Accy 407 Prakash Exam 1

U.S. Government-wide Financial Reporting: what is included in the consolidated report?

- A "plain language" citizen's guide - MD&A - Several F/S - Supplemental info reporting on both budgetary and proprietary (operating) financial activities, as well as reconciliation of the two activities

Items included in the ACFR financial section

- Auditor's report - Mgmt's discussion and analysis (MD&A) - Basic F/S (and notes thereto) for gov-wide and fund - RSI - Combining individual fund statements and schedules NOTE: this section fulfills the minimum reporting requirements

Reporting requirements unique to NFP

- Demonstrating accountability for donor-imposed restrictions by reporting net assets and changes in assets in one of two categories: (1) net assets WITHOUT donor restrictions or (2) net assets WITH donor restrictions - Reporting program service expenses separately from supporting service expenses

Interperiod equity

- Equity/fairness across periods - A government's obligation to disclose - Whether current-year revenues were sufficient to pay for current-year benefits--or will future TPs be required to pay for them instead? - Basically, the gov should not be borrowing from the future or use current revenues to pay for future benefits

Expenditures vs expense

- Expenditures are NOT expenses - Ex. when buying a building, the whole thing is an expenditure, so nothing goes on the B/S - Expenditures are a new modified accrual basis concept

What does it mean for a fund to be a separate fiscal and accounting entity?

- Has its own resources, liabilities, and operating activity for the fiscal period - Segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations (can't put money all in one pot)

Not-for-Profit (NFP) Organizations

- Legally separate organizations - Usually exempt from federal, state, and local taxation - Religious, community service, private educational and health care, museums, and fraternal and social organizations, etc.

Minimum requirements for general purpose external financial reporting for SLG

- Management's discussion and analysis (MD&A) - Government-wide financial statements and fund financial statements - Notes to the F/S - Required supplementary information (RSI) other than MD&A

NFP resource providers share the need for info to assess what?

- Services provided by the NFP and the ability to continue to provide those services - Mgmt's performance (efficiency) and stewardship of resources (effectiveness)

Government-wide financial statements

- Similar to company's consolidated F/S - Provide an aggregated overview of a government's net position and change in net position

Fund financial statements

- Similar to subsidiary F/S - Provide more detailed financial info about a gov

FASB standards require that ALL NFPs must provide what financial statements?

- Stmt of financial position (i.e., B/S) - Stmt of activities (i.e., I/S) - Stmt of cash flows

Contents of ACFR introductory section

- Title page - Contents page - Letter of transmittal - Other (as desired by management)

4 things SLG financial reports are primarily used for

1. Compare actual financial results with the legally adopted budget 2. Assess financial condition and results of operations (also true for companies) 3. Assist in determining compliance with finance-related laws, rules, and regulations (make sure $ used for intended purpose) 4. Assist in evaluating efficiency and effectiveness (also true for companies)

4 types of fiduciary funds

1. Custodial 2. Trust (2a) Investment trust (2b) Private-purpose trust (2c) Pension (and other employee benefit) trust

5 types of governmental funds

1. General 2. Special revenue 3. Capital projects 4. Debt service 5. Permanent

Two sets of "basic" F/S for SLG

1. Government-wide: report on the governmental reporting entity as a whole but focus on the primary gov 2. Fund: 3 sets of fund F/S, one set for each of the 3 categories NOTE: additionally, provide MD&A and other required supplementary info

Three types of SLG activities

1. Governmental 2. Business-type 3. Fiduciary

2 types of proprietary funds

1. Internal service (remember: this is a governmental activity not a business-type activity) 2. Enterprise

An ACFR should contain what three sections?

1. Introductory section 2. Financial section 3. Statistical section

4 parts of the PAR

1. MD&A (overview of PAR and agency's mission) 2. Performance section containing the annual performance report (APR) (info about agency's goals and performance) 3. Basic F/S 4. Other accompanying info (info about tax burden, tax gap, challenges facing mgmt, and revenue forgone)

Objectives of Financial Reporting - Business Organizations (SFAC 1 - superseded by SFAC 8)

1. Provide useful info for making investment and credit (equity and debt) decisions 2. Provide info to assess amounts, timing, and uncertainty of firm's future cash flows 3. Provide info about firm's resources (B/S), claims on resources (B/S), and changes in these resources (I/S)

The 3 characteristics distinguishing state and local govs and NFPs from business organizations (SFAC 4)

1. Resource providers do not expect to receive either repayment or economic benefits proportionate to the resources provided 2. Operating purposes that are other than to provide goods or services at a profit or profit equivalent 3. Absence of defined ownership interests (# shares) that can be sold, transferred, redeemed, or that convey entitlement to a share of a residual distribution of resources in the event of liquidation of the organization

Federal financial reporting occurs at what two levels?

1. U.S. government-wide (prepared by U.S. Treasury) 2. Major agencies and departments (prepared by major agencies and departments following requirements established in Office of Mgmt and Budget (OMB) Circular A-136)

"____________________ is the cornerstone of all financial reporting in government" (GASB Concepts Statement No. 1, par. 56)

Accountability

What types of funds use accrual basis of accounting and what funds use modified accrual?

Accrual: proprietary and fiduciary Modified accrual: governmental

Net position

Assets + Deferred outflows - Liabilities - Deferred inflows

Financial Accounting Standards Board (FASB) standards are followed by what entities?

Business organizations and nongovernmental NFPs

Efficiency vs Effectiveness

Efficiency: using resources well Effectiveness: using resources for their intended purpose

T/F The vast majority of NFPs are governmental

FALSE

T/F Fund statements and books are balanced on a consolidated level

FALSE: a fund has its own self-balancing set of books and statements (i.e., chart of accounts, general journal, general ledger, trial balances, and F/S) Basically, Dr. = Cr. for each fund on its own

What is the only set of standards that targets both internal and external users?

FASAB

Federal Accounting Standards Advisory Board (FASAB) standards are followed by what entities?

Federal gov and its agencies and departments

Differences between governments and NFPs

For governmental entities: - Power ultimately rests in the hands of the people (elections) - Empowered by and accountable to higher level gov - Taxation powers

ACFR is prepared in conformity with ________ standards

GASB

Basis of accounting for gov-wide vs fund

Gov-wide: accrual Fund: sometimes accrual but mostly modified accrual (which is closer to cash basis)

Type of accountability for government-wide financial statements vs type of accountability for fund statements

Gov-wide: operational Fund: fiscal

3 types of funds

Governmental, Proprietary, Fiduciary

Why is it important to know the objectives of financial reporting?

If you know the objectives, as a preparer you know who info to convey, and as a user, you know what info to look for

ACFR - Statistical section

Presents tables and charts showing demographic and economic data, financial trends, fiscal capacity, and operating information of the government - Typically for multiple years - In the detail needed by readers who are more than casually interested in the activities of the gov

Functional expense

Program vs. Supporting

Annual Comprehensive Financial Report (ACFR)

Provides more detail than the minimum requirements for general purpose financial reporting

Governmental Accounting Standards Board (GASB) standards are followed by what entities?

State and local govs and governmental NFPs

T/F Accountability is also the foundation of federal government financial reporting

TRUE

T/F NFPs set up for political purposes usually are not tax exempt

TRUE

T/F While it is not required to prepare an ACFR, most governments do so

TRUE: all states and large cities prepare ACFRs

Why is it important for governments to include demographic data in the ACFR?

The data indicates the tax base, what the priorities of the government are, and can entice businesses

Fund (informal definition)

a separate set of accounts used to account for resources segregated for a particular purpose

Objectives of financial reporting for state and local gov (SLG)

accountability and interperiod equity

Gov-wide F/S: basis of accounting

accrual

Inflow of resources

acquisition of net assets by the gov in the current reporting period (i.e., revenues and other resources) - makes net assets increase - not just revenue because the gov gets resources through other means

Deferred inflow of resources

acquisition of net assets by the gov that applies to a future reporting period (like unearned rev, which is a liability) - deferred inflow is just a matter of time instead of being dependent on delivery of a service or product

Accountability (i.e., responsibility)

arises from citizens' "right to know"; imposes a duty on public officials to be accountable to citizens for raising public monies and how they are spent

Elements of SLG F/S

assets, deferred outflow of resources, liabilities, deferred inflow of resources, inflow of resources, and outflow of resources

The SLG _________ gives them the authority to operate

budget

Why do governments provide data from multiple years back but companies do not?

companies typically don't provide data from years back because their users can get the data themselves; users of government F/S cannot

Outflow of resources

consumption of net assets by the gov in the current reporting period (i.e., expenses, expenditures, and other uses of resources) - makes net assets decrease - some transactions not seen in corporate reporting

Deferred outflow of resources

consumption of net assets by the gov that applies to a future reporting period Ex. give grant that someone can't use until next year

ACFR - Financial section

contain sufficient info to disclose fully and present fairly the financial position and results of financial operations during the fiscal year

Governmental activities

core governmental services, together with general administrative support Ex. police and fire protection, streets and highways, bridges, public buildings

Gov-wide F/S: measurement focus

economic resources

Business activities consist of what funds?

enterprise (a type of proprietary fund)

Program expense

expense incurred on things essential to the NFP's purpose; directly related to mission

Support expense

expense not central to NFP's mission, but help fulfill the mission (rent, auditor payments, CEO salary, etc.); overhead (non-program mgmt and general exp) and fund-raising expenses

A fund is a separate ___________ and ______________ entity

fiscal; accounting

Governmental funds

focus on the flow of current financial resources (day-to-day)

In addition to the three statements, NFPs are required to present info showing the relationship between _______________ expenses and ___________ expenses

functional; natural

Two types of government

general purpose and special purpose

Journal entries for SLG are done in 2 books for these 2 categories of basic government financial statements

government-wide and fund-level

What two columns are primary government financial info reported in for SLG gov-wide F/S?

governmental activities and business-type activities

Government-wide F/S consist of what two activities?

governmental and business

SLG governmental activities consist of what two funds?

governmental funds and internal service fund

Ole Miss is an example of a ____________________ NFP while Harvard is an example of a _______________________ NFP

governmental; nongovernmental

Fiduciary activities

governments often act either as a custodian or trustee for parties outside the government; only private-purpose custodial and trust relationships--those that benefit individuals, private organizations, and other govs Ex. agent for collecting taxes (city gov collecting tax on behalf of state gov)

Business-type activities

intended to be self-supporting by charging users for the services they receive; operating subsidies from general tax revs are not uncommon as these activities end up not being self-sufficient Ex. public utilities, transportation, toll roads and bridges, hospitals, parking garages, and liquor stores

What type of government must prepare a performance and accountability report (PAR)?

major federal agencies and departments

Why has the federal government never been audited?

management and data deficiencies; the federal gov can't provide data to auditors for security reasons

Gov-wide F/S: accountability

operational

Liabilities

present obligations to sacrifice resources that the gov has little or no discretion to avoid

Internal service fund is a ______________ fund

proprietary

Core government services

protection of life and property, public works, parks and recreation facilities and programs, educational, cultural and social services

General purpose government

provide a broad array of services (education, defense, etc.) Ex. cities, counties, federal gov, state gov, townships and towns, boroughs, parishes, and villages

Modified accrual basis - expenditures

recognize expenditures when an obligation is incurred that will be paid from currently available financial resources

Modified accrual basis - revenues

recognized when measurable and available for spending (i.e., can estimate and have either received cash or expect to get the cash shortly)

Proprietary funds

report on business-like activities of the gov

Fiduciary funds

report on fiduciary (trust and custodial) activities of the gov (gov acting on behalf of others)

Gov-wide F/S: statement of activities

reports expenses and revenues classified by program or function; uses separate columns for governmental activities, business-type activities, and component units

Gov-wide F/S: statement of net position

reports year end financial position (like a B/S)

NFPs are legally separate from __________ _____________

resource providers

Assets

resources with present service capacity that the gov presently controls (don't need to own, just control)

Management's discussion and analysis (MD&A)

section of a company/gov's annual report in which management explains many different aspects of the entity's past performance and future plans; gives sense of the business/gov

Fund F/S focus on what?

short-term flow of current financial resources

Gov-wide F/S focus on what?

the flow of economic resources (all resources: L-T and current)

Why are fiduciary activities not reported in the gov-wide F/S?

the government does not own those resources; the gov is acting as an agent or trustee

Natural expense

the nature of the expense (rent, salaries, etc.)

Who usually makes the decisions in a NFP?

the trustees

Primary purpose of NFP financial reporting

to provide decision-useful financial info to resource providers, such as donors, members, and creditors

Special purpose government

usually provide only a single or just a few services Ex. independent school system, public colleges and universities, public hospitals, fire protection districts, sewer districts, and transportation authorities

Operational accountability

whether a gov has used its resources efficiently and effectively in meeting service objectives

Fiscal accountability

whether the gov raised and spent financial resources in accordance with budgetary, legal, and regulatory constraints