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. Worksheet Adjustments • Eliminate capital outlay expenditures (563) • Most will affect capital assets • Those not meeting capitalization threshold will become functional expenses • Sale of capital assets (566) • Reported as OFS – Proceeds from sale in Governmental Funds • Converted to gain or loss and asset

8. Worksheet Adjustments (continued) • Record Depreciation Expense (566) • Information should come from Capital Asset note disclosure • See example from City of Tulsa • Adjust long-term debt issues (566) • OFS amounts will not appear on GW operating statement • Must capture and amortize bond issue costs, premiums, and discounts X

9. Worksheet Adjustments (continued) • Eliminate debt principal payments (567) – will become reductions in debt • Convert Interest Expenditures to Interest Expense (567) • Some of expenditures for current year may be expenses in previous year • Must accrue interest incurred since last interest payment dates

10. Worksheet Adjustments (continued) Convert GLTL pensions, claims & judgments, and compensated absences to expenses (568) • 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

11. Worksheet Adjustments (continued) Converting Revenues (569) • Deferred Revenues at the beginning of the year were probably revenues of a previous year • Deferred Revenues at the end of the year are probably revenues of the current year • In either case, must assure that revenue recognition criteria in GASB #33 are met

12. Worksheet Adjustments (continued) • Eliminate Governmental Funds [and ISFs] interfund receivables and payables (569 – 572) • Eliminate Governmental Funds [and ISFs] interfund transfers

13. Worksheet Adjustments (continued) • 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

14. 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

15. 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

16. 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

17. 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

18. Worksheet Adjustments (continued) Convert Fund Balances to Net Assets by calculating • Invested in Capital Assets, Net of Related Debt • Restricted Net Assets • Unrestricted Net Assets

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

20. 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)