6/27/2012 GASB Update....and Other Fun Topics WV Department of Education Office of School Finance Presented by Gregory S. Allison, CPA UNC School of Government Today’s Torture • It’s GASB, not me – 54 (Fund Balance) – 61 (Financial Reporting Entity) – 62 (GASB Codification) – 63 (Deferrals) – 65 (Items Previously Reported as Assets and Liabilities) – 66 (Technical Corrections) – Pension Projects The Torture Continues.... • GASB Comprehensive Implementation Guide • Common Accounting and Financial Reporting Problems 1
6/27/2012 Components of Fund Balance • Nonspendable • Restricted • Committed • Assigned • Unassigned Nonspendable Fund Balance • Portion of fund balance/net resources not in spendable form or nonspendable for foreseeable future – Inventories – Prepayments – Long ‐ term receivables • Portion of fund balance/net resources required to remain intact – Permanent fund principle Restricted Fund Balance • Resources in a governmental fund subject to externally enforceable constraints on spending – Debt covenants – Grantors – Contributors – Enabling legislation (e.g., taxes raised for a particular purpose) 2
6/27/2012 Committed Fund Balance • Formal legal constraints placed by the governing board – Formal action necessary to create OR rescind • Constraints have to be in place no later than the end of the fiscal period • Similar to a high level designation • Ability to rescind differentiates committed from restricted net assets Assigned Fund Balance • Reflects a government’s intended use of resources (i.e., earmarking – neither restricted or committed ) – Assignments may occur anytime before the issuance of financial statements • Assignment ability may be delegated by the board (commitments may not be) – Less formal • Default category for governmental funds except general fund (unless those amounts are negative) Unassigned Fund Balance • Residual category for general fund • Reflects deficit fund balance for other governmental funds • Impossible to report positive assigned fund balance and negative unassigned fund balance – Assigned amount has to be eliminated before negative unassigned may be reported 3
6/27/2012 Why do we need fund balance? • Volatility of revenues, expenditures, and the economic environment in general • Exposure to significant one ‐ time outlays (e.g., disasters, capital needs, budget cuts) • Need for general fund to provide availability to other funds (or vice versa) • Liquidity needs • Commitment/assignment policies Fund Balance Policy Sources • GFOA Best Practices • Local policies • Local laws/ordinances • State laws/ordinances GFOA Best Practices • Appropriate Level of Unrestricted Fund Balance in the General Fund – Adopted 2002, updated 2009 – Recommends adoption of formal policy – Committee, assigned, and unassigned categories represent unrestricted fund balance – Focus of most policies will be the general fund – Recommends a minimum of no less than 2 months revenues or expenditures, regardless of size (~ 16%) 4
6/27/2012 GFOA Best Practices (cont.) • Appropriate Level...(cont.) – Choice of revenue vs. expenditure should be based on most reliable/predictable measure – Laws or policies may actually dictate higher amounts – Some policies may focus on unassigned, rather than including commitments and/or assignments – Recognize the difference between GAAP and budgetary fund balance GFOA Best Practices (cont.) • Replenishing Fund Balance in the General Fund – Adopted 2011 – Reiterates the two ‐ month recommendation of unrestricted fund balance – Addresses how to replenish fund balance when minimum amounts are breached – Recommends governments adopt formal fund balance policy GFOA Best Practices (cont.) • Replenishing...(cont.) – Identify purposes for which portions of fund balance are intended (e.g., working capital, stabilization, unexpected events) – Potentially identify sources of replenishment (e.g., non ‐ recurring revenues, surpluses, excess resources in other funds) – Policy should reiterate that fund balance replenishment a priority when conditions allow (generally within one to three years) 5
6/27/2012 GFOA Best Practices (cont.) • Replenishing...(cont.) – Factors that influence rate and time periods of replenishment • Budgetary reasons/volatility of revenues • Recovery from an extreme event • Political continuity • Financial planning horizons • Long ‐ term forecasts and economic conditions • Milestones for replenishment • External financing expectations Common Elements of a Fund Balance Policy • Policy purpose – General purpose – Applicability to funds • Definitions and classifications – Governmental fund structure (if policy extends past the general fund) – Fund balance components • Restricted vs. unrestricted • Specific policy Fund Balance Policy Guidance • New questions in 2011/12 Comprehensive Implementation Guide – Z.54.23 (stabilization versus minimum fund balance) – Z.54.24 (levels of specificity required) – Z.54.25 (laws dictating minimum fund balance) – Z.54.29 (disclosure details related to minimum fund balance being violated) 6
6/27/2012 Stabilization Funds • Represents formal arrangements “setting aside” funds for budget/revenue stabilization, working capital, contingencies, emergencies, etc. – May be restricted or committed – Funds can only be accessed under specified circumstances that are not considered routine – Minimum fund balance policies generally do not qualify Selected Fund Balance Disclosures • Committed and assigned policies and procedures – Identify highest level of authority – Formal actions to commit – Policies that relate to assignment authority • Stabilization arrangements • Minimum fund balance policies – Only where governing bodies have formally adopted a policy (i.e., not if it is imposed upon the government) Disclosures (cont.) • Order in which government considers restricted versus unrestricted amounts to be spent when both are available • Order in which committed, assigned, or unassigned amounts are considered to be spent • Any aggregate displays on B/S should be disaggregated in sufficient detail in notes 7
6/27/2012 GASB Statement No. 61 The Financial Reporting Entity: Omnibus – an amendment of GASB Statements No. 14 and No. 34 Component Units • Primary government versus component units • Component units, by definition, must be legally separate • Blending versus discrete presentation • GASB Statement Nos. 14 and 61 provide accounting and financial reporting guidance Imposition of Will ‐ PG has ability to…. • Remove appointed board members at will • Approve/modify budget • Approve/require changes affecting revenues • Veto/override/modify governing board decisions 8
6/27/2012 Imposition of Will ‐ PG has ability to….(cont.) • Appoint/hire/reassign/dismiss management • Take other actions to impose will Financial Benefit Financial Burden • Accessing resources without dissolution • Obligated to finance deficits or provide support • Obligated in some manner for the debt of the potential component unit Financial Reporting • Blending • Discrete presentation • Note disclosure 9
6/27/2012 Blending • Required if…. – Boards are substantially the same and there is financial benefit/burden relationship or PG has operational responsibility of CU – CU provides services almost exclusively to PG or provides benefits almost exclusively to PG – CU’s debt is expected to be entirely or almost entirely by resources of the PG Discrete Presentation • Required for CU’s that cannot be blended • Shown in columns to the right of the PG • BFS reporting requirements – Must show major CU’s in BFS – CU’s as individual columns in BFS – Columns with combining statements GASB Statement No. 62 Codification of Accounting and Financial Reporting Guidance Contained in Pre ‐ November 30, 1989 FASB and AICPA Pronouncements 10
6/27/2012 GASB Statement No. 62 • Incorporates into GASB literature certain accounting/financial reporting guidance issued on or before November 30, 1989 – FASB Statements and Interpretations – Accounting Principles Board Opinions – Accounting Research Bulletins of the AICPA GASB Statement No. 62 (cont.) • Supersedes GASB Statement No. 20 – Eliminates election provided in paragraph 7 for enterprise funds and business ‐ type activities to apply post ‐ 11/30/89 FASB Statements/Interpretations that do no conflict or contradict GASB guidance • These entities may continue to apply, as other accounting literature, post ‐ 11/30/89 FASB pronouncements that do not conflict with GASB GASB Statement No. 62 (cont.) • Codification includes all accounting standards within levels A through D of current GAAP hierarchy • Codification simply reorganizes US GAAP pronouncements topically 11
6/27/2012 Purposes of New Codification and Implementation • Reduce amount of time and effort required to research an accounting issue • Improve usability of the literature (thus mitigating the risk of noncompliance) • Enhances opportunity for real ‐ time updates • Effective for FYs that begin after December 15, 2011 GASB Statement No. 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position Statement 63 Overview • Issued June 2011 • Provides guidance for reporting deferred outflows and inflows of resources and defines economic equity as net position • Currently only applies to GASB Statement Nos. 53 and 60 • Effective for fiscal periods that begin after December 15, 2011 12
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