Kế toán, kiểm toán - Chapter sixteen: Accounting for state and local governments

Chapter SixteenAccounting for State and Local Governments, Part ICopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Learning Objective 16-1Explain the history of andthe reasons for the uniquecharacteristics of the financialstatements produced by stateand local governments.16-2Importance of Governmental AccountingAllocation of limited resources to unlimited causesAbsence of profit motive primary purpose is to provide services in accordance with public policy goalsServes a broader group of stakeholdersExist longer and are not typically subject to dissolutionWhy is it different than “for profit” businesses?16-3Governmental AccountingGovernmental Accounting Standards Board (GASB), created in 1984, serves as the public sector counterpart of FASB.In Concepts Statement No. 1, GASB identified three basic groups of users of governmental accounting information:CitizenryLegislative and oversight bodiesInvestors and creditorsRequires two sets of financial statements16-4Learning Objective 16-2Differentiate between the twosets of financial statementsproduced by state and localgovernments.16-5Government-wide Financial StatementsTwo Sets of Financial StatementsGASB requires two distinct sets of statements by state and local governments, each with its own unique principles and objectives. Fund Financial StatementsReport all revenues and costs with a long term focus. Of interest to creditors, to assess the likelihood of being paid.Show restrictions on the use of resources, and report current revenues and expenditures from certain activities. 16-6Fund Financial StatementsReport on individual government activities during the current year. Primary measurement focus is current financial resources especially cash and receivables.Assess fiscal accountability in raising and utilizing money.The timing of recognition, in most cases, is based on modified-accrual accounting.16-7Government-wide Financial StatementsReport on financial affairs as a whole. Assess operational accountability. Help users evaluate government’s financial decisions and long-term stability. Permits stakeholders to: Determine the government’s overall financial positionUnderstand cost of services See how programs are financed.See extent government has invested in capital assets.Focus on all economic resources.Utilizes accrual accounting.16-8Two Sets of Financial StatementsComparison of the two sets of financial statements required by GASB16-9Learning Objective 16-3Understand the reason thatfund accounting has traditionallybeen a prominent factor in the internal recording of state and local governments.16-10Internal Recordkeeping - Fund AccountingGovernmental units report a diverse array of activities financed from numerous resources.Governments operate through many relatively independent departments and functions. Accounting for each activity is maintained in a quasi-independent, bookkeeping system – a fund. Separate information is accumulated for every activity such as: library, school system, fire department, road construction, and more.16-11Learning Objective 16-4Identify the three fund typesand the individual fund categorieswithin each.16-12Governmental FundsAccounting for activities related to serving the public.Proprietary FundsAccounting for business-type activities.Fiduciary FundsAccounting for financial resources held for others as trustee.Fund Accounting ClassificationAll funds fall into one of three broad classifications.16-13Governmental Funds Dominate because of a service orientation.Internal accounting system maintains individual funds for every distinct service function. Each fund accumulates and expends current financial resources to achieve one or more desired public goals. Governmental funds are subdivided into five categories:General Fund, Special Revenue Funds, Capital Projects Funds, Debt Service Funds, and Permanent Funds. 16-14Governmental Funds - General FundGASB’s definition of the General Fund is: “to account for and report all financial resources not accounted for and reported in another fund.” Implies that it records only miscellaneous revenues and expenditures , butIt accounts for many of a government’s most important ongoing functions.2011 fund financial statements for the City of Baltimore, Maryland, disclosed 11 major areas of current expenditures within its General Fund.16-15Governmental Funds - Special Revenue FundAccount for resources that are restricted or committed for a specific purpose other than debt payments or capital projects.Donor stipulations or legislative mandates require these financial resources must be spent in a designated fashion.St. Paul, Minnesota, reported approximately $95 million of revenues within over 25 individual Special Revenue Funds during the 2011 fiscal year for:Rent received from use of the Municipal Stadium Administration Fees for charitable gamblingMoney received from solid waste and recycling programsCable television franchise fees.16-16Governmental Funds - Capital Projects FundAccounts for capital resources assigned for capital outlays such as bridges, schools, and other major governmental facilities.Funding comes from a number of sources.The actual asset to be obtained is not recorded, only the money to finance its purchase or construction is.The Lexington-Fayette Urban County Government in Kentucky reported, as of June 30, 2012, that it held more than $20.4 million in financial resources in 18 different Capital Projects Funds 16-17Governmental Funds - Debt Service FundsRecord financial resources accumulated to pay long-term liabilities and interest when due.Does not account for the government’s actual debt.Debt Service Funds monitor balances currently available to make the payment to satisfy long-term liabilities. In 2012, Birmingham, Alabama, reported $34 million in cash and investments held to pay its long-term debt. It paid $21. 6 in principal payments and $13.7 million in interest payments from its debt service funds.16-18Governmental Funds - Permanent Funds (Endowments)Account for financial resources restricted by external donors, contract, or legislation with stipulation that the principal can never be spent, but any income can be used for a designated purpose.In 2011, Dallas, Texas reported nearly $8 million in funds to maintain four different parks and help finance other municipal projects.These gifts are referred to as endowments.16-19Proprietary Funds Category accounts for government activities that assess a user fee.User charges help recover some of the costs.Accounting resembles that of a for-profit activity - accrual accounting is used to recognize assets and liabilities.Proprietary funds are broken into two divisions: Enterprise FundsInternal Service Funds16-20Proprietary Funds - Enterprise FundsMay be used to account for any government activity that is financed, at least in part, by user charges.An activity MUST be accounted for here if, any one of these conditions below are met . . . Revenues generated by the activity provide the sole security for the activity’s debts. Laws or regulations require recovering the activity’s costs through fees and charges.Fees are set at prices intended to recover costs.16-21Proprietary Funds - Internal Service FundsAccount for any operation that provides services to ANOTHER governmental department for a fee.Services are provided for the primary benefit of parties with the government.Accounted for similar to for-profit operations in the private sector.In 2012, Lincoln, Nebraska reported eight operations that were accounted for as separate internal service funds that provided a variety of services including ∙ central data processing ∙ engineering ∙ insurance ∙ copy ∙ maintenance facility for city and police vehicles ∙ graphic arts and ∙ operation of facilities for government functions. 16-22Fiduciary FundsAccount for assets that are held in a trustee or agency capacity for external parties.Money cannot be used to support government’s own programs.Use the economic resources measurement focus and accrual accounting.Funds are omitted entirely from government-wide financial statements. Separate statements are included within the fund financial statements.16-23Fiduciary FundsInvestment TrustInvestments held on behalf of othersPrivate-Purpose TrustPrincipal and interest are both for the benefit of parties outside the governmentUnclaimed property is usually recorded herePension TrustEmployee retirement benefits (quite large)Agency FundsResources held by a government as an agent for others (taxes and tolls collected and transferred)16-24Learning Objective 16-5Understand the basic structureof government-wide financialstatements and fund financialstatements (as produced forthe governmental funds).16-25Government-wide Financial StatementsTwo statements are required:1) Statement of Net Position2) Statement of ActivitiesReporting is separated into: Governmental activities All governmental funds and most internal service funds.Business-type activities All enterprise funds and remaining internal service funds.16-26Statement of Net Position16-27Statement of Net PositionThe economic resources measurement focus is used in government-wide financial statements. All assets and liabilities are reported, but GASB has identified several balances that do not qualify as either assets or liabilities. These amounts are shown as deferred outflows or deferred inflows of resources. The final section, the net position category, indicates the amount of capital assets being reported less related debt, legal or external restrictions on the use of any assets or resources, and the total unrestricted amount. 16-28Statement of Activities16-29Statement of Activities The statement of activities provides details about revenues and expenses separated into governmental activities and business-type activities. Direct expenses and program revenues are shown for each government function. Program revenues include fines, fees, and grants that the specific activity generates. Thus, a single net revenue or net expense is determined for each function to indicate the financial burden or financial benefit to the government and its citizens. 16-30Fund Financial Statements Three categories in the second fund financial statement are addressed in detail:1) Revenues 2) Expenditures 3) Other Financing Sources (Uses) Two statements are required:Balance SheetStatement of Revenues, Expenditures, and Other Changes in Fund Balance16-31Fund Financial Statements1) The Internal Service Funds are grouped with the funds they benefit.2) Governmental activities use the economic resources measurement basis focus, and the current financial resources measurement focus is used for governmental funds.3) The timing of recognition is different, and the differences create the need for reconciliations between the totals on the two types of statements.Fund Financial statements differ from the Government-Wide financial statements for three reasons: 16-32Fund Financial Statements – Balance Sheet16-33Statement of Revenues, Expenditures, & Changes in Fund Balances16-34Statement of Revenues, Expenditures, & Changes in Fund Balances Governmental accounting does not require a stockholders’ equity section on the balance sheet.The term “fund balance” is used to report the amount of the net current financial resources at that time for each fund. These fund balances are reported within five categories: Fund-Balance—Nonspendable Fund-Balance—Restricted Fund-Balance—Committed Fund-Balance—Assigned Fund-Balance—Unassigned 16-35Learning Objective 16-6 Record the passage of a budget as well as subsequent encumbrances and expenditures. 16-36Procedures - Importance of BudgetsThe budget serves several purposes:Expresses public policy Expresses financial intentProvides control by establishing spending limitsCompares actual results to the budget as a means of evaluating performanceIndicates whether there is sufficient revenue to pay for expenditures16-37A town enacts a motel excise tax to promote tourism and conventions. For 2015, the tax is expected to generate $490,000 in Special Revenues. The city council authorizes expenditures of $420,000 including $200,000 for salaries, $30,000 for utilities, $110,000 for supplies, and $80,000 for advertising.Procedures – Recording Budgetary Entries Example16-38BudgetEncumbranceExpenditureProcedures – EncumbrancesIn a governmental unit, purchase commitments and contracts are recorded, even though they may not yet represent liabilities.A recorded commitment or contract is an “encumbrance.”When the purchased item is received, the expenditure account is recognized and the encumbrance account is removed.16-39Procedures for Encumbrances ComparedFor Fund-Based Financial Statements:An entry is required to record the encumbrance.An entry is required when the item is received.At the end of the fiscal period, remaining commitments are removed by reversing the original journal entry.For Government-Wide Financial Statements:No entry is required to record the encumbrance.An entry is required when the order is filled.16-40Learning Objective 16-7 Understand the reporting of capital assets, supplies, and prepaid expenses by a state or local government. 16-41Procedures – Fixed AssetsVirtually no assets are recorded within the fund statements for governmental funds.The expenditure for capital assets is recorded at acquisition and closed out at the end of the fiscal period.Fund financial statements report the amount expended each period by the governmental funds for capital assets and infrastructure items. 16-42Learning Objective 16-8Determine the proper timing for the recognition of revenues from various types of nonexchange transactions. 16-43Procedures – Recognition of Revenues Nonexchange Transactions ClassificationsDerived Tax RevenuesImposed Nonexchange RevenuesGovernment-mandated Nonexchange TransactionsVoluntary Nonexchange TransactionsRevenue for governmental organizations differs from revenue for business. Governmental revenue is not true revenue for which an earnings process exists. The revenue is derived from “nonexchange transactions” for which the government does not provide a direct and equal benefit for the amount received. 16-44Learning Objective 16-9 Account for the issuance of long-term bonds and the reporting of special assessment projects. 16-45Procedures –Issuance of BondsBond proceeds are not revenue, but the proceeds serve as a major source of financing for many sate and local governments. The proceeds must be repaid, so the government recognizes no revenue. Government-wide financial statements recognize cash received and debt incurred.Fund financial statements recognizes the cash received, but does not record the debt as a claim on current financial resources. 16-46Special Assessments - AccountingGovernments may provide improvements or services that benefit particular properties.They may assess the costs, in total or in part, to the property owners for paving and constructing:StreetsCurbsSidewalksSewers and drainsWater linesUsually financed by debt issuance and liens on the benefited property (to ensure reimbursement).16-47Learning Objective 16-10 Record the various types of monetary transfers that occur within the funds maintained by a state or local government. 16-48Interfund TransactionsCommonly used, particularly monetary transfers from the General FundNormally reported as “other financing source” and “other financing use” within the fund-based financial recordsIntra-activity transactions between two government or two enterprise funds are not reported in the government-wide financial statements because they create no net impact. Interactivity transactions occur between governmental and enterprise funds and are reported on government-wide financial statements16-49