How to Prepare the Government-wide Financial Statements

1
How to Prepare the Government-wide Financial
Statements

• Government Finance Officers Association
• GASB Statement 34 Preparers Series No. 1
• June 28, 2000

2
Overview

• Scope, measurement focus, and basis of accounting
  
• Format of statement of net assets
• Format of statement of activities
• Converting from governmental funds to
  governmental activities
• Consolidation

3
Section 1

• Scope, Measurement Focus, and Basis of Accounting
  of Government-wide Financial Statements

4
Scope

• Include
• Governmental activities of primary government
• Business-type activities of primary government
• Nonfiduciary component units
• Exclude
• Fiduciary activities
• Fiduciary-type component units

5
Measurement focus and basis of accounting

• Economic resources measurement focus
• Report changes in net assets
• Accrual basis of accounting
• Recognize transactions and events independent of
  the timing of related cash flows

6
Assets

• Business-type activities - no change from fund
  statements
• Governmental activities
• Add capital assets (including infrastructure)
• Add deferred items (e.g., issuance costs)

7
Liabilities

• Business-type activities - no change from fund
  statements
• Governmental activities
• Add liabilities not requiring the use of current
  financial resources (e.g., compensated absences,
  claims and judgments)
• Add deferred items (e.g., premiums and discounts)
• Less unavailable deferred revenue

8
Activities

• Business-type activities - no change from fund
  statements
• Governmental activities
• Expenses versus expenditures (e.g., depreciation
  versus capital outlay)
• Elimination of availability criterion
• Recognition in operating statement of the effect
  of liabilities as incurred

9
Part 2

• Format of
• Statement of Net Assets

10
Columns

• Governmental activities
• Business-type activities
• Total for primary government
• Component units
• Optional comparative presentations

11
Columns (illustration)
12
Formatting alternatives

• Two formatting alternatives
• Assets - liabilities net assets (preferred)
• Assets liabilities net assets
• Terminology identical regardless of alternative
  selected
• Never balance sheet
• Never equity

13
Net assets format (illustration)
14
Balance sheet format (illustration)
15
Sequencing of assets and liabilities

• Two options (both based on liquidity)
• Focus on classes of similar items
• Relative order of liquidity
• Based on average liquidity of class
• Focus on individual items
• Classified presentation
• Based on liquidity of individual items
• Relative order of liquidity preferred

16
Relative order of liquidity

• Special considerations
• Liquidity of assets affected by restrictions
• The liquidity of individual items within a given
  class may vary significantly
• Separate reporting required within classes of
  liabilities with an average maturity in excess of
  one year
• Amount due within one year
• Amount due in more than one year

17
Relative order of liquidity (illustration)
18
Classified presentation

• Private-sector approach
• Standard set by ARB No. 43
• Liquidity of assets and liabilities affected by
  restrictions
• Restricted assets
• Liabilities payable from restricted assets

19
Classified presentation (illustration)
20
Categories of net assets

• Focus on accessibility versus capital maintenance
• Invested in capital assets, net of related debt
• Restricted
• Unrestricted

21
Components of net assets
22
Invested in capital assets

• Capital assets
• Do not include unspent proceeds
• Report net of depreciation
• Related debt
• No need to remove immaterial portion of debt
  proceeds applied to non-capitalizable items
• Do not include debt used to finance capital
  acquisition by other governments

23
Restricted

• Nature of restrictions
• Restrictions imposed by outside parties (e.g.,
  creditors, grantors, contributors, laws or
  regulations of other governments)
• Restrictions imposed by constitution or enabling
  legislation
• Must be narrower than purpose of reporting unit
• Distinguish permanent restrictions from temporary
  restrictions
• Reported net of related debt (e.g., bond-funded
  restricted asset accounts)

24
Unrestricted

• Residual category
• Often may report deficit
• Capital assets not available to offset unfunded
  accrued liabilities (e.g., compensated absences)
• Debt issued to finance capital grants
• Explanations limited to note disclosure
• Designations should not be reported

25
Part 3

• Format of Statement of Activities

26
Basic format

• Expenses before revenues
• Direct expenses
• Less program revenues
• Net program cost
• Governmental activities
• Business-type activities
• Component units
• General revenues and other items

27
Basic format (illustration)
28
Direct expenses

• By function/segment (minimum)
• Include depreciation on capital assets
• Sole-use assets
• Shared-use assets
• Generally exclude interest

29
Other depreciation

• Infrastructure (2 options)
• Functional activity associated with acquisition
  or maintenance
• Separate line for unallocated depreciation
• Capital assets other than infrastructure (2
  options)
• General government
• Separate line for unallocated depreciation

30
Direct expenses (illustration)
31
Indirect expenses

• Allocation permitted
• Separate column to display allocations
• No requirement for full cost column
• No requirement for disallocation if allocation
  automatic

32
Allocation of indirect expenses (illustration)
33
Program revenues

• Three categories
• Amounts received from those who purchase, use or
  directly benefit from a program
• Amounts received from parties outside the
  reporting entitys citizenry (e.g., grants and
  contributions) that are restricted to one or more
  specific programs.
• Earnings on investments that are legally
  restricted for a specific program

34
Identifying program revenues

• Fees and charges are program revenues even when
  they are not restricted to use in the program.
• All taxes, even those that are levied for a
  specific purpose, are general revenues
• In the case of multi-purpose grants, the amount
  attributable to each program must be identified
  in either the grant award or the grant
  application to qualify as program revenue

35
Presenting program revenues

• Charges for services should be reported
  separately from grants and contributions
• Operating grants and contributions should be
  reported separately from capital grants and
  contributions
• Grants or contributions that may be used for
  either capital or operating purposes should be
  treated as an operating grant or contribution

36
Program revenues (illustration)
37
General revenues and other items

• General revenues
• Endowment and permanent fund contributions (no
  need to distinguish permanently and temporarily
  restricted amounts)
• Special and extraordinary items
• Transfers
• Changes in accounting principle

38
General revenues and other items (illustration)
39
Special items

• Subject to management control and either
• Unusual in nature (i.e., possessing a high degree
  of abnormality and clearly unrelated to, or only
  incidentally related to, the ordinary and typical
  activities of the entity) or
• Infrequent in occurrence (i.e., not reasonably
  expected to recur in the foreseeable future,
  taking into account the environment in which the
  entity operates).

40
Part 4

• Converting from Governmental Funds to
  Governmental Activities

41
Basic approach

• Statement of net assets
• Fund balance
• Net assets - governmental activities
• Statement of activities
• Net change in fund balances
• Changes in net assets - governmental activities

42
Statement of net assets
43
Capital assets
44
Issuance costs
45
Inventories and prepaids
46
Unmatured long-term debt
47
Accrued interest
48
Certain accrued liabilities
49
Assets of internal service funds
50
Liabilities of internal service funds
51
Earned but deferred revenue
52
Liability for unearned deferred revenue
53
Statement of activities
54
Capital outlays
55
Debt service principal payments and refunding
payments
56
Source/uses/expenditures resulting from issuance
of debt
57
Donations of capital assets
58
Sales of capital assets
59
Sales of fund assets
60
Revenues/expenditures related to prior periods
61
Earned but unavailable revenues
62
Expenses not expected to be liquidated with
current resources
63
Depreciation
64
Amortization
65
Inventories
66
Internal service fund activities
67
Part 5

• Consolidation

68
Basic rules

• Must consolidate within activities columns
• May use separate column in fund financial
  statements for this purpose
• Must consolidate within total column for primary
  government
• Consolidation not applicable to interfund
  services provided and used

69
Statement of net assets

• Interactivity balances
• Option 1 Report interfund receivables and
  payables on single line
• Explains zero balance in total column for primary
  government
• Option 2 Report interfund receivables with
  assets and interfund payables with liabilities
• Line will not cross-foot to total for primary
  government (note required to explain)

70
Internal service funds

• Inherently redundant (cost-allocation mechanism)
• Consolidated based upon types of funds served
• Most often part of governmental activities
• May be part of business-type activities if
  primarily used to serve enterprise fund(s)

71
Assets and liabilities

• Reported as part of governmental or business-type
  activities
• Equity classified as appropriate

72
Revenues and expenses

• External revenues and expenses reported without
  adjustment
• Interest revenue
• Interest expense
• Revenues from external customers
• Expenses related to services provided to external
  customers
• Net profit eliminated through look back

73
Internal service fund example
74
Step 1 Identify external customer revenues
75
Step 2 Identify expenses related to external
customers
76
Step 3 Calculate internal profit/loss
77
Step 4 Allocate internal profit/loss
78
Step 5 Apply allocations

• Treat as an adjustment of expenses in
  governmental and business-type activities
• Adjust receivables/payables for business-type
  activities
• Report 100 receivable for interfund activities
  in business-type activities
• Report 100 payable for interfund activities in
  governmental activities

79
Summary
80
Special reclassification option

• Enterprise funds normally are classified as
  business-type activities
• Option to classify selected enterprise funds as
  governmental activities
• If option selected, reconciliation required
  between enterprise funds and business-type
  activities in fund financial statements