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Date Created: 10/13/15
FINAL EXAM STUDY GUIDE parking garage enterprise fun because you are being paid for the service by the public FUND KNOW THE DEFINITION OF FUND ON PAGE l3NOTHING ELSE IS ACCEPTABLE Fund a fiscal and 39 entitywith a If 39 39 39 set of accounts recording cash and other nancial resources together with all related liabilities and residual equities or balances and changes therein which are segregated for the purpose of carrying on speci c activities or attaining certain objectives in accordance with special regulations restrictions or limitations KNOW THE DESCRIPTION OF EACH FUND ON pp1314 NOTHING ELSE IS ACCEPTABLE Govanmental funds General fund accounts for most of the basic services provide by the government Technically this fund accounts for all resources other than those required to be accounted for in other funds Special revenue fund account for resources that are legally restricted for current purposes such as intergovernmental grants and for funds set aside in formal action by the governing body such as for library expenditures Capital projects funds account for nancial resources intended for major capital projects other than those nanced by proprietary or duciary Debt Service 7 account for the payment of principal and interest on general long term debt Permanent funds report resources that are legally restricted so only earnings not principal may be expended and for purposes to bene t the government and its citizenry Proprietary lnds funds are used to account for a government s ongoing organizations and activities that are similar to those o en found in the commercial sector Enterprise funds are used when resources are provided primarily through the use of sales and service charges to parties external to the government Examples 7 utilities airports Internal service funds 7 account for services provided by one department of a government to another generally on a costreimbursement basis In some cases these services are also provided to other governments Fiduciary funds sometimes known as a trust and agency fund account for resources for which the government is acting as a collectingdisbursing agent or as a trustee Agency funds are used to account for situations in which the government is acting as a collectingdisbursing agent Pension trust funds are used to account for pension and employee benefits funds for which the governmental unit is the trustee Investment trust funds 7 account for the external portion of investment pools reported by the sponsoring government Private purpose trust fund report all other trust arrangements under which principal and income bene t individuals private organizations or other governments STUDY THE INFORMATION ON CAPITAL ASSETS AND LONGTERM LIABILITIES ON pp 16 AND 17 Journal entry p 120 124 Look at capital project with bonds project completed in scal year Accounting for capital assets including infrastructure GASB statement 34 requires that xed capital assets be recorded at historical costs including ancillary charges such as freight site preparation and professional fees The term capital assets include land improvements to land easements buildings building improvements vehicles machinery equipment works of art and historical treasures infrastructure and al other tangible or intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period Infrastructure assets are longlived assets that normally are stationary in nature and normally can be preserved for a signi cantly greater number of years than most capital assets Ex roads bridges tunnels drainage systems water and sewer systems dams and lightening systems Exception works of art and historical treasures considered a collection Government are encouraged but not required to capitalize collections Capitalized xed assets will be reported in the govemmentwide statement of net assets classi ed as being pa1t of governmental activities business type activities or component units Capitalized xed assets are not reported in the governmental fund financial statements but are reported in the proprietary fund nancial statements Accounting for longterm debt and other longterm liabilities 0 Longterm debt of state and local governments includes bonds notes loans and leases payable Other long term liabilities include compensated absences operating leases with scheduled rent increases pensions special termination bene ts land ll closure and post closure care costs estimated costs of pollution remediation and claims and judgments State and local governments are required to report all longterm debt and long term liabilities in the Statement of Net Assets 0 Includes debt that is paid out of general government resources such as GO debt which is paid out of tax revenues 0 Debt paid out of general revenues is not re ected in the governmental fund balance sheets due to the current nancial resources measurement focus of governmental funds However longterm debt paid from proprietary funds is reported as a liability in both the proprietary fund Statement of Net Assets and the government wide statement of net assets In the government wide statements accounting for longterm debt generally parallels that found in the private sector Interest expense is reported on the accrual basis and premiums and discounts are amortized using the effective interest method Governmental fund statements generally report debt service payments out of a debt service fund Principal and interest expenditures are reported on the modi ed 0 accrual basis which means that those expenditures are recognized When due and that premiums and discounts on the bonds are not amortized Page 121 Ca 0 pital projects fund sources offunding Issuance of long term debt Grants from other governmental units Transfers from other funds Gifts from individuals or organizations May also be used to account for the acquisition by a government of general xed assets under capital lease agreements Proceeds of debt issues should be recognized by a capital projects fund at the time the debt is actually incurred rather than at the time it is authorized because authorization of an issue does not guarantee its sale 0 Proceeds of debt issued are recorded as I Proceeds of bonds or I Proceeds of longterm notes I Rather than as revenues and are reported in the other nancing sources section of the statement of revenues expenditures and changes in fund balance 0 Revenues raised by the general fund or a special revenue fund and transferred to a capital projects fund are recorded as transfers in and reported in the other nancing sources section of the operating statement Taxes or other revenues raised speci cally for a capital project are recorded as revenues of the capital projects fund I Grants entitlements or shared revenues received by a capital projects fund from another governmental unit are considered revenues of the capital projects fund as is interest earned on temporary investments of capital projects funds Expenditures of capital projects funds generally are reported in the capital outlay character classi cation in the governmental funds Statement of Revenues Expenditures and Changes in Fund Balances 0 Capital outlay expenditures result in additions to the general xed assets reported in the government wide statement of net assets 0 0 See illustrative example page 121 124 If a bond is for a particular capital project that is revenue for which fund Capital project If it is sold for general purposes it goes into the general Other nancing uses Other nancing sources Debt service fund BE ABLE TO ANSWER QUESTIONS ON FORMAT OF THE CAFRA AS PER ILLUSTRATION 21 Required contents of governmental financial reports Management s Discussion and analysis 2 Basic Financial Statements 2 Government wide nancial statements 139 Government wide statement of Net Assets 13912 Government wide Statement of Activities b Fund basis nancial statements 139 Government type funds Balance sheet Statement of revenues expenditures and changes in fund balances Reconciliation of government statements to government wide statements 13912 Proprietary funds 1 Statement of Net Assets 2 Statement of Revenues Expenses and Changes in Fund Net Assets 3 Statement of Cash Flows 1391 1 Fiduciary funds 1 Statement of Fiduciary Net Assets 2 Statement of Changes in Fiduciary Net Assets c Notes to the Financial statements 3 Required Supplementary Information other than MDampA 2 Information about infrastructure assets using the modi ed approach Budgetary comparison schedule general major and special funds Schedule of the funding progress of pension plans inter period equity d Schedule of employer contributions of pension plans 6 Schedules required for external nancial pools N5 5 SED ORGANIZATIONAL ANAL YSIS YOU WILL BE REQUIRED TO STATE EXACTLY THE FACTORS ON PAGE 6 TO DETERMINE WHETHER AN ORGANIZATION IS GOVERNMENTAL OR NON GOVERNMENTAL Organizations are governmental organizations if they have one or more of the following characteristics 1 Popular election of of cers or appointment or approval of a controlling majority of members of the organization s governing body by of cials of one or more state or local governments 2 The potential for unilateral dissolution by a government with the net assets reverting to a government 3 The power to enact and enforce a tax levy Furthermore organizations are presumed to be governmental if they have the ability to issue directly rather than through state or municipal authority debt that pays interest exempt from federal taxation However organizations possessing only that ability to issue taxexempt debt and none of the other governmental characteristics may rebut the presumption that they are governmental if their determination is supported by compelling relevant evidence ex banks if you are a state entity you can not be taxed by the federal governmenti the state is a constitutionally recognized entity YOU WILL HAVE TO APPLY EACH FACTOR TO A FACT SCENARIO DESIGNED TO DEMONSTRATE YOUR KNOWLEDGE OF THE FACTORS AND YOUR ABILITY TO REASONABLY PRESENT THEM IN A NEW SITUATION Scenario on a univasity campus athletic foundation supports sports program use each one of the three factors and show what it means by the way that you analyze the organization and the way it is set up Won t be cut in dry he inferential reasoning if this is true then this happens ex of cio members of a board by virtue of of ce People exist by virtue of of ce and they select the members of the board What is the status of an ex o icio member Is he appointed by an elected o icial How does he get there You have to know these things to determine ifit is a governmental entity Could be a private non pro t or it can be a proprietary md Non pro t no one is entitled to residual equity by v39rtue of ownership if someone sells bonds that are exempt from taxation that does not mean they are a government agency BUDGETING GASB standards contain the following 3part budgetary principle An annual budget should be adopted by every governmental unit The accounting system should provide the basis for appropriate budgetary control Budgetary comparisons should be included in the appropriate financial statements and schedules for governmental funds for which an annual budget has been adopted KNOW THE DIFFERENCE BETWEEN OBJECT CODE PROGRAM AND ZERO BASE BUDGETING RELY ON YOUR CLASS NOTES FOR ZBB Function general government public safety highways and streets Program protection of persons and property and environmental protection Programs are often performed by more than one department consequently program expenditures often crossdepartmental lines Examples of classi cation by department which is useful for budgetary control are the Mayor s office and the Police department Object code classi cation by object reports the inputs or the item or service received such as personal services supplies other services and charges capital outlays and debt service 7 generally more detailed object classes are used for each of the major categories Zero based budgeting 7 if I have 20 of my budget dollars what would I do 7 40 60 always start back at 0 with each level 7 20 independent unit 7 40 independent unit 7no one does this you aren t going to rethink your organization each year 7 it s a waste of time READ MY ESSAY PREVIOUSLY EMAILED TO YOU FOR ADDITIONAL INFO YOU WILLBE REQUIRED TO BLEND THESE TOPICS INTO AN ESSAY ON PRIVATE VS PUBLIC ADMINISTRATION WHAT IS THE PROPER SPHERE OF ACTIVITY FOR PUBLIC AND PRIVATE DIVISION OF GNP WHAT MOTIVATES EACH TYPE OF ACTIVITY AND WHAT CHARACTERISTICS REFLECT DIFFERING MOTIVATIONS Set up with a quote from a historian and ends with a quote from the president Supplydemand Price in private market Budget in public sector Public v private affected by budgets Difference betweens budgets in private and public 7 public budgets are enforced by law and made public and private budgets are used for personal consumption JOURNAL ENYRIES KNOW HOW TO USE THE DEBT SERVICE FUND THE CAPITAL PROJECTS FUND AND RELATED FUNDS TO ACCOUNT FOR A CAPITAL PROJECT AS PRESENTED PRIMARILY IN CHAPTER 5 AND IN CLASS See chapter 5 OTHER INFO WILL BE GIVEN WEDNESDAY EVENING THE EXAM WILL ALSO COVER AUDITING PRIVATE NOT FOR PROFITS AND PROPRIETARY FUNDS TO THE EXTENT THEY ARE DISCUSSED ON WEDNESDAY P 157 KNOW WHEN AN ENTERPRISE FUND IS REQUIRED Enterprise funds are used by governments to account for services provided to the general public on a usercharge basis Enterprise funds must be used in the following circumstances 1 When debt is backed solely by fees and charges 2 When a legal requirement exists that the cost of providing services for an activity including capital cost be recovered through fees or charges 3 When a government has a policy to establish fees and charges to cover the costs of providing services for an activity Frequently found examples of Enterprise funds Electric and gas utilities transportation systems airports hospitals ports toll bridges municipal golf courses parking lots parking garages lotteries municipal sport stadiums and public housing projects Fixed assets and long term debt are included in the accounts Enterprise funds are to use accounting and reporting standards provided for business enterprises issued on or before November 30 1989 unless that guidance con icts with GASB guidance and may use standards issued by FASB for businesses issued after that date As a result accounting is similar to that for a business enterprise and includes depreciation accrual of interest payable amortization of discounts and premiums on debt and so REVENUE BONDS AND GENERAL OBLIGATION BONDS Governmental enterprises often issue debt called revenue bonds that is payable solely from the revenues of the enterprise These bonds are recorded directly into the accounts of the enterprise fund General obligation bonds are sometimes issued for governmental enterprises in order to provide greater security in pledging the full faith and credit of the government in addition to enterprise revenues If payment is to be paid from the enterprise revenues these general obligation bonds would also be re ected in the accounts of enterprise funds Notes from class Enterprise funds are used by governments to account for services provided to the general public on a usercharge basis Enterprise funds must be used in the following circumstances when debt is backed solely by fees and charges 7 revenue bond as opposed to general obligation bonds major difference 7 revenue bonds are very specific and strict general obligation bond has backing by the jurisdiction that issues and full faith and credit of the state when a legal requirement eXists that the cost of providing services for an activity including capital costs be recovered through fees or charges when a government has a policy to establish fees and charges to cover the cost of providing services for an activity Whether you use general obligation debt or revenue bonds the debt is re ected in the accounts of enterprise funds Budgetary accounting should only be used if required by law Debt service and construction activities of a governmental enterprise are accounted for within an enterprise fund rather than by separate debt service and capital projects funds P 151 WHEN DOES GASBFASB APPLY Enterprise funds 7 governments have the option to apply FASB statements and interpretations that are issued after 113089 and that apply to business organizations Transfer of power from FASBGASB P 170 MUNICIPAL LAND FILLS Governments must assume the cost of the closure including the cost of equipment used the cost of the landfill cover and the cost of caring the side for a period of 30 years after closure or whatever period is required by regulations These costs are measured in current costs in that costs are estimated as if they were incurred at the time of estimate GASB requires that a portion of those future estimated costs be charged as an expense and a liability of the landfill operation on a unitsofproduction method based on capacity used divided by total capacity as waste is accepted Ex if total estimated costs for closure and postclosure were 10million and the landfill accepted 10 of its anticipated capacity cubic yards in a given year the charge and liability for the year would be 1 million Each year revisions would be made if necessary for charges in cost estimates landfill capacity and in ation If the landfill were operated as an enterprise fund the entries would be made directly in the enterprise fund following accrual accounting Ifthe landfill is operated as a governmental fund then modified accrual principles would apply and the fund expenditures and liability would be limited to the amount to be paid with available financial resources The remainder would be re ected as a liability in the government wide financial statements Ex 2 the total estimated closure and post closure costs is 30 million Total estimated capacity of the landfill is 10 million tons During 2009 the first year of operations the landfill accepted 2 million tons or 20 of its capacity A 6million charge would be made during 2009 Journal entry below Operating Expenses 7 estimated landfill closure and post closure cost 6000000 Accrued liability for estimated landfill closure and post closure costs 6000000 The purpose of this charge is to match the estimated costs with the revenues during the period of time waste is accepted Adjustments should be made yearly or whenever estimates for capacity or costs change When the landfill is closed and closure and post closure cost are incurred those costs will be charged to the liability account P 171 POLLUTION REMEDIATION In 1980 Congress passed the Comprehensive Environmental Response Compensation and Liability Act superfund act which places responsibility for pollution remediation on current and past owners and users of waste sites GASB requires governments to accrue the cost of pollution remediation as a liability in the basic nancial statements If not an enterprise fund fund expenditures equal to the amount to be paid with available resources would appear in governmental fund and the longterm portion of the liability in the govemmentwide statement of net assets In addition note disclosure is required describing the nature and scope of the govemment s responsibility the estimated liability the methods and assumptions used to estimate the liability and any estimates of recoveries that might reduce the liability Notes from class Find common unit of measurement 7 you are being offered capacity remove X amounts of trash per week then you can determine the cost per unit of capacity How do you account for long costs accumulated in this period 7 in governmental accounting they use notes to the financial statements because modified accrual measures things by the period 7 P 385386 SINGLE AUDIT ACT COGNIZANT AGENCY AND OVERSIGHT AGENCIES Entities that expend 500000 or more in federal awards in a scal year have either a single audit when several grantors are involved or a programspeci c audit usually when one grantor is involved This includes in some cases certain governments or notforpro t organizations that act as passthrough entities avo39xl being one if you can organizations that receive federal awards to be sent to amp recipients Passthrough entities have responsibilities for reporting funding to the subrecipient and the auditor must be aware of these arrangements Single Audit Act 1984 7 enacted to provide statutory authority for uniform requirements for audits of state and local organizations receiving federal financial assistance The Office of Management and Budget OMB issued Circular A128 to provide guidance for federal agencies in administering the Single Audit Act Circular A133 provided requirements for federal agencies in administering grants for nongovernmental notfor profit organizations even though those organizations were not covered under the 1984 act In addition the AICPA issued Statements of Position to provide guidance for CPAs when conducting audits of federal assistance Single Audit Act Amendments 1996 7 extended law to included federal assistance to nongovernmental notforprofit organizations state and local governments and public colleges and universities were covered under the 1984 act and continue to be covered Where as the 1984 act required a single audit for organizations receiving 100000 or more in federal assistance those receiving 25000 to 100000 could have a program7byprogram audit or a single audit the amount was later raised to 500000 See page 386 for more detail Purpose 7 create a mechanism whereby those auditors conducting the regular nancial audits of state and local governments and notforprof1t organizations can provide assurance to the federal government that federal and state funds are expended in accordance with grant agreements and with financial management and other standards promulgated by the federal government Instead of having grant by grant audits supervised by each agency that provides funds governments and notforprof1t organizations that expend 50million in federal awards are assigned cognizant agencies and other federal funds recipients are expected to use oversight agencies Cognizant agencies are required to monitor the audit process and resolve findings and questioned costs Oversight agencies may do the same at their option GAO modified Single Audit Act standards to require rms conducting governmental audits to implement specialized continuing education programs internal quality control programs and external peer reviews In addition the GAO provides guidance to audited organizations concerning auditor solicitation and evaluation and limits the nature of consulting services that may be provided by the organization s audit firm Cognizant agency normally the federal agencies that provide the most funding 7 federal government began funding different governments that had different audit standards with their own way of reporting 7 the agency that your agency does the most business with Who creates GAGAS and who created GAAS Government auditmg standards 7 are issued by the GAO governmental accountability office and applies to audits conducted to satisfy the requirements of the Single Audit Act as well as other governmental audits The standards issued by the AICPA are known as GAAS generally accepted auditing standards the standards issued by the GAO are known as GAGAS generally accepted governmental auditing standards 7 governmental auditing standards are often referred to as the yellowbook 7 incorporate the AICPA standards and provide extensions that are necessary due to unique nature of public entities 4 categories Financial audits Attestation engagements Performance audits Nonaudit services Opinions Unqualified opinion Qualified opinion Adverse Disclaimer2 P 397 PROGRAM EXPENSE RATIO 7 measure of how much money you spend on administration V how much you spend on your program not for pro t Program service expensestotal expenses P4045 SEA CONTROVERSY Read and perhaps be able to take a stand Proprietary funds issue 3 statements Pg 23 Know three main headings see notes And the reports issued by each fund Don t have to know RSI items Interperiod generational equity pay as you go do not incur obligations in this period that will be put on future generations pension funds
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