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Lisa Parker, CPA, presents preliminary views on improvements to the financial reporting model for governmental funds. Key decisions include factors in recognition, proposed short-term financial resources, and measurement focus examples.
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Financial Reporting Model Reexamination October 31, 2019 Lisa Parker, CPA, Senior Project Manager Central Ohio AGA Professional Development Conference Ms. Parker.
Proposed Short-Term Financial Resources Measurement Focus Examples
Investments • Assumptions: Beginning of year (BOY) fair value of investments was $18,400,000. End of year (EOY) fair value of investments was $18,500,000. No investments matured or were purchased or sold during the year.
Property Taxes Receivable • Assumptions: BOY balance was $27,648,370 resulting from property taxes levied one month before the beginning of the year for the current fiscal year. This amount was due and was collected six months into the current fiscal year. $28,954,754 was levied one month before the end of current year fiscal year for the subsequent fiscal year and was due six months after year-end.
Sales Taxes Receivable • Assumptions: BOY balance was $12,800,000, underlying sales transactions resulting in sales taxes of $49,008,186 occurred in the current year fiscal year, and $48,465,563 was collected in the current fiscal year. EOY balance was $13,342,623 and was expected to be collected 2 months after year-end. According to statute, taxes collected by merchants on sales during each month are due to the state government by the end of the following month, and sales taxes collected by the state in each month are distributed to local governments by the end of the following month. For example, taxes collected by merchants on sales in the month of March are due to the state government by the end of April. These taxes collected by the state in April are due to be distributed to local governments by the end of May.
Prepaid Item • Assumptions: BOY balance was $5,800. During the year, $60,000 was spent for prepaid items, and $52,000 were used. EOY balance was $13,800.
Inventory • Assumptions: BOY balance was $15,200. During the year, $185,000 was spent on inventory and $176,700 was used. EOY balance was $23,500.
Special Assessments • Assumptions: BOY receivable balance was $123,851. $41,500 matured and was collected during the year, resulting in an EOY balance of $82,351. Of the EOY balance, $41,200 was due 6 months after year-end and $41,151 was due 18 months after year-end.
Grants Receivable • Assumptions: The BOY receivable related to grant activity was $550,992, new grant activity for the year was $300,000, payments on grants received during the year was $600,000, and the EOY balance related to grant activity was $250,992. Payments on grants are expected to be received within 60 days from when the grant activity occurs.
Notes Receivable • Assumptions: BOY receivable balance was $4,387,776. $645,000 matured and was collected during the year. EOY receivable balance was $3,742,776. Of that balance: • $640,000 is due 6 months after year-end • $3,102,776 is due more than 12 months after year-end
Hedging Derivative Instruments • Assumptions: The hedging derivative instrument was a receive-variable, pay-fixed interest rate swap that was an effective hedge, had nine years remaining on the term of the contract, had a declining notional amount, and was associated with long-term debt. This derivative instrument effectively converted certain variable-rate long-term debt to fixed-rate debt. When the variable-rate interest payments on the long-term debt are combined with the net payments on the receive-variable, pay-fixed derivative instrument, the total is fixed-rate interest payments. Therefore, the payments on this derivative instrument are considered interest payments. The instrument had a negative fair value of $532,882 at the EOY. Payments made during the year included a payment of $115,125 on April 1 of which $76,750 represents BOY accrued interest and a payment of $108,813. The payment due on April 1 of the subsequent year is expected to be $102,500 of which $68,334 represents accrued interest.
Compensated Absences • Assumptions: BOY liability was $4,824,057. $230,000 of the BOY liability was expected to be paid during the current year. No amounts related to employees who had separated from service before the beginning of the year. The net current year increase in the liability balance was $146,014, which resulted in an EOY liability of $4,995,071. $250,000 was paid out to employees during the year including $20,000 for compensated absences earned during the year. $25,000 of the balance expected to be paid in the following year relates to employees who have separated from service before year-end and is expected to be paid two weeks after year-end. Compensated absences are used on a first-in, first-out basis.
Accrued Interest on Long-Term Debt • Assumptions: BOY liability was $899,750. Interest on long-term debt incurred during the year was $2,394,534. Amounts paid during the year were $2,448,950. EOY liability was $845,334, which is expected to be paid within 60 days from year-end.
Claims • Assumptions: BOY liability was $1,300,000. Claims incurred during the year were $2,750,000. Claims paid during the year were $1,500,000. EOY liability was $2,550,000. The claims resulted from a routine risk retention arrangement and normally are expected to be paid within 120 days from year-end.
Tax Anticipated Notes (TANs) • Assumptions: BOY balance was $4,000,000 constituting a 12-month TAN issued two months before the previous year-end. A 15-month TAN with a balance of $4,400,000 was issued two months before the current year-end, leaving an EOY balance of $4,400,000.
Leases • Assumptions: BOY liability was $4,248,000. $1,052,080 of the BOY balance was expected to be paid during the year ($258,520 during the first 90 days and $793,560 during the remainder of the year). There was a $233,200 issuance of leases in February and $1,141,289 of principal paid during the year which includes $1,052,080 of the BOY balance and $89,209 related to new leases. EOY liability was $3,339,911. $1,192,352 is expected to be paid within the next year ($293,228 during the first 90 days and $899,124 during the remainder of the year). Interest associated with leases is reported separately.
Pension Benefits • Assumptions: BOY net liability for pensions was $485,043. Contributions of $7,500,000 were made to the plan during the year. EOY net liability for pensions was $826,333. None of the EOY liability is expected to be liquidated with expendable available resources. Contributions are paid to a pension plan that is responsible for making benefit payments.
Other Postemployment Benefits • Assumptions: BOY net liability for other postemployment benefits (OPEB) was $39,750,309. EOY net liability for OPEB was $42,785,037. The amount paid for current year benefits was $4,800,000. None of the EOY liability is expected to be liquidated with expendable available resources. This is a pay-as-you-go plan, benefits are paid directly to employees.
Bonds Payable • Assumptions: BOY liability was $33,414,493 and related to a 10-year bond. Changes during the year included repayment of $8,331,457 of principal 6 months prior to year-end, resulting in an EOY liability of $25,083,036. The next payment of $7,000,000 is due 6 months after year-end.
Statement of Short-Term Financial Resource Flows Current and Noncurrent Activity Format
Proposals: Proprietary Funds Separate presentation of operating and nonoperating revenues and expenses
