18 Governmental Entities: Special Funds and Government-wide Financial Statements McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, Inc All rights reserved Overview • • A government should establish those funds required by law and the specific operating and management needs of the government entity A general rule is that all activities should be accounted for in the general fund unless specifically required by law or the different measurement focus used for proprietary and fiduciary funds 18-2 Overview 18-3 Governmental Funds Worksheets • Each of the five governmental funds will report two fund-based financial statements: – The balance sheet – The statement of revenues, expenditures, and changes in fund balance 18-4 18-5 18-6 Special Revenue Funds • • • Special revenue funds account for the proceeds of specific revenue sources that are restricted for specified purposes Includes resources and expenditures for operations, such as public libraries, when a separate tax is levied for their support Accounting for special revenue funds is the same as for the general fund 18-7 Capital Projects Funds • Capital projects funds account for financial resources that are specified for the acquisition or construction of major capital facilities or improvements that benefit the public – A separate capital projects fund is created at the time the project is approved and ceases at its completion – Uses the modified accrual basis of accounting 18-8 Capital Projects Funds – No fixed assets or depreciation are recorded – No long-term debt is recorded – Typically not have annual operating budgets – A capital budget is prepared as a basis for selling bonds to finance a project, and the capital budget is the control mechanism for the length of the project – The capital budget for the project may, or may not, be formally recorded in the accounts – The fund records capital outlays as expenditures 18-9 Debt Service Funds • • Debt service funds account for the accumulation and use of resources for the payment of general long-term debt principal and interest General long-term debt obligations: – – – – – Serial bonds Term bonds Special assessment bonds Notes and warrants Capital leases 18-10 Trust Funds • Private-purpose trust funds account for trust agreements for which the principal and/or income benefits specific individuals, private organizations, or other governments 18-26 Agency Funds • Agency funds are a fiduciary fund type that accounts for resources held by a governmental unit as a custodial agent for individuals, private organizations, other funds, or other governmental units – Uses the accrual basis of accounting – Because these funds are custodial in nature, assets always equal liabilities and there is no fund equity – The financial statement for agency funds is the statement of fiduciary net assets 18-27 The Government Reporting Model • • GASB 34 specifies the reporting model What organizations comprise the reporting entity? – The primary government – A component unit for which the primary government is financially accountable – Any organization that has a significant relationship with the primary government 18-28 The Government Reporting Model • What constitutes financial accountability? – Financial accountability is evidenced when the primary government appoints a majority of the organization’s governing board – Financial accountability may also exist if the organization has a separately elected or appointed board but fiscally depends on the primary government for the financial resources required to operate 18-29 The Government Reporting Model • What other organizations should be included in the reporting entity? – GASB 14 specifies a third category of organizations to be evaluated to determine if they are part of the reporting entity with the primary government – These are legally separate, tax-exempt entities for which the primary government is not financially accountable 18-30 The Government Reporting Model • How should the financial results of the component units be reported? – A choice between two methods: • • Discrete presentation in a separate column of the primary government’s financial statements Blended presentation by combining the organization’s results into the primary government’s financial results 18-31 The Government Reporting Model • Government financial reports – The annual report of a governmental entity is termed the comprehensive annual financial report (CAFR) 18-32 18-33 The Government Reporting Model • Government-wide financial statements – The government-wide financial statements include: • • The statement of net assets The statement of activities – GASB 34 requires that government-wide financial statements be prepared on the economic resources measurement focus with the accrual basis of accounting 18-34 18-35 18-36 The Government Reporting Model • Reconciliation schedules – Required to reconcile the net change in the total amounts reported on the governmental funds statements with the amounts reported on the government-wide statements • • • Reconciliation schedule for Statement of Net Assets Reconciliation schedule for Statement of Activities Budgetary comparison schedule – This should be presented as required supplementary information for the general fund and for each special revenue fund that has a legally adopted annual budget 18-37 The Government Reporting Model • Management’s Discussion and Analysis – MD&A should be included in the required supplementary information of the governmentwide financial statements to provide an analytical overview of the government’s financial and operating activities • Notes to the government-wide financial statements – GASB 34 specified a number of required note disclosures 18-38 The Government Reporting Model • Interim reporting: – Governmental entities generally are not required to publish interim reports, although many prepare monthly or quarterly reports – Internal management control instrument • Auditing governmental entities – Most entities are audited annually – Different from the audit of a commercial entity – Single Audit Act of 1984 18-39 Additional Considerations • • • • Special-purpose governmental entities Financial reporting for pensions and OPEB plans Employer accounting for pensions and OPEB plan benefits Accounting for termination benefits 18-40 ... governmental funds will report two fund-based financial statements: – The balance sheet – The statement of revenues, expenditures, and changes in fund balance 18- 4 18- 5 18- 6 Special Revenue Funds • • • Special... warrants Capital leases 18- 10 Debt Service Funds • • The accounting and financial reporting for debt service funds are the same as for the general fund The modified accrual basis of accounting is used... accrual basis of accounting is used in this fund and the financial statements for the permanent funds are the same as for all other governmental funds 18- 12 Governmental Funds Financial Statements