Government accounting Final
how does the net position section of a balance sheet of a proprietary-type fund differ from the fund balance section of a governmental-type fund?
(1) net investments in capital assets, (2) restricted position, and (3) unrestricted net position. The fund balance section of a governmental-type fund can have as many as 5 classifications: nonspendable, restricted, committed, assigned, and unassigned
What kind of information is compared in a budgetary comparison schedule?
A budgetary comparison statement or schedule compares (a) the original appropriated budget, (b) the final appropriated budget, and (c) actual inflows, outflows and balances for the year, presented on the government's budgetary basis of accounting.
Distinguish between a defined benefit pension plan and a defined contribution pension plan.
A defined benefit plan is a plan that specifically identifies the formula that will be used to calculate future pension benefits for employees as long as they live. A defined contribution pension plan is a plan that specifically identifies the formula that determines the amount the governmental unit will contribute into a fund that a retiree must accumulate to provide for his/her own retirement. Under defined benefit plans the governmental unit is committed to make payments to the retiree over his/her life after retirement. Under defined contribution plans, the government has no liability except for its required contribution.
what is a flexible budget?
A flexible budget allows higher levels of expenses at higher levels of operating activity. The level of budgeted expenses is related to the level of operations.
Discuss under what circumstances a government may choose not to depreciate infrastructure assets.
A government may choose not to depreciate its infrastructure assets if it adopts the "modified approach" for reporting these assets.
What financial statements are used for Private-Purpose Trust Funds?
A statement of changes in fiduciary net position and a statement of fiduciary net position
What is an actuary? What is the actuary's role in pension administration?
Actuaries have special expertise in calculating the long-term cost of risk. make financial evaluations of risk that are essential to the successful operations of pension plans. calculate essential financial reporting information for state and local government employers and pension plans. This information includes the net pension liability and pension-related deferred inflows and outflows of resources
What is a primary government?
All state governments and general-purpose local governments (such as counties, cities, towns, and villages) are primary governments. Special-purpose governments (such as local school districts) are also considered primary governments provided they have a separately elected governing body, are legally separate, and are fiscally independent of other state and local governments.
what is the difference between an enterprise fund and an internal service fund?
An Internal Service Fund is used when a government provides goods and/or services to departments or agencies within the government itself or to other governments.An Enterprise Fund is used when a government provides goods and/or services primarily to consumers (generally, the citizenry) who are not part of the government itself.
when should an internal service fund be used?
An Internal Service Fund should be used when a government can provide goods or services to other departments or governments at a lower cost or in a more convenient or dependable manner than if an outside organization were used.
What is the total pension or OPEB liability and how is it calculated?
An actuary calculates the total pension or OPEB liability for state and local governments participating in a defined benefit plan so they will have the information necessary to report a liability for pension or OPEB in their proprietary and government-wide financial statements. the total pension or OPEB liability is the amount that the government will report as its pension or OPEB liability. If it has established a trust, the government will instead report its net pension or OPEB liability in its financial statements. An actuary determines the total pension or OPEB liability by using three broad steps. First, the actuary projects the future benefits that will be paid to or for the benefit of retirees. Second, the projected future payments to beneficiaries are discounted to determine the actuarial present value of the expected benefit payments. Third, the actuary attributes the actuarial present value to past and future periods. The total pension liability is the amount of the actuarial present value of expected future benefits that is attributable to past periods of employee service.
What is arbitrage, and what is its significance in government financial management? "
Arbitrage" refers to the practice of borrowing money at a given rate of interest and simultaneously investing that money at a higher interest rate, that is, "living off the spread." The Federal government has rules that strictly control this practice where tax exempt general obligation bonds are involved.
When reporting component units in a government's financial statements, how does the process of blending differ from the process of discrete presentation?
Blending is the process of treating the funds used by the component unit as if they were the funds of the primary government. Discrete presentation is the process of reporting the component unit's funds in a separate column in the reporting entity's government-wide financial statements
How are Capital Projects Funds controlled?
Capital Projects Funds are controlled through the provisions of bond indentures, restrictive provisions of grant agreements, and so forth. In addition, formal budgetary integration into the accounts can be used as an additional control tool. Usually governmental units also use encumbrance accounting to control the expenditures.
Under what circumstances are Capital Projects Funds used?
Capital Projects Funds are used to record the transactions incurred in the acquisition or construction of capital facilities and other major capital assets, other than those financed by proprietary and trust funds.
Are capital assets recorded in Capital Projects Funds? Why or why not?
Capital assets are not recorded in Capital Projects Funds because the purpose of such funds is to provide control over the acquisition and use of financial resources to acquire and/or build capital facilities. The assets themselves are not financial resources (or, "financial" assets), therefore, they are not accounted for in these funds.
What is a component unit?
Component units are legally separate organizations for which the elected officials of a primary government are financially accountable
When are Custodial Funds used?
Custodial funds are used to report fiduciary activities that are not required to be reported in one of the other types of fiduciary funds.
What types of activities are reported in Custodial Funds?
Custodial funds are used to report fiduciary activities that are not required to be reported in one of the other types of fiduciary funds. One of the most common uses for Custodial Funds is as a clearing mechanism for recording property taxes collected by one government on behalf of other governments.
Under what circumstances are Debt Service Funds used?
Debt Service Funds are used when required by law or if a government is accumulating financial resources for principal and interest payments maturing in future years.
why is depreciation recorded as an expense in proprietary funds, but not as an expenditure in governmental-type funds?
Depreciation is recorded as an expense in proprietary funds because the economic resources measurement focus is used to measure revenues and expenses and the resulting change in net position. Governmental-type funds record the use of financial resources when capital assets are acquired or paid for, not as they are used in operating the government.
Why is encumbrance accounting generally used for Capital Projects Funds?
Encumbrance accounting is part of the overall control system used for Capital Projects Funds. Its purpose is to limit the amount of expenditures that can be made for a given project. By using encumbrance accounting, a project manager will be able to determine,the amount that has been approved for a certain project and the amount that has either been spent or committed.
how does a cash flows statement presented for a proprietary fund differ from one presented for a company?
First, governments must report cash flows from proprietary fund operations using the direct method. Second, a proprietary fund must also provide a reconciliation of operating income to net cash flows from operating activities at the bottom of the cash flows statement. Third, proprietary fund cash flows must be reported in four different categories—operating, investing, capital and related financing, and noncapital financing. The FASB requires only three categories—operating, investing, and financing.
When does a government that participates in a defined contribution plan report a pension or OPEB liability in its financial statements?
Generally, an employer only records a liability related to defined contribution pensions or OPEB if, at the end of its fiscal year, the employer has not made all of its annual agreed upon contributions to the individual accounts of employees participating in the plan.
What measurement focus and basis of accounting should be used in reporting each of the three fund categories in fund financial statements?
Governmental - current financial resources MF and modified accrual BA Proprietary - economic resources MF and accrual BA Fiduciary - economic resources MF and accrual BA
What is the net pension or OPEB liability and how is it calculated?
If a defined benefit pension meets the GASB criteria, the net pension or OPEB liability is the amount that the government will report as its pension. The net pension or OPEB liability is the total pension or OPEB liability less the related pension or OPEB plan's net position
What is a special item in financial reporting?
In financial reporting, a special item is a significant transaction or event that is within the control of management and that is either unusual in nature or infrequent in occurrence.
Describe the difference between expenditure recognition in the governmental fund financial statements and expense recognition for governmental activities in government-wide financial statements.
In the fund financial statements, governmental-type funds are reported using the current financial resources measurement focus and modified accrual basis of accounting. In the government-wide financial statements, governmental activities are reported using the economic resources measurement focus and the accrual basis of accounting. As a result, in the fund financial statements, expenditures are recognized generally to the extent that they are "normally expected to be liquidated with expendable available resources;" that is, when they are due and payable. In government-wide financial statements, expenses are recognized when liabilities are incurred or when assets are consumed. As a result, for, example, depreciation expense is recognized as capital assets are being used up, supplies expense is recognized when materials are used, and other expenses are recognized as incurred, regardless of when cash changes hands.
Describe the difference in reporting capital assets and long-term debt in the governmental fund financial statements and in reporting those elements for governmental activities in government-wide financial statements.
In the fund financial statements, governmental-type funds are reported using the current financial resources measurement focus. In the government-wide financial statements, governmental activities are reported using the economic resources measurement focus. As a result, long-term assets (such as capital assets) and long-term liabilities (such as bonds payable) are reported in the government-wide statement of net position, but not in the fund balance sheets. Acquisitions of capital assets and payments of debt principal are reported as expenditures in the fund financial statements. Debt issuances are reported as other financing sources.
Define and give illustrations of infrastructure assets.
Infrastructure assets are long-lived capital assets that are generally stationary and can be preserved for a significantly greater number of years Infrastructure assets include roads, bridges, tunnels, water and sewer systems, dams, and lighting systems.
How are interfund activities and balances reported in government-wide financial statements?
Interfund activities and balances should be eliminated in government-wide financial statements. When aggregating the governmental-type funds for the government-wide statements, amounts due between individual governmental funds should be eliminated against each other. The same should occur within the proprietary-type funds.
How is Internal Service Fund activity reported in government-wide statements?
Internal Service Funds are eliminated in the government-wide financial statements. Internal Service Fund assets and liabilities should be aggregated with the assets and liabilities of the activities (governmental or business-type) that are the primary consumer of the ISF's services.
On what bases are investments valued on governmental fund balance sheets?
Investments generally are valued at fair value on a governmental balance sheet. Investments that are not reported at fair value include debt instruments purchased with a maturity date of one year or less; for example, commercial paper and U.S. Treasury obligations. These investments are reported at amortized cost.
What is the purpose of management's discussion and analysis?
Management's Discussion and Analysis provides an objective analysis of the government's financial operations and financial position, based on facts known to management as of the date of the auditor's report. It should focus on the primary government, but cover matters applicable to component units if, in management's professional judgment, it is appropriate to do so. MD&A should compare the current year with the previous one, and discuss both positive and negative aspects of that comparison.
Can the government sponsoring an external investment pool participate in it?
No, the sponsoring government may not participate in an external investment pool. Participants must be legally separate governments that are not part of the same reporting entity as the sponsoring government
Are budgets typically recorded in Permanent Funds?
No, unless required by legal provisions. The earnings from Permanent Funds may be transferred to another fund, such as a Special Revenue Fund. The Special Revenue Fund, will budget these proceeds as part of its budgeting process.
Does a government that offers pension benefits to its employees necessarily maintain a pension Trust Fund? Explain.
No. A government can offer benefits to its employees by participating in an external pension plan—such as one sponsored by a state government. The external pension plan will have a Pension Trust Fund.
Are acquisitions of capital assets always accounted for through Capital Projects Funds? Explain.
No. Capital assets of a relatively minor nature, such as vehicles, equipment, and furniture often are acquired with General Fund or Special Revenue Fund resources. Capital Projects Funds usually are established to account for the construction/acquisition of capital facilities, such as buildings and infrastructure assets (roads, bridges, etc.)
does the accounting guidance issued by fasb apply to proprietary funds?
No. Proprietary funds apply only standards established by the GASB. Commercial entities apply only FASB pronouncements.
Are budgets typically recorded in Debt Service Funds?
No. Some governments use budgets to control spending activities in Debt Service Funds. Due to the limited activities of these funds, however, it is possible to control their activities without formally recording a budget in the accounts.
Describe the column headings generally used in the government-wide statement of net position.
Normally, the government-wide statement of net position will have columns for the primary government's governmental activities, the primary government's business-type activities, a total of the two, and a fourth column for the aggregate of its component units.
Describe and illustrate the kind of information that should be reported in notes to the financial statements.
Notes to the financial statements contain information that is considered essential for fair presentation of the basic financial statements that is not shown on the face of those statements. Notes are therefore integral to the financial statements. The notes should start with a summary of the primary government's significant accounting policies, covering such matters as a description of the government-wide statements, component units of the financial reporting entity, a description of the activities accounted for in the funds shown in the various columns, the measurement focus and basis of accounting used in preparing the statements, and the policy for capitalizing and depreciating the capital assets. Notes should also cover such matters as: material violations of finance-related legal and contractual provisions as well as the actions taken to address those violations; investments; short-term debt (showing beginning balances, increases, decreases, and ending balances), long-term debt (showing principal and interest requirements for each of the first five years subsequent to the date of the financial statements, and in five-year increments thereafter); pensions and OPEB; and interfund transfers.
What are other postemployment benefits?
Other postemployment benefits are postemployment benefits other than those provided directly from a pension plan. These include primarily health care benefits, but they can also include other benefits such as retiree life, dental, vision, hearing and long-term care insurance.
What financial statements are prepared for Pension Trust Funds?
Pension Trust Funds prepare a statement of changes in fiduciary net position and a statement of fiduciary fund net position.
Under what circumstances are Permanent Funds used?
Permanent Funds are used to account for resources that are legally restricted in a manner that (only earnings on the principal of these resources can be expended, and (2) the earnings must be used to support the programs that benefit the government.
How are Permanent Funds different from Fiduciary Funds?
Permanent Funds must benefit a government's own programs. Fiduciary Funds are used to hold assets in a trustee capacity for the benefit of entities or individuals outside the government. Therefore, a key difference between Permanent Funds and Fiduciary Funds is who will benefit from distributions from the funds.
When are Private-Purpose Trust Funds used?
Private-Purpose Trust Funds account for fiduciary activities that are not required to be reported in Pension or OPEB Trust Funds or Investment Trust Funds. Assets are hold in a trust where the principal and earnings are maintained to benefit those outside the government—individuals, organizations, or other governments. The assets in the trust are legally protected from creditors of the government that holds the assets in trust.
How are Private-Purpose Trust Funds controlled?
Private-Purpose Trust Funds are controlled through the trust agreement.
Describe three items that require reconciliation between governmental fund financial statements and government-wide financial statements. Following are the major reconciling items between fund financial statements and government-wide financial statements:
Reporting capital outlays as expenditures in fund statements, but reporting capital assets and depreciation expense in government-wide statements. Reporting proceeds of long-term debt as inflows of resources (and repayment of debts as expenditures) in fund financial statements, but reporting them as liabilities and repayments of liabilities in government-wide statements. Reporting revenues on the modified accrual basis (when "measurable and available') in fund financial statements, but reporting them on the accrual basis in government-wide statements. Reporting expenditures in fund financial statements, but reporting accrual basis expenses in government-wide statements. Reporting Internal Service Funds as proprietary-type funds in the fund statements, but reporting them mostly as governmental activities (and adjusting expenses by Internal Service Fund profits and losses) in government-wide statements.
what are revenue bonds? how do they differ from general obligation bonds?
Revenue bonds are debt securities that are secured by the revenues generated by a proprietary fund operation. General obligation bonds, on the other hand, are secured by the "full faith and credit," that is, the general taxing authority, of the government.
How are securities in an Investment Trust Fund valued? How are changes in value treated?
Securities in Investment Trust Funds generally are valued at fair value. GASB allows qualifying external investment pools to elect to measure investments at amortized cost. Changes in fair value are treated as increases or decreases in the asset carrying amounts with a corresponding credit (debit) to an additions (deductions) account. Realized and unrealized investment gains and losses generally must be reported together on a single line in the financial statements.
List the two government-wide financial statements and seven fund financial statements that comprise the basic financial statements.
The 9 statements that comprise the basic financial statements are as follows: 1. Government-wide financial statements a. Statement of net position b. Statement of activities 2. Fund financial statements a. Governmental funds (1) Balance sheet (2) Statement of revenues, expenditures, and changes in fund balances b. Proprietary funds (1) Statement of net position (2) Statement of revenues, expenses, and changes in fund net position (3) Cash flows statement c. Fiduciary funds (1) Statement of fiduciary net position (2) Statement of changes in fiduciary net position
What are the requirements for a fund to be classified as a major fund in the fund financial statements?
The General Fund, A governmental or enterprise fund (including a blended component unit) whose total assets, liabilities, revenues, or expenditures/expenses are at least 10 percent of the corresponding element for all funds of that category or type, and the same element that met the 10 percent criterion is also at least 5 percent of the corresponding element total for all governmental and enterprise funds combined, and Any other governmental or enterprise fund that governmental officials believe is particularly important to financial statement users.
List four basic differences between the information content of fund financial statements and government-wide financial statements.
The basic differences between the information content of the fund financial statements and the government-wide statements are: a. Fund statements focus on major funds; government-wide statements aggregate the funds into two broad categories, one for governmental activities and one for business-type activities. b. In the fund statements, governmental fund assets, liabilities, inflows and outflows are reported using the current financial resources measurement focus and modified accrual basis of accounting. In the government-wide statements, governmental activities are reported using the economic resources measurement focus and accrual basis of accounting. c. Discretely presented component units are not reported in the fund financial statements, but are reported in the government-wide statements. The government-wide statements are formatted to distinguish between the primary government and its discretely presented component units. d. Information about fiduciary funds is reported in the fund statements, but not in the government-wide statements.
Bonds that finance capital projects sometimes are issued at a premium or a discount. How might a bond premium be accounted for? a bond discount?
The effect of a premium on bonds issued to finance a capital project is that more resources are received on the issuance of the bonds than originally planned. The use of these resources will depend on the terms of the bond issue. This extra cash may be used in the construction activities, or, in some instances, it must be transferred to a Debt Service Fund. The key is the terms of the bond indenture. Bond premiums should be accounted for separately from the face amount of the bond. The accounting for a bond premium will include a credit to the account, Other financing source—bond issue premium. The effect of a discount on bonds issued to finance a capital project is that less resources are received on the issuance of the bonds than originally planned. This means that there may not be enough resources available to complete the project. As a result, the project manager may have to "scale down" the project or seek additional funds. The accounting for a bond discount will include a debit to the account, Other financing use—bond issue discount.
Name the three groups considered by the GASB to be the major external users of governmental financial reports.
The major external users of governmental financial reports are: a. those to whom government is primarily accountable - the citizenry; b. those who directly represent the citizens - legislative and oversight bodies; and c. those who lend or participate in the lending process - lenders and creditors.
What are the minimum requirements established by the GASB for general purpose external financial reports?
The minimum requirements established by the GASB for general purpose external financial reports are: management's discussion and analysis (MD&A), the basic financial statements (government-wide financial statements, fund financial statements and notes to the financial statements), and required supplementary information other than MD&A.
How are the activities of Debt Service Funds controlled?
The operations of Debt Service Funds generally are controlled through the provisions of bond indentures (debt agreements) and budgetary authorizations.
How are the activities of Permanent Funds controlled?
The operations of Permanent Funds are controlled through applicable state laws and individual trust agreements.
When is general long-term debt principal recorded in Debt Service Funds?
The principal of general long-term debt is recorded in Debt Service Funds when it matures. The reason for not recording the principal in a Debt Service Fund before maturity is that it is not currently due. Under the current financial resource's measurement focus used for Debt Service Funds, a liability for interest on long-term debt is recorded in the fiscal year in which it becomes due and payable.
Briefly describe the kinds of information that should be reported in the statistical section of the CAFR .
The statistical section of the CAFR provides trend data useful in assessing a government's financial and economic condition. It generally covers 5 categories of data: Financial trends, such as revenues by source and expenses by function Revenue capacity, such as taxable assessed value and estimated actual value of taxable property Debt capacity, such as ratio of total debt to personal income and debt per capita Demographic and economic data, such as population, personal income, and unemployment rate Operating data, such as full-time equivalent number of employees and workload-type data
State the kinds of note disclosures that need to be made to help users understand the nature of "Transfers in" to the General Fund.
There should be a description in the notes of the principal purposes of the government's interfund transfers. Further, note disclosure must be made of the purpose and amount of significant transfers that (a) do not occur routinely or (b) are inconsistent with the activities of the fund making the transfer.
When should property tax revenues and sales tax revenues reported in governmental funds be recognized in governmental activities in the government-wide statement of activities?
Using accrual accounting, property tax revenues should be recognized (net of estimated refunds and uncollectible amounts) in the period for which the taxes are levied Sales tax revenues In the government-wide statements, whether revenues are "available" does not govern and revenue should be recognized (net of estimated refunds and uncollectible amounts) when the underlying taxable sale takes place.
When should property tax revenues and sales tax revenues reported in governmental funds be recognized in governmental activities in the government-wide statement of activities?
Using accrual accounting, property tax revenues should be recognized in the period for which the taxes are levied. sales taxes should be recognized when the underlying exchange transaction occurs and the amounts are available. In the government-wide statements, whether revenues are "available" does not govern and revenue should be recognized (net of estimated refunds and uncollectible amounts) when the underlying taxable sale takes place.
Are closing entries necessary in the accounting records for a capital project that is not completed in the first year?
Yes, as a practical matter. Closing entries are used to accumulate information necessary for the preparation of financial statements on an annual basis. This process makes it easier to prepare the financial statements. Since the life of a Capital Projects Fund is based on the project and not periodic accounting cycles, the same information can be gleaned from the records without closing the books. For lengthy projects, it is much simpler, however, to use the closing process.
What financial statements are prepared for an Investment Trust Fund?
a statement of changes in fiduciary net position and a statement of fiduciary net position.
What financial statements are used for Custodial Funds?
a statement of fiduciary net position and a statement of changes in fiduciary net position.
List the three ways in which financial reporting can assist users in assessing the level of services that can be provided by a government and its ability to meet its obligations as they come due.
a. providing information about its financial position and condition; b. providing information about its physical and other nonfinancial resources having useful lives that extend beyond the current fiscal year, including information that can be used to assess the service potential of those resources; and c. disclosing legal or contractual restrictions on resources and the risk of potential loss of resources.
Assume a primary government appoints a voting majority of the governing board of a legally separate organization. When determining the financial reporting entity, what other requirements must be met for the primary government to be considered financially accountable for that organization?
a. the primary government can appoint a voting majority of the organization's governing body, and b. either: 1. the primary government is able to impose its will on that organization, or 2. there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government.
Explain the relationship between Debt Service Funds and Capital Projects Funds.
is that the latter are used to record the receipt and disbursement of resources to acquire or build capital assets, whereas, Debt Service Funds are used to account for the accumulation of resources and the payment of principal and interest on debt as it comes due
List the major components of the financial section of a comprehensive annual financial report.
major components of the Financial Section of a comprehensive annual financial report are: A. Auditor's report B. Management's discussion and analysis C. Basic financial statements 1. Government-wide financial statements 2. Fund financial statements 3. Notes to the financial statements D. Required supplementary information other than MD&A E. Combining statements and individual fund statements and schedules
Describe the three components of net position in the government-wide statement of net position.
net investment in capital assets, (b) restricted, and (c) unrestricted.
what is the cause-and-effect relationship between revenues and the expenses of a proprietary fund?
refers to the fact that the expenses of these funds are incurred to generate revenues. Generally, as the level of services provided by a proprietary fund increases and expenses increase, the total revenues received for the services will also increase.
What information can a city oversight body obtain from a Debt Service Fund?
the governmental unit is accumulating resources to service its general long-term debt , and is investing assets according to the terms of the debt agreement and the government's investment policies. and is able to make future debt service payments from accumulated resources.
Give some examples of the kinds of note disclosures that might be made under the heading "Stewardship, Compliance, and Accountability."
violations of legal and contractual requirements (such as bond principal and interest coverage) and incurrences of deficit fund balances in funds that are not reported in the basic financial statements.
When is interest recorded as an expenditure in Debt Service Funds?
when it is currently due and payable. If the fund does have the assets available and the interest is due in the first month of the next year, it may be accrued
