n Enhance the usefulness of fund balance information. Clearer fund balance classifications that can be more consistently applied. n Clarifying existing governmental fund type definitions. n

Background and Summary n Only applies to the five governmental funds. n No changes to the reporting of net assets for government-wide and proprietary statements. n Effective for financial statements for periods beginning after June 15, 2010. n Early implementation is encouraged.

Fund Classification n The governmental funds are composed of five types of funds: 1) 2) 3) 4) 5) General Fund Special Revenue Funds Capital Project Funds Debt Service Funds and Permanent Funds.

Why the change? ? ? n Research conducted by GASB shows a lack of consistency amount governments in reporting the components of fund balance. n Fund balance components are often misunderstood by financial statement users n Currently unclear whether any portion of the reserved or designated fund balance are available to help balance a governments budget.

Fund Balance–GASB 54 Hierarchy: n Nonspendable Fund Balance n Restricted Fund Balance n Committed Fund Balance n Assigned Fund Balance n Unassigned Fund Balance

Fund Balance–GASB 54 Nonspendable – not expected to be converted to cash. n Not in spendable form n n Inventories Prepaid Long-term notes receivable Funds legally or contractually required to be maintained intact. n Corpus of a permanent fund

Fund Balance–GASB 54 Restricted n Essentially the same definition as reported for restricted net assets under GASB 34. n Should be restricted when constraints placed on the use of resources are either: Externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or n Imposed by law through constitutional provisions of enabling legislation n

Fund Balance–GASB 54 Committed n Constraints on use are imposed by formal action of the government’s highest level of decision-making authority. n Constraints can only be removed or changed by taking the same type of action it employed to commit them.

Fund Balance–GASB 54 Committed (cont’d) n Should incorporate contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual obligations. n The formal action to commit fund balance should occur prior to the end of the reporting period. n Amount, subject to constraint, may be determined in the subsequent period.

Fund Balance–GASB 54 Assigned For all governmental funds other than the general fund, any remaining positive amounts not classified as nonspendable, restricted or committed. n For the general fund, amounts constrained for the intent to be used for a specific purpose that is narrower than the general purpose of the government. n Cannot assign an amount if it would cause a deficit in the unassigned fund balance. n

Fund Balance–GASB 54 n Assigned (cont’d) Not required to be the government’s highest level of decision making authority. n Nature of the action to remove or modify assignments are not as strict. n

Fund Balance–GASB 54 Unassigned General fund, amounts not classified as nonspendable, restricted, committed or assigned. Only fund that would report a positive amount in unassigned fund balance. n Other governmental funds amount expended in excess of resources that are nonspendable, restricted, committed or assigned. n

Fund Balance–GASB 54 n Not all governments will have all five components of fund balance. n Should review current policies and procedures to determine if resources would meet the definition of committed or assigned. n Additional policies may need to be adopted or revised to be consistent with the new definitions.

Fund Balance–GASB 54 Stabilization Arrangements Defined as revenue stabilization, budgetary stabilization, working capital needs, contingencies or emergencies, or other “rainy day" arrangements. n The authority to set aside these amounts usually comes from statute, ordinance, resolution, charter, or constitution. n The formal action should identify the specific circumstance and need for stabilization. n

Fund Balance–GASB 54 Stabilization Arrangements (cont’d) Funds needed “in an emergency” is not specific enough to be committed. n Funds needed to offset “anticipated revenue shortfall” do not qualify unless the shortfall is quantified and can be distinguished from other revenue shortfalls. n

Fund Balance–GASB 54 Stabilization Arrangements (cont’d) Should be reported as restricted or committed if they meet the criteria, otherwise they should be reported as unassigned. n Should not be reported as assigned. n Information should be disclosed in the notes to the financial statements. n

Change in Fund Definitions n Clarifying certain terms used in fund type definitions would improve consistency. n Not intended to impose more restrictive interpretations on the use of the various fund types. n Many not following current standards, as they relate to special revenue funds.

Governmental Fund-Type Definitions General Fund n n n Current definition – To account for all financial resources except those required to be accounted for in another fund. New definition – To account for all financial resources not accounted for and reported in another fund. Changed the definition to eliminate the notion that no other governmental funds should be reported unless they are required is eliminated and that the establishment of other funds can be discretionary.

Governmental Fund-Type Definitions Special Revenue Funds n n n Current definition – To account for the proceeds of specific revenue sources that are legally restricted to expenditure for specified purposes. New definition – To account for the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service and capital projects. Removed the legally restricted terminology because it implies a restriction enforceable by law.

Governmental Fund-Type Definitions Special Revenue Funds (cont’d) n n n Proceeds of specific restricted or committed revenue sources should be the foundation for the fund. Specific revenue sources should be expected to continue to comprise a substantial portion of the inflows. Other resources (i. e. investment earnings, transfers from other funds) may be reported in the fund if those resources are restricted, committed, or assigned to the specified purpose of the fund.

Governmental Fund-Type Definitions Special Revenue Funds (cont’d) n n Required to disclose the purpose for each major special revenue – identifying which revenues and other resources are reported in each of the funds. If the government does not expect that a substantial portion of the inflows will be from restricted or committed resources, the government should stop using a special revenue fund and report the remaining resources in the general fund.

Governmental Fund-Type Definitions Capital Projects Fund Current definition – To account for financial resources to be used for the acquisition or construction of major capital facilities. n New definition – To account for all financial resources that are restricted, committed, or assigned to expenditure for capital outlays. n

Governmental Fund-Type Definitions Debt Service Funds Current definition – To account for the accumulation of resources for, and the payment of, general long-term debt principal and interest. n New definition – To account for all financial resources that are restricted, committed, or assigned to expenditure for principal and interest. n

Governmental Fund-Type Definitions n Permanent Funds – To account for resources that are restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government’s programs.

Summary n Establishes a hierarchy of fund balance classifications. n Clarifies the definition of existing governmental fund types. n Must determine if current special revenue funds meet the revised fund definition for such funds. n Effective for financial statements for periods beginning after June 15, 2010. GASB encourages early implementation.

Any questions ? ? ? ? ?

Contact information Karen L. Mc. Connell, MBA CPA Director of Business Affairs Central Dauphin School District (717) 545 -4703 ext. 205 kmcconnell@cdschools. org Jill E. Gilbert, CPA/Partner Trout, Ebersole and Groff, LLP (717) 358 -9152 jgilbert@troutcpa. com