Wiley GAAP for Governments 2011 E-Book

Warren Ruppel

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 1200

Veröffentlichungsjahr: 2011

Beschreibung

The most practical, authoritative guide to governmental GAAP

Wiley GAAP for Governments 2011 is a comprehensive guide to the accounting and financial reporting principles used by state and local governments as well as other governmental entities. Designed with the needs of the user in mind, a "New Developments" chapter offers the important developments in governmental GAAP during the past year.

• Full coverage of authoritative accounting standards
• Extremely useful and user-friendly examples, illustrations, and helpful practice hints
• A comprehensive guide to the accounting and financial reporting principles used by state and local governments as well as other governmental entities
• Provides a look ahead to the status of current and future Governmental Accounting Standards Board standards and projects
• Offers information on the very latest in standard-setting activities
• Also by Warren Ruppel: Governmental Accounting Made Easy

Wiley GAAP for Governments 2011 is a thorough, reliable reference financial professionals will consistently keep on their desks rather than on their bookshelves.

Leseprobe

Table of Contents

Subscriber Update Service

Title Page

Copyright Page

PREFACE

ABOUT THE AUTHOR

Chapter 1 - NEW DEVELOPMENTS

INTRODUCTION

RECENTLY ISSUED GASB STATEMENTS AND THEIR EFFECTIVE DATES

EXPOSURE DRAFTS

PRELIMINARY VIEWS

GASB PROJECT PLAN

SUMMARY

Chapter 2 - HISTORY AND THEORY UNDERLYING GOVERNMENTAL ACCOUNTING

INTRODUCTION

CHAPTER OVERVIEW

ENTITIES COVERED BY GOVERNMENTAL ACCOUNTING PRINCIPLES

OVERVIEW OF THE HISTORY OF GOVERNMENTAL ACCOUNTING STANDARDS SETTING

OBJECTIVES OF GOVERNMENTAL ACCOUNTING AND FINANCIAL REPORTING

OBJECTIVES OF FINANCIAL REPORTING

COMMUNICATION METHODS

ELEMENTS OF FINANCIAL STATEMENTS

HIERARCHY OF GOVERNMENTAL ACCOUNTING STANDARDS

SUMMARY

Chapter 3 - FUND ACCOUNTING FUNDAMENTALS

INTRODUCTION

DEFINITION OF FUND AND THE PURPOSE OF FUND ACCOUNTING

A SYNOPSIS OF THE VARIOUS TYPES OF FUNDS USED BY GOVERNMENTS FOR ACCOUNTING AND ...

A DEFINITION OF BASIS OF ACCOUNTING AND MEASUREMENT FOCUS

RECOGNITION AND MEASUREMENT OF CERTAIN FUND LIABILITIES AND EXPENDITURES

A SYNOPSIS OF BASIS OF ACCOUNTING AND MEASUREMENT FOCUS USED BY EACH TYPE OF FUND

SUMMARY

Chapter 4 - GENERAL FUND AND SPECIAL REVENUE FUNDS

INTRODUCTION

BASIS OF ACCOUNTING AND MEASUREMENT FOCUS

NATURE AND USE OF THE GENERAL FUND

NATURE AND USE OF SPECIAL REVENUE FUNDS

ACCOUNTING FOR CERTAIN REVENUE AND EXPENDITURES OF GENERAL AND SPECIAL REVENUE FUNDS

ACCOUNTING FOR ASSETS, LIABILITIES, AND FUND BALANCES OF GENERAL AND SPECIAL ...

SUMMARY

Chapter 5 - CAPITAL PROJECTS FUNDS

INTRODUCTION

BASIS OF ACCOUNTING

MEASUREMENT FOCUS

WHEN ARE CAPITAL PROJECTS FUNDS USED?

REVENUES AND OTHER FINANCING SOURCES

SUMMARY

Chapter 6 - DEBT SERVICE FUNDS

INTRODUCTION

SITUATIONS WHEN A DEBT SERVICE FUND IS REQUIRED OR DESIRABLE

BASIS OF ACCOUNTING AND MEASUREMENT FOCUS

EXPENDITURE RECOGNITION FOR DEBT SERVICE PAYMENTS

ACCOUNTING FOR THE ADVANCE REFUNDING OF LONG-TERM DEBT

SUMMARY

Chapter 7 - PROPRIETARY FUNDS

INTRODUCTION

BASIS OF ACCOUNTING AND MEASUREMENT FOCUS FOR PROPRIETARY FUNDS

ENTERPRISE FUNDS

INTERNAL SERVICE FUNDS

SUMMARY

Chapter 8 - FIDUCIARY FUNDS

INTRODUCTION

AGENCY FUNDS

PENSION (AND OTHER EMPLOYEE BENEFIT) TRUST FUNDS

INVESTMENT TRUST FUNDS

PRIVATE-PURPOSE TRUST FUNDS

SUMMARY

Chapter 9 - FINANCIAL STATEMENTS PREPARED BY GOVERNMENTS

INTRODUCTION

BASIC FINANCIAL STATEMENTS

INTERFUND TRANSACTIONS—FUND FINANCIAL STATEMENTS

INTRA-ENTITY TRANSACTIONS—GOVERNMENT-WIDE FINANCIAL STATEMENTS

COMPREHENSIVE ANNUAL FINANCIAL REPORT

CASH FLOW STATEMENT PREPARATION AND REPORTING

SUMMARY

Chapter 10 - THE IMPORTANCE OF BUDGETS TO GOVERNMENTS

INTRODUCTION

BUDGET BACKGROUND

WHICH FUNDS OF THE GOVERNMENT ADOPT BUDGETS?

DIFFERENCES BETWEEN THE BUDGET AND GAAP

BUDGETARY CONTROL

SUMMARY

Chapter 11 - DEFINITION OF THE REPORTING ENTITY

INTRODUCTION

BACKGROUND

ACCOUNTABILITY FOCUS

FINANCIAL REPORTING ENTITY DEFINED

DETERMINING WHETHER CERTAIN FUND-RAISING ORGANIZATIONS ARE COMPONENT ...

GASB TECHNICAL BULLETIN 2004-1, TOBACCO SETTLEMENT RECOGNITION AND FINANCIAL ...

DISPLAY OF COMPONENT UNITS

SUMMARY

Chapter 12 - CASH AND INVESTMENTS—VALUATION AND DISCLOSURES

INTRODUCTION

VALUATION OF INVESTMENTS

GASB STATEMENT 52, LAND AND OTHER REAL ESTATE HELD AS INVESTMENTS BY ENDOWMENTS

FINANCIAL REPORTING REQUIREMENTS

REQUIRED DISCLOSURES

DEPOSITS AND INVESTMENT RISK DISCLOSURES

NATURE OF SECURITIES LENDING TRANSACTIONS

PREVIOUS ACCOUNTING TREATMENT

GASBS 28’S EFFECT ON THE BALANCE SHEET

GASBS 28’S EFFECT ON THE OPERATING STATEMENT

POOLED SECURITIES

DISCLOSURE REQUIREMENTS

SUMMARY

Chapter 13 - DERIVATIVE INSTRUMENTS

INTRODUCTION

SUMMARY

Chapter 14 - CAPITAL ASSETS

INTRODUCTION

Capitalization Policy

VALUATION OF ASSETS RECORDED

DEPRECIATION OF CAPITAL ASSETS

DISCLOSURES RELATING TO CAPITAL ASSETS

CAPITALIZATION OF INTEREST

SUMMARY

Chapter 15 - DEBT AND OTHER OBLIGATIONS

OVERVIEW OF THE ACCOUNTING FOR DEBT AND OTHER OBLIGATIONS

DEMAND BONDS

ADVANCE REFUNDINGS

BOND, REVENUE, AND TAX ANTICIPATION NOTES

SPECIAL ASSESSMENT DEBT

POLLUTION REMEDIATION OBLIGATIONS

GASB STATEMENT 58, ACCOUNTING AND FINANCIAL REPORTING FOR CHAPTER 9 ...

SALES AND PLEDGES OF RECEIVABLES AND FUTURE REVENUES

STATEMENT OF GOVERNMENTAL ACCOUNTING STANDARDS 47, ACCOUNTING FOR TERMINATION ...

SUMMARY

Chapter 16 - LANDFILL CLOSURE AND POSTCLOSURE CARE COSTS

INTRODUCTION

APPLICABILITY

MUNICIPAL SOLID WASTE LANDFILLS

RESPONSIBILITY FOR LANDFILL CLOSURE AND POSTCLOSURE CARE ASSUMED BY ANOTHER ENTITY

DISCLOSURES

SUMMARY

Chapter 17 - POSTEMPLOYMENT BENEFITS- PENSION AND OTHER

INTRODUCTION

SCOPE AND APPLICABILITY

REQUIREMENTS FOR DEFINED BENEFIT PENSION AND OPEB PLANS

CALCULATION OF THE ARC

PARAMETERS FOR ACTUARIAL CALCULATIONS, INCLUDING THE ARC

NET PENSION OBLIGATION

NET OPEB OBLIGATION

RECORDING PENSION-RELATED ASSETS, LIABILITIES, AND EXPENDITURES/EXPENSES

RECOGNITION OF OPEB EXPENSES/EXPENDITURES, LIABILITIES AND ASSETS

ADDITIONAL GUIDANCE ON EXPENDITURE/EXPENSE RECOGNITION

GASB TECHNICAL BULLETIN 2006-1, ACCOUNTING AND FINANCIAL REPORTING BY EMPLOYERS ...

GASB TECHNICAL BULETIN 2008-1, DETERMINING THE ANNUAL REQUIRED CONTRIBUTION ...

EMPLOYER PENSION AND OPEB DISCLOSURES

EMPLOYERS WITH DEFINED CONTRIBUTION PLANS

OTHER PROVISIONS

SUMMARY

Chapter 18 - COMPENSATED ABSENCES

INTRODUCTION

SCOPE OF GASBS 16

BASIC PRINCIPLE

FINANCIAL REPORTING CONSIDERATIONS

SUMMARY

Chapter 19 - ACCOUNTING FOR LEASES

INTRODUCTION

ACCOUNTING BASIS

OTHER LEASING ISSUES FOR GOVERNMENTAL ENTITIES

SUMMARY

Chapter 20 - NONEXCHANGE TRANSACTIONS

Classes of Nonexchange Transactions

Accounting and Financial Reporting Requirements

Property Taxes

Income and Sales Taxes, and Other Derived Tax Revenues

Adjustments for the Accrual Basis of Accounting

Grants and Other Financial Assistance

Practice Issues

Chapter 21 - RISK FINANCING AND INSURANCE-RELATED ACTIVITIES/PUBLIC ENTITY ...

INTRODUCTION

RISK FINANCING AND INSURANCE ACTIVITIES OF STATE AND LOCAL GOVERNMENTS (OTHER ...

ACCOUNTING AND FINANCIAL REPORTING FOR PUBLIC ENTITY RISK POOLS

SUMMARY

Chapter 22 - PENSION AND OPEB PLAN FINANCIAL STATEMENTS

INTRODUCTION

PENSION PLAN ACCOUNTING AND FINANCIAL REPORTING

DEFINED BENEFIT PENSION PLANS

GASB STATEMENT 50, PENSION DISCLOSURES—AN AMENDMENT OF GASB STATEMENTS NO. 25 ...

DEFINED CONTRIBUTION PENSION PLANS

POSTEMPLOYMENT BENEFIT PLANS OTHER THAN PENSIONS

SUMMARY

Chapter 23 - EDUCATIONAL AND OTHER GOVERNMENTAL ENTITIES

INTRODUCTION

SCHOOL DISTRICTS

GOVERNMENTAL COLLEGES AND UNIVERSITIES

GOVERNMENTAL HOSPITALS AND OTHER HEALTH CARE PROVIDERS

GOVERNMENTAL NOT-FOR-PROFIT ORGANIZATIONS

OTHER PUBLIC BENEFIT CORPORATIONS

SUMMARY

APPENDIX: - DISCLOSURE CHECKLIST

INDEX

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ISBN: 978-0-470-55446-3 (paperback); 978-1-118-07606-4 (ebk); 978-1-118-07607-1 (ebk); 978-1-118-07608-8 (ebk)

PREFACE

Governmental accounting is a specialized area that has undergone significant changes over the past few decades. As governmental accounting standards have developed, the complexities of preparing financial statements for governmental entities have greatly increased. Providing meaningful financial information to a wide range of users is not an easy task. Adding to these challenges, the Governmental Accounting Standards Board (GASB) brought sweeping changes to the governmental financial reporting model and is now continuing the process of addressing many important accounting areas related to that model.

Given this rapidly changing environment, the financial statement preparer needs a technical resource that provides more than accurate, competent technical information. The resource needs to be written to fit today’s governmental accounting environment. It needs to take a fresh look at some of the long-standing accounting questions faced by governments and to provide meaningful up-to-date information on recently issued and soon-to-be-issued accounting pronouncements.

The purpose of this book is to meet these needs by providing a useful, complete, and practical guide to governmental accounting principles and financial reporting. Throughout, the book will provide the reader with

• An understanding of the concepts and theories underlying each topic discussed

• A complete, authoritative reference source to assure the reader that all aspects of a particular topic are covered

• Practical guidance to allow financial statement preparers and auditors to meet the requirements of generally accepted accounting principles for governments and to efficiently and effectively implement new requirements

The philosophy of this book is to provide the reader with usable information in a useful format. Accounting theory must correspond with practical examples to be useful, because theory seldom matches the specific situation. For technical information to be usable, it must be clearly presented without clutter and unnecessary repetition. The substance of accounting requirements must also be understood in order for them to be properly applied. Understanding the reasons behind why technical requirements exist is an important ingredient in properly applying accounting standards.

The 2011 edition of this book begins with an overview of governmental accounting principles and a description of the various types of funds currently in use by governmental entities. It then describes basic financial statements and provides guidance for reporting various assets, liabilities, revenues and expenses/expenditures. Finally, it examines the accounting and financial reporting requirements for several specific types of governmental entities. The book also includes a “Disclosure Checklist,” which should prove very helpful in determining the completeness of a governmental entity’s financial statement disclosures.

This book would not have come to fruition without the hard work and perseverance of a number of individuals. John DeRemigis of John Wiley & Sons had the confidence to work with me in developing the original concept for the book and in ensuring its continuing quality and success. Pam Reh’s efforts in producing the book are greatly appreciated.

Of course, the time and effort needed to write and maintain this book would not be possible without a supportive family, for which I am grateful to my wife Marie, and my sons Christopher and Gregory.

Warren Ruppel Woodcliff Lake, NJ December 2010

ABOUT THE AUTHOR

Warren Ruppel, CPA, is a Partner at Marks Paneth & Shron LLP, New York, in the firm’s Nonprofit and Government Services Group and also is a leader in its Professional Practices Group. He formerly was the assistant comptroller for accounting of The City of New York, where he was responsible for all aspects of the City’s accounting and financial reporting. He has over thirty years of experience in governmental and not-for-profit accounting and financial reporting. He began his career at KPMG after graduating from St. John’s University, New York. His involvement with governmental accounting and auditing began with his first audit assignment—the second audit ever performed of the financial statements of The City of New York. From that time he served many governmental and commercial clients until he joined Deloitte & Touche in 1989 to specialize in audits of governments and not-for-profit organizations. Mr. Ruppel has also served as the chief financial officer of an international not-for-profit organization.

Mr. Ruppel has served as an instructor for many training courses, including specialized governmental and not-for-profit programs and seminars. He has also been an adjunct lecturer of accounting at the Bernard M. Baruch College of the City University of New York. He is the author of five other books, OMB Circular A-133 Audits, Not-for-Profit Organization Audits, Not-for-Profit Accounting Made Easy, Government Accounting Made Easy, and Not-for-Profit Audit Committee Best Practices.

Mr. Ruppel is a member of the American Institute of Certified Public Accountants as well as the New York State Society of Certified Public Accountants, where he serves on the Governmental Accounting and Auditing and Not-for-Profit Organizations Technical Committees and is the President of the Foundation for Accounting Education. He has also served as the Chair of the Society’s Audit Committee. He is also a past president of the New York Chapter of the Institute of Management Accountants. Mr. Ruppel is a member of the Government Finance Officers Association and serves on its Special Review Committee.

1

NEW DEVELOPMENTS

INTRODUCTION

The 2011 Governmental GAAP Guide incorporates all of the pronouncements issued by the Governmental Accounting Standards Board (GASB) through November 2010. This chapter is designed to keep the reader up to date on all pronouncements recently issued by the GASB and their effective dates, as well as to report on the Exposure Drafts, Preliminary Views, and Invitations to Comment for proposed new statements or interpretations that are currently outstanding. This chapter also includes relevant information on the GASB’s Technical Agenda for the upcoming year to give readers information as to potential areas for future GASB requirements.

RECENTLY ISSUED GASB STATEMENTS AND THEIR EFFECTIVE DATES

GASB StatementEffective DateWhere in this book51Accounting and Reporting for Intangible AssetsPeriods beginning after 6/15/2009Chapter 1452Land and Other Real Estate Held as Investments by EndowmentsPeriods beginning after 6/15/2008Chapter 1253Accounting and Financial Reporting for Derivative InstrumentsPeriods beginning after 6/15/2009Chapter 1354Fund Balance Reporting and Governmental Fund Type DefinitionsPeriods beginning after 6/15/2010Chapter 455The Hierarchy of Generally Accepted Accounting Principles for State and Local GovernmentsEffective upon IssuanceChapter 256Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing StandardsEffective upon IssuanceChapter 557OPEB Measurements by Agency Employers and Agent Multiple-Employer PlansPeriods beginning after 6/15/2011 (provisions related to the use and reporting of the alternative measurement method are effective immediately)Chapter 1758Accounting and Financial Reporting for Chapter 9 BankruptciesPeriods beginning after 6/15/2009Chapter 1559Financial Instruments OmnibusPeriods beginning after June 30, 2010Chapters 12, 13, 22

EXPOSURE DRAFTS

The GASB has a number of Exposure Drafts that it has issued which will affect future accounting and financial reporting requirements. The following provides a brief synopsis of what is being covered by each Exposure Draft. Readers should always be aware that the GASB often modifies Exposure Drafts based upon its continuing deliberations and consideration of comments that it receives on each Exposure Draft.

Exposure Draft—Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements

The purpose of the Exposure Draft is to incorporate into the GASB’s authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with GASB pronouncements:

• FASB Statements and Interpretations

• Accounting Principles Board Opinions

• Accounting Research Bulletins

Current guidance in this area is provided by GASB Statement 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting (GASBS 20), which would be superseded by the new statement. Additional information about this Exposure Draft and GASBS 20 is provided in Chapter 7.

Not only would it be convenient to have this information incorporated into GASB authoritative literature, the non-GASB pronouncements mentioned above have become nonauthoritative because of their incorporation into the FASB Accounting Standards Codification.

The statement resulting from this Exposure Draft is expected to be effective for financial statements for periods beginning after December 15, 2011.

Exposure Draft—Accounting and Financial Reporting for Service Concession Arrangements (Revised)

The purpose of this Exposure Draft is to establish accounting and financial reporting requirements for service concession arrangements (SCAs). SCAs are a type of public-private or public-public partnership arrangement, which is the name more commonly used for these arrangements.

The Exposure Draft defines an SCA as an arrangement between a transferor (a government) and an operator (governmental or nongovernmental) in which (1) the transferor conveys to an operator the right and related obligation to provide services through the use of infrastructure or another public asset (a “facility”) and (2) the operator collects fees from third parties.

NOTE: The example often used (based upon a number of these transactions actually having occurred) is a toll road. The government (transferor) would transfer the operation of a toll road (including all or most of the tolls collected) to a private enterprise in return for an up-front payment.

The primary issue for accounting and financial reporting is determining whether the transferor should report the facility subject to an SCA as its capital asset. The Exposure Draft has specific criteria to determine whether a transferor has control over the facility. If the transferor meets all control criteria, it would report the facility as its capital asset, subject to existing guidance for capital assets. Existing facilities would be reported at their current carrying amount; new or improved facilities would be reported at fair value along with a corresponding liability that would be amortized in a systematic and rational manner over the term of the arrangement.

If the transferor does not meet the service-related control criteria, it would derecognize any existing facility and report only a residual interest in the facility. The amount of the residual interest in an existing facility would be determined based on its carrying amount, but the amount of the residual interest in a new or improved facility would be determined based on its fair value. If the SCA requires the operator to provide the transferor with up-front or installment payments, the transferor would consider these payments in determining the gain or loss on derecognition of the facility.

The Exposure Draft also provides guidance for governments that are operators in an SCA. The governmental operator would report an intangible asset at cost for its right to access the facility and collect third-party fees; it would amortize the intangible asset over the term of the arrangement in a systematic and rational manner. For existing facilities, a governmental operator’s cost may be the amount of an up-front payment. For new or improved facilities, a governmental operator’s cost may be its cost of improving an existing facility or constructing or acquiring a new facility.

The Exposure Draft would also require that, for revenue sharing arrangements, governmental operators report all revenues and expenses, unless they are functioning as an agent for the transferor.

There are also certain disclosure requirements about SCAs that would be required to be included in the notes to the financial statements.

In June 2010 the GASB issued a revised version of this Exposure Draft to adjust the scope of the proposed statement. The following summarizes the changes in the revised Exposure Draft.

• The original Exposure Draft used the control criteria to determine the appropriate accounting treatment (i.e., for when control is transferred or retained). The scope of the revised Exposure Draft has been modified so that if control has been transferred to the operator in a service concession arrangement, that arrangement would not be subject to the requirements of the proposed statement.

• The original Exposure Draft proposed that transferors report a liability upon commencement of a service concession agreement for consideration received up front (or in installments) from an operator. The revised Exposure Draft would report these payment as a deferred inflow of resources.

• The original Exposure Draft proposed that either the transferor or the governmental operator report the revenues and expenses for the service provided, depending on which entity was accountable for the services. The revised Exposure Draft would require a governmental operator to report all revenue and expenses associated with the operation of the facility and the transferor would recognize only its portion of the shared revenues.

The statement resulting from this Exposure Draft is expected to be effective for financial statements for periods beginning after June 15, 2011, with retrospective application generally required for all periods presented.

Exposure Draft—The Financial Reporting Entity—an amendment of GASB Statements No. 14 and No. 34

The accounting guidance for determining what entities should be included in a government’s financial reporting entity and how those entities should be presented has not been addressed by the GASB since implementation of the financial reporting model promulgated by GASBS 34. Accordingly, this Exposure Draft addresses those issues. If a final statement includes similar provisions as the Exposure Draft, a “fine-tuning” of the requirements is likely to result, rather than a massive change in reporting entities and presentation.

The proposed statement resulting from the Exposure Draft would change certain requirements for inclusion of component units in the financial reporting entity. Specifically,

• For organizations that were previously required to be included as component units by meeting the fiscal dependency criterion, a financial benefit or burden relationship would also have to present between the primary government and the organization for it to be included as a component unit.

• For organizations that do not meet the financial accountability criteria for inclusion but that should be included because the primary government’s management determines that it would be misleading to exclude them, the proposed statement clarifies the manner in which that determination should be made and the types of relationships that generally should be considered in making that determination.

The proposed statement resulting from the Exposure Draft would also amend the criteria for reporting component units as blended component units (i.e., as if they were part of the primary government). Specifically,

• For component units that are currently blended based upon the “substantively the same governing body” criterion, the Exposure Draft would require that

1. The primary government and the component unit have a financial benefit or burden relationship, or

2. Management below the level of elected officials of the primary government have the operational responsibility (as defined) for the activities of the component unit.

• New criteria would be added to require blending of component units whose total debt outstanding is expected to be repaid entirely or almost entirely with resources of the primary government.

• Funds of a blended component unit have the same characteristics and the same reporting options as a fund of a primary government. The general fund of a blended component unit should be reported as a special revenue fund.

• Additional reporting guidance would be proved for blending a component unit if the primary government is a business-type activity that uses a singlecolumn presentation for financial reporting. The component unit may be blended by consolidating its financial statement data within the single column of the primary government and presenting combining information in the notes to the financial statements.

The proposed Statement would also require a primary government to report its equity interest in a component unit as an asset, with the asset being eliminated in the blending process if the component unit meets the blending criteria.

Effective Date

A final Statement resulting from this Exposure Draft is expected to be effective for financial statements for periods beginning after June 15, 2012, with earlier application encouraged.

Exposure Draft—Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position

The GASB issued this Exposure Draft in February 2011 to provide guidance for reporting deferred outflows of resources, deferred inflows of resources (some readers may recall that these used to be called deferred charges and deferred credits) and net position (currently called net assets) in the statement of position. The proposed Statement would result in a significant change to the statement of financial position (balance sheet) of both accrual-based and modified accrual-based statements.

For statements other than those related to governmental fund reporting, deferred outflows of resources should be reported in a statement of financial position in a separate section following assets. Similarly, deferred inflows of resources should be reported in a separate section following liabilities. In addition, deferred outflows of resources would not be combined with assets to provide a subtotal, nor would deferred inflows of resources be combined with liabilities to provide a subtotal.

In financial statements that focus on economic resources, governments should present a statement of net position in a format that displays assets, plus deferred outflows of resources, less liabilities, less deferred inflows of resources, equals net position. Net position represents the difference between all other elements in a statement of financial position and should be displayed in three components—net investment in capital assets, restricted (distinguishing between major categories of restrictions), and unrestricted. The following additional guidance is provided for reporting the components of net position:

• The net investment in capital assets component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation, reduced by the outstanding balances of bonds, mortgages, notes, or other borrowings and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds or deferred inflows of resources at the end of the reporting period, the portion of the debt or deferred inflow of resources attributable to the unspent amount should not be included in the calculation of net investment in capital assets. Instead, that portion of the debt or deferred inflow of resources should be included in the same net position component (restricted or unrestricted) as the unspent amount.

• The restricted component of net position consists of restricted assets, other than capital assets, reduced by liabilities and deferred inflows of resources related to those assets. Generally, a liability relates to restricted assets if the asset results from a resource flow that also results in the recognition of a liability or if the liability will be liquidated with the restricted assets reported. A deferred inflow of resources relates to a restricted asset if that asset is a resource inflow that results in the recognition of a deferred amount.

• The unrestricted component of net position is the net amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of the net investment in capital assets or restricted components of net position.

For government fund reporting, deferred outflows of resources and deferred inflows of resources that are required to be reported in a governmental fund balance sheet should be presented in a format that displays assets plus deferred outflows of resources, equals liabilities plus deferred inflows of resources plus fund balance.

NOTE: The effects of the proposed Statement that would result from this Exposure Draft are mostly “display” issues that won’t likely result in accounting changes, but rather presentation changes. This likely explains the relatively quick implementation date noted in the next paragraph. However, governments generally have some deferred inflows and deferred outflows combined with other line items in the financial statements which they will need to evaluate as to whether or not they are material enough to require separate presentation.

Effective Date

The Statement resulting from this Exposure Draft is expected to be effective for financial statements for periods ending after June 15, 2011.

PRELIMINARY VIEWS

Last year’s edition of this book noted that the GASB had issued an Invitation to Comment on important issues regarding employers’ accounting for defined benefit pension plans. This project has moved to the next level in the GASB’s due process procedures with the issuance of a Preliminary Views document in June 2010 entitled “Pension Accounting and Financial Reporting by Employers.” If these preliminary views carry through to a final statement on this topic, very significant changes will result in employers’ accounting for defined benefit pension plans. Some of the important highlights of the GASB’s preliminary views are as follows:

• The unfunded portion of a sole or agent employer’s pension obligation to its employees meets the definition of a liability (net pension liability) and should be recognized in the employer’s financial statements.

NOTE: This is similar to what the FASB began requiring for nongovernmental entities several years ago.

• For purposes of determining the total pension liability and the service-cost component of pension expense, the calculation should include the projected effects of the following when relevant to the amounts of benefit payments:

• Automatic cost-of-living adjustments (COLAs),

• Future ad hoc COLAs in circumstances in which such COLAs are not substantively different from automatic COLAs

• Future salary increases, and

• Future service credits.

• For purposes of determining the total pension liability of a sole or agent employer, as well as the service-cost component of pension expense, the present value of projected benefit payments should be attributed to financial reporting periods over each employee’s projected service life using a single method—the entry age actuarial cost method applied on a level-percentage-of-payroll basis.

NOTE: This is a very significant change. No longer will the pension expense calculation be tied to one of the six acceptable actuarial methods currently permitted that relate to the actuarial method used for funding purposes. Rather, a standardized actuarial method will be required to be used by all governmental employers.

• The discount rate for accounting and financial reporting purposes should be a single rate that produces a present value of total projected benefit payments equivalent to that obtained by discounting projected benefit payments using

• The long-term expected rate of return on plan investments to the extent that current and expected future plan net assets available for pension benefits are projected to be sufficient to make benefit payments and

• A high-quality municipal bond index rate for those payments that are projected to be made beyond the point at which plan net assets available for pension benefits are projected to be fully depleted.

NOTE: Thus where plans are underfunded, the discount rate would really be a blended rate using the two different rates described above.

• The effects on the net pension liability of changes in the total pension liability resulting from (1) differences between expected and actual experience with regard to economic and demographic factors affecting measurement, (2) changes of assumptions regarding the future behavior of those factors, and (3) changes of plan terms affecting measurement should be recognized as components of pension expense over weighted-average periods representative of the expected remaining service lives of individual employees, considering separately (a) the aggregate effect on the liabilities of active employees to which the change applies and (b) the aggregate effect on the liabilities of inactive employees.

NOTE: These types of actuarial gains or losses are currently amortized over a period of up to thirty years. The “expected remaining service lives” approach will likely result in much shorter amortization periods.

• The effects on the net pension liability of projected earnings on plan investments, calculated using the long-term expected rate of return, should be included in the determination of pension expense in the period in which the earnings are projected to occur. Earnings on plan investments below or above the projected earnings should be reported as deferred outflows (inflows) unless cumulative net deferred outflows (inflows) resulting from such differences are more than 15 percent of the fair value of plan investments, in which case the amount of cumulative deferred outflows (inflows) that is greater than 15 percent of plan investments should be recognized as an increase or decrease in expense immediately.

• Each employer in a cost-sharing plan is implicitly primarily responsible for (and should recognize as its net pension liability) its proportionate share of the collective unfunded pension obligation, as well as its proportionate share of the effects of changes in the collective unfunded pension obligation.

NOTE: This is a very controversial view in that it would seem that “mini” actuarial valuations would need to be done to calculate amounts for individual employers, as well as the conceptual hurdle that this faces as to whether these allocations would meet the criteria for recognition in individual employer financial statements.

• An actuarial valuation for accounting and financial reporting purposes should be made at least biennially, as of a date not more than 24 months prior to an employer’s fiscal year-end. If the comprehensive measurement is not made as of the employer’s fiscal year-end, the most recent comprehensive measurement should be updated to that date.

As can be discerned from the above summaries of the GASB’s preliminary views, there are major changes in pension accounting and reporting by employers being contemplated by the GASB. While not all of these requirements may make it to a final standard, it is very likely that significant changes to current practice will ultimately be made. The GASB’s Technical Plan indicates that it would expect to issue a final statement on this topic in the second quarter of 2012.

GASB PROJECT PLAN

The GASB has a number of important projects on its agenda that will likely affect governmental accounting and financial reporting in the future. Some of the more significant projects are as follows:

• Postemployment Benefits other than Pensions (OPEBs)

Earlier in this chapter, the GASB’s preliminary views on employers’ accounting for pensions are described. As that project progresses and moves toward conclusion, the GASB will turn its attention to address how and if the changes related to pension accounting should be applied to employers’ accounting for OPEB benefits.

• Conceptual Framework—Recognition and Measurement Attributes

According to the GASB’s Technical Plan, this project has two primary objectives. The first is to develop recognition criteria for whether information should be reported in state and local governmental financial statements and when that information should be reported. The second objective is to consider the measurement attribute or measurement attributes (for example, historical cost or fair value) that conceptually should be used in governmental financial statements. This project is expected to lead to a Concepts Statement rather than an accounting standards statement.

• Fair Value Measurements

This is a research project to further develop the definition of fair value, the methods used to measure fair value, and potential disclosures about fair value measurements. Fair value of investments is cited in the GASB Technical Plan as a specific issue to be reviewed, including fair values of alternative investments, such as private placements and hedge funds, real estate investment trusts, state land trusts, and partnership issues.

• Fiduciary Responsibilities

This is a research project to assess whether additional guidance should be developed regarding the application of the fiduciary responsibility criterion in deciding whether and how governments should report fiduciary activities in their financial reports.

• Financial Guarantees

This is a research project to assess whether additional guidance should be developed regarding the recognition and disclosure of financial guarantees made by state and local governments.

• Government Combinations

This is a research project to consider the financial reporting requirements for government combinations that are accomplished through annexation, consolidation, acquisition, shared service arrangements, or by other means. According to the GASB Technical Plan, this project includes the analysis of government combinations that have taken place in both the general governmental area (city/county consolidations and consolidated school districts, for example) and the business-type activities area (health-care organizations, for example) and is expected to address certain devolution (spin-off) issues.

• Economic Condition Reporting

This project is examining whether there is any additional information that should be encouraged or required to be included in a government’s financial report that would be useful in assessing financial condition. One focus is on growing concerns about governments’ fiscal sustainability. Also to be addressed are the risks associated with a government’s intergovernmental financial dependencies.

• Fair Value Measurement

This is a project to review and consider alternatives for the further development of the definition of fair value, the methods used to measure fair value and potential disclosures about fair value measurements. Guidance in this area has been issued by the FASB, which will likely be considered by the GASB in its analysis.

• Electronic Financial Reporting

This project is in response to the growing use of electronic media to deliver information to users. The project will determine whether the GASB needs to develop standards for financial reports intended for the use of electronic media.

SUMMARY

The GASB, as always, maintains an active agenda, and the accounting and financial reporting standards for governments are consistently evolving. Financial statement preparers need to keep an eye on emerging new GASB pronouncements to ensure that they have adequate time to plan for their implementation, as well as to inform financial statement users about their potential impacts.

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HISTORY AND THEORY UNDERLYING GOVERNMENTAL ACCOUNTING

INTRODUCTION

The field of governmental accounting and financial reporting has undergone significant growth and development over the last twenty-five years. Generally accepted accounting principles for governments were once a loosely defined set of guidelines followed by some governments and governmental entities, but now have developed into highly specialized standards used in financial reporting by an increasing number of these entities. Because of this standardization, users are able to place additional reliance on these entities’ financial statements.

The Governmental Accounting Standards Board (GASB) has designed a model for financial reporting by governments that results in a radically different look to governmental financial statements from those of the past. There have also been substantive changes in the accounting principles used by governments. Governmental financial statement preparers, auditors, and users must have a complete understanding of these requirements to fulfill their financial reporting obligations.

CHAPTER OVERVIEW

This chapter provides a background on the development and purpose of governmental accounting standards. The topics in this chapter follow.

• Entities covered by governmental accounting principles

• Overview of the history of governmental accounting standards setting

• Objectives of governmental accounting and financial reporting

• Elements of financial statements

• Hierarchy of governmental accounting standards