GASB 54 January 15, 2010 Jennifer Younce, CPA Karen Lenk, CPA Schowalter & Jabouri, PC
Outline Overview Fund Balance Current Standard Fund Balance under GASB 54 Disclosures and Fund Balance Policies Government Fund Type Definitions
Overview Title: Fund Balance Reporting and Governmental Fund Type Definitions Scope Changes how fund balance is presented Clarifies use of governmental fund types Effective Date Periods beginning after June 15, 2010 Fiscal Years ending June 30, 2011
Fund Balance Current Standard What is fund balance? Difference between fund assets and liabilities How is fund balance allocated? Reserved Unreserved Designated Undesignated
Fund Balance Current Standard Fund Balance Allocation Objective To isolate that portion of fund balance that is not available for the following period s budget Factors that make resources unavailable for appropriation By their very nature can never be spent (e.g., prepaid rent, inventories of supplies) Because of their timing of cash flows, can not yet be spent (e.g., long-term loans receivable) Can be spent but not at the government s discretion because externally restricted to a use narrower that the purpose of the fund
Fund Balance Current Standard Why is there a need for change? Terms are not intuitive and frequently misunderstood Categories are often applied inconsistently Challenges to focus on availability for appropriation
Fund Balance under GASB 54 Under GASB 54, fund balance should be reported in classifications that: comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent
Fund Balance under GASB 54 Five categories Nonspendable Restricted Committed Assigned Unassigned Not all will always be present
Fund Balance under GASB 54 Nonspendable Fund Balance Not in spendable form Cannot ever be spent Cannot currently be spent Legally or contractually required to be maintained intact
Fund Balance under GASB 54 Restricted Fund Balance Amounts subject to externally enforceable legal restrictions Externally imposed by creditors, grantors, contributors, or laws or regulations of other governments Imposed by law through constitutional provisions or enabling legislation
Fund Balance under GASB 54 Committed Fund Balance Amounts whose use is constrained by limitations that the government imposes upon itself Imposed at the government s highest level of decision making Binding unless removed in the same manner Action taken no later than the close of the reporting period Actual amount can be determined after close
Fund Balance under GASB 54 Assigned Fund Balance Intended use of resources Established by the governing body itself, or Established by a body or an official delegated by the governing body Never in excess of total fund balance less its nonspendable, restricted and committed components
Fund Balance under GASB 54 Unassigned Fund Balance Excess of total fund balance over nonspendable + restricted + committed + assigned components Available for any purpose Reported only in the general fund, except in cases of negative fund balance Negative fund balances in other funds are reported as unassigned Positive balance possible only in general fund
Question #1 GASB 54 takes the position that fund balance classifications should be based on a.) The availability of funds b.) Encumbrance accounting c.) Net asset classifications d.) Constraints on the purpose for which amounts can be spent e.) Maturity (short term vs. long term) of resources
Question #2 According to GASB 54, which of the following is not a classification of fund balance? a.) Restricted b.) Reserved c.) Nonspendable d.) Committed e.) Unassigned
Question #3 Amounts constrained by limitations that the government imposes upon itself at its highest level of decisionmaking and that remain binding unless removed in the same manner should be classified as a.) Nonspendable b.) Restricted c.) Committed d.) Assigned e.) Unassigned
Question #4 Positive unassigned fund balance can appear in a.) General Fund b.) Special Revenue Fund c.) Permanent Fund d.) Debt Service Fund e.) Any governmental type fund
Answers to Questions Question 1 D Question 2 B Question 3 C Question 4 - A
Fund Balance under GASB 54 Stabilization Arrangements Limits on the circumstances of spending (rather than the purpose of spending) Still can qualify for classification as restricted or committed Circumstances must be sufficiently specific Circumstances must be non-routine Never classified as assigned
Fund Balance under GASB 54 Encumbrances Only indirectly affect the classification of fund balance If liquidation expected from restricted or committed resources, constraint already reflected in those amounts Otherwise assigned fund balance
Fund Balance under GASB 54 Encumbrances If you have encumbrance accounting, encumbrances will be reported either as: Committed (if encumbrances are approved by action of the highest decision making authority) Board votes to allocate $250,000 of fund balance for a new fire truck Assigned Encumbrances resulting from the issuance of purchase orders as a result of normal purchasing activity approved by appropriate officials This will be the most common classification of encumbrances
Disclosures and Fund Balance Policies Note Disclosures Description of authority and actions that lead to committed and assigned fund balance Government s policy regarding order of spending Restricted and unrestricted fund balance Committed, assigned, and unassigned Purpose of each major special revenue fund and which revenue sources are reported in each of those funds Encumbrances, if significant, are disclosed in conjunction with other disclosures of significant commitments Stabilization arrangements Authority of establishing Requirements for additions Conditions under which amounts may be used Stabilization balances, if not apparent on the face of the financial statements Minimum fund balance policies Details of fund balance classifications displayed in the aggregate
Disclosures and Fund Balance Policies Elements of a Comprehensive Fund Balance Policy Fund balance policy should apply to: Unrestricted fund balances Committed Assigned Unassigned Generally applies to the General Fund
Disclosures and Fund Balance Policies Elements of a Comprehensive Fund Balance Policy The following should be addressed: The appropriate level of unrestricted fund balance to be maintained in the general fund Can be expressed as a minimum amount or a range between amounts The circumstances in which unrestricted fund balances can be spent down Circumstances should be as specific as possible The policy for replenishing deficiencies Should indicate source of funding and time period for replenishment
Fund Balance Example Assets: Cash and investments $5,016 Property taxes receivable 2,488 Capital leases receivable 20 Inventory 4 Prepaid items 33 Land held for sale 75 Total assets $7,636 Liabilities: Accounts payable $ 106 Accrued liabilities 63 Deferred revenue 2,508 Total liabilities $2,677 Fund balance: $4,959
Fund Balance Example Nonfinancial assets held for sale Land held for sale No constraint on use of proceeds $45 Constraint on use of proceeds 30 $75
Fund Balance Example Grants Recreational services $12 Midnight Basketball grant 15 $27
Fund Balance Example Formal board action Prior to year end $10 After year end 6 $16
Fund Balance Example Stabilization arrangement Amount no less than 40 percent of the prior year s general fund revenues ($4,263 x 40% = $1,704) Circumstances = budgetary shortfalls
Fund Balance Example Appropriated fund balance Appropriations over estimated revenues = $450
Fund Balance Example Encumbrances Lapse period used for encumbrances Encumbrances (end of period): To be liquidated with grant resources (restricted to Midnight Basketball) $3 To be liquidated from unspecified existing resources 3 $6
Fund Balance Example Nonspendable Fund Balance Includes Prepaids $33 Inventory 4 Land held for sale (no constraint) 45 $82 Exclude: Land held for sale (constraint) 30
Fund Balance Example Restricted Fund Balance Include: Land held for sale (use of proceeds constrained) $30 Grants 27 $57
Fund Balance Example Committed Fund Balance Include: Action take before end of period $ 10 Exclude: Action taken after end of period $ 6 Stabilization (neither specific nor non-routine) 1,704
Fund Balance Example Assigned Fund Balance Include: Action taken after end of period $ 6 Encumbrances (not payable from restricted resources) 3 Appropriated fund balance = shortfall 450 $ 459 Exclude: Stabilization arrangement $1,704
Fund Balance Example Unassigned Fund Balance Total Fund Balance $4,959 Nonspendable fund balance $ 82 Restricted fund balance 57 Committed fund balance 10 Assigned fund balance 459 Subtotal (608) Unassigned fund balance $4,351
Fund Balance Example Unassigned Fund Balance (assuming total is only $600 instead of $4,959) Total Fund Balance $ 600 Nonspendable fund balance $ 82 Restricted fund balance 57 Committed fund balance 10 Assigned fund balance 459 Subtotal (608) Reduction of assigned F/B ($8)
Governmental Fund Type Definitions General Fund Used to account for all financial resources not accounted for in another fund No changes from previous definition
Governmental Fund Type Definitions Special Revenue Fund Current definition To account for the proceeds of specific revenue sources (other than trusts for individuals, private organizations, or other governments or for major capital projects) that are legally restricted to expenditures for specified purposes.
Governmental Fund Type Definitions Special Revenue Fund GASB 54 Definition Used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. The term proceeds for specific revenue sources establishes that one or more restricted or committed revenues should be the foundation for a special revenue fund.
Governmental Fund Type Definitions Capital Projects Fund Current Definition To account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds or in trust funds for individuals, private organizations, or other governments)
Governmental Fund Type Definitions Capital Projects Fund GASB 54 Definition Used to account for and report financial resource that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Capitals projects funds exclude those types of capital related outflows financed by proprietary funds or for assets that will be held in trust for individuals, private organizations, or other governments.
Governmental Fund Type Definitions Debt Service Fund Current Definition To account for the accumulation of resources for, and the payment of, general long-term debt principal and interest GASB 54 Definition To account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest. Change in terms only
Fund Definition Example ABC County Police Officer Training Fund Primary Revenue Source Circuit court fees and traffic violation fees Primary Use of Funds Restricted for police officer training Restricted by state statute Will remain a Special Revenue Fund
Fund Definition Example ABC County Parks and Recreation Fund Primary Revenue Source Property taxes levied for parks and charges for services Primary Use of Funds Parks and recreation activities Will remain a Special Revenue Fund
Fund Definition Example ABC County Road Tax Fund Primary Source of Revenue One half percent of sales tax collected Primary Use of Funds Road maintenance Restricted by sales tax agreement Will remain a Special Revenue Fund
Fund Definition Example ABC County Park Development Fund Primary Source of Revenue Currently interest only Primary Use of Funds No activity for 2007 and 2008 Will recommend to move activity to the General Fund
Fund Definition Example ABC County Sheriff Recreation Fund Primary Source of Revenue Fundraising and donations Primary Use of Funds Law enforcement activities at the Sheriff s discretion Will recommend to move activity to the General Fund
Fund Definition Example Missouri School Districts Teacher s Fund Primary Revenue Source Tax levy or No less than 75% of Basic Formula Will remain a Special Revenue Fund
Resources GASB Statement No. 54: Fund Balance Reporting and Governmental Fund Type Definitions GFOA The New Fund Balance
Questions Contact Schowalter & Jabouri, P.C. for questions at 314 849-4999