{Governmental Client Training}
June 10, 2015
Keith Szymanski and Rumzei Abdallah
Common GAAP Misconceptions
Interfund Transactions
Borrowings
• Be cautious about borrowings from the Water
and Sewer Fund or from restricted resources
• W&S fund borrowings may be ok – get attorney involved
• Borrowings from other restricted funds may never be ok (debt
funds, Act 51 funds, etc.)
• Classify long-term borrowings as advances
• The borrowing fund must have the resources to
pay back the lending fund (otherwise it is a transfer, not
a due to/from)
Interfund Transactions
“Transfers”
• Interfund loans are recorded on the balance
sheet
• “Gifts” from one fund to another are classified
as other financing sources and uses (true transfers)
• Payments for good or services exchanged are
classified as revenues and expenses
• Reimbursements are an expense in the paying
fund and a negative expense in the fund being
reimbursed
GASB 54 – Fund Balance Reporting and
Governmental Fund Types
Special revenue funds
• In order for a governmental fund to be reported
as a special revenue fund, a substantial portion
of all inflows must be restricted or committed
• Funds not meeting this definition may be eligible
to be classified as capital project or debt service
funds
• If not, fund can be separately budgeted and
accounted for in the general ledger, but likely
must be presented within the General Fund for
financial statement purposes
GASB 54 – Fund Balance Reporting and
Governmental Fund Types
Keys to classifying fund balance
• Nonspendable – prepaids, inventory, and
long-term receivables*
• Restricted, committed, assigned – depends
on inflows and spending priority
• Unassigned – only in the General Fund
unless there is a deficit
Equity - Net Position
Calculation of net investment in capital
assets
• Often simply capital assets less capitalrelated debt
• Unspent bond proceeds
• Deferred inflows or outflows that are
attributable to the acquisition,
construction, or improvement of assets
Equity - Net Position
Relationship between restricted fund
balance and restricted net position
• Definitions of restricted fund balance
and restricted net position are
essentially the same
• Amounts should be the same except for
differences in accounting
• Nonspendable fund balance that would be restricted
• Deferred inflows of resources that would be restricted
• Debt that would offset a restricted fund balance
Restricted Assets
• A restriction on the use of funds
does not mean the assets must be
restricted
• Assets are only required to be
presented as restricted when they
are required to be segregated
• Example: A bond covenant may require the
proceeds to be maintained in a separate account
until spent.
Restricted Assets
• Restricted assets should be recorded as
noncurrent
• Liabilities payable with restricted assets
should also be reported as noncurrent
• These rules apply even when items would
otherwise be classified as current (cash,
investments, accrued interest, current portion
of long-term debt)
Agency Funds
Common Issues
• Purely custodial in nature (assets =
liabilities)
• Should not include general revenues
whose use is restricted
• There should be no prepaid expenses
Agency Funds
• When the agency fund serves as a clearing account,
the portion that pertains to other funds should not be
reported in the agency fund
• Example: When a tax collection fund has a due to/due from with the
General Fund, the cash is presented in the General Fund.
• This is typically achieved by coding the applicable due
to/due from accounts as cash
• This does not apply to other types of fiduciary funds
GASB 65/Revenue Recognition
Deferred inflow vs. unearned revenue
• When cash is received before it can be
spent, credit deferred inflow
• Example: property taxes levied for the following fiscal
year
• When cash is received before goods or
services have been provided, credit
unearned revenue liability
• Example: an advance of grant funds or project costs
Definition of a Deficit
When a deficit elimination plan is required
• State Numbered Letter 2014-1
• For governmental funds, typically a plan is required
anytime there is negative unrestricted fund balance
• Unrestricted fund balance = committed, assigned, and unassigned
• Exception for deferred inflows of resources (other than for taxes and Spec
Assessments) that caused a deficit
• For proprietary funds, fiduciary funds, and discretely
presented component units, a plan is not required if
current assets exceed current liabilities
• Current liabilities would not include the current portion of long-term
obligations
Capital Asset Thresholds
• The use of a capitalization threshold is not
included in GAAP
• Thresholds are used for the sake of efficiency
and should not result in material omissions
• It may be appropriate to look at a group of
assets as a “system” versus separate, individual
assets
• For example, if a community spends $25,000 buying all new
computers, that should be capitalized even if the individual pieces of
equipment are below the capitalization threshold
Lower of Cost or Market
• Often used for inventory or land held for resale
• “In the case of goods which have been written down
below cost at the close of a fiscal year, such reduced
amount is to be considered the cost for subsequent
accounting purposes.”
- ASC 330-10-35-14
• In other words, values can be written down but should
not be written up
• GASB standards do not address issue, so FASB applies
GASB 67 – Rate of Return
•
Footnotes must disclose long-term expected real rate of return by
asset class
•
Real rates of return means expected return EXCLUDING the assumed
rate of inflation
Questions?