CGFM #2: Chapter 1

FASAB Hierarchy

- Category A: established accounting principles: Statements of Federal Financial Accounting Standards and interpretations - Category B: FASAB Technical Bulletins, AICPA Industry Audit ad Accounting Guide - Category C: Technical Releases of the Accounting and Auditing Policy Committee of the FASAB - Category D: FASAB Implementation Guides and practices which are widely recognized and prevalent in the federal government. - Other accounting literature: FASAB Concept statements, other non-federal pronouncements, professional organizations/regulatory agencies, textbooks/handbooks/articles

Hierarchy of proposed standards

- Discussion memorandum: outlines results of research and defines accounting and reporting issues for a given project. Respondents are asked to comment. Board has no particular view or direction. Rarely issued since board usually has an opinion. - Invitation to comment: elements of a discussion memo, preliminary views document or both. Respondents comment on a research report, monography, standard or proposed standard issued by another body. - Preliminary views: board's initial proposal for a standard. May express single or multiple views for comment. - Exposure draft: last process document before final standard is issued. In the form of the final standard but reactions and comments are welcome. Bodies may issue only an exposure draft.

Federal government and budgeting

- Feds not required to have balanced budget - Fed has debt ceiling, which allows Congress to monitor financial effects of spending and tax cuts; excessive borrowing may hinder growth

Other documents useful to users in making decisions:

- budget, especially if it contains a high level of detail - project & performance reports - accomplishments

interperiod or intergenerationaly equity:

- current generation shouldn't be able to shift payment for current year services to future taxpayers. - assessing government's financial position has improved or deteriorated (financial, social and political implications) -> have current taxpayers shifted burden without providing future benefits?

the governmental budget:

- establishes spending authorizations, outlines programs/services, defines sources of revenue - establishes restrictions on the use of resources

US Constitution provides for two levels of government:

- federal - state

Financial reporting & debt analysis:

- financial reporting reveals borrowing and allows readers to assess whether debt levels are equitable - state and local level: interperiod equality needs to be considered when establishing financial reporting objectives. - financial reporting should help users determine if current period revenues were sufficient to meet current period services and whether future taxpayers will have to take on an additional financial burden.

Governmental accountability is based on....

- government has a responsibility to report - public has a right to know - ultimate power belongs to the people (voting), initiative, referendums)

financial reporting shows the reader:

- how much was raised - how much was spent - if spending was in compliance with the budget

performance reports accompanying the financial reporting informs users about....

- how well the government is being run - whether the government is achieving its goals in an effective and efficient manner

legislators' use of financial statements

- information about available resources, operating results and compliance with laws and regulations - ensure that expenditures are within the budgetary appropriations.

all governmental entities are subject to....

- legal requirements for organization and structure, - ability to levy taxes, - sovereign powers that can be exercised.

Executive branch is accountable to.....

- legislative branch: use resources in accordance with legislative mandates within fiscal constraints - public: operate in an effective and efficient manner; collect and use resources.

federal government has primary authority for...

- national and international affairs - can impose certain requirements on the management of state governments, providing the authority is granted in the constitution

Reporting characteristics

- understandability: Simple, explanatory, interpretations - Reliability: verifiable, free from bias, faithful representation, comprehensive - relevance: timely + reliable = relevant - Timeliness: timeframe useful for users and decision-making - consistency: changes in accounting methods or principles need to be disclosed along with the effect of the change - comparability: similar entities should report in similar ways; any differences should be due to substantive difference in the underlying transactions or the government structure.

The three standard setting bodies consider it desirable that the change....

.....be evolutionary to the extent that it can be accommodated by the need for understandability, reliability, comparability and consistency.

Each state's constitution....

.....is unique but with common requirements. - establishes the executive branch's functioning, terms, offices and requirements to hold office - establishes legislative branch, detailing how laws are the be introduced and enacted. - establishes the manner by which local government entities can be formed

Standards are only established....

.....when the expected benefits exceed costs. Proposed standards, including disclosure costs, should fulfill a significant need and the resulting costs are outweighed by then public benefit.

financial reporting provides information to assist users in:

1. assess accountability 2. help make economic, social and political decisions

Development of governmental financial reporting standards

1934: National Committee on Municipal Accounting, led by the Municipal Financial Officers Association 1948: National Council on Governmental Accounting, led by the Municipal Financial Officers Association (later beaming the Government Finance Officers Association. 1968: National Council on Governmental Accounting issued Governmental Accounting, Auditing and Financial Reporting (GAAFR 0 aka Blue Book) 1975: AICPA issued Audits of State and Local Governments Units: principals of GAAFR were officially accepted as accepted principles for state and local government accounting and auditing community 1984: Governmental Accounting Standards Board created 1990: OMB US Treasury Secretary & comptroller general (head for Government Accountability Office) signed MOU creating Federal Accounting Standards Advisory Board

Types of Government Reports: General Governmental Reporting

All available information: Basic Financial Statements RSI Other Information Other Financial Reports Other Information

Readily available financial information

American Recovery and Reinvestment Act of 2009 required local governments to report on how the funds were being spent - Citizens could monitor the progress of awarding funds intended to stimulate the economy and create jobs - Significant catalyst in expending access to disaggregated government financial data Transaction level detail for federal grants above a certain amount readily available State and local governments increasing access

Types of Government Reports: General Purpose External Financial Reports (GPEFR)

Basic Financial Statements RSI Other Information

Types of Government Reports: Financial Reporting

Basic Financial Statements RSI Other Information Other Financial Reports

Which of the following is not a type of accountability used in government? a. Operational accountability b. Legal accountability c. Profit accountability d. Performance accountability

C Governments are not created to make a profit

For which of the following does general purpose financial reporting not assist users> a. Assessing accountability b. Making economic decisions c. Making lease-purchase decisions d. Making political decisions

C Lease-purchase decisions are based on specific requirements. Financial reporting does not assist in lease-purchase decisions.

Ensuring an accounting principle is used from one year to another is an example of what financial reporting characteristic: a. Reliability b. Comparability c. Consistency d. Relevance

C Reliability means information is verifiable and free from bias. Comparability means that like entities report the same information in the same way. Relevance means the information can be used to assess a condition, event or problem.

Government budgeting is on a _____________ basis

Cash or near-cash - possible to manipulate ending balances to appear to break even (e.g. not accruing expenditures, improperly recognize revenue)

Interpretations or technical bulletins

Clarify points that are ambiguous in previous standards. Technical bulletins address issues not warranting research involved in setting new standard.

Period Reports

Cover a given time range, e.g. Income Statement, Cash Flow

Describe the concept of interperiod equality.

Current year revenues should be sufficient to pay for current year services. Current year services should not be financed by future year taxpayers.

Open governments

Data should be readily available on the internet Greater access is intended to facilitate data analytics, transparency and collaboration

Concept statements

Does not establish accounting or reporting standards. Describes the concepts the board will use as framework for evaluating existing standards and practices and for establishing new standards.

Digital Accountability and Transparency Act

Establishment of government-wide financial data standards and the increased availability, accuracy and usefulness of federal spending information - Expand Federal Funding Accountability and Transparency Act of 2006 to enable taxpayers and policymakers to track federal spending - Establish government wide data standards for financial data and provide consistent reliable and searchable government wide spending data that is accurate - Simplify reporting for federally funded entities by streamlining reporting requirements and reducing compliance costs while improving transparency - Improve quality of data submitted by holding federal agencies accountable for the completeness and accuracy of the data - Apply approaches developed by the Recovery Accountability and Transparency Board to spending across the federal government

Before financial reports are completed, all information pertaining to financial considerations and results of operation should be available. TRUE or FALSE

FALSE In order to issue reports in a timely manner, it may be necessary to make estimates. If reports aren't issued in a timely manner, they can't be useful in decision-making.

Program managers have little need for financial statements. TRUE or FALSE

FALSE Program managers focus on operations and delivery of services. Managers also review financial statements to ensure they are operating within budgetary parameters, legal restrictions and public policy.

The executive branch is only accountability to the public. TRUE or FALSE

FALSE The executive branch is also accountable to the legislative branch for spending resources in accordance with legislative mandates.

Describe the jurisdiction of the accounting standards-settings organizations.

FASB: private sector, including not-for-profit FASAB: federal government GASB: non-federal governmental entities.

Objective and neutral

Free from bias

Sunshine laws

Freedom of information Citizens have a right to the data held by their governments

GASB Hierarchy

GAAP - GASB Statements - GASB Technical Bulletins State and Local non-authoritative sources: - GASB Concept statements - Other literature: FASB, FASAB, International Public Sector Accounting Standards Board, International Accounting Standards Board, AICPA not cleared by GASB. - Practices widely recognized and prevalent in state and local government; other professional associations/regulatory agencies, textbooks/handbooks/articles AICPA Literature cleared by GASB: - Definition of government - Capital asset impairment for gaming entities - Proceeds of bonds issued by financing authority - Charity care - Lottery reporting - Gaming reporting

Standard settings bodies with influence over governments

GASB: Government Accounting Standards Board FASAB: Financial Accounting Standards Advisory Board Also: FASB: Financial Accounting Standards Board IPSASB: International Public Sector Accounting Standards Board

GPEFR

General Purpose External Financial Report - audited financial statements - notes - RSI - other accompanying information

Describe the types of reports produced by governments.

General purpose external financial reports demonstrating accountability and containing audited financial statements as well as other required supplemental information Internal financial reports to manage operations, reports to grantor agencies, offering statements (debt issuance), project reports, popular reports. Performance reports many of which aren't financial in nature.

Federal Open Government Initiative

Government should be transparent, participatory and collaborative

Describe at least three ways governments differ from private sector organizations.

Governments are: - established through legal means - have no profit motive - raise revenue primarily through taxes - have not shareholders - rely on the budget process to allocate resources - have governing bodies with publicly elected leaders - provide many services that are not available in the private sector

International Public Sector Accounting Standards Board

Made up of 15 members from International Federation of Accountants and 3 public members Major activities: - Issue consultation paper that explores the subject in detail ad provides the basis for further discussion, development and policy information - Issue exposure draft

Issue Government Accounting Standards Board

Mission: - Set and improve standards of state and local accounting and financial reporting to result in useful information - Guide and educate the public Rules of procedure involve one or more of: - Establishment of advisory task force for feedback on an issue - Publish documents for public comment - Broadly distribute exposure draft for public comment - conducting public hearings and forums on due process documents - issue final standard

Financial Accounting Standards Board

Mission: improve financial accounting and reporting standards that provide decision-useful information to investors and other users Rules of procedure: - Identify issues based on requests/recommendations decide whether to add an item to the technical agenda based on staff analysis - deliberate issues at public meetings issue an exposure draft for input hold public round table meeting on exposure draft (as necessary) staff analyzes comments and the Board redeliberates the proposed revision Board issues a standards update describing amendments to accounting standards codification

Federal Accounting Standards Advisory Board

Mission: serve the public interest by improving federal financial reporting through federal financial accounting standards to providing guidance after considering the needs of external and internal users Rules of procedures: - identify accounting issues and decide on agenda items - prepare initial documents - release preliminary documents, convene public hearings and consider comments - conduct further deliberations, release exposure draft and consider comments - vote - issue final pronouncement

Special Purpose Financial Reports:

Other financial reports which may or may not be provided to external users - budget - budget comparison - disclosures of aspects of government's condition or operations (cash, o/s AR, revenues generated - offering statements -project reports - grantor reports - bonds - popular reports

Due process procedures

Permit a timely, thorough and open study of accounting and financial reporting issues. Encourage broad participation and communication (various points of view and expressions of opinion)

Development of non-governmental financial reporting standards

Securities and Exchange Commission established in 1934 as a result of 1929 crash Investors should have information about a potential investment before making the investment SEC granted authority for accounting and reporting standards to the Financial Accounting Foundation which appoints members of the Financial Accounting Standards Board (private and not-for profits)

Statements by standard setting bodies

Sets forth the accounting and reporting standard that should be followed by preparers and auditors of financial statements along with effective date.

State and local governments never have to follow standards of the Financial Accounting Standards Board. TRUE or FALSE

TRUE

Budget is essential to government financial management. TRUE of FALSE

TRUE Governments are legally bound by appropriations. The budget establishes spending authority, outlines programs and service to be provided tot he public, and defines the resources that are to be used.

service priorities are established through....

a legislative system

Which basis of accounting cannot be used to demonstrate the concept of interperiod equality? a. Cash basis b. Accrual basis c. Modified accrual basis

a. NO b. YES c. YES Cash basis cannot be used because transactions are recorded only based on the inflows and outflows of cash. The period in which the revenue was earned or liability incurred is not taken into consideration.

During due process, a standards-setting board may or may not take a position. For each of the following due process documents, state whether or not a position has been taken. a. Exposure draft b. Discussion memorandum c. Preliminary views d. Invitation to comment

a. POSITION b. No position c. POSITION d. No position

Point in Time Reports

aka Flow Reports Reports as of a specific date, e.g. Balance Sheet

Fiscal Accountability:

associated with the raising of resources and the allocation of those resources. - financial reporting is an important way of demonstrating fiscal accountability.

employees' and employee organizations' use of financial statements

availability of resources to pay future benefits

government budgeting is different from commercial budgeting in that....

commercial budgeting is a benchmark or guide while governmental budgeting is the legal authority to spend and provides legal contraints

Governmental reporting must demonstrate....

compliance

investors' and creditors use of financial statements

compliance with contractual agreements related to debt issues. evaluation of future investing in the entity long range views of government as a whole

financial reporting, including performance reporting, is the primary way for public officials can....

demonstrate accountability

Performance Accountability:

ensuring governments act in an efficient, effective or economic manner. Many public officials are responsible for the results of programs, ensuring that goals and objectives are met.

federal and state governments affect the private sector by ....

establishing the manner in which private sector organizations can be organized. Government cannot require specific offices, functions, or revenue production. (board of directors/shareholders)

Executive and legislative branches rely on....

financial reporting as a means of demonstrating accountability.

In government, accountability is the cornerstone of....

financial reporting.

media's use of financial statements

governments may have a responsibility to publish info through the media or respond to media requests. Media publicizes requests for public input.

other than taxes, governments primarily receive revenue from....

grants and shared revenues

Citizens, who a represented by their elected officials, do not have a direct voice in the allocation of resources except by...

initiative petitions.

Federal financial reporting looks at a longer view assessing....

intergenerational equality. - education - social security

State and local current financial reporting principles are intended to highlight the government's efforts to achieve.....

interperiod equality.

Offering Statements

issued by governments issuing debt

because those who are receiving the majority of services aren't the ones paying the taxes, the government is pressured to.....

keep taxes as low as possible

government organization is grounded in....

laws rules regulations

Users of government financial statements:

legislators oversight organizations citizens investors creditors media financial and program managers

taxpayers' use of financial statements

management of public funds; operating results efficiency; cuts in services; safeguarding of resources; specific programs; taxes and revenue raising efforts

state governments have the powers....

not set forth in the US Constitution for the federal government - whatever not specified as federal responsibilities/authority is left to the states

interperiod equity generally enforced at state/local level because.....

of balanced budget laws requiring current year services be paid with current year revenues. - definition of current year revenues can result in governments borrowing (LT or ST) to finance current services.

financial and program managers' use of financial statements

operating within budgetary parameters, restrictions of laws and regulations and public policy - ensure compliance

Demonstrating accountability includes providing information to assist in evaluating whether the government is ......

operating within the legal restraints imposed.

involuntary resource providers......

pay the taxes which provide services for others paying little or no taxes

services typically provided by the government:

police, fire, infrastructure, public health quality of life enhancements: recreation, refuse

the budget process is the....

primary control device; government managers demonstrate accountability

The government's authority to charge fees, tax assessments, etc. is vested in the government entity to....

protect public welfare, promote social and economic development.

Operational Accountability:

stewardship of public resources - are resources being used wisely and responsibly? Use performance measures and performance reporting.

resources for government entities are derived primarily from....

taxes

Public officials are accountable for the establishment of processes:

the controls to ensure transactions are processed properly, payrolls calculated correctly, payments for goods and services properly authorized and services provided to eligible recipients.

taxpayers, investors, service recipients and creditors of a government are concerned with....

the delivery of services and meeting future obligations

Legal Accountability:

the need to comply with various laws, regulations and rules.

Legislative branch is accountable to....

the public for the raising of resources and how those resources are used.

a cynic might say that one measure of a government's success is.....

the re-election of it's officials

governments recover at least some of the cost of providing certain services by charging......

user fees, licenses and permits