Reporting Requirements Marcia Taylor CPA CGFM William McKain CPA Pennsylvania Association of School Business Officials March 17 2011 Need for the Project Fund balance widely recognized as one of most used elements in financial statements ID: 367889
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Slide1
GASB 54: The New Fund Balance Reporting Requirements
Marcia Taylor, CPA, CGFMWilliam McKain, CPA
Pennsylvania Association of School Business Officials March 17, 2011Slide2
Need for the ProjectFund balance – widely recognized as one of most used elements in financial statementsWhat is available to be spent?What is available to pay debt or other long term obligations?Slide3
Issues with Current Fund Balance InformationLevel of action
PloppingConfusion on terminologyLack of comparability“Available” maskedSlide4
ObjectiveDo current reporting requirements adequately meet needs of users?Assess financial flexibilityAssess liquidity
Clarify distinctions between reserved and un, reserved and net assetsSlide5
Fund Definition ComponentFB affected by fundsLack of clarity?SRF – what resources?
CPF – what projects?Activity versus revenue reportingSlide6
History of ProjectDeliberations began in late 1980’sDebated during S 34 – withdrawnNew project in 2002 – resulted in Net Assets Statement (46) with no FB changes
Another new project in October 2006Two documents for public commentField testTask force
Final February 2009Slide7
Scope and effective date
ScopeChanges how fund balance is presented
Clarifies use of governmental fund types
Effective date
Fiscal period ending 6/30/11
Early implementation encouraged
Retroactive reporting encouraged for statsSlide8
New Guidance
Fund balance classificationSlide9
Focus of classification
“The extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent” (GASB #54, para 5)Slide10
Components of fund balance
Five categoriesNonspendableRestricted
Committed
Assigned
Unassigned
Not all will always be presentSlide11
Practitioner’s View of Implementing GASB 54
Helpful reminder of thefund balance hierarchy
Nobody
Really
Cares
About
Us
Nonspendable
Restricted
Committed
Assigned
UnassignedSlide12
Nonspendable fund balance
Not in spendable formCannot ever
be spent
Cannot
currently
be spent
Legally or contractually required to be maintained intactSlide13
Categories representing spending constraints
Three categoriesRestricted fund balance
Committed fund balance
Assigned fund balance
No requirement that constraint be narrower than the purpose of the fundSlide14
Restricted fund balance
Constraints on purpose/circumstances of spending that are legally enforceable by outside parties
Creditors
Grantors and contributors
Law or regulations of other governments
Constitutional provisions/enabling legislation
Same rules now used to classify restricted net assetsSlide15
Committed fund balance
Constraints on purpose/circumstances of spending imposed by government itself
Formal action
Means will differ among governments
Highest level of decision-making authority
Binding unless removed in the same manner
Action taken prior to the end of the reporting period
Amount can be determined at a later dateSlide16
Assigned fund balance
Intent to use resources for a specific purposeGovernment body
Subordinate high-level body or official delegated to make such assignments in accordance with policy established by the governing body
Governing body’s intentions not management’s
Never in excess of total fund balance less its nonspendable, restricted and committed componentsSlide17
Unassigned fund balance
Residual balance reported in general fundThe use of some other fund type presumes that all of the resources reported in that fund are either restricted, limited, or assigned
Also used to report deficits in other fund typesSlide18
Components of fund balance
Nonspendable fund balance (inherently nonspendable)
Not in spendable form or requirement to maintain intact
Restricted fund balance
(Externally enforceable limitations on use)
Outside parties
Constitutional provisions or enabling legislation
Committed fund balance
(Self-imposed limitations)
Formal action by end of period
Highest level of decision making
Assigned fund balance
(Limitation resulting from intended use)
Less formal action
Highest level of decision making or designated body or official
Unassigned fund balance
(Residual net resources)Slide19
Stabilization (“rainy day”) funds
Resources that can be spent only if certain specific circumstances occurUse of special revenue fund for this purpose
not
permitted
Report in general fund
Restricted or committed
Presumption that specific circumstances in which spending is permitted “would not be expected to occur routinely”
Never classified as assignedSlide20
Encumbrances
Note disclosure (commitments)Categorization for display purposes dependent on nature of constraintSlide21
Review of Recast ExampleReserves – are they restrictions or commitments or?Designations – are they committed or assigned?Funds other than general – any negative balances?Slide22
New Guidance
Governmental fund type definitionsSlide23
Fund type definitions
General fundSpecial revenue fundsCapital projects fundsSlide24
General fund
Prior definition“To account for all financial resources except those required
to be reported in another fund”
Never intended to limit the ability to use another fund type voluntarily
Use required only when a primary government is incorporating the general fund of a blended component unit
Term
required
dropped from the definitionSlide25
Special revenue funds
HistoryDesigned for specific revenue
sources that are legally restricted to expenditure for specified purposes
Often used for resources that have been “earmarked,” regardless of source.Slide26
Special revenue fundsIssues in practiceSpecified purposesTransferred resources
Legally restricted (restrictions placed by government)Slide27
New Definition
“Special revenue funds are 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.”Slide28
Resolution of issuesSpecific revenue source MUST be foundation of fundTransfers allowed provided that they are not substantial part of fundGovernment can restrictSlide29
Prior definition:
capital projects funds…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).”
One issue – limited to capital facilities?Slide30
New Definition
“Capital projects funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays including the acquisition or construction of capital facilities and other capital assets).”
Not limited to capital facilitiesSlide31
Disclosure
Committed fund balanceGovernment’s highest decision-making authority
Formal action required to establish, modify or rescind a commitment
Assigned fund balance
Body or official authorized to make assignments
Policy established by the governing body pursuant to which that authorization is given
.Slide32
Disclosure (cont.)
Flow assumptionsWhether restricted or unrestricted resources are considered to be spent first when both are available for the same purpose
Order in which committed, assigned, and unassigned resources are considered to be spent when they are available for the same purposeSlide33
Disclosure (cont.)
Stabilization arrangementsAuthority for establishing
Requirement for additions
Conditions that need to be met for spending to be permitted.
Minimum fund balance requirements
Description of the policy that sets forth the details of the requirement, including the action taken to establish it.Slide34
Disclosure (cont.)
Special revenue fundsFor each major special revenue fund
Purpose of the fund
Revenues and other resources reportedSlide35
Implementation ThoughtsReview fund structure Policies:
Use of restricted or unrestricted first if both availableWithin unrestricted – order of useClassification of ending fund balancesActions:Commitments BEFORE end of year
Authority for designations
Presentation levels