Foundation of Governmental

1
Foundation of Governmental Not-for-Profit
Accounting

• Chapter 1

2
Key Concepts

• Similarities differences between governmental
  NFP organizations
• Evolution of governmental NFP accounting
  standards
• Hierarchy of GAAP
• Fund accounting
• Governmental business-type activities
• Measurement focus basis of accounting

3
What are Governmental Organizations?

• General purpose governments
• Provide a wide array of services
• Examples
• Federal government agencies
• State governments
• Local governments
• Cities
• Towns, townships, villages,
• Counties, boroughs, parishes

4
What are Governmental Organizations?

• Special purpose governments
• Usually provide only a single or just a few
  services
• Examples
• Independent or dependent
• School systems
• Public colleges universities
• Public hospitals
• Special districts
• Fire protection
• Water/sewer districts
• Transportation authorities
• Etc

5
How Do Governmental Organizations Differ from
Business Organizations?

• Public organizations
• Provide public goods
• Taxing power
• Power with people
• Involuntary resource providers
• Benefits not proportional to resources provided
• Accountability
• Political environment
• Lack of profit motive

6
What are Not-for-Profit Organizations?

• Legally separate organizations
• Usually exempt from federal, state, local
  taxation
• Property income
• IRC Section 501
• Examples
• Churches religious organizations
• Community service
• Private education health care
• Museums
• Fraternal social organizations
• Etc.

7
How Do Not-for-Profit Organizations Differ
from Business Organizations?

• Significant contributions
• Absence of transferable ownership rights
• Lack of a profit motive
• Mission orientation
• Other
• Similar missions
• Same or different communities

8
How are NFPs Similar to Governments

• No direct relationship between resources provided
  goods/services created by NFP
• Operating goals purposes not profit based
• Absence of ownership interests

9
Voluntary Health Welfare NFP Organizations

• Key distinguishing characteristic
• Some public health welfare as primary
  mission/purpose
• American Red Cross
• Adventist Health System

10
Governmental NFP Organizations

• One or more
• Popular election of officers or approval of
  controlling majority of board by 1 officials of
  SLG
• Potential for assets to revert to SLG upon
  dissolution
• Power to tax
• Power to issue tax-exempt debt
• This class no governmental NFPs

11
Governmental NFP Environment

• ACCOUNTABILITY
• Cornerstone of all financial reporting in
  government NFPs
• Involuntary resource providers
• No commercial product/service
• Imposes a duty on officials to be accountable for
  raising public monies how they are spent.

12
Governmental NFP Environment

• Factors influencing governmental financial
  reporting
• Representative form of government separation of
  powers
• Federalist system of intergovernmental revenues
• Relationship of taxpayers to services received

13
Governmental NFP Environment

• GASB Concepts Statement 1 characteristics
  affecting financial reporting
• Involuntary resource providers
• Relationship of taxes paid seldom relevant to
  services received
• No exchange relationship
• Monopoly of certain government services
• Difficult to measure optimal quality/quantity of
  services

14
Sources of GAAP andFinancial Reporting Standards

• Financial Accounting Foundation
• FASB
• Business organizations
• Nongovernmental not-for-profits
• GASB
• Governmental organizations
• Governmental not-for-profits
• FASAB
• Federal Government its agencies
• Hierarchy of GAAP
• Page 7

15
Governmental Budgeting Accounting

• Budgeting enhances accountability
• Governs spending of available resources
• NOT developed to measure profits
• Budgetary accounting reporting developed to
• Monitor budgetary performance
• Control budgetary performance
• Measure budgetary performance

16
Governmental Budgeting Accounting

• Why budget is important
• Policy statement
• Financial plan
• Control
• Basis to evaluate performance

17
Governmental Fund Accounting

• Fund accounting reports financial information for
  separate self-balancing sets of accounts
• Segregated
• For separate purposes OR
• To account for resources restricted as to use
• Restricted by donors or grantors
• Funds are separate accounting and fiscal entities

18
Governmental Fund Accounting

• Activities
• Governmental
• Business-type
• Fund categories
• Governmental
• Proprietary
• Fiduciary

19
Governmental Funds

• Characteristics
• Measurement focus ST flow of financial
  resources
• Only account for current assets current
  liabilities
• Use modified accrual basis of accounting
• Revenues recognized when measurable available
  for spending
• Expenditures recognized when incurred
• Closely tied to budgetary accounting

20
Proprietary Fiduciary Funds

• Characteristics
• Measurement focus flow of economic resources
• Accrual basis of accounting
• Revenues recognized when earned
• Expenses recognized when incurred
• Account for both current noncurrent assets
  current noncurrent liabilities
• Similar to business accounting

21
Not-for-Profit Organizations

• Characteristics
• Measurement focus flow of economic resources
• Accrual basis of accounting
• Revenues recognized when earned
• Unique accounting for contributions
• Expenses recognized when incurred
• Functional expenses

22
Evolution of Governmental Accounting Standards

• 1906
• MFOA attempt to establish uniform accounting
  standards
• 1936
• MFOA National Committee on Municipal Accounting
  issues Bulletin No. 6 (Municipal Accounting
  Statements)
• Blue Book early source of GAAP
• 1945
• MFOA establishes Certificate of Achievement for
  Excellence in Financial Reporting program

23
Evolution of Governmental Accounting Standards

• 1951
• MFOA National Committee on Governmental
  Accounting issues Bulletin No. 14 (Municipal
  Accounting Auditing)
• Second edition of Blue Book
• 1968
• MFOA National Committee on Governmental
  Accounting issues Governmental Accounting,
  Auditing, Financial Reporting (GAAFR)
• Third edition of Blue Book
• Still updated today by GFOA

24
Evolution of Governmental Accounting Standards

• 1974
• AICPA issues SLG audit guide
• Referred to 1968 GAAFR as GAAP
• Late 1970s
• Response to NYC financial crisis
• National Council on Governmental Accounting
  created (replaced Committee)
• 25 member standard-setting body
• 1979
• NCGA issues Statement No. 1 No. 2
• Replaced 1968 GAAFR as GAAP

25
Evolution of Governmental Accounting Standards

• 1984
• FAF creates the GASB
• 1989
• FAF formally recognizes the GASB as standard
  setter for SLGs
• 1999
• GASB issues Statement No. 34

26
Chapter Exercises

• There are NO required exercises for this chapter.