ACCT 410- CAFR(City of Cincinnati, Ohio)
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ACCT410SecondClassStateandLocal-novideov2.pptxACCT 410 – Second Class
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Agenda (Selected Topics)
Fiduciary Funds
Program Revenue
Building the Budgets
Non-Exchange
Deferred Outflow/Inflow
Pension
GL examples
Fixed assets
Other funds
Upcoming Assignments
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Fiduciary Funds
Tracks items that a state or local entity does not truly own
State or local entity has a responsibility to track items for another group (e.g., a teacher’s pension)
Not included in government-wide statements
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Fiduciary Funds
Trust Funds – Held for another entity
Pension Trust Funds (e.g., retirement fund for teachers)
Investment Trust Funds - for the external portion
Private-Purpose Trust Funds - account for other trust arrangements for which the principal and income benefit individuals; an example is property that no one can initially claim (e.g., someone dies with no will and no initial heirs) - escheat property
Custodial - (holds money temporarily for another group – like a mail carrier) to receive and disburse funds – changed name from Agency, as the work Agency could be confusing – See GASB 84 for details - https://www.gasb.org/jsp/GASB/Document_C/DocumentPage?cid=1176168786182&acceptedDisclaimer=true – effective 2021
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Program Revenues
Three categories:
Services, often charging consumers
Operating grants – another entity (e.g., federal government) provides funds
Capital Grants and Contributions – another groups gives funds for particular purpose
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Program Revenues
Example – State of Maryland
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Building the Budget
Estimated Revenues shows expected revenue in the year
Estimated other financial sources – transfers from other funds and debt (e.g., bonds that state / local entities issues)
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Non Exchange
Obtaining funds that are not sales and not receiving equal amounts (such as water)
Categories
Derived tax revenue - assessments on transactions, such as income taxes and sales taxes. Recognized when the underlying transaction occurs
Imposed nonexchange revenues – assessed on various non-governmental groups. Example are property taxes
Government-mandated nonexchange transactions – a government provides resources to another government ,and requires the recipient to use the resources for a specific purpose. Example is the federal funds provided for food and nutrition programs in school districts
Voluntary nonexchange transaction - legislative or contractual agreements, other than exchanges, entered into willingly by two or more groups
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Component
Has separate budget and management and included in some way with state/local entity
Could be discrete (separate column in financial statements) or blended (included in governmental)
Discrete – criteria include separate management, independent budget, services not to government
Blended – serves other parts of government, also required for a component unit, incorporated as a not-for-profit corporation with the government as the only corporate member
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Deferred Outflow/Inflow
Obtaining/using net assets that will result in future use of resources
Similar to Comprehensive Income in the for-profit realm, and used for similar items (e.g., certain pension costs)
Future outflow – shown following assets and before liabilities (debit)
Paid more for bond than the value – will pay more later – (Reacquisition cost in excess of carrying value is a deferred outflow)
Future inflow – reported following liabilities and before equity (credit) – expected fund – example is certain grants received before timing requirement (debit cash, CR def rev)
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Deferred Outflow/Inflow
Future revenue
intra-entity transfers of future revenues
Lease sale / leaseback – deferred inflow or outflow
Definition: (1) deferred outflows of resources, and (2) deferred inflows of resources. A deferred outflow of resources is defined as “a consumption of net assets by the government that is applicable to a future reporting period,” and a deferred inflow of resources is defined as “an acquisition of net assets by the government that is applicable to a future reporting period.”
Source: https://osc.state.ny.us/localgov/pubs/releases/files/DeferredInflowsOutflowsGASB6365.pdf
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Deferred Outflow/Inflow
Deferred Inflow Examples
Example “Imposed Nonexchange Revenue Transactions (e.g., real property taxes) Resources received prior to the period when they are required to be used, or when use is first permitted, do not meet the definition of a liability because the government is not obligated to sacrifice resources. Therefore, a deferred inflow of resources should be reported for resources associated with these transactions received or reported as a receivable before (a) the period for which the property taxes are levied, (b) the period when resources are required to be used, or (c) the time when use is first permitted. This change is also applicable to governmental funds, subject to reporting distinctions of those funds.”
https://osc.state.ny.us/localgov/pubs/releases/files/DeferredInflowsOutflowsGASB6365.pdf
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Deferred Outflow/Inflow
Example – State of Maryland
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Deferred Outflow/Inflow
Example – State of Maryland (continued)
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GL Examples
Tax Collections
DR Real property taxes receivable—current $3,600,000
CR Revenues—property taxes $3,240,000
CR Allowance for uncollectible taxes
receivable—current 360,000
Note – revenue = net amount entity expects to receive
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Pension
State and local must track costs of pension, including liability
Similar to for-profit requirements
Some items will be in current expense, others in deferred outflow/inflow (including actuarial differences)
Numerous required disclosures – see GASB rules at https://gasb.org/jsp/GASB/Pronouncement_C/GASBSummaryPage&cid=1176160219492
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Pension
Example – State of Maryland expenses for Teachers Retirement and Pension System (TRS)
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GL – Debt Service
Bond Issuance ($2 million) – in governmental fund
DR Cash $2,000,000
CR Other financing sources $2,000,000
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Net Position
Government-wide statements = total assets + deferred outflows – liabilities – deferred inflows = Net Position
Three categories - RUN
Restrictions (external entity)
Net Investment in Capital Assets
Unrestricted
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Net Position Example
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GL Examples
In governmental fund
Buys fire truck for $50,000 in cash
DR Expenditure—capital outlay $50,000
CR Cash $50,000
Note – not expense, expenditure
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CAFR
Comprehensive Annual Financial Report (CAFR) is similar to the 10Ks for the for-profit publicly traded entities, or accountability report for USA federal entities
Provide financial statements and other data
Required sections include
Government-wide Financial Statements
Footnotes
Management Discussion & Analysis (similar to for-profit)
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CAFR
Fund financial statements
For governmental funds
Includes the fund balance
Government-wide
Combines various funds the government owns
Includes governmental and proprietary
For more details, see 217 page Government Accounting with Journal Entries, including Exhibit 7
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Finance Function in Local Governments
State and Local have many challenges, including:
Limited resources
Obtaining qualified staff
Potential changes
Carefully analyze outsourcing – the contracts may help the for-profit companies but not the actual state/local/tribal government
Some high-profile failures in recent years
If the contractor fails, state/local entities still must pick up the pieces
Finance professionals could lead transformational efforts
Need buy-in from key stakeholders
Entities must have proper communications
Need sufficient resources
Source: Chartered Global Financial Management Institute at https://www.cgma.org/content/dam/cgma/resources/downloadabledocuments/transformation-improving-government-performance.pdf
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Tribal Finances
State and Local also include Tribal (Native American) governments
The Financial Reporting and Information Guide for Tribal Governments and Enterprises (Orange Book) addresses the complex economic activity and related entity differences of tribal settings.
Presents an overview of the financial reporting framework in a tribal setting.
Includes ten chapters covering the unique operating environment of tribal governments from financial reporting with business activities to fiduciary activities to federal tax and information reporting. The Orange Book was informally reviewed by accounting standard setters and includes sample tribal financial statements.
Source: https://www.nafoa.org/
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Tribal Finances - Example
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Tribal Finances - Example
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CCR Reports
Citizen Centric Reports provide summarized data that is in non-accounting terms
Demonstrates distribution of money into a state/local entity and how a state/local entity spends money
Shows high-level demographic and economic data
Shows upcoming efforts
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CCR Reports
See following from Fairfax City, VA
Source: https://www.fairfaxva.gov/home/showdocument?id=10713
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Long-term assets
Interest is expensed on capitalized assets (unlike for-profit or for IFRS compliant entities)
Change in GAAP – interest used to be capitalized in proprietary funds
See details at:
https://www.bkd.com/sites/default/files/2018-10/GASB-Updates-Interest-Capitalization-Rules.pdf
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Long-term assets
In some cases, infrastructure assets could not be on balance sheet
Must meet several criteria, including
Has assessment of assets
Must determine costs of maintaining assets each year
Must have evidence of last three assessments
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Artwork
State and local entities are allowed to not capitalize artwork if three conditions exist:
Art for general public, not for gains (profit)
Artwork is protected, tracked and maintained
Proceeds from sale used to buy more art work
Similar to heritage assets in federal
Akin to family heirlooms that a family would normally not sell
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GASB #96 – Recent Update
Covers “subscription-based information technology arrangements (SBITAs) for government end users (governments).”
Establishes that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability;
Provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and
Requires note disclosures regarding a SBITA.
Details at: https://www.gasb.org/jsp/GASB/Document_C/DocumentPage?cid=1176174710997&acceptedDisclaimer=true
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Upcoming Assignments
Read the 217 page Government Accounting Manual (Financial Accounting for Local and State School Systems) – pages 51-100
Helpful publication for this class
Week 2 – Due Nov 2, 2021
HW 1
Discussions for Week 2
Two postings for each topic – initial post and response to other student
Week 3 – Due Nov 9, 2021
Discussions for Week 3
Two postings for each topic – initial post and response to other student
Exam 1–see next slides
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Quiz 1 Notes
Coverage
Readings (especially the Government Accounting Manual with Journal Entries) for Weeks 1 and 2
Roger CPA review
Slides
Homework 1
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Quiz 1 Notes
Multiple Choice
Two hour limit – may be penalty for late submission (more than two hours)
Topics include (not full listing)
Modified accrual v. full accrual
CAFR, including sections
Encumbrances
Accounting for difference of asset and liabilities
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Mauna Loa – biggest mountain in the world (Hawaii)
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Class 2 – The Class “Climb” Continues
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