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GASB 54: The New Fund Balance GASB 54: The New Fund Balance

GASB 54: The New Fund Balance - PowerPoint Presentation

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GASB 54: The New Fund Balance - PPT Presentation

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

balance fund funds restricted fund balance restricted funds resources committed assigned revenue capital purpose specific special action definition general

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Presentation Transcript

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