Chapter 18: An Introduction to Accounting for State and Local Governmental Units by Jeanne M David, Ph.D., Univ of Detroit Mercy to accompany Advanced Accounting, 10th edition by Floyd A Beams, Robin P Clement, Joseph H Anthony, and Suzanne Lowensohn © 2009 Pearson Education, Inc publishing as 18-1 Governmental: Objectives Learn about the historical development of accounting principles for state and local governmental units Understand the need for fund accounting and its basic premises Perform transaction analysis using proprietary and governmental accounting models Recognize various fund categories, as well as their measurement focus and basis of accounting © 2009 Pearson Education, Inc publishing as 18-2 Objectives (cont.) Review basic governmental accounting principles Learn about the contents of a governmental entity's comprehensive annual financial report © 2009 Pearson Education, Inc publishing as 18-3 An Introduction to Accounting for State and Local Governmental Units 1: History © 2009 Pearson Education, Inc publishing as 18-4 Governmental Entity • Popular election of officers or appointment by officials of one or more state or local governments • Potential for unilateral dissolution by government – Net assets revert to government • Power to enact or enforce a tax © 2009 Pearson Education, Inc publishing as 18-5 Developing Standards • Municipal Finance Officers Association • Governmental Accounting, Auditing and Financial Reporting, 1968 • AICPA • Audits of State and Local Governmental Units, 1974 • National Council on Governmental Accounting • Governmental Accounting and Financial Reporting Principles (beginning 1979) • Governmental Accounting Standards Board • GASB Statements (beginning 1984) • Codification (1985, updated continually) © 2009 Pearson Education, Inc publishing as 18-6 Hierarchy of GAAP GAAP for local and state governmental accounting: GASB Statements and Interpretations GASB Technical Bulletins Consensus positions of GASB's Emerging Issues Task Force Implementation Guides Other accounting literature © 2009 Pearson Education, Inc publishing as 18-7 An Introduction to Accounting for State and Local Governmental Units 2: Fund Accounting © 2009 Pearson Education, Inc publishing as 18-8 Accounting for Governments Focus on continuing ability to fund and provide goods and services – Not profit Types of activities Business type activities • Provide services or goods to users for fees General governmental activities • Provide services or goods to citizens without regard for ability to pay © 2009 Pearson Education, Inc publishing as 18-9 Fund (def.) "a fiscal or accounting entity with a self balancing set of accounts recording cash and other … balances, and changes therein, which are segregated for the purpose of carrying on specific activities…" [GASB Codification] Groups of funds: – Proprietary funds – Governmental funds – Fiduciary funds © 2009 Pearson Education, Inc publishing as 18-10 Expenditures and Expenses • Expenses – Cost of assets or services used – Recognize in period incurred • Expenditures – Cost of goods or service acquired, whether or not consumed – Maturing of long term debt principal – Recognized in period current liability is incurred • Except: interest on long term debt is recognized when due © 2009 Pearson Education, Inc publishing as 18-29 Interfund Activity • • Interfund loans Interfund transfers – Operating or residual equity Nonreciprocal – Government funds • Other financing sources and uses – Proprietary funds • Nonoperating revenues or expenses Reciprocal • Seller has revenues • Purchaser has expense or expenditure © 2009 Pearson Education, Inc publishing as 18-30 Budget When approved by the legislative body, the budget for expenditures becomes a spending ordinance that has the force of law An approved revenue plan also has the force of law Appropriations – Approved or authorized expenditures Allotment – Appropriation for a specific time period © 2009 Pearson Education, Inc publishing as 18-31 Financial Reporting Entity • Primary government – City, town, state • Special purpose government – Water district, hospital, transit authority – Treated as primary government • Separately elected body, legally separate, fiscally independent • Component unit • Legally separate, but primary government is financially accountable © 2009 Pearson Education, Inc publishing as 18-32 An Introduction to Accounting for State and Local Governmental Units 6: Comprehensive Annual Financial Report (CAFR) © 2009 Pearson Education, Inc publishing as 18-33 Primary Government Reporting Annual report called Comprehensive Annual Financial Report (CAFR) • Includes primary government and blended component units GASB Statement No 34 • Government wide financial statements • Fund financial statements © 2009 Pearson Education, Inc publishing as 18-34 CAFR – Introductory Section • • • • Table of contents Letter of transmittal Principal officers Organizational chart © 2009 Pearson Education, Inc publishing as 18-35 CAFR – Financial Section • Management's Discussion & Analysis • Auditor's report • Government-wide financial statements – Statement of Net Assets – Statement of Activities • Fund financial statements (detailed later) • Notes and required supplementary information © 2009 Pearson Education, Inc publishing as 18-36 Statement of Net Assets © 2009 Pearson Education, Inc publishing as 18-37 © 2009 Pearson Education, Inc publishing as 18-38 Statement of Activities © 2009 Pearson Education, Inc publishing as 18-39 © 2009 Pearson Education, Inc publishing as 18-40 Fund Financial Statements • Balance sheet – Governmental funds (GF) • Statement of revenues, expenditures, and changes in fund balance – GF • Statement of net assets – Proprietary funds (PF) • Statement of revenues, expenses and changes in net assets – PF and similar trust funds • Statement of cash flows – PF and similar trust funds • Statement of fiduciary net assets • Statement of fund changes in fiduciary net assets © 2009 Pearson Education, Inc publishing as 18-41 CAFR – Statistical Section • Includes – social and economic data – Financial trends – Fiscal capacity • Comparative, multi-period • Accounting and non-accounting data © 2009 Pearson Education, Inc publishing as 18-42 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher Printed in the United States of America Copyright © 2009 Pearson Education, Inc Publishing as Prentice Hall © 2009 Pearson Education, Inc publishing as 18-43 ... Perform transaction analysis using proprietary and governmental accounting models Recognize various fund categories, as well as their measurement focus and basis of accounting © 2009 Pearson Education,... Pearson Education, Inc publishing as 18-5 Developing Standards • Municipal Finance Officers Association • Governmental Accounting, Auditing and Financial Reporting, 1968 • AICPA • Audits of State... Board • GASB Statements (beginning 1984) • Codification (1985, updated continually) © 2009 Pearson Education, Inc publishing as 18-6 Hierarchy of GAAP GAAP for local and state governmental accounting: