Governmental and Not-For-Profit Final Ch. 10,11,12,13
* Congressional appropriations are one form of budget authority, which gives federal agencies authority to obligate the government to make disbursements for expenditures, repayment of loans, and the like. -> Most appropriations are for1 year only. If they are not spent or obligated by the end of the year they expire. (see back for more)
* A congressional appropriation, however, does not give agencies the immediate authority to spend; several additional budgetary processes occur before that can happen. -> Upon an agency's request, the OMB makes an apportionment of part of the appropriation (generally, based on a quarterly time period) to the department that administers the agency. -> The administering department then makes an allotment of all or part of the apportionment to the agency. -> When it receives the allotment, the agency may obligate or spend up to the amount of the allotment, within budgetary guidelines.
* The FASAB defines NFPOs by listing the characteristics that distinguish them from for-profit business enterprises; that is NFPOs: 1. receive contributions of significant amounts of resources from resource providers who do not expect to receive proportionate monetary benefits in return; 2. operate for purposes other than to provide goods or services at a profit; and 3. lack defined ownership interests that can be sold, transferred, or redeemed. (see back for more)
* As distinguished from NFPOS, governmental entities have one or more of these characteristics: 1. their officers are either popularly elected, or a controlling majority of their governing boards are appointed or approved by entities that are clearly governmental; 2. they may have the power to tax; 3. they may have the power to issue tax-exempt debt; or 4. they can be dissolved unilaterally by a government, and their net assets assumed by it without compensation.
The Budget Process * Budgetary accounting is incorporated into federal accounting into federal accounting and financial reporting to a much greater extent than in state and local government. * The federal government operates on a fiscal year that begins October 1, but the budget process starts some 18 months before that date. -> Based on general budget and fiscal policy guidelines, agencies submit budget requests to OMB in the fall of the preceding year. ->The president transmits budget proposals to congress about 8 months before the fiscal year begins. -> Congress considers the proposals and may change funding levels of individual programs, add or eliminate programs, and add or eliminate revenue sources. (see back for more)
* Congress first considers budget totals before taking action on specific appropriations. -> This is done by means of a concurrent resolution by the budget committees if the House of Representatives and the Senate sets levels for total receipts and total budget authority and outlays. -> Appropriation bills are then initiated in the House. -> After approval by the House, bills are forwarded to the Senate for review and approval. -> They are then sent to the president for approval or veto. -> When an appropriation bill is signed by the president, appropriations warrants are sent to the various agencies by the Treasury. -> Each agency then revises its proposed budget in accordance with the enacted appropriation and submits a request for apportionment of the appropriation to the OMB.
The Federal Accounting and Financial Reporting Model: * Accounting and financial reporting in the federal government is designed to achieve objectives related to: 1. Budgetary integrity 2. Operating performance 3. Stewardship 4. Systems and control (see back for more)
* Federal agencies are required to prepare annual reports, called "Performance and Accountability Reports" -> have a management discussion and analysis, a performance section (showing goals and accomplishments), a financial section (containing audited F/S), and a section with other information. -> Agencies may issue separate performance and financial reports.
* Governmental-type funds: -> The financial data for governmental-type funds are converted to the economic resources measurement focus and accrual basis of accounting and are then consolidated to produce the governmental activities portion of the statements. * Proprietary-type funds: -> The financial data for enterprise funds are consolidated to produce the business-type activities portion of the statements. -> The revenues of internal service funds are offset against expenditures of the funds that purchased services from them; net assets of the internal service funds are then allocated as appropriate to either governmental or business-type activities. (continued on back)
* Fiduciary-type funds: -> Fiduciary funds are excluded from the government-wide financial statements because they cannot be used to support the government's programs. * Discretely presented component units: -> Financial data for discretely presented component units are aggregated and presented in a separate column in the government-wide statements.
Accounting for Net Patient Service Revenues: * Revenues based on fees for services actually provided by hospitals are classified as patient service revenues. * Hospitals record patient service revenues and receivables initially at the gross (established) rates, even if they do not expect to collect those amounts. -> Several factors are are likely to cause the amount realized from these services to be significantly less than established rates. -> These factors include contractual rate adjustments with third-party payers, provisions of charity care, discounts granted to various persons, bad debts, and retrospective adjustments. * For financial reporting purposes, patient service revenue is reported on the operating statement net of contractual rate adjustments, charity care, and similar items that the hospital does not expect to collect. (see back for more)
* For governmental hospitals, patient service revenues are also reported net of estimated uncollectible amounts. -> For not-for-profit- hospitals, however, patient service revenue is not reduced by a provision for uncollectible amounts. -> Instead, not-for-profit hospitals report bad debts expense in the expenses section of the operating statement. * Both Governemntal and not-for-profit hospitals must exercise their judgment to distinguish uncollectible amounts from charity care. -> Receivables resulting from health care services are reported on the balance sheet at the amount likely to be realized in cash. -> Therefore, gross receivables must be reduced by allowances needed to present the receivables at their net realizable value.
Pensions and Other Postemployment Benefits: * In reporting on governmental-type funds, expenditures for pension, retiree health care, and other postemployment benefits are "equal to the amount contributed to the plan or expected to be liquidated with expendable available financial resources." * For government-wide reporting on governmental activities, however, an adjustment may be needed to recognize expenses and liabilities using the GASB's accrual-basis standards. * Because most governments finance retiree health care and other postemployment benefits (collectively called OPEB) only when payments are made on behalf of the retirees, virtually all governments that provide such benefits need to make an adjustment. (see back for more)
* GASB standards permit the OPEB obligation to be accumulated gradually onto the government-wide statements. -> The amount accrued annually is the difference between the annual accrual basis OPEB expense and the contribution made during the year.
Contributions to Collections: * The FASB gives NFPOs the option of not recognizing donated works of art, historical artifacts, rare books, and similar assets as revenues or gains and assets, provided the donated items are added to collections and the collections meet all of the following conditions: a. Held for public exhibition, education, or research in the furtherance of public service rather than financial gain b. Protected, kept unencumbered, cared for, and preserved c. Subject to an organizational policy that requires the proceeds from sales and collection items to be used to acquire other items for collections. * NFPOs must recognize contributions of works of art, historical treasures, and similar items that are not part of a collection as revenues or gains and assets when received. (see back for more)
* If an NFPO chooses not to capitalize its collections, it must report the following information on the face of its statement of activities, separately from revenues, expenses, gains, and losses: a. Costs of collection items purchased b. Proceeds from the sale of collection items c. Proceeds from insurance recoveries of lost or destroyed collection items. -> In addition, an NFPO that does not capitalize its collections must make various disclosures in the notes to the statements.
Medical Malpractice Claims: * Settlements and judgments on medical malpractice claims constitute a potential major expense for hospitals. -> Whether expenses and liabilities need to be recognized on malpractice claims depends on whether risk has been transferred by the hospital to third-party insurance companies. -> The basic rule is this: if risk of loss has not been transferred to an external third party, expenses must be recognized and liabilities reported if it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. (see back for more)
* If it is probable that a loss has occurred but analysis shows that the amount of loss is within a range of amounts, the most likely amount within the range should be accrued as an expense. -> If no amount in the range is more likely than any other, the minimum amount in the range should be accrued, and the potential additional loss should be disclosed in the notes if a reasonable possibility exists for loss greater than the amount accrued. -> For financial reporting purposes, amounts accrued that are expected to be paid within 1 year after the date of the F/S should be reported as current liabilities, and the rest of the accrual should be reported as noncurrent.
Preparing Governmental-Wide F/S: * Because the fund financial statements for governmental-type funds are based on the current financial resources measurement focus and modified accrual basis of accounting, those statements must be adjusted to produce the government-wide statements. -> The following types of adjustments are generally needed: I. Capital assets (including infrastructure assets) and related depreciation need to be recorded. II. Proceeds from issuing long-term debt need to be recorded as liabilities, and payments of debt principal need to be recorded as reductions of liabilities. III. Revenues need to be recognized on the accrual basis of accounting, so the "measurable and available" rule for recognizing tax revenues in the governmental-type funds is discarded. IV. Expenses need to be recognized when incurred, so noncurrent liabilities resulting from current transactions and events must be reported. (see back for more)
* In addition, adjustments are generally needed if a government sells capital assets, issues debt at a premium or discount, or maintains Internal Service Funds. * Proprietary fund financial statements are prepared using the economic resources measurement focus and accrual basis of accounting, so no measurement focus and basis of accounting adjustments are needed when Enterprise Funds are incorporated in the government-wide financial statements.
Subscription and Membership Income: * Membership dues are recognized as revenue in the period(s) during which they are used to provide services to the organization's members -> Membership dues collected in advance of the service period are initially recorded as deferred revenue and then recognized as revenue during the period in which members receive services. (see back for more)
* Nonrefundable initiation fees are generally reported as revenues in the period(s) in which the organization is entitled to receive them. -> Initiation fees are generally reported in as unrestricted revenue. If, however, there is a clear understanding with the membership that the fees will be used to acquire or improve capital assets, they are reported as temporarily unrestricted.
Notes to F/S Regarding patient Revenue Recognition: * Net Patient Service Revenue: -> The hospital has agreements with third-party payers, providing for payments at amounts different from its established rates. -> The agreements provide for both prospectively and retrospectively determined rates. -> Net patient service revenue is reported at estimated net realizable amounts from patients, third-party payers, and others for services rendered, including estimated retroactive adjustments under agreements with third-party payers. -> Estimated retroactive adjustments are accrued in the period services are provided and adjusted in future periods as final settlements are made. (see back for more)
* Premium Revenue: -> The hospital has agreements with various health maintenance organizations to provide services to subscribing participants. -> In accordance with the agreements, the hospital receives monthly capitation payments based on the number of participants regardless of the services the hospital actually performs. * Charity Care: -> The hospital provides care to patients either without charge or at less than its established rates. -> These patients must meet the criteria under the hospital's charity care policy. -> the value of these services is not reported as revenue because the hospital does not seek to collect amounts that qualify as charity care.
Types of Funds Used: * General Fund: -> Comprises the greater part of the federal budget. -> Accounts for receipts that are not earmarked by a specific purpose. -> Accounts for most of the expenditures of the federal departments. -> Expenditures are recorded in appropriation accounts maintained by the individual departments and agencies. * Trust Funds: -> Account for receipts and expenditures of resources used to carry out specific purposes and programs in accordance with the terms of a statute that designates the fund as a trust fund. -> The use of trust fund in the federal government means only that the fund is accounted for separately, is used only for a specified purpose, and is designated as a trust fund. (see back for more)
* Public Enterprise Revolving Funds: -> Used for programs authorized by law to conduct business-type activities, primarily with the public. -> "Revolving" funds because outlays from the funds generate offsetting collections tat are credited directly to the funds and are available for expenditure without further congressional action. -> They are similar to state and local Enterprise Funds. * Special Funds: -> Used to account for resources from specific sources earmarked by law for special purposes and for spending in accordance with specific legal provisions. -> Similar to state and local government Special Revenue Funds.
Acquiring and Depreciating Capital Assets: * When capital assets are acquired with governmental fund resources, they are recorded in the funds as capital outlay expenditures, rather than assets. * Capital assets are not depreciated in the funds. -> to report using the economic resources measurement focus and accrual basis of accounting, adjustments are needed to reverse capital outlay expenditures, record capital acquisitions as assets, and record depreciation expense. -> Beginning-of-year balances of capital assets and related accumulated depreciation also need to be entered into the work sheet. (see back for more)
* Recording net capital assets at the start of the year requires a credit to net position. -> This is because reporting capital acquisitions as assets rather than as expenditures causes governmental "equity" (net position) to be greater than that reported under the current financial resources measurement focus.
* Permanently restricted net assets are resources resulting from the following: a. Contributions and other asset inflows whose use by the organization is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the organization. b. Other enhancements and diminishments subject to the same kinds of stipulations. c. Reclassifications from (or to) other classes of net assets as a consequence of donor imposed stipulations. (see back for more)
* Temporarily restricted net assets are resources resulting from the following: a. Contributions and other asset inflows whose use by the organization is limited by donor imposed stipulations that either expire by passage of time or can be removed by actions of the organization pursuant to donor stipulations. b. Other asset enhancements and diminishments subject to the same kind of stipulations. c. Reclassifications to (or from) other net asset classes as a consequence of donor imposed stipulations, their expiration by passage of time, or fulfillment and removal by actions of the organization pursuant to donor stipulations.
Process for Preparing Government-Wide Statements: * The simplest way is to use a six-column work sheet to record the adjustments. -> Using a work sheet requires three sets of debit and credit columns: 1. Starting balances (an aggregation of the preclosing trial balances of the governmental-type funds) 2. Adjustments to convert the measurement focus and basis of accounting of governmental-type funds from current financial and modified accrual to economic resources and accrual. 3. Adjusted preclosing trial balances. (see back for more)
* The adjustments made in the work sheet take the following forms: 1. Entering beginning-of-year balances of accounts that affect the government-wide statements such as capital assets and bonds payable. 2. Making adjustments for transactions and events that occurred during the year and that affect the accounts differently when the measurement focus and basis of accounting are changed. 3. Eliminating transfers and Interfund balances among governmental-type funds.
* Government-wide financial statements are prepared using the following basic principles: a. Assets, liabilities, revenues, and expenses are reported using the economic resources measurement focus, and the accrual basis of accounting for ALL activities, regardless of the types of funds used to account for them. b. Information is reported about the overall government, without showing individual funds or fund types. c. Financial statements are formatted to distinguish between the primary government and its discretely presented component units; also, for the primary government, the formatting distinguishes between governmental and business-type activities. d. Information about fiduciary activities is excluded from the statements. (see back for more)
* The fund financial statements provide the starting point for preparing the government-wide statements.
Federal Agency Financial Reporting: * Federal agencies report in accordance with standards established by the FASAB, as implemented by the Treasury and the OMB. -> The OMB requires all federal agencies to prepare an annual Performance and Accountability Report. -> The Financial section of the report contains (for both the current and previous year) a balance sheet, a statement of net costs, a statement of changes in net position, and a statement of budgetary resources. * In the balance sheet, intragovernmental assets and liabilities are reported separately from other assets and liabilities. * The statement of net costs shows objects of account. -> Supports congressional and managerial needs for cost data useful in evaluating program performance and in making decisions about allocating federal resources to programs. -> The net costs reported in this statement are the full costs of each program operated by the agency, including not only the direct and indirect agency costs, but also the costs of identifiable supporting services provided by other segments within the reporting entity and by other reporting entities. -> Revenues are deducted from gross program costs to report the net costs. (see back for more)
* The statement of changes in net position summarizes the factors that caused increases or decreases in the components of net position. * The statement of budgetary resources has four parts: 1. budgetary resources 2. status of budgetary resources 3. change in obligated balance, and 4. outlays
The Proprietary Accounting Track: * The accounting equation within the proprietary set of federal government accounts is: -> assets= liabilities + net position. * Although federal government budgeting is essentially cash-based, the economic resources measurement focus and accrual basis of accounting are used in proprietary accounting and financial reporting system. -> The proprietary balance sheet includes capital assets, and the operating statement (called a statement of net costs) shows expenses such as depreciation. (see back for more)
* There are 5 major object classes: 1. personnel compensation and benefits, 2. contractual services and supplies, 3. acquisition of assets, 4. grants and fixed charges, and 5. Other -> each of which is subdivided into more detailed accounts.
Split-Interest Agreements: * A donation may take the form of a split-interest agreement, whereby a donor enters into a trust or other arrangement with an NFPO, giving the NFPO a beneficial interest in the agreement, but not the sole interest. -> Lead Interest: receiving distributions during the term of the agreement. -> Remainder Interest: receiving all or a part of the assets when the term of the agreement ends. (see back for more)
* When a revocable split-interest agreement is executed- that is, one that the donor may cancel- contribution revenue and related assets should not be recognized. -> Simply an intention to give. * When an irrevocable split-interest agreement is executed, an NFPO should recognize contribution revenue and related assets at the FV of the beneficial interest.
Unconditional Promises to Give (Pledges): * A promise to give is a written or oral agreement to contribute cash or other assets to another entity. * The FASB concluded that unconditional promises to give- those that depend only on the passage of time or demand by the receiver of the promise- meet the definition of assets because promise makers generally feel bound to honor them. -> Unconditional promises to give should be recognized in the financial statements as receivables and as revenues or gains when the promises are received. * An allowance for uncollectible promises should be established. (see back for more)
* When reporting promises to give, the following must be disclosed: a. Amounts of promises receivable within 1 year, in 1 to 5 years, and in more than 5 years. b. The allowance for uncollectible pledges.
* The key point of budget control is the obligation- a legally binding agreement that will result in outlays, immediately or in the future. -> An obligation is incurred when an agency places an order, signs a contract, awards a grant, purchases a service, or takes other actions that require the government to make payments to the public. -> It is a violation of the Antideficieny Act to incur an obligation without sufficient budget authority to do so. -> Resources are obligated- and identified in the accounting system as an undelivered order- when for example, a purchase order is placed or a contract is signed. (see back for more)
* When the goods or services are received, the undelivered orders become delivered orders-unpaid. -> Instead of making direct payment, however, the agency requests the Treasury to make payment by sending it a disbursement schedule. -> When the Treasury notifies the agency that payment has been made, the order becomes a delivered order-paid. * Payments by the treasury are called outlays. -> Outlays, defined as payments to liquidate obligations, are the budgetary measure of federal government spending. -> Generally recorded on a cash basis, but they also include other items like interest accrued on the public debt.
4. Plant Funds- PFs: -> Land, building, and equipment funds or plant replacement and expansion funds. -> These funds take a variety of forms. -> Some contain only financial resources to be used for plant (capital asset) acquisitions. -> Some account not only for financial resources, but also for land, buildings, and equipment currently used in operations, together with associated depreciation and long-term debt. -> Depending on the nature of restrictions imposed by donors on the use of Plant Fund resources, the net assets may need to be separated among unrestricted, temporarily restricted, or permanently restricted for financial reporting purposes. (see back for more)
-> Some NFPOs also use other types of funds, such as loan funds, annuity funds, and agency funds. -> Loan fund resources are classified as unrestricted if unrestricted resources were designated by the governing board for use as a loan fund, or they may be classified as temporarily or permanently restricted, depending on the nature of donor-imposed restrictions.
1. Unrestricted Current Fund- UCF: -> Also called Unrestricted Operating Fund, General Fund, or Current Unrestricted Fund. -> Used to account for resources over which governing boards have discretionary control. -> The resources of the UCF are available not only for general operating purposes, but also for transfer to other funds. -> Resources come primarily from unrestricted donor contributions; exchange-type transactions; and unrestricted investment income. -> Designations of resources made by the governing board are classified as unrestricted because they are not donor-restricted. (see back for more)
2. Restricted Current Funds- RCFs: -> Also called Restricted Operating, Specific-purpose, or Current Restricted Funds. -> Temporarily restricted net assets are those whose restrictions are donor imposed. -> For financial reporting purposes, if the NFPO uses fund accounting, the fund balances need to be separated between net assets restricted by donors (classified as temporarily restricted) and net assets restricted as to use by contract or other limitation (classified as unrestricted). (see next card for more)
* Eight Budgetary Accounts: 1. 4119- Other appropriations realized: -> A net resources account for all appropriations not specifically classified. 2. 4450- Unapportioned authority: -> Amounts of unobligated budgetary resources not yet apportioned by OMB, and, hence, not available for obligation. 3. 4510- Apportionments: -> Amounts apportioned by OMB, and, hence, available for allotment. 4. 4610- Allotments- realized resources: -> Current period amounts available for obligation or commitment. (continued on back)
5. 4700- Commitments: -> Amounts of allotment of lower-level authority committed in anticipation of obligation. 6. 4801- Undelivered Orders- obligations, unpaid: -> Amounts of foods and/or services ordered but not received for which there have been no prepayments. 7. 4901- Delivered Orders- obligations, unpaid: -> Amounts accrued or due for services performed by employees, contractors, grantees, etc., and goods and property received. 8. 4902- Delivered Orders- obligations, paid: -> Amounts paid for services performed by employees, contractors, grantees, etc., and goods and property received.
Reporting on Liquidity: * GASB standards encourage reporting assets and liabilities in order of relative liquidity. * The statement of net position may be formatted by simply listing all assets and liabilities in order of liquidity or by using a classified format, wherein current items are separated from noncurrent items. -> Current is distinguished from noncurrent using the business-type activity definition, wherein current assets are those expected to be converted to cash or consumed in operations within 1 year and current liabilities are those due to be paid within 1 year. * Some types of liabilities (such as bonds payable and compensated absences) often have both current and noncurrent elements. -> The GASB suggests that those liabilities be reported in two components- the amount due in 1 year and the amount due in more than 1 year. -> The liabilities section of financial statements are often presented by first listing items that are entirely current and then reporting noncurrent liabilities in two components, those due within 1 year and those due in more than 1 year. (see back for more)
Classifying Components of Net Position: * The difference between assets and liabilities- the net position- should be separated into three components: 1. invested in capital assets, net of related debt, 2. restricted, and 3. unrestricted. -> The net position component invested in capital assets, net of related debt represents the government's capital assets minus accumulated depreciation and outstanding balance of bonds, notes, or other borrowings attributable to acquiring, constructing, or improving those assets. -> The amount reported as unrestricted net position is the "residual" component of net position; it is simply the net position does not meet the definition of restricted or invested in capital assets, net of related debt.
Changing the Accounting Measurements: * To help financial statement users assess the relationship between the fund statements and the government-wide statements, GASB Statement No. 34 requires that the statements be reconciled in summary form. -> The reconciliations explain the specific differences resulting from using different measurement focuses and bases of accounting in the two sets of statements. -> Two reconciliations are needed, one for the two financial position statements and one for the two operating statements. -> The reconciliations may be presented either at the bottom of the fund financial statements or in accompanying schedules. (see back for more)
Formatting the Statement: * GASB Statement No. 63 requires deferred outflows of resources to be displayed separately from assets and deferred inflows of resources to be displayed separately from liabilities in the government-wide statement of net position. -> (assets + deferred outflows of resources) - (liabilities + deferred inflows of resources) = Net position -> Notice that the difference between assets and liabilities is reported as net position, not net assets or fund balances. * Prepayments meet the GASB's definition of assets: -> Resources with present service capacity that the government presently controls * Unearned revenue meets the GASB's definition of liabilities: -> Present obligations to sacrifice resources that a government has little or no discretion to avoid.
Sources of GAAP: * The FASB establishes accounting standards for for-profit (investor owned) and not-for-profit hospitals and other health care entities. * The GASB establishes them for governmental hospitals and other health care entities. * Governmental hospitals- those that meet the definition of government- apply only GASB pronouncements, not FASB pronouncements. -> In adition, governmental hospitals that meet the definition of Enterprise Funds (or those that are organized as public benefit corporations and use Enterprise Fund accounting) apply the full accrual basis of accounting. * GASB recently adopted all pre-1989 FASB and AICPA pronouncements that it considered applicable to Enterprise Funds. -> Excludes all FASB and AICPA pronouncements developed primarily for not-for-profit entities, including not-for-profit hospitals. (see back for more)
I. Governmental hospitals are subject to the accounting and reporting requirements for governmental proprietary funds. -> Not-for-profit hospitals are subject to the accounting and reporting requirements for not-for-profit organizations. II. Governmental hospitals use the economic resources measurement focus and the full accrual basis of accounting. III. Not-for-profit business-oriented health care entities also use full accrual accounting, but even though most of their revenues are obtained from fees and charges for services, they are subject to the account and financial reporting standards of FASB ASC Topic 958, Not-For-Profit Entities, because they are not-for-profit entities. -> Incremental accounting and reporting requirements related to the health care industry also apply as provided by FASB ASC 954, Health Care Entities.
Focus and Format of Government-Wide Statements: I. The most significant difference between the two sets of statements concerns the accounting measurements for activities reported in governmental-type funds. * In the fund-financial statements, the current financial resources measurement focus and modified accrual basis of accounting are used to measure resource inflows, outflows, and account balances for governmental-type funds. -> In the government-wide financial statements, however, the measurements for those funds are converted to the economic resources measurement focus and accrual basis of accounting. II. The second difference concerns the reporting focus. -> The fund financial statements concentrate on individual major governmental and enterprise funds. -> The government-wide statements, however, focus on the government as a whole. -> The funds in each category are aggregated into two broad sets of activities: 1. Governmental: those whose resources come primarily from taxes and intergovernmental grants 2. Business-type: those whose resources come primarily from user charges to third-parties (see back for more)
III. A third difference concerns accountability relationships: -> The fund statements include the fiduciary funds (for which the primary government has a fiduciary relationship) but exclude the discretely presented component units (for which the primary government has a financial accountability relationship) -> The government-wide statements, however, exclude the fiduciary funds but include the discretely presented component units.
Reporting Net Functional Expenses: * The statement of activities must be displayed in a manner that shows the net expense or revenue for each function or program. -> for this reason, the statement of activities uses columns for three types of program revenues associated directly with each function: I. Charges for Services: -> Revenues based on exchange or exchange-like transactions. -> include fees for specific services (such as garbage collection, water use, or parks admissions fees), licenses and permits, and other amounts charged to service recipients. -> Also include fines and forfeitures, because they are revenues generated by specific programs. II. Program-specific operating grants and contributions: -> Arise out of revenues received from other governments, organizations, or individuals that are restricted for use in a particular program. -> Grants and contributions reported in this column are those received for operating purposes or for either operating or capital purposes at the receiving government's discretion. (continued on back)
III. Program-specific capital grants and contributions: -> Amounts in this column need to be considered carefully because significant revenues from capital grants and contributions can distort amounts reported as net expenses or revenues.
3. Endowment Funds- EFs. -> For financial reporting purposes, how endowments are classified depends on their nature. I. Permanent or pure endowments are those wherein the donor specifies that the principal be invested and maintained in perpetuity and only the income earned may be used for operations. -> Classified as permanently restricted for financial reporting purposes. II. Term endowments are those wherein the resources originally contributed become available for use in operations after a specific time period or the occurrence of a specified event. -> Classified as temporarily restricted net assets until the term expires or the event occurs. (see back for more)
III. Quasi-endowment funds, often used by colleges and universities, are funds set aside by the governing board for lengthy but unspecified periods of time. -> Because they are not donor restricted, they are classified as unrestricted for financial reporting purposes. (see next card for more)
* Historically, three agencies have had oversight responsibilities for financial management, including accounting and financial reporting, within the federal government: I. The Office of Management and Budget (OMB) -> Assist the president in preparing the U.S. budget and overseeing its execution, and through its Office of Federal Financial Management, provides direction for improving financial management and systems throughout the federal government. II. The Department of the Treasury (Treasury) in executive branch: ->Provides central payment services for the federal government's program agencies, operates the collection and deposit systems, and provides government-wide accounting and reporting systems. -> Maintains the government's central cash accounting system, and advises agencies regarding the processing for their receipts and disbursements prepared by the individual agencies. (see back for more)
III. The GAO in the Legislative Branch: -> The federal government's legislative auditor, the GAO also plays a major role in accounting and financial reporting process. -> Has the authority to evaluate agency accounting systems for conformance with prescribed principles. -> The GAO has overall responsibility for auditing and expressing an opinion on the consolidated financial statements prepared by the treasury.
* When reading the F/S, keep the following in mind: I. They are prepared in accordance with GAAP promulgated by the FASAB. -> Expenses are generally recognized when incurred, except for the costs of social insurance programs, which are recognized only for amounts currently due and payable. -> Tax revenues are recognized on a "modified cash" basis; that is, when collected, adjusted by the change in net measurable and legally collectible amounts receivable. -> Actual F/S show financial data for the current and previous years. II. The statement of net cost shows the full costs (including payroll fringe benefits costs) of all departments, net of revenues from providing goods and services to the public at a price. III. The statement of operations and changes in net position shows all revenues and expenses. -> Activities financed by nonearmarked funds are separated from those financed by earmarked funds, which include the Social Security and Medicare trust funds. -> The net operating cost is the year's deficit on the accrual basis of accounting. (see back for more)
IV. The basis of accounting in federal budgeting is primarily a "cash and obligation" basis. -> The reconciliation of the net operating deficit with the unified budget deficit helps you understand the cash-basis nature of the budget. -> It also helps you understand the nature of the major accruals. V. The significance of the data reported (and not reported) on the face of the statements cannot be grasped without reading the notes and the supplementary information. -> Includes extensive data on social insurance and financial sustainability.
Derived Tax Revenues (Sales and Income Taxes): * For government-wide financial reporting, these "derived" tax revenues are recognized (net of estimated refunds and estimated uncollectible amounts) when the assets are recognized. -> Generally, on occurrence of the exchange transaction on which the tax is imposed. (continued on back)
Imposed Nonexchange Revenues (Real Property taxes, Fines): * For government-wide financial reporting, real property tax revenues are recognized (net of estimated refunds and estimated uncollectible amounts) in the period for which the taxes are levied, even if the enforceable legal claim arises or the due date for payment occurs in a different period. -> The accrual-basis standard makes no reference to the term measurable and available.
Interfund Receivables and Payables: * Amounts due between individual governmental funds, as reported in the governmental funds balance sheet, are eliminated against each other and are not carried forward to the governmental activities column of the government-wide statement of net assets. -> The same should be done for amounts due between individual proprietary funds. (see back for more)
Interfund Transfers: * In the statement of activities, the treatment just described for Interfund receivables and payables applies as well to Interfund transfers and charges.
The Statement of Activities: * The government-wide operations are reported in a statement of activities, presented in a format that shows the extent to which each function is self-financing (through fees and intergovernmental grants) and the extent to which it draws on the government's taxes and other general revenues. -> To accomplish that purpose, the statement of activities is presented in two sections: I. The upper portion shows the net expenses of each function or program (after deducting applicable revenues) II. The lower portion shows the general revenues and the resulting change in net position for the year. (see back for more)
Reporting Expenses: * Governmental units report expenses by function or program (such as public safety and culture and recreation), except for expenses that meet the definition of special or extraordinary, which need to be shown separately. * At a minimum, the statement of activities should show the direct functional expenses- those that are clearly identifiable to a particular function -> Although not required to do so, governmental units may allocate certain indirect expenses ( such as general government and support services) among the functions. * Depreciation expense for capital assets that can be specifically identified with a function should be included with the direct expenses of the function. -> Depreciation expense for general infrastructure assets (such as water mains) may be reported either as a direct expense of the function that acquires and maintains the assets or as a separate line item in the statement of activities. * Interest on general long-term debt generally should be shown separately.
