GASB 54: The New Fund Balance Reporting Requirements Marcia Taylor, CPA, CGFM William McKain, CPA Pennsylvania Association of School Business Officials March 17, 2011
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Marcia Taylor, CPA, CGFM William McKain, CPA Pennsylvania Association of School Business Officials March 17, 2011.
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Slide 1
Marcia Taylor, CPA, CGFM William McKain, CPA Pennsylvania
Association of School Business Officials March 17, 2011
Slide 2
Need for the Project Fund balance widely recognized as one of
most used elements in financial statements What is available to be
spent? What is available to pay debt or other long term
obligations?
Slide 3
Issues with Current Fund Balance Information Level of action
Plopping Confusion on terminology Lack of comparability Available
masked
Slide 4
Objective Do current reporting requirements adequately meet
needs of users? Assess financial flexibility Assess liquidity
Clarify distinctions between reserved and un, reserved and net
assets
Slide 5
Fund Definition Component FB affected by funds Lack of clarity?
SRF what resources? CPF what projects? Activity versus revenue
reporting
Slide 6
History of Project Deliberations began in late 1980s Debated
during S 34 withdrawn New project in 2002 resulted in Net Assets
Statement (46) with no FB changes Another new project in October
2006 Two documents for public comment Field test Task force Final
February 2009
Slide 7
Scope and effective date Scope Changes how fund balance is
presented Clarifies use of governmental fund types Effective date
Fiscal period ending 6/30/11 Early implementation encouraged
Retroactive reporting encouraged for stats
Slide 8
New Guidance Fund balance classification
Slide 9
Focus of classification The extent to which the government is
bound to honor constraints on the specific purposes for which
amounts in those funds can be spent (GASB #54, para 5)
Slide 10
Components of fund balance Five categories Nonspendable
Restricted Committed Assigned Unassigned Not all will always be
present
Slide 11
Practitioners View of Implementing GASB 54 Helpful reminder of
the fund balance hierarchy Nobody Really Cares About Us
Nonspendable Restricted Committed Assigned Unassigned
Slide 12
Nonspendable fund balance Not in spendable form Cannot ever be
spent Cannot currently be spent Legally or contractually required
to be maintained intact
Slide 13
Categories representing spending constraints Three categories
Restricted fund balance Committed fund balance Assigned fund
balance No requirement that constraint be narrower than the purpose
of the fund
Slide 14
Restricted fund balance Constraints on purpose/circumstances of
spending that are legally enforceable by outside parties Creditors
Grantors and contributors Law or regulations of other governments
Constitutional provisions/enabling legislation Same rules now used
to classify restricted net assets
Slide 15
Committed fund balance Constraints on purpose/circumstances of
spending imposed by government itself Formal action Means will
differ among governments Highest level of decision-making authority
Binding unless removed in the same manner Action taken prior to the
end of the reporting period Amount can be determined at a later
date
Slide 16
Assigned fund balance Intent to use resources for a specific
purpose Government body Subordinate high-level body or official
delegated to make such assignments in accordance with policy
established by the governing body Governing bodys intentions not
managements Never in excess of total fund balance less its
nonspendable, restricted and committed components
Slide 17
Unassigned fund balance Residual balance reported in general
fund The use of some other fund type presumes that all of the
resources reported in that fund are either restricted, limited, or
assigned Also used to report deficits in other fund types
Slide 18
Components of fund balance Nonspendable fund balance
(inherently nonspendable) Not in spendable form or requirement to
maintain intact Restricted fund balance (Externally enforceable
limitations on use) Outside parties Constitutional provisions or
enabling legislation Committed fund balance (Self-imposed
limitations) Formal action by end of period Highest level of
decision making Assigned fund balance (Limitation resulting from
intended use) Less formal action Highest level of decision making
or designated body or official Unassigned fund balance (Residual
net resources)
Slide 19
Stabilization (rainy day) funds Resources that can be spent
only if certain specific circumstances occur Use of special revenue
fund for this purpose not permitted Report in general fund
Restricted or committed Presumption that specific circumstances in
which spending is permitted would not be expected to occur
routinely Never classified as assigned
Slide 20
Encumbrances Note disclosure (commitments) Categorization for
display purposes dependent on nature of constraint
Slide 21
Review of Recast Example Reserves are they restrictions or
commitments or? Designations are they committed or assigned? Funds
other than general any negative balances?
Slide 22
New Guidance Governmental fund type definitions
Slide 23
Fund type definitions General fund Special revenue funds
Capital projects funds
Slide 24
General fund Prior definition To account for all financial
resources except those required to be reported in another fund
Never intended to limit the ability to use another fund type
voluntarily Use required only when a primary government is
incorporating the general fund of a blended component unit Term
required dropped from the definition
Slide 25
Special revenue funds History Designed for specific revenue
sources that are legally restricted to expenditure for specified
purposes Often used for resources that have been earmarked,
regardless of source.
Slide 26
Special revenue funds Issues in practice Specified purposes
Transferred resources Legally restricted (restrictions placed by
government)
Slide 27
New Definition Special revenue funds are used to account for
and report the proceeds of specific revenue sources that are
restricted or committed to expenditure for specified purposes other
than debt service or capital projects.
Slide 28
Resolution of issues Specific revenue source MUST be foundation
of fund Transfers allowed provided that they are not substantial
part of fund Government can restrict
Slide 29
Prior definition: capital projects funds to account for
financial resources to be used for the acquisition or construction
of major capital facilities (other than those financed by
proprietary funds or in trust funds for individuals, private
organizations, or other governments). One issue limited to capital
facilities?
Slide 30
New Definition Capital projects funds are used to account for
and report financial resources that are restricted, committed, or
assigned to expenditure for capital outlays including the
acquisition or construction of capital facilities and other capital
assets). Not limited to capital facilities
Slide 31
Disclosure Committed fund balance Governments highest
decision-making authority Formal action required to establish,
modify or rescind a commitment Assigned fund balance Body or
official authorized to make assignments Policy established by the
governing body pursuant to which that authorization is given.
Slide 32
Disclosure (cont.) Flow assumptions Whether restricted or
unrestricted resources are considered to be spent first when both
are available for the same purpose Order in which committed,
assigned, and unassigned resources are considered to be spent when
they are available for the same purpose
Slide 33
Disclosure (cont.) Stabilization arrangements Authority for
establishing Requirement for additions Conditions that need to be
met for spending to be permitted. Minimum fund balance requirements
Description of the policy that sets forth the details of the
requirement, including the action taken to establish it.
Slide 34
Disclosure (cont.) Special revenue funds For each major special
revenue fund Purpose of the fund Revenues and other resources
reported
Slide 35
Implementation Thoughts Review fund structure Policies: Use of
restricted or unrestricted first if both available Within
unrestricted order of use Classification of ending fund balances
Actions: Commitments BEFORE end of year Authority for designations
Presentation levels