GASB 54. GASB 54- Discussion Topics for Today

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GASB 54 Jason Harpe, CPA Partner Carr, Riggs & Ingram Birmingham, Alabama December 5, 2012 1 GASB 54- Discussion Topics for Today Reasons for

1 GASB 54 Jason Harpe, CPA Partner Carr, Riggs & Ingram Birmingham, Alabama December 5, GASB 54- Discussion Topics for Today Reasons for GASB 54 Fund balance under GASB 54 Governmental Fund requirements and clarifications under GASB 54 GASB 54 common implementation questions 2 1

2 Reasons for GASB 54 Provides consistency across governmental financial statement reporting ELIMINATE CONFUSION Clarifies governments intended uses of Fund Balance Provides clarity for Governmental Funds Formalizes Fund Balance usage through documented constraints 3 What is fund balance? o Fund balance is the difference between assets and liabilities in Governmental Funds on a modified accrual basis. o OR Fund Balance represents UNSPENT REVENUES. The Prior Fund Balance approach focuses on availability for appropriation Reserved Unreserved 4 2

3 Prior To Implementing GASB 54 City of Joyville Balance Sheet Governmental Funds For Fiscal Year Ending June 30, 2011 Other Total Gas GO Capital Governmental Governmental General Tax Bond Projects Funds Funds FUND BALANCES: Reserved for: Debt Service 10,000 10,000 Capital Projects 120, ,000 Unreserved reported in: General Fund 1,299,000 1,299,000 Special Revenues 75, , ,000 Total Fund Balance: $1,299,000 $75,000 $10,000 $120,000 $110,000 $1,614,000 5 After Implementing GASB 54 City of Joyville Balance Sheet Governmental Funds For Fiscal Year Ending June 30, 2011 Other Total Gas GO Capital Governmental Governmental General Tax Bond Projects Funds Funds FUND BALANCES: Nonspendable Inventory 10,000 10,000 Restricted for: Road Maintenance 65,000 65,000 Debt Service Requirement 10,000 10,000 Committed to: Capital project 100, ,000 Economic stabilization 500, ,000 Homeland Security Grant 20,000 20,000 Assigned to: Parks & Recreation 100,000 20, ,000 Other Capital projects 20,000 20,000 Public Safety 249, ,000 Public Works 150,000 70, ,000 Financial Administration 200,000 1, ,000 Unassigned: 100,000 1,000 99,000 Total Fund Balance: $1,299,000 $75,000 $10,000 $120,000 $110,000 $1,614,

4 o Fund Balance Classifications for Governmental Funds: Non-spendable Previously Reserved: Restricted Committed Assigned Previously Unreserved: Unassigned 7 o Non-spendable Not in a spendable form Inventory Prepaid items Permanent funds principal must stay intact such as endowments Long-term portion of loans receivable Non-financial assets held for resale 8 4

5 o Restricted Balances subject to externally enforceable legal restrictions State Laws Constitutional Provisions Enabling Legislation Imposed by Creditors Imposed by Grantors 9 o Committed Constraint on use imposed by the government itself, using its highest level of decision making authority Constraint can only be changed or removed by taking the same type of action Ordinance Resolution» Action to constrain resources should occur prior to end of fiscal year» Encumbrances can be reported as committed (purchase orders) 10 5

6 o Assigned Amount is intended to be used for a certain use Intent is specified by the governing body or an authorized official Less formality is required to modify the constraint Appropriations of existing fund balances not classified elsewhere would be assigned Assignments can occur after year end (unlike commitments) 11 o Unassigned Available for any purpose Reported only in the General Fund» Except in cases of deficit fund balances in other Governmental funds 12 6

7 o The Local Government should establish a Fund Balance Policy including the order of use Default order is:» Restricted» Committed» Assigned» Unassigned 13 GASB 54 Governmental Funds o Fund Categories: Governmental Funds: General Fund Principal operating fund Special Revenue Fund Revenues for specific purpose Debt Service Fund Repayment of Debt Capital Projects Fund Capital outlay Permanent Fund Endowments Proprietary Funds: Enterprise Fund Business-type fund providing services Internal Service Fund Cost allocation among funds Fiduciary Funds: Private Purpose Trust Fund Resources managed for outside trustee Pension and other Employee Benefit Trust Fund Employee pension, benefits Investment Trust Fund Investments managed for outside parties as trustee Agency Fund Resources held temporarily in custodial capacity 14 7

8 GASB 54 Governmental Funds Special Revenue Funds* Used to account for proceeds of specific revenue sources that are committed or restricted to expenditures for specific purposes other than debt service or capital projects. Foundation will be revenues made up of :» Restricted» Committed *Funds not meeting these fund balance categories will probably transfer the balance into the General Fund at year-end for reporting purposes. 15 GASB 54 Governmental Funds o Governments still have the choice concerning Funds which to use and not use Unless required by grantor, legislation, etc. o Capital Projects Funds changed for capital outlay in general. Formerly facilities and equipment only. o Debt Service Funds required only if legally required or amounts accumulated for future payment of principal & interest 16 8

9 GASB 54 Disclosures o Additional Note Disclosures Required Include the following: The government s highest level of decision-making authority (for example an ordinance or resolution) The formal action that is required to be taken to establish (and modify or rescind) a fund balance commitment The body of official authorized to assign amounts to a specific purpose Fund Balance Policy order of spending when multiple resources available Purpose for Major Special Revenue Funds Formal Minimum Fund Balance if adopted 17 o Stabilization arrangement-from CIG How specific are the circumstances for use of stabilization resources required to be, in order for those resources to be classified as committed fund balance? The required level of specificity is intended to convey the understanding that the resources would be available only under specific circumstances that are not expected to occur routinely. For example, a condition that stabilization resources become available for spending if revenues fall one percent below expectations is sufficiently specific but does not meet the requirement that the condition is not expected to occur routinely. In that situation, the amount set aside should not be classified as committed fund balance; however, the government would be required to provide the disclosures. 18 9

10 o Implementation Date September 30, Q What effect does the legal adoption of budget and appropriation documents for the subsequent year have on fund balance classification? 20 10

11 A An adopted appropriation ordinance, resolution, or similar legislation generally authorizes a government to spend budgeted revenues and other financing sources and, therefore, does not impose constraints on the use of existing resources. However, if a portion of existing fund balance is included as a budgetary resource in the subsequent year s budget to eliminate a projected excess of expected expenditures over expected revenues, then that portion of fund balance (in an amount no greater then is necessary to eliminate the excess) should be classified as assigned. The amount should not be classified as committed because the governing body does not have to take formal action to remove or modify that specific use- the purpose assignment expires with the appropriation. 21 Q State law requires local governments to maintain fund balance at a level equal to at least eight percent of the general fund appropriations in the preceding year to provide for contingencies. Does that requirement constitute a stabilization arrangement for purposes of classifying fund balance? If not, do the minimum fund balance disclosure requirements apply? 22 11

12 A The statutory requirement in this case does not constitute a stabilization arrangement because it does not identify specific conditions under which the resources that represent the minimum balance can be used. The minimum fund balance disclosure requirements do not apply because the requirement is imposed upon the government rather than established by the government itself. The government may, however, be required to disclose instances of noncompliance with the legal requirement. 23 Q By exercising its highest level of decision- making authority, a government has established a Budgetary Stabilization Fund and imposed a requirement that 15 percent of certain mineral rights royalties received should be set aside to provide for budgetary imbalances. That decision can only be reversed or modified by the government taking the same action. The conditions under which the resources can be used are sufficiently prescriptive to be reported as committed fund balance. Can the Budgetary Stabilization Fund be reported as a special revenue fund? 24 12

13 A Yes. Because the foundation of the separate fund is a specific committed revenue source, it can be reported as a special revenue fund, provided that the revenues are recognized in the separate fund. 25 Q Should encumbrances be displayed on the face of the governmental funds balance sheet? 26 13

14 A No. Encumbrances should not be displayed on the face of the financial statements. Generally, encumbered amounts should already be included in the restricted, committed, and assigned fund balance classifications. 27 Q Can encumbrances be included in unassigned fund balance in the general fund? 28 14

15 A No. Executing a purchase order is tantamount to assigning the amount of the purchase order to a specific purpose; thus, the outstanding encumbrance amount would be included in assigned fund balance (unless the purchase order related to restricted or committed resources). 29 Q If a governing body passes a resolution (the highest level of decision-making authority, in this case) to annually transfer amounts from the general fund to a separate fund to be used for a specific purpose, do those amounts qualify as committed revenues so that the separate fund can be reported as a special revenue fund? 30 15

16 A No. Transfers are not revenues. The transferred-in resources in this example do not provide the foundation of restricted or committed revenues required for a special revenue fund. The separate fund can, however, be reported as a special revenue fund if there are also substantial restricted or committed revenues recognized in that fund. 31 Q If a fund no longer qualifies as a special revenue fund its remaining resources should be reported in the general fund. Can those resources be reported as part of another special revenue fund with a similar purpose (for example, if both funds are transportation-related)? 32 16

17 A Yes. Resources accounted for in a separate fund that does not meet the criteria to be reported as a special revenue fund can be reported as part of the general fund or as part of another find with a similar purpose that does meet the criteria to be reported as a special revenue fund

2/10/2011. Governmental Accounting Standards Board Private, nonprofit organization formed in member Board

2/10/2011. Governmental Accounting Standards Board Private, nonprofit organization formed in member Board ~ ~ ~ ~ ~ ~ ~ ~ ~ The Wonderful World of GASB ~ ~ ~ ~ ~ ~ ~ ~ ~ GASB 54 Fund Balance Presented by: Darla Erickson, Accounting Systems Program Manager & Magda Nelson, Accountant Local Government Services