Presented by: Professor N Amy Santos, State College of Florida

GOVERNMENTAL ACCOUNTING

Purposes and SourcesWhat is the

organizational purpose of governments?

To promote the well-being of citizens

To provide public services

Note: No generation of returns to owners

What is the source of governmental revenue?

Many of the resources are derived from taxes and other non-exchange transactions.

Important aspects of the GNP Environment

Accountability Issues: The obligation to demonstrate accountability related to the use of public funds.

Budgetary Authority: As far as the role of the budget, it is important to note that government budgets often carry the authority of law and prevent public officials from spending outside their budgetary authority.

Budgetary Accounting: The Governmental Accounting Standards Board (GASB) standards include a three-part budgetary principle: a) an annual budget should be adopted by every governmental unit; b) accounting system should provide the basis for budgetary control; c) budgetary comparisons should be included where appropriate.

U.S. Standard Setters

Federal levelh FASAB - Federal Accounting Standards

Advisory Boardh GAO – Governmental Accountability Officeh U.S. Treasury Departmenth OMB - Office of Management and Budget

State and Local Government (SLG)h GASB - Governmental Accounting Standards

Boardh Private (non-governmental) Not-for-

profits h FASB - Financial Accounting Standards Board

GASB Concepts Statement No.1

“The Board believes that financial reporting plays a major role in fulfilling government's duty to be publicly accountable in a democratic society.”

Public accountability is based on the belief that the taxpayer has a "right to know.”

“Financial reporting should provide information to assist users in assessing interperiod equity by showing whether current-year revenues are sufficient to pay for current-year services or whether future taxpayers will be required to assume burdens for services previously provided.”

“State and local governmental financial reports should possess these basic characteristics: understandability, reliability, relevance, timeliness, consistency, and comparability.”

Contents of Governmental Financial Reports

Management’s Discussion and AnalysisBasic Financial Statements

Government-wide Financial Statements (Statement of Net Assets and Statement of Activities).

Fund Basis Financial Statements (Governmental Type Funds, Proprietary Funds, and Fiduciary Funds).

Notes to the Financial Statements.Required Supplementary Information

(infrastructure assets, budgetary comparisons, pension plans, external financing pools).

Measurement FocusMeasurement focus when applies to financial

statements refers to what items are being reported.An economic resource measurement focus measures

both current and long-term assets and liabilities and is used by for-profit businesses (reports balances in fixed assets and long-term liabilities).

A current financial resources measurement focus measures the extent to which financial resources obtained during a period are sufficient to cover claims incurred during that period against financial resources and the net financial resources available for future periods.

Basis of AccountingBasis of accounting focuses on the recognition of

transactions and events in the accounting records.Cash Basis (does not apply to governmental accounting)

determines that recognition of transactions and events (revenues and expenses) is based on when cash is actually or constructively received and when cash is paid.

Accrual Basis recognizes revenues when earned (and expected to be realized) and expenses when incurred or the related goods or services are used up.

Modified Accrual Basis recognizes revenues when measurable and available to finance the expenditures of the current period. Expenditures (not expenses) are recognized in the period in which the fund liability is incurred.

Overview of Basic Financial Statements

Government-wide Statements Statement of Net Assets (Statement of Net

Position after 2013) Similar to business balance sheet (assets=

liabilities + owners/stockholders’ equity) Statement of Activities

Similar to business income statement (revenues – expenses = net income/profit or net loss).

Government-wide statements use the accrual basis and report long-term assets and liabilities for both governmental and business activities (governmental funds are reported using the modified accrual basis).

Government-wide Statement of Net Assets (Position)

Assets are listed in the order of liquidityClassifying assets and liabilities into current and

noncurrent categories is optionalNET ASSETS (or net position) is reported in three

categories1. Net Investment in capital assets 2. Restricted 3. Unrestricted

There must be two separate columns, one for Governmental Activities and one for Business ActivitiesThe numbers in these columns are taken from the totals in the

individual governmental and business type fund statements. The governmental activities must first be adjusted to the accrual basis.

Component Units will have one or more columns or be shown in notes

Government-wide Statement of Activities

It is the operating (resource flows) statement reporting expenses classified by program or function and revenues derived directly from programs or functions.

Revenues generated directly from programs or functions can be user charges or resources received directly from external sources, such as grants and contributions

Program expense minus program revenue (net expense) of each program or function is reported in separate columns for governmental activities, business-type activities, and component units.

General revenues, such as taxes of all kinds and transfers between governmental and business-type activities, are reported in the bottom portion of the statement.

Fund Financial Statements• Governmental Funds have– Balance Sheet– Statement of Revenues, Expenditures and Changes in

Fund Balance– Required supplementary Budgetary Comparison (optional)

• Proprietary Funds have– Statement of Net Assets (Net Position for June 30, 2013)– Statement of Revenues, Expenses and Changes in Fund

Net Assets/Position– Statement of Cash Flows

• Fiduciary Funds have– Statements of Net Assets (Net Position for June 30, 2013)– Statement of Changes in Fund Net Assets/Position

Balance SheetA total column is requiredFund balance is displayed using categories

of nonspendable, restricted, committed, assigned and unassigned. The categories represent various degrees of constraint placed on the use of net resources.

Total fund balances reported in the total column must be reconciled to total net assets presented in the governmental activities column of the government-wide Statement of Net Assets.

Balance Sheet ItemsGeneral Fund: Accounts for most of the basic

services provided by the government. It accounts for and reports all financial resources not accounted for and reported in another fund.

Capital Projects Funds: Account for and report financial resources that are committed, or assigned to expenditure for capital outlays (purchase and construction of major capital improvements, except those purchased or constructed by a proprietary or fiduciary fund).

Debt Service Funds: Account and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest, other than on proprietary or fiduciary activities.

Balance Sheet Items (Cont.)Special Revenue Funds: Account for and

report the proceeds of specific revenue sources that are restricted or committed to expenditure for a specified purpose other than debt service or capital projects (activities funded by federal or state grants or by taxes and restricted to certain activities).

Permanent Funds: Account for and report 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.

Statement of Revenue, Expenditures, and Changes in Fund Balance

Format:RevenuesLess Expenditures + or - Other Financing Sources or

Uses and Special Items = Change in Fund Balance+ Beginning Fund Balance = Ending Fund Balance

Statement of Revenues, Expenditures, and Changes in Fund Balance

Expenditures are classified by “character” Current (by function)Debt ServiceCapital Outlay

‘Character’ relates to ‘time’ or interperiod equity issues: current outlays, past spending (paying off

debts of previous generation), or buildings that will benefit the future