Financial Reporting: Deriving Government-Wide Financial Statements and Required Reconciliations

1. Financial Reporting:Deriving Government-WideFinancial Statements and Required Reconciliations Chapter 14

2. Learning Objectives • Understand and explain the types of worksheet adjustments needed to derive Governmental Activities data for the Government-Wide Financial Statements from Governmental Funds financial statement data. • Understand and explain the types of worksheet adjustments needed to derive Business-Type Activities data for the Government-Wide Financial Statements from Enterprise Funds financial statement data.

3. Learning Objectives • Prepare worksheets deriving information for the Government-Wide Financial Statements • Prepare the Government-Wide Financial Statements from information derived in the conversion worksheets • Determine whether an Internal Service Fund is part of Governmental Activities or Business-Type Activities • Prepare the required reconciliations of Fund Financial Statements to Government-Wide Financial Statements

4. Getting Started • Fund financial statements are the necessary foundation for the Government-Wide Financial Statements • Preparing the G-W statements is a matter of converting fund information into G-W information • Conversion process occurs at the end of the year X

5. Sources of Information for Conversion Process • Fund financial statements – primarily the Total columns • Governmental Funds are affected by the most adjustments • Limited adjustments to the Enterprise Funds • Internal Service Funds will be eliminated • Fiduciary Funds not included in adjustment process as they are not included in Government-Wide Financial Statements • General Capital Assets • General Long-Term Liabilities

6. Conversion Process • Overview of reasons for adjustments • Summary of types of worksheet adjustments 1 2

7. Capital Outlay Expenditures (563) Most of these types of entries will affect capital assets. Capital outlay expenditures not meeting capitalization threshold will become functional expenses.

8. Sales of Capital Assets (566) OFS – Proceeds from Sale must be converted into Gain on Sale

9. Record Depreciation Expense566 Information should come from Capital Asset note disclosure x

10. Long-Term Debt Issues 566 Principal adjustments should be reflected by increases found in GLTL schedule from note disclosures. X Must capture and amortize bond issue costs, premiums, and discounts.

11. Long-Term Debt Retirement (567) This adjustment should agree with decreases in the GLTL schedule from the note disclosures. X

12. Convert Interest Expenditures to Interest Expense (567)

13. Special Notes on Interest Adjustment • Some of expenditures for current year may be expenses in previous year • Must accrue interest incurred since last interest payment dates

14. Claims & Judgments 568

15. Compensated Absences (568)

16. Notes on GLTL Pensions,Claims & Judgments, and Compensated Absences • Increases in GLTL will probably be expenses of current year • Decreases in GLTL may represent expenses in prior year and are already included in expenditures • Net change in GLTL may substitute for above changes as adjustments to current year expenses

17. Converting Revenues (569)

18. Notes on Converting Revenues • Year-end adjustments • Part of balance could be revenues of a previous year • Remaining balance could be revenues of current year • Revenues of current year may also include revenues of previous year • In any case, must assure that revenue recognition criteria in GASB #33 are met

19. Eliminate Interfund Receivables/ Payables and Transfers (569-570)

20. Notes on Receivables,Payables, & Transfers • Receivables and payables between Governmental Activities and Business-Type Activities • Should be converted to Internal Balances • Will cancel out on GW Statement of Net Assets • Transfers between Governmental Activities and Business-Type Activities remain – will cancel out on GW Statement of Activities

21. Complete the Worksheet (572)

22. Overview of ISF Elimination Process Balance Sheet • Eliminate interfund balances • Due to / Due from • Advance to / Advance from • Residual balances added to total column of appropriate fund category

23. Overview of ISF Elimination Process(continued) Operating Statement • Eliminate transfers • Identify revenues that would have been earned any way • Identify expenses that would have been incurred any way • Allocate remaining net increase / decrease to participating funds

24. Overview of ISF Elimination Process(continued) Allocation of Residual Amount to Participating Functions • Fast way: call residual amount immaterial and charge it all to general government • Arbitrary way: allocate residual amount based on some predetermined percentages • Best way: allocate residual amount based on rate of participation by functional areas in each ISF

25. Other Adjustments • Inventory – convert purchase method to consumption method • Capital Leases – convert signing from governmental method to proprietary method • BANs – probably included as part of GLTL adjustments • Refundings – convert refunding based on GASB #7 to method required by GASB #23

26. Calculations for Net Assets X • Invested in Capital Assets, Net of Related Debt • Restricted Net Assets • Unrestricted Net Assets

27. Prepare Government-WideFinancial Statements • Statement of Net Assets • Statement of Activities

28. Prepare Reconciliations(shown in Chapter 13 for City of Tulsa) • Two reconciliations required • Fund Balance to Total Net Assets • Change in Fund Balance to Change in Net Assets • Almost always required for Governmental Funds and may be required for Enterprise Funds (usually depends on how ISFs were eliminated)