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GASB Update

GASB Update. Presented By William Blend, CPA, CFE. GASB Update Part 1. GASB Update Part 2. Break. Course Begins. Course Ends. Schedule. Housekeeping Details. Course evaluations Confirmation of attendance Type of credit Participants’ responsibility Other matters. GASB Update.

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GASB Update

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  1. GASB Update Presented By William Blend, CPA, CFE

  2. GASB Update Part 1 GASB Update Part 2 Break CourseBegins Course Ends Schedule

  3. Housekeeping Details • Course evaluations • Confirmation of attendance • Type of credit • Participants’ responsibility • Other matters

  4. GASB Update Agenda • Clarifications on implementation of GASB No. 54 – Fund Balance Reporting and Governmental Fund Type Definitions • GASB 60 – Accounting and Reporting for Service Concession Arrangements • GASB No. 61 – The Financial Reporting Entity: Omnibus

  5. GASB Update Agenda • GASB 62 – Codification • GASB 64 – Derivatives: Application of Hedge Accounting • GASB 63 – Reporting Deferred Outflows, Inflows and Net Position • Future GASB Projects

  6. GASB Update Part 1

  7. GASB 54 Revisited

  8. GASB 54 Overview Objectives: • Establishes fund balance classifications based on the relative strength of the constraints on spending and the source of constraints • Clarifies the existing governmental fund type definitions (special revenue funds and capital projects funds)

  9. GASB 54 GASB No. 54 – Fund Balance Reporting and Governmental Fund Type Definitions This statement is designed to improve financial reporting by establishing fund balance classifications that are easier to understand and apply. The following classifications are established: • Nonspendable (inventory, prepaids, advances, etc.) • Restricted (externally) • Committed (contractual, highest level of action by governing body) • Assigned (intended use set by a governing body or designee) • Unassigned (residual in general fund)

  10. GASB 54 Implementation Guidance GASB Comprehensive Implementation Guide • Refer to Chapter Z, Section 54

  11. Nonspendable Fund Balance • First, consider resources that are not in spendable form, such as inventories and prepaids. • Second, consider other amounts that are “potentially” nonspendable, such as long-term receivables, long-term advances to other funds, and property held for resale. • Third, determine if “potential” amounts are restricted, committed, or assigned.

  12. Nonspendable Fund Balance • If cash to be received from nonspendable asset is restricted, committed, or assigned, then fund balance should be classified as such and not as nonspendable

  13. Nonspendable Fund Balance Q: General Fund has inventory of $100 and long-term advances to Utility Fund of $400? Payments received from Utility Fund will fund general government operations. What amount should be reported as nonspendable fund balance in the General Fund? A: $500 Nonspendable

  14. Nonspendable Fund Balance Q: CRA Special Revenue Fund has prepaids of $50 and property held for resale of $150? What amount should be reported as nonspendable fund balance in this Special Revenue Fund?

  15. Nonspendable Fund Balance A: Only $50 is nonspendable. Because spendable resources in a special revenue fund must be either restricted, committed, or assigned, cash received from sale of property will fall into one of those categories.

  16. Restricted Fund Balance • Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments • Imposed by law through constitutional provisions or enabling legislation

  17. Restricted Fund Balance Restricted Fund Balance for governmental funds does not typically equal Restricted Net Assets for govern-mental activities for the following reasons: • Principal of permanent fund is nonspendable for governmental funds but restricted for govern-mental activities • Difference in basis of accounting • Governmental activities includes internal service fund assets

  18. Committed Fund Balance • Amounts used for specific purposes pursuant to constraints imposed by formal action of the government's highest level of decision-making authority • Committed fund balance also should incorporate contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements

  19. Committed Fund Balance • Committed fund balance constraints cannot lapse • Amounts in committed fund balance may only be redeployed for other purposes by using the same level of action used to originally commit the funds

  20. Committed Fund Balance • Formal action of the government's highest level of decision-making authority that commits fund balance should occur prior to the end of the reporting period

  21. Assigned Fund Balance • Amounts that are constrained by the government's intent, but are neither restricted nor committed • Intent should be expressed by: • The governing body itself • A body (a budget or finance committee, for example) or official to which the governing body has delegated the authority to assign amounts to be used for specific purposes

  22. Assigned Fund Balance • Assigned fund balance includes: • All remaining amounts (except for negative balances) reported in governmental funds, other than the general fund, not classified as nonspendable, restricted or committed • Amounts in the general fund that are intended to be used for a specific purpose

  23. Assigned Fund Balance • Reporting amounts that are not restricted or committed in a special revenue; the government has assigned those amounts to the purposes of the respective fund • Unspent resources remaining in a special revenue fund at year end remain assigned (no additional action necessary)

  24. Assigned Fund Balance • Action to assign may occur after close of the reporting period to identify purpose and amount

  25. Assigned Fund Balance Q: A government adopts its FY13 legal budget before 9/30/12 through the use of an ordinance, which includes the use of FY12 existing fund balance to cover a projected FY13 budgetary deficit of $500. Should the $500 be reported as committed or assigned fund balance at 9/30/12? A: Assigned. Because the constraint lapses at end of FY13 budget period with no formal action taken. Committed constraints do not lapse.

  26. Assigned Fund Balance Q: City’s FY13 legally adopted budget ordinance for the general fund reports beginning fund balance of $100 as a funding source and also projects an ending fund balance of $75. What amount should be reported as “Assigned for Subsequent Year Expenditures” at 9/30/12?

  27. Assigned Fund Balance A: $25 – The legal budget authorizes rather than constrains spending. The $100, while included in the FY13 budget as a funding source, is not entirely constrained for spending in FY13. Only $25 ($100 beginning FB minus $75 ending FB) is intended to fund the FY13 budgetary deficit.

  28. Unassigned Fund Balance • Unassigned fund balance is the residual classification for the general fund • The general fund should be the only fund that reports a positive, unassigned fund balance amount

  29. Unassigned Fund Balance • Unassigned fund balance is not an appropriate category for encumbrances because a purchase order entails a spending constraint (assignment at a minimum) • Unassigned fund balance of a blended component unit becomes assigned, committed, or restricted when it is reported in the primary government’s financial statements because it is reported as a special revenue fund

  30. Stabilization Arrangements • Some governments set aside amounts for use in emergency situations or when revenue shortages or budgetary imbalances arise. Those amounts are subject to controls that dictate the circumstances under which they can be spent, such as: • Revenue stabilization • Working capital needs • Contingencies or emergencies

  31. Stabilization Arrangements To be classified as restricted or committed: • Authority for establishing stabilization arrangements should be set by enabling legislation or highest level of decision making • Conditions of arrangement must be specific and non-routine • “in an emergency” is not specific • “when revenues fall more than 1% below expectations” is specific but could be expected to occur routinely

  32. Stabilization Arrangements Regardless of whether arrangement meets criteria to be classified as restricted or committed, disclosure is needed for the following: • The authority for establishing stabilization arrange-ments (for example, by statute or ordinance) • The requirements for additions to the stabilization amount • The conditions under which stabilization amounts may be spent • The stabilization balance, if not apparent on the face of the financial statements

  33. Stabilization Arrangements Difference between a stabilization policy and a minimum fund balance policy: • A stabilization arrangement establishes spending constraints so that fund balance may be expended only when certain specific circumstances or conditions exist that are not expected to occur routinely. A minimum fund balance policy establishes a savings target that the government believes should be maintained.

  34. Stabilization Arrangements Q: What is the difference between a stabilization arrangement and a minimum fund balance policy?

  35. Stabilization Arrangements A: For financial reporting purposes, resources set aside under a stabilization arrangement may be expended only when certain specific circumstances or conditions exist that are not expected to occur routinely. A minimum fund balance policy generally does not stipulate the conditions under which fund balance may fall below the minimum but, rather, establishes a target amount that the government believes should be maintained to provide a reasonable level of assurance that day-to-day operations can continue if revenues are insufficient to cover expenditures.

  36. Stabilization Arrangements Q: In May 2012, a City Commission agrees in a workshop that it would like to set aside a “reserve for emergencies” in its General Fund equal to 25% of General Fund operating expenditures. If there is no further action on the matter, how should this affect the City’s fund balance classification at 9/30/12? Committed, assigned, or unassigned?

  37. Stabilization Arrangements A: Unassigned. • Not committed because no formal action was taken by the Commission, nor did the Commission establish specific and non-routine conditions to determine when the fund balance amount could be spent. • Not assigned because the only possible classification options for stabilization arrangements, even “de facto” stabilization arrangements like a minimum fund balance policy, are restricted, committed, or unassigned (GASB 54, Para. 21).

  38. Reporting Encumbrances • Encumbering amounts for specific purposes for which resources already have been restricted, committed, or assigned should not result in separate display of the encumbered amounts within those classifications (within the detail note, or on the face of the financial statements) • Encumbrances should not be included within unassigned fund balance classifications

  39. Governmental Fund Type Definitions • General Fund • Special Revenue Funds – will have further discussion • Capital Projects Funds • Debt Service Funds • Permanent Funds – will have further discussion Definitions are modified to provide for clarity and consistency

  40. Governmental Fund Type Definitions Special Revenue Funds • Special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes, other than debt service or capital projects • Restricted or committed revenues should be the foundation for a special revenue fund

  41. Governmental Fund Type Definitions Special Revenue Funds (Con’t.) • Assigned resources are permitted, but the restricted or committed revenue sources should be expected to continue to comprise a substantial portion of the inflows reported in the fund • Annual transfer is not a sufficient basis for use of a special revenue fund

  42. Implementation ExampleSpecial Revenue Funds Q: A government uses a formal ordinance to require that 20% of an existing revenue source can be spent only for economic development activities. A separate fund is established to account for those resources and their use. The government budgets the entire revenue source in the general fund and annually appropriates a transfer to the separate fund. Can the government report the separate fund as a special revenue fund?

  43. Implementation ExampleSpecial Revenue Funds A: It depends. The ordinance qualifies as a commitment of a specific revenue for a specific purpose. However, notwithstanding the budgetary treatment, the separate fund can be reported as a special revenue fund only if the 20% portion is recognized as revenue in the separate fund, rather than in the general fund.

  44. Governmental Fund Type Definitions Permanent Funds • Used to account for and report resources that are restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government's programs, that is, for the benefit of the government or its citizenry.

  45. Implementation The following slides present examples provided within the statement itself, the comprehensive implementation guide, and a few real-life examples of implementing the standard for assigned fund balance.

  46. Implementation Example • Assumptions • Special revenue fund whose policy is to use restricted resources before unrestricted • No established policy for use of its unrestricted resources • The fund includes amounts that have been restricted, committed, or assigned to three specific purposes

  47. Implementation Example

  48. Implementation Example Using the example in the preceding question, assume that the government has adopted a policy of using assigned resources first, followed by committed amounts. How would the ending balances change? (Q&A2012-Z.54.20)

  49. Implementation Example

  50. Implementation Example Using the special revenue fund example, what would be the effect if one of the specific purposes was overspent? (Q&A2012-Z.54.21) The government would first reduce balances assigned to other purposes in the fund (the specific purposes that would be reduced are at the government's discretion) until the deficit is eliminated. However, if the deficit exceeds the remaining assigned balances in the fund, then the residual amount should be reported as negative unassigned fund balance.

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