Text of GOVERNMENTAL ACCOUNTING: What You Donâ€™t Know Could Hurt You Karen Tenace CPA, CMA...
GOVERNMENTAL ACCOUNTING: What You Dont Know Could Hurt You Karen Tenace CPA, CMA City of Tucson
Objectives What makes governmental accounting different than private sector? Budgetary Accounting Whats a fund? Measurement Focus & Basis of Accounting
How is Government different from Private Sector? PRIVATE SECTOR Exists to enhance owners wealth Are free to provide only those goods and services they feel will enhance their profits Harmony in purpose-make a PROFIT Are NOT restricted to use resources in certain areas of their business Budgets are used for INTERNAL purposes and are NOT the force of law Continuity in leadership GOVERNMENT Exist to provide goods and services to their constituents Are required by law to provide certain services LACK harmony in purpose- different agendas and different politics Financial resources have restrictions Budgets are used BOTH internally and externally and ARE a force of law Do NOT have a continuity of leadership?
Users of Accounting Information PRIVATE SECTOR Shareholders Securities Exchange Commission Lending Institutions Internal Management GOVERNMENT Taxpayers Donors Investors Bond Rating Agencies Grantors Political Groups
Principles and Standards FASAB- Federal Accounting Standard Advisory Board Recommends financial reporting standards for the federal government
Principles and Standards GASB- Governmental Accounting Standards Board Standard making board for STATE AND LOCAL governments as well as GOVT RELATED NFPS
Principles and Standards Cont. FASB- Financial Accounting Standards Board Lays out rules for both profit seeking businesses as well as NONGOVT NFP entities.
Other Acronyms FAF- Financial Accounting Foundation oversees GASB and FASB GAAP- Generally Accepted Accounting Principles
FAF GASB FASB FASAB GAAP
Objectives of Financial Reporting Fulfill governments duty to be publicly accountable to constituents Evaluate operating results for the year Assess level of services provided Assess financial position Disclose restrictions and risk potential loss of revenue sources
Budgetary Accounting Budgets are Used Internally & Externally and are a Force of Law Budget Accounts Integrate with General Ledger (GL)
Budgetary Accounts in GL Estimated Revenues Appropriations- authorized estimated expenditures Encumbrances- commitment of budgetary resources
Encumbrance Accounting An extra step in the procurement process to ensure that governments do NOT spend more than whats appropriated. An encumbrance is an obligation NOT a liability (Think Purchase Order)
Example: Public Safety Budget July 1, 2007 Total Unencumbered AppropriationsEncumbrancesExpendituresBalance $1,000,000$0 1,000,000
Example: Public Safety Budget Sally issues P.O. for Vehicles Total Unencumbered AppropriationsEncumbrancesExpendituresBalance $1,000,000$200,000$0$800,000
Example: Public Safety Budget George runs payroll (600k) Total Unencumbered AppropriationsEncumbrancesExpendituresBalance $1,000,000$200,000$600,000$200,000
Example: Public Safety Budget Sarah runs A/P (150k) Total Unencumbered AppropriationsEncumbrancesExpendituresBalance $1,000,000$200,000$750,000$50,000
Chief wants to buy a $60k SWAT Vehicle-Can he do it? Total Unencumbered AppropriationsEncumbrancesExpendituresBalance $1,000,000$200,000$750,000$50,000
Example: Public Safety Budget Vehicles Recd; Paid For * Total Unencumbered AppropriationsEncumbrancesExpendituresBalance $1,000,000$0$950,000$50,000 *3 WAY MATCH = PO, RECEIVER, INVOICE
Unique Characteristics of Governmental Accounting 1. Use of Fund Accounting 2. Measurement Focus and Basis of Accounting or MFBA Full Accrual AND Modified Accrual
Whats a Fund? Fund: A self contained accounting entity with its own asset, liability, revenue, expenditure or expense and fund balance or other equity accounts.
Fund Types GOVERNMENTAL FUNDS 1. General Fund 2. Special Revenue Fund 3. Capital Project Fund 4. Debt Service Fund 5. Permanent Fund PROPRIETARY FUNDS 1. Enterprise Funds 2. Internal Service Funds FIDUCIARY FUNDS 1. Agency Funds 2. Pension Funds 3. Investment Trust Funds 4. Private Purpose Trust Funds
Governmental Funds General Fund- day to day operations; can only have ONE General Fund Special Revenue Funds- accounts for proceeds of specific revenue sources that should be used for specific purposes (HURF) Capital Project Funds- accounts for financial resources used for acquisition or construction of major assets
Governmental Funds Cont. Debt Service Fund- to account for accumulation of resources that will be used to pay general long-term debt Permanent Fund- used to report resources that are legally restricted to the extent that only earnings, not principal, can be spent. Program must benefit the government or its citizenry, not a specific group or organization.
Proprietary Funds Enterprise Funds- may be used to report any activity for which a fee is charged to EXTERNAL users for goods and services. Must be used if: 1. Debt is secured solely by a pledge of net revenues 2. Laws or regulations require fees to cover full cost of providing the service 3. Pricing policies require full cost recovery
Proprietary Funds Cont. Internal Service Fund- accounts for the financing of goods and services provided by one department or agency to other INTERNAL departments or agencies of a governmental unit. Fees are charged with the intent to BREAK EVEN.
Fiduciary Funds Pension Fund- to account for resources that are required to be held in trust for the members and beneficiaries of pension and/or benefit plans. Private Purpose Trust Funds- to account for all other trust arrangements under which principal and income benefit individuals
Fiduciary Funds Cont. Investment Trust Funds- to account for the external portion of investment pools reported by a sponsoring government. Agency Funds- used to report resources held by the reporting government in a purely custodial capacity. Assets = Liabilities
Measurement Focus & Basis of Accounting (MFBA) Measurement Focus tells you WHAT to recognize Basis of Accounting tells you WHEN to recognize it
Two Types of MFBAs in Governmental Accounting #1 Economic Resources Measurement Focus and Accrual Basis of Accounting WHAT: Economic resource measurement focus considers ALL inflows, outflows and balances affecting or reflecting on an entitys net assets.
1. Full Accrual Basis Cont. WHEN: Accrual basis of accounting recognizes the financial effect of transactions, events, and interfund activities when they occur, regardless of the timing of related cash flows. Two Types of MFBAs in Governmental Accounting #1
Current Financial Resources Measurement Focus and Modified Accrual Basis of Accounting WHAT: Current financial resource measurement focus only considers SHORT-TERM or CURRENT inflows, outflows and balances of expendable financial resources. Two Types of MFBAs in Governmental Accounting #2
Modified Basis Cont. WHEN: Modified accrual basis of accounting in which: - Revenues are recognized in the accounting period in which they become available and measurable. - Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable. Two Types of MFBAs in Governmental Accounting #2
Fund Types GOVERNMENTAL FUNDS (Current Resources/Modified) 1. General Fund 2. Special Revenue Fund 3. Capital Project Fund 4. Debt Service Fund 5. Permanent Fund PROPRIETARY FUNDS (Economic Resources/Full Accrual) 1. Enterprise Funds 2. Internal Service Funds FIDUCIARY FUNDS (Economic Resources/Full Accrual) 1. Agency Funds 2. Pension Funds 3. Investment Trust Funds 4. Private Purpose Trust Funds
Exercise Turn PowerPoint presentation over No peaking Pull out exercise handout Get with neighbor or two Compare/Contrast pg 1 vs. pg 2 Compare/Contrast pg 3 vs. pg 4
How can you tell MFBA by looking at a financial statement? Modified Expenditures (Capital Outlay and Principal Payments) Assets-Liabilities=Fund Balance Only Current Assets and Current Liabilities Shown Myopic View * No Long-term Assets means no Depreciation Expense Full Accrual Expenses Assets-Liabilities=Net Assets Current AND Long-Term Assets and Liabilities Shown Long-term View * Depreciation Expense Included in Operating What You Dont Know Could Hurt You!!! See Handout
Governmental Fund Financial Statements Current Resources; Modified Accrual Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Bala