dean michael mead research manager, governmental accounting standards board nasact-aga audio...

Dean Michael MeadDean Michael MeadResearch Manager, Governmental Accounting Standards BoardResearch Manager, Governmental Accounting Standards Board

NASACT-AGA Audio ConferenceNASACT-AGA Audio ConferenceApril 29, 2009April 29, 2009

GASB Statement No. GASB Statement No. 54,54,

Fund Balance Fund Balance Reporting and Reporting and

Governmental Fund Governmental Fund Type DefinitionsType Definitions

Disclaimer

The opinions expressed in this presentation are those of the presenter. Official positions of the GASB are established only after extensive public due process and deliberation.

Statement No. 54Statement No. 54

Approved by the Approved by the Board in February Board in February

Released March Released March 11, 200911, 2009

Effective for Effective for periods beginning periods beginning after June 15, after June 15, 20102010

Origins of the ProjectOrigins of the Project

Significant variation in how standards Significant variation in how standards are applied, leading to significant are applied, leading to significant divergence in practicedivergence in practice

Widespread confusion about terminologyWidespread confusion about terminology Mismatch between what governments Mismatch between what governments

are reporting about fund balance and are reporting about fund balance and what users of financial statements what users of financial statements actually needactually need

Invitation to Comment issued 10-06Invitation to Comment issued 10-06 Exposure Draft issued 2-08Exposure Draft issued 2-08

Interaction ofInteraction ofFund Reporting in GeneralFund Reporting in General

with Fund Balance with Fund Balance ReportingReporting

Consider a government that has Consider a government that has – $100 earmarked for capital projects by $100 earmarked for capital projects by

the government itselfthe government itself– $100 in property tax revenue restricted $100 in property tax revenue restricted

to paying debt serviceto paying debt service– $100 of cash available for any purpose$100 of cash available for any purpose

Under the current standardsUnder the current standards

Non-majorGF SRF DSF CPF Funds Total

Reserved for:

Capital projects

Debt service

Unreserved

$100

$100

$100

$100

$100

$100

If the amounts constrained to specific purposes are reported in the general fund, they are shown as reserved

But…



Reserved for:

Capital projects

Debt service

Unreserved

$100

$100

$100

If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved



Reserved for:

Capital projects

Debt service

Unreserved

$100

$100$100




Reserved for:

Capital projects

Debt service

Unreserved$100

$100$100




Reserved for:

Capital projects

Debt service

Unreserved $100$100$100 $300


This will change…

*Proposal called this classification "*Proposal called this classification "limited"limited"

New Fund Balance New Fund Balance ClassificationsClassifications

NonspendableNonspendable RestrictedRestricted Committed*Committed* AssignedAssigned UnassignedUnassigned

Essentially what is

now reserved

Essentially what is

now unreserved

Essentially what is

now designated

The classification hierarchy is “based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts…can be spent”

Nonspendable Fund BalanceNonspendable Fund Balance

Not in spendable form, such asNot in spendable form, such as– InventoryInventory– Long-term amounts of loans and notes Long-term amounts of loans and notes

receivablereceivable– Property held for resaleProperty held for resale

However, if the use of the proceeds from the However, if the use of the proceeds from the collection of receivables or sale of the collection of receivables or sale of the property is restricted, committed, or property is restricted, committed, or assigned, then the receivables or property assigned, then the receivables or property should be reported in those categoriesshould be reported in those categories

Corpus of a permanent fundCorpus of a permanent fund

Restricted Fund BalanceRestricted Fund Balance

Same definition as for net assets in Same definition as for net assets in Statement 34 (as amended by Statement 34 (as amended by Statement 46)Statement 46)——amounts constrained amounts constrained to being used for a specific purpose to being used for a specific purpose byby– External partiesExternal parties– Constitutional provisionsConstitutional provisions– Enabling legislationEnabling legislation

*Proposal called this classification "*Proposal called this classification "limited"limited"

Committed* Fund BalanceCommitted* Fund Balance

Constraint on use imposed by the Constraint on use imposed by the government itself, using its highest government itself, using its highest level of decision making authoritylevel of decision making authority

Constraint can be removed or Constraint can be removed or changed only by taking the same changed only by taking the same highest-level actionhighest-level action

Action to constrain resources should Action to constrain resources should occur prior to end of fiscal year, occur prior to end of fiscal year, though the exact amount may be though the exact amount may be determined subsequentlydetermined subsequently

Assigned Fund BalanceAssigned Fund Balance

Amounts Amounts intendedintended to be used for to be used for specific purposesspecific purposes

Required, not optionalRequired, not optional Intent is expressed by Intent is expressed by

– The governing bodyThe governing body– High-level body or individual authorized High-level body or individual authorized

by the governing bodyby the governing body


Amounts in governmental funds Amounts in governmental funds other than the general fund that are other than the general fund that are not restricted or committed are not restricted or committed are reported as assignedreported as assigned– The act of transferring resources to The act of transferring resources to

another governmental fund is another governmental fund is considered an assignment of those considered an assignment of those resources to the purpose of that fundresources to the purpose of that fund


Appropriation of existing fund Appropriation of existing fund balance to eliminate a projected balance to eliminate a projected budgetary deficit in the next year’s budgetary deficit in the next year’s budget is an assignment of fund budget is an assignment of fund balancebalance– Limited to an amount no greater than Limited to an amount no greater than

the projected excess of expenditures the projected excess of expenditures over revenuesover revenues

Unassigned Fund BalanceUnassigned Fund Balance

Available for any purposeAvailable for any purpose Reported only in the general fund, Reported only in the general fund,

except in cases of negative fund except in cases of negative fund balancebalance– Negative balances in other Negative balances in other

governmental funds are reported as governmental funds are reported as unassignedunassigned


Restricted for: Debt service

Committed for: Capital projects

Unassigned

Under the new standardsUnder the new standards

$100

$100

$100

$100

$100

$100

The amounts constrained to specific purposes are reported in the same classifications regardless of the fund they are in

Or…




Unassigned


$100

$100

$100

$100

$100

$100





Unassigned


$100

$100

$100

$100

$100

$100


The funds have changed, but the fund balance classifications have not

What if you do not have What if you do not have restricted amounts?restricted amounts?

Then do not present a restricted fund Then do not present a restricted fund balance classification on your balance balance classification on your balance sheetsheet

Statement 54 does not require Statement 54 does not require governments to report fund balance as governments to report fund balance as restricted, committed, or assigned if restricted, committed, or assigned if they do not have amounts that meet they do not have amounts that meet those definitions and criteriathose definitions and criteria

For example, some governments may For example, some governments may not have the power to commit amountsnot have the power to commit amounts

Rainy-Day Amounts: Before Rainy-Day Amounts: Before 5454

Under existing standards, rainy-day Under existing standards, rainy-day or “stabilization” amounts generally or “stabilization” amounts generally should be reported as unreservedshould be reported as unreserved––undesignated, undesignated, notnot as reserved as reserved– Many stabilization amounts are not Many stabilization amounts are not

constrained in a manner that qualifies constrained in a manner that qualifies as reservedas reserved

– More importantly, stabilization was not More importantly, stabilization was not previously considered a specific purposepreviously considered a specific purpose——it is a circumstanceit is a circumstance

Rainy-Day Amounts: Before Rainy-Day Amounts: Before 5454

Under almost no circumstances Under almost no circumstances should stabilization amounts be should stabilization amounts be reported in special revenue funds reported in special revenue funds under the existing standardsunder the existing standards– Stabilization amounts generally are not Stabilization amounts generally are not

restrictedrestricted– Stabilization amounts generally do not Stabilization amounts generally do not

derive from a specific revenue sourcederive from a specific revenue source

Rainy-Day Amounts: Under Rainy-Day Amounts: Under 5454

Stabilization can be considered a Stabilization can be considered a specific purpose if:specific purpose if:– Constraints on stabilization amounts Constraints on stabilization amounts

meet the criteria to be reported as meet the criteria to be reported as restricted or committedrestricted or committed

– The formal action imposing the constraint The formal action imposing the constraint on spending identifies and describes in on spending identifies and describes in sufficient detail the specific sufficient detail the specific circumstances under which a need for circumstances under which a need for stabilization arisesstabilization arises

– The circumstances are not expected to The circumstances are not expected to occur routinelyoccur routinely

Stabilization Example #1Stabilization Example #1

Using its highest level of decision Using its highest level of decision making authority, a government making authority, a government constrains $1 million to stabilization, constrains $1 million to stabilization, to be used only in an emergency. Can to be used only in an emergency. Can this amount be reported as committed this amount be reported as committed for stabilization?for stabilization?

No. There is not sufficient detail No. There is not sufficient detail regarding what constitutes an regarding what constitutes an emergency. Furthermore, without emergency. Furthermore, without such detail, one cannot determine if such detail, one cannot determine if the circumstances are routine or not.the circumstances are routine or not.

Stabilization Example #2Stabilization Example #2 Using its highest level of decision Using its highest level of decision

making authority, a government making authority, a government constrains $1 million to stabilization, constrains $1 million to stabilization, to be used only in the event of a to be used only in the event of a revenue shortfall. Can this amount be revenue shortfall. Can this amount be reported as committed for reported as committed for stabilization?stabilization?

No. Revenue shortfalls occur routinely. No. Revenue shortfalls occur routinely. However, it might be okay if specific However, it might be okay if specific parameters were identified that parameters were identified that described a shortfall of a magnitude described a shortfall of a magnitude that is not expected to occur routinely.that is not expected to occur routinely.

Stabilization Example #3Stabilization Example #3 Using its highest level of decision Using its highest level of decision

making authority, a government making authority, a government constrains $1 million to stabilization, constrains $1 million to stabilization, to be used only if annual growth in to be used only if annual growth in certain economic indicators falls below certain economic indicators falls below a specified level that is close to no a specified level that is close to no growth at all. Can this amount be growth at all. Can this amount be reported as committed for reported as committed for stabilization?stabilization?

Probably. Professional judgment Probably. Professional judgment should be applied to determine if the should be applied to determine if the circumstances do not occur routinely.circumstances do not occur routinely.

Stabilization Note Stabilization Note DisclosuresDisclosures

Stabilization arrangementsStabilization arrangements– Authority for establishingAuthority for establishing– Requirements for additionsRequirements for additions– Conditions under which amounts may be Conditions under which amounts may be

usedused Minimum fund balance policiesMinimum fund balance policies

It is possible that many amounts previously reported as reserved for stabilization or in a separate rainy-day fund will now be reported as unassigned fund balance in the general fund. But Statement 54 requires these disclosures:

EncumbrancesEncumbrances

Encumbrances Encumbrances should notshould not be displayed be displayed separately within the restricted, separately within the restricted, committed, and assigned categoriescommitted, and assigned categories

Amounts are classified as restricted, Amounts are classified as restricted, committed, and assigned based on the committed, and assigned based on the source and strength of the constraints source and strength of the constraints placed on themplaced on them——encumbering those encumbering those amounts does not further affect themamounts does not further affect them

Encumbrances, if significant, should be Encumbrances, if significant, should be disclosed in conjunction with other disclosed in conjunction with other disclosures of significant commitmentsdisclosures of significant commitments

Level of DetailLevel of Detail

Level of detail requirements may be Level of detail requirements may be met by display or a combination of met by display or a combination of display and disclosuredisplay and disclosure– Nonspendable by typeNonspendable by type– Restrictions by purposeRestrictions by purpose– Commitments and assignments in Commitments and assignments in

sufficient detail that major purposes are sufficient detail that major purposes are evident to readerevident to reader

Major Major

Debt CapitalGeneral Highway School Aid Service Projects Other

Fund Fund Fund Fund Fund Funds TotalFund balances: Nonspendable: Inventory 125,000$ 108,000$ 16,000$ — — — 249,000$ Permanent fund principal — — — — — 164,000$ 164,000 Restricted for: Social services 240,000 — — — — — 240,000 Parks and recreation 80,000 — — — — — 80,000 Education 55,000 — — — — — 55,000 Highways — — — — 444,000$ — 444,000 Road surface repairs — 24,000 — — — — 24,000 Debt service reserve — — — 206,000$ — — 206,000 School construction — — — — 301,000 — 301,000 Law enforcement — — — — — 214,000 214,000 Other capital projects — — — — 51,000 — 51,000 Other purposes 30,000 — — — — — 30,000 Committed to: Zoning board 16,000 — — — — — 16,000 Economic stablization 210,000 — — — — — 210,000 Homeland security 110,000 — — — — — 110,000 Education 50,000 — 103,000 — — — 153,000 Health and welfare 75,000 — — — — — 75,000 Assigned to: Parks and recreation 50,000 — — — — — 50,000 Library acquisitions 50,000 — — — — — 50,000 Highway resurfacing — 258,000 — — — — 258,000 Debt service — — — 306,000 — — 306,000 Public pool — — — — 121,000 — 121,000 City Hall renovation — — — — 60,000 — 60,000 Other capital projects 50,000 — — — 471,000 — 521,000 Other purposes 80,000 — 73,000 — — 176,000 329,000 Unassigned: 525,000 — — — — — 525,000 Total fund balances 1,746,000$ 390,000$ 192,000$ 512,000$ 1,448,000$ 554,000$ 4,842,000$

Major

Special Revenue Funds

This level of detail is not required for display on the face of the balance sheet. Fund balance categories and classifications may be presented in detail or in the aggregate if sufficient detail is provided in the notes to the financial statements.

Specific purpose details displayed

Major Major

Debt CapitalGeneral Highway School Aid Service Projects Other

Fund Fund Fund Fund Fund Funds TotalFund balances: Nonspendable 125,000$ 108,000$ 16,000$ — — 164,000$ 413,000$ Restricted 405,000 24,000 — 206,000$ 796,000$ 214,000 1,645,000 Committed 461,000 — 103,000 — — — 564,000 Assigned 230,000 258,000 73,000 306,000 652,000 176,000 1,695,000 Unassigned 525,000 — — — — — 525,000 Total fund balances 1,746,000$ 390,000$ 192,000$ 512,000$ 1,448,000$ 554,000$ 4,842,000$

Major

Special Revenue Funds

Classification totals displayed—details disclosed in the notes

Note DisclosuresNote Disclosures

Description of authority and actions Description of authority and actions that lead to committed and assigned that lead to committed and assigned fund balancefund balance

Government’s policy regarding order Government’s policy regarding order of spending of spending – Restricted and unrestricted fund balanceRestricted and unrestricted fund balance– Committed, assigned, and unassignedCommitted, assigned, and unassigned

Note DisclosuresNote Disclosures

Spending prioritization policies (the Spending prioritization policies (the flow assumption)flow assumption)– Restricted vs. unrestrictedRestricted vs. unrestricted– Committed, assigned, unassignedCommitted, assigned, unassigned– Multiple policiesMultiple policies– The “default” policyThe “default” policy– Negative balancesNegative balances

General fundGeneral fund Other funds Other funds

Classifying Residual Classifying Residual BalancesBalances

Example:Example: The flow assumption for a special The flow assumption for a special revenue fund is to revenue fund is to use restricted amounts use restricted amounts before unrestricted amounts and to use the before unrestricted amounts and to use the default policy for its unrestricted fund balancedefault policy for its unrestricted fund balance. .

If expenditures incurred exceed the amounts If expenditures incurred exceed the amounts that have been restricted, committed, and that have been restricted, committed, and assigned to a specific purpose, resulting in a assigned to a specific purpose, resulting in a negative residual amount for that specific negative residual amount for that specific purpose, then amounts assigned to other purpose, then amounts assigned to other purposes in that fund are reduced to eliminate purposes in that fund are reduced to eliminate the deficit.the deficit.

Purpose A Total Restricted Committed AssignedBeginning Balances 5,696 2,000 2,616 1,080AdditionsExpenditures IncurredEnding Balances

Purpose BBeginning Balances 8,871 8,871 0 0AdditionsExpenditures IncurredEnding Balances

Purpose CBeginning Balances 8,040 0 0 8,040AdditionsExpenditures IncurredEnding Balances

What were the balances at the beginning of the year?

Purpose A Total Restricted Committed AssignedBeginning Balances 5,696 2,000 2,616 1,080AdditionsExpenditures IncurredEnding Balances

Purpose BBeginning Balances 8,871 8,871 0 0Additions 1,500 1,500Expenditures IncurredEnding Balances

Purpose CBeginning Balances 8,040 0 0 8,040Additions 120,000 120,000Expenditures IncurredEnding Balances

Were additional amounts restricted, committed, or assigned?

Purpose A Total Restricted Committed Assigned UnassignedBeginning Balances 5,696 2,000 2,616 1,080AdditionsExpenditures Incurred (7,654) (2,000) (2,616) (1,080) (1,958)Ending Balances (1,958) 0 0 0 (1,958)

Purpose BBeginning Balances 8,871 8,871 0 0Additions 1,500 1,500Expenditures Incurred (10,000) (8,871) (1,129)Ending Balances 371 0 0 371

Purpose CBeginning Balances 8,040 0 0 8,040Additions 120,000 120,000Expenditures Incurred (11,223) (11,223)Ending Balances 116,817 0 108,777 8,040

How much was spent for each purpose?

Purpose A Total Restricted Committed Assigned UnassignedBeginning Balances 5,696 2,000 2,616 1,080AdditionsExpenditures Incurred (7,654) (2,000) (2,616) (1,080) (1,958)Ending Balances (1,958) 0 0 0 (1,958)

Purpose BBeginning Balances 8,871 8,871 0 0Additions 1,500 1,500Expenditures Incurred (10,000) (8,871) (1,129)Ending Balances 371 0 0 371

Purpose CBeginning Balances 8,040 0 0 8,040Additions 120,000 120,000Expenditures Incurred (11,223) (11,223)Ending Balances 116,817 0 108,777 8,040

What happens to a negative balance?

Current Definition:Current Definition:

Special Revenue FundsSpecial Revenue Funds —To account —To account for the for the proceeds of specific revenue proceeds of specific revenue sourcessources (other than trusts for (other than trusts for individuals, private organizations, or individuals, private organizations, or other governments or for major capital other governments or for major capital projects) that are projects) that are legally restrictedlegally restricted to to expenditure for expenditure for specified purposes. specified purposes.

Special Revenue FundsSpecial Revenue Funds


Statement 54 Definition:Statement 54 Definition:Special revenue funds are used to Special revenue funds are used to account for and report the proceeds of account for and report the proceeds of specific revenue sources that are specific revenue sources that are restricted or committed to expenditurerestricted or committed to expenditure for specified purposes other than debt for specified purposes other than debt service or capital projects. service or capital projects. The term The term “proceeds of specific revenue sources” “proceeds of specific revenue sources” establishes that one or more specific establishes that one or more specific restricted or committed revenues restricted or committed revenues should be the foundation for a special should be the foundation for a special revenue fund.revenue fund.


Restricted or committed specific Restricted or committed specific revenue sources should comprise revenue sources should comprise substantial portion of fund’s resources substantial portion of fund’s resources on an ongoing basison an ongoing basis– But fund also may include other restricted, But fund also may include other restricted,

committed, and assigned resourcescommitted, and assigned resources Disclosure: purpose of each major Disclosure: purpose of each major

special revenue fund and each revenue special revenue fund and each revenue source or other resources authorized to source or other resources authorized to be reported in each be reported in each

Effect of SRF ClarificationsEffect of SRF Clarifications

Less restrictive More restrictive

Current Standar

ds

New Standar

ds

Current Practice

Debt Service & Capital Projects Debt Service & Capital Projects FundsFunds

Text made consistent with other Text made consistent with other definitionsdefinitions

Capital projects funds broadened from Capital projects funds broadened from “major capital facilities” to “capital “major capital facilities” to “capital outlays”outlays”

Should be clearer that debt service Should be clearer that debt service funds are funds are requiredrequired when when– Legally mandatedLegally mandated– Financial resources are being accumulated Financial resources are being accumulated

for principal and interest payments for principal and interest payments maturing in future yearsmaturing in future years

Effective Date and Effective Date and TransitionTransition

Periods beginning after June 15, 2010Periods beginning after June 15, 2010——earlier application is encouragedearlier application is encouraged

Fund balance classifications should be Fund balance classifications should be applied retroactively by restating fund applied retroactively by restating fund balance for all prior periods presentedbalance for all prior periods presented

Changes to information in the Changes to information in the statistical section may be made statistical section may be made prospectively, though retroactive prospectively, though retroactive application is encouraged; if prior years application is encouraged; if prior years are not restated, difference in are not restated, difference in information should be explainedinformation should be explained

Questions?Questions?(203) 847-0700 ◦ [email protected]

www.gasb.org

dean michael mead research manager, governmental accounting standards board nasact-aga audio...

Documents

general fund

unreserved slide

current standards

specific purposes

purpose slide

fund balance reporting

interaction of fund

significant divergence