Governmental Funds Reporting

Governmental Funds Reporting

• Fund balances are determined by assigning expendable assets to funds based on their intended use, assigning current liabilities to funds from which they will be paid, and calculating the difference.
• The modified accrual basis of accounting focuses on current financial resources and near-term liabilities within governmental funds.

Major vs. Nonmajor Fund Reporting

• Only governmental and enterprise funds can be classified as major funds.
• The general fund, as the main operating fund, is always considered a major fund.
• A fund qualifies as major if its total assets, liabilities, revenues, or expenditures/expenses reach at least 10% of the corresponding total for all funds within its category (governmental or enterprise)
• The 10% element also represents at least 5% of the corresponding total for all governmental and enterprise funds combined.
• Deferred outflows of resources are combined with assets, and deferred inflows of resources are combined with liabilities when determining major fund status.
• A fund can be designated as major if it is deemed particularly important to financial statement users, regardless of the percentage criteria.

Balance Sheet

• A balance sheet with a total column that emphasizes major funds is mandatory for governmental funds.

Statement of Revenues, Expenditures, and Changes in Fund Balance

• This statement is mandatory, focusing on major funds and reporting inflows, outflows, and balances.
• Revenues must be categorized by major source, and expenditures must be categorized by function, at a minimum.
• Debt issue costs paid from proceeds or existing resources are classified as expenditures.
• Other financing sources include the face amount of long-term debt, issuance premiums or discounts, certain payments to escrow agents for bond refundings, interfund transfers, sales of capital assets, and debt refundings.
• Special items and extraordinary items are reported separately after other financing sources and uses.

Special and Extraordinary Items

• Special items are transactions or events within management control, that are either unusual or infrequent
• Extraordinary items are both unusual and infrequent.
• Special items are reported before extraordinary items if both occur in the same fiscal year.
• Significant transactions not controlled by management that are either unusual or infrequent should be identified separately in the relevant revenue or expenditure category.

Government-Wide Reporting

• Government-wide financial statements provide information about the overall government, excluding funds and fiduciary activities.
• Fiduciary fund assets are held in a fiduciary capacity and are excluded from government-wide reports.
• Governmental activities are usually funded by nonexchange revenues, such as taxes, and are reported in governmental and internal service funds.
• Business-type activities are funded by fees from external parties for goods and services, and they are reported in enterprise funds.

Basis of Accounting

• The accrual basis is used for government-wide financial statements, impacting how assets, liabilities, revenues, expenses, gains, and losses are measured and reported.

Eliminations and Reclassifications

• Government-wide statements require the elimination or reclassification of certain interfund activities and fund balances.
• Interfund receivables and payables are typically eliminated, with exceptions for net residual amounts due between activities.
• The total primary government excludes internal balances and transfers.
• Internal service funds, although proprietary, are reported in the governmental activities column if their activities are governmental in nature and not eliminated.
• The effects of interfund services provided and used are not eliminated from the statement of activities.
• Receivables from or payables to fiduciary funds are reclassified from or payables to external parties.

Statement of Net Position

• All financial and capital resources are reported.
• Presentation of assets and liabilities should be in order of relative liquidity.
• Separate display of current and noncurrent assets and liabilities is acceptable.
• Net investment in capital assets includes capital assets net of accumulated depreciation and outstanding debt, as well as related deferred outflows and inflows, excluding unspent debt proceeds.
• Restricted net position equals restricted assets minus related liabilities and deferred inflows of resources.
• Unrestricted net position includes assets, deferred outflows, liabilities, and deferred inflows not included in other categories.

Statement of Activities

• The statement of activities shows net (expense) revenue, which reflects the financial burden on taxpayers for each function.
• Net (expense) revenue is calculated as expenses minus program revenues.
• The minimum levels of detail for activities are by function for governmental funds and by different identifiable activities for enterprise funds.
• Direct expenses are reported by function, and indirect expenses may or may not be allocated.
• Depreciation specifically identifiable with a function is a direct expense
• Depreciation of capital assets that serve all functions may be displayed on a separate line in the statement of activities or as part of the general government function.
• Depreciation of infrastructure assets is not allocated to other functions.
• Program revenues include charges for services, program-specific operating grants and contributions, program-specific capital grants and contributions, and investment earnings restricted to a specific program.
• General revenues, such as taxes, are reported separately after total net (expense) revenue.
• Contributions to endowments and permanent fund principal, transfers between governmental and business-type activities, and special and extraordinary items are reported separately at the bottom of the statement of activities.

Reconciliations

• Summary reconciliations connect government-wide and fund financial statements.
• Modified accrual basis balances of governmental funds are reconciled with accrual basis net position in the government-wide statement of net position.
• The net change in governmental fund balances is reconciled to the change in net position of governmental activities in the government-wide statement of activities.

Proprietary Funds Reporting

• Capital maintenance is the focus of proprietary funds; accordingly, they report operating income, changes in net position, financial position, and cash flows.
• Budgets and encumbrances are not commonly recorded.

Enterprise Funds

• Enterprise funds can be used for activities that charge fees to external users, such as transportation systems and utilities.
• Criteria for enterprise fund reporting emphasize fees charged to external users and include situations where activities are financed by pledged net revenues, costs are legally required to be recovered from fees, or pricing policies recover costs.
• Major fund reporting is mandatory.

Internal Service Funds

• Internal service funds provide goods and services on a cost-reimbursement basis.
• An enterprise fund is used if the reporting government is not the predominant participant.
• Billings for goods and services are operating revenues from interfund services provided and used.
• Journal entries mirror those of a business.

Statement of Net Position (Proprietary Funds)

• Governments use a net position format.
• Assets and liabilities are classified as current or long-term.
• Net position is reported in three components: net investment in capital assets, restricted, and unrestricted.
• Capital assets of proprietary funds, accumulated depreciation, and long-term liabilities are reported in both the government-wide and proprietary fund statements of net position.

Statement of Revenues, Expenses, and Changes in Fund Net Position

• Revenues are reported by major source, either net, with disclosure of discounts and allowances, or gross, with discounts and allowances reported beneath the revenue amounts.
• Operating items are separated into revenues, expenses, and income (loss).
• Nonoperating revenues and expenses, such as unrestricted grants and state appropriations, are reported after operating income (loss).
• Revenues from capital contributions, additions to endowments, special and extraordinary items, and interfund transfers are reported separately after nonoperating items.

Statement of Cash Flows

• The statement of cash flows is similar to that for nongovernmental entities, and this section outlines only the differences.
• The statement of cash flows is required for proprietary funds and business-type activities.
• Cash flows are classified as operating, noncapital financing, capital and related financing, and investing.
• Operating activities affect operating income.
• Noncapital financing activities include borrowings not related to capital assets and transfers out of a proprietary fund.
• Capital and related financing activities include grants, proceeds from capital asset sales, and borrowings for capital assets.
• Investing activities include making and collecting loans, and acquiring and disposing of debt and equity instruments.
• The direct method is used to report operating cash flows, including a reconciliation of operating income to operating cash flows.

Fiduciary Funds Reporting

• Fiduciary funds focus on net position and changes in net position, reporting fiduciary activities.
• Criteria for fiduciary activities involve the government's control of assets, the sources of assets, beneficiaries, and legal protection of assets.
• Fiduciary funds, including component units, are reported only in the statements of fiduciary net position and changes in fiduciary net position.

Pension (and Other Employee Benefit) Trust Funds

• These funds report fiduciary activities related to pension plans, other postemployment benefit plans, or other employee benefit programs, with assets held in trust for participants and beneficiaries.
• Activities include calculating and paying benefits, tracking investments, and reporting contributions.
• Governmental entities with defined benefit pension plans use principles similar to those for nongovernmental entities.
• Pension expenses and deferred inflows and outflows primarily stem from changes in the net pension liability.
• A governmental employer with a defined contribution pension plan should report a plan description, accounting policies, and investment information.
• Employers recognize pension expense equal to contributions required by the benefit terms.

Investment Trust Funds

• An investment trust fund reports fiduciary activities involving the external portion of an investment pool.
• Each external pool is reported as a separate fund.
• Fair value is the measurement for investments, and changes are recognized when they occur.

Private-Purpose Trust Funds

• These funds are used for trust arrangements meeting the criteria for fiduciary activities, such as escheat property funds.

Custodial Funds

• Custodial funds report fiduciary activities not required to be reported in a trust fund and lack a trust agreement (or equivalent).
• They handle passthrough grants and other financial assistance to secondary recipients.
• When capital improvements are financed by special assessment debt, the debt service transactions are reported in a custodial fund.
• Other examples include the external portion of an investment pool not held in a trust and taxes collected for other governments.

Fiduciary Fund Financial Statements

• Information is reported in a separate column for each type of fiduciary fund, not by major fund.
• Notes present financial statements for individual defined benefit pension and other postemployment benefit plans.
• A statement of fiduciary net position is required, presenting net position for each type of fiduciary fund.
• Capital assets of fiduciary funds and related long-term liabilities are reported only in the statement of fiduciary net position.
• A statement of changes in net position is required, with disaggregated additions by source and deductions by type.
• Single totals for additions and deductions of custodial funds may be reported if resources are held no more than 3 months.