Certified Government Finance Officer Program

1. Certified Government Finance Officer Program Accounting & Financial Reporting Exam Review November 20, 2013

2. PRESENTED BY: Kelly Rae Strickland, CPA, CGFO Deputy Finance Director City of Sarasota Kelly,strickland@sarasotagov.com Sarah C. Koser, CPA, CGFO, CPFO Deputy Finance Director The Villages Community Development Districts Sarah.Koser@DistrictGov.org Accounting & Financial Reporting Exam Review

3. Prepare you for the Exam. Increase your Professional body of knowledge. Overview 3

4. Accounting & Financial Reporting Exam Review - Overview Question distribution accurate Questions updated & validated* References Documented Included in review materials 75 Questions Bank of 100+ questions Multiple versions of exam Test bank cross referenced to slides *2013 Update

5. All questions multiple choice or true/false Can choose order to take parts of exam Plan your work & work your plan Review sessions do not replace individual study Accounting & Financial Reporting Exam Review - Overview

6. Accounting & Financial Reporting Exam Review Topics Covered:

7. Accounting, Internal Controls & Capital Assets

8. Overview Accounting Basics: Standard Setting in the U.S. Objectives of Financial Reporting Terminology Fund Accounting Measurement Focus Basis of Accounting

9. Accounting Basics: Liabilities Debt Debt Refunding Capital Assets Budgets Odds & Ends Overview

10. Financial Accounting Foundation – FAF Final authority (1973) for accounting & reporting standards in both the public & private sectors Appoints FASB & GASB board members Both establish accounting and financial reporting standards for respective constituents Currently addressing permanent funding options for GASB Standard Setting in the U.S.

11. Governmental Accounting Standards Board – GASB (1984/1989) State and Local Governments Governmental Not for Profits Financial Accounting Standards Board – FASB (1973) For-profit & non governmental Not for Profits SEC designee for issuers Standard Setting in the U.S.

12. Both use due process Discussion Memorandum, Invitation to Comment, Preliminary Views, Exposure Drafts, etc. made available to constituents Comments solicited & all submitted to board for consideration in standard setting deliberations Process really does work Standard Setting in the U.S.

13. American Institute of Certified Public Accountants (AICPA) Establishes audit & attest standards for non-issuers Officially recognizes FASB & GASB as authoritative standard setting bodies for Generally Accepted Accounting Principles (GAAP) in their respective sectors*. Role of the Federal Accounting Standards Advisory Board (FASAB) is intentionally omitted. *GAAFR 2012 Page 23 Standard Setting in the U.S.

14. Standard Setting in the U.S.

15. GAAP Hierarchy (GASB # 55) GASB Statements & Interpretations GASB Technical Bulletins AICPA Industry Audit & Accounting Guides* AICPA Statements of Position* AICPA Practice Bulletins* Implementation Guides published by GASB staff *If made applicable & cleared by GASB Standard Setting in the U.S.

16. Objectives of Financial Reporting GASB Concepts Statement No. 1 Public accountability Information for decision making

17. Public accountability Sufficient current revenues for services Compliance Budget Finance-related legal/contractual requirements Service Efforts & Accomplishments (SEA) Other accomplishments Objectives of Financial Reporting

18. Public accountability Presumes taxpayers are entitled to know What government is doing & how What government did & how well What government plans to do & why Intergenerational/interperiod equity Objectives of Financial Reporting

19. Accounting data used for decision making Financial reporting should be: Understandable Reliable Relevant Timely Consistent Comparable Objectives of Financial Reporting

20. Primary Users of External Financial Reports Citizens Legislative and oversight bodies Investors and creditors Objectives of Financial Reporting

21. Fund Accounting – Definition Fund accounting is an accounting system emphasizing accountability rather than profitability, used by non-profit organizations and governments. In this system, a fund is a self-balancing set of accounts, segregated for specific purposes in accordance with laws and regulations or special restrictions and limitations*. *Leon E. Hay (1980). Accounting for Governmental and Nonprofit Entities, Sixth edition, page 5. Terminology

22. Terminology

23. Normal Account Balances: Debit balances for asset & expense/expenditure accounts Credit balances for liability, revenue & Fund equity accounts Debits must equal credits Terminology

24. Normal account balances: Typical debit balances Paid vacation leave Capital assets (in service) Typical credit balances Unpaid (accrued) vacation leave Fines & judgments (when known) Property tax revenue (any revenue) Terminology

25. Current Assets Used in operations or converted to cash within 1 year Capital Assets Benefit the organization for more than 1 year (service life) Includes intangible assets* *GASB #51 – Accounting for Intangible Assets – periods beginning after 6/15/2009 i.e. FY 2010 Terminology

26. Current Liabilities Obligations due within 1 year (includes current portion of Long Term Debt) Non-Current Liabilities Obligations due more than 1 year hence Terminology

27. Total assets minus total liabilities Net assets Fund level for proprietary & fiduciary funds Fund balance* Fund level for governmental funds, i.e. unreserved fund balance Owner’s Equity (private business) *GASB #54 – Fund Balance Reporting and Governmental Fund Type Definitions Periods beginning after June 15, 2010 (FY 2011) Terminology

28. Fund Accounting (GASB#54) Nonspendable Fund Balance Cannot be spent because of: Form (e.g. inventory, prepaid assets) Must be maintained intact (e.g. principal of endowment fund) Restricted Fund Balance Externally enforceable limitations on use By creditors, grantors, contributors, laws, By law- constitutional or enabling legislation

29. Fund Accounting (GASB#54) Committed Fund Balance Limitation in place before end of period Limitation is self imposed (e.g. carryovers) Must be removed by same “highest level” that imposed it Assigned Fund Balance Limitation results from intended use “Intended use” delegated to lower level May be removed by same level that received delegation Unassigned Fund Balance Residual net resources Balance in excess of: Nonspendable/restricted/committed/assigned i.e. surplus

30. Fund Accounting Use “minimum number” necessary for management & accountability Three broad fund classifications: Governmental funds (5) Proprietary funds (2) Fiduciary funds (4) 11 fund types – (most important)

31. Fund Accounting Governmental Funds (5 types) 1. General To account for & report all financial resources not (required to be)* accounted for & reported in another fund Only fund required by GAAP Only one ‘General Fund” Small Local Government may have only a General Fund *GASB #54 – definition update drops this phrase

32. Fund Accounting Governmental Funds (5 types) 2. Special Revenue Account for & report the proceeds of specificrevenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects

33. Fund Accounting Governmental Funds (5 types) 3. Debt Service Resources accumulated to pay long term debt Principal & interest 4. Capital Projects Acquisition/construction of major capital assets* i.e. not equipment units financed by proprietary funds 5. Permanent Resources restricted to extent that earnings and not principal may be used for support of entity programs *GASB #54 updates

34. Fund Accounting Proprietary Funds (2 types) 1. Internal Service Services provided by one agency, etc. to another on a cost reimbursement basis 2. Enterprise Operations financed & operated similar to private business i.e. user fees Accountability (not “profit “makers)

35. Fund Accounting Fiduciary Funds (4 types) 1. Pension Trust Fund Resources held in trust for others (Other Peoples Money) 2. Investment Trust Fund Pooled resources of legally separate entities Entity holds investments on behalf of others

36. Fund Accounting Fiduciary Funds (4 types) 3. Private-purpose Trust Fund Principal & income benefit specific individuals or organization 4. Agency Fund Pass-through funds (Other Peoples Money) e.g. utility deposits

37. Measurement Focus WHAT transactions are measured Economic resources Proprietary & fiduciary funds Current financial resources Governmental funds

38. Measurement Focus Economic resources (Proprietary & Fiduciary Funds) Measure inflows & outflows of economic resources Current (i.e. financial ) & noncurrent (i.e. economic) Capital assets & long-term debt Focuses on operational accountability Whether management efficiently uses resources in providing services

39. Measurement Focus Current financial resources (Governmental Funds) Measure inflows & outflows of current financial resources Cash & other liquid assets Payables from cash & other liquid assets Focuses on fiscal accountability Whether managers have met budgetary & other legal financial requirements

40. The technical term that describes the criteria governing the timing of the recognition of transactions and events is basis of accounting. Revenues are recognized when available and measurable Expenditures are recognized when: a liability is incurred the amount is determinable the liability will be paid from current resources Basis of Accounting

41. Basis of Accounting WHEN transactions are measured Accrual Modified accrual Cash

42. Basis of Accounting Accrual basis Recognizes the financial effects of transactions, events and interfund activities when they occur, regardless of the timing of related cash flows Revenues - When earned Expenses - When incurred Example - proprietary funds

43. Basis of Accounting Modified accrual basis Revenues When measurable & available 60 day criteria Expenditures Expected to be liquidated with current financial resources i.e. recognized in period governments liquidate the related liability rather than when the liability is first incurred. Example - governmental funds

44. Basis of Accounting Cash Recognizes transactions/events when related cash amounts received or disbursed Individual taxpayers

45. Basis of Accounting

46. Claims & Judgments Occurrence probable & reasonable estimate of amount is available TANs/RANs Tax anticipation notes Revenue anticipation notes Fund liability even if maturity exceeds 12 months Liabilities

47. Debt General Obligation (GO) Bonds Voter approval No specific pledge other than “full faith & credit” Revenue Bonds Pledge of specified revenue source* or Restricted asset use or asset set aside Typically associated with enterprise borrowings but also used for governmental borrowings *GASB #48 – Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues

48. Debt GAAP generally requires recognition of expenditures when debt service payments are due Can recognize before due if due early in next FY and the following are met: Using a debt service fund Advance provision of resources is mandatory Payment due in short time period (one month maximum) Government-wide transactions Reconcile D/S expenditures to interest expense & reductions of LTD Accrual of interest

49. Debt Refunding Why done Lower market interest rate available Eliminate onerous bond covenants Free up current pledged revenues Types of refunding Advance Refunding Current Refunding

50. Debt Refunding Advance Refunding Old debt not yet callable New debt issued, proceeds placed in irrevocable trust/escrow to meet debt service payments of old debt Old debt technically outstanding until call date or maturity New debt proceeds = “other financing sources” Trust/escrow payments = “other financing uses”