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1 Finance Officer Program Accounting & Financial Reporting Exam Review November 20, 2013
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Certified Government Finance Officer Program
Accounting & Financial Reporting
Exam Review
November 20, 2013
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Accounting & Financial Reporting Exam Review
PRESENTED BY:Kelly Rae Strickland, CPA, CGFO
Deputy Finance Director
City of Sarasota
Kelly,[email protected]
Sarah C. Koser, CPA, CGFO, CPFO
Deputy Finance Director
The Villages Community Development Districts
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Overview
Prepare you for the Exam. Increase your Professional
body of knowledge.
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Accounting & Financial Reporting Exam Review - Overview
Question distribution accurate Questions updated & validated*
References Documented Included in review materials
75 Questions Bank of 100+ questions
Multiple versions of exam Test bank cross referenced to
slides
*2013 Update
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All questions multiple choice or true/false
Can choose order to take parts of exam Plan your work & work your plan
Review sessions do not replace individual study
Accounting & Financial Reporting Exam Review - Overview
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Accounting & Financial Reporting Exam Review
Topics Covered:
1.1. Accounting / Internal Controls / Capital Accounting / Internal Controls / Capital AssetsAssets
30%30%
2.2. Financial Reporting (Internal & External)Financial Reporting (Internal & External) 30%30%
3.3. AuditingAuditing 15%15%
4.4. State of Florida Policies & RegulationsState of Florida Policies & Regulations 15%15%
5.5. CAFR CAFR 10%10%
6.6. Source MaterialSource Material N/AN/A
TOTALTOTAL 100%100%
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Accounting,
Internal Controls
&
Capital Assets
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Overview
Accounting Basics: Standard Setting in the U.S. Objectives of Financial Reporting Terminology Fund Accounting Measurement Focus Basis of Accounting
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Accounting Basics: Liabilities Debt Debt Refunding Capital Assets Budgets Odds & Ends
Overview
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Financial Accounting Foundation – FAFFinal authority (1973) for accounting & reporting standards in both the public & private sectors
Appoints FASB & GASB board membersBoth establish accounting and financial reporting standards for respective constituents
Currently addressing permanent funding options for GASB
Standard Setting in the U.S.
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Governmental Accounting Standards Board – GASB (1984/1989)
State and Local GovernmentsGovernmental Not for Profits
Financial Accounting Standards Board – FASB (1973)
For-profit & non governmental Not for ProfitsSEC designee for issuers
Standard Setting in the U.S.
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Both use due process Discussion Memorandum, Invitation to Comment, Preliminary Views, Exposure Drafts, etc. made available to constituents
Comments solicited & all submitted to board for consideration in standard setting deliberations
Process really does work
Standard Setting in the U.S.
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American Institute of Certified Public Accountants (AICPA)
Establishes audit & attest standards for non-issuers
Officially recognizes FASB & GASB as authoritative standard setting bodies for Generally Accepted Accounting Principles (GAAP) in their respective sectors*.
Role of the Federal Accounting Standards Advisory Board (FASAB) is intentionally omitted.
*GAAFR 2012 Page 23
Standard Setting in the U.S.
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Standard Setting in the U.S.
GASB #55 The Hierarchy of Generally Accepted Accounting Principles for State & Local Governments
Effective Date: On issuance (March 2009)
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GAAP Hierarchy (GASB # 55) GASB Statements & Interpretations GASB Technical Bulletins
AICPA Industry Audit & Accounting Guides* AICPA Statements of Position*
AICPA Practice Bulletins* Implementation Guides published by GASB
staff
*If made applicable & cleared by GASB
Standard Setting in the U.S.
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Objectives of Financial Reporting
GASB Concepts Statement No. 1 Public accountability Information for decision making
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Public accountability Sufficient current revenues for services Compliance
Budget Finance-related legal/contractual requirements
Service Efforts & Accomplishments (SEA) Other accomplishments
Objectives of Financial Reporting
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Public accountability Presumes taxpayers are entitled to know
What government is doing & how What government did & how well What government plans to do & why
Intergenerational/interperiod equity
Objectives of Financial Reporting
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Accounting data used for decision making Financial reporting should be:
Understandable Reliable Relevant Timely Consistent Comparable
Objectives of Financial Reporting
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Primary Users of External Financial Reports
Citizens
Legislative and oversight bodies
Investors and creditors
Objectives of Financial Reporting
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Fund Accounting – Definition
Fund accounting is an accounting system emphasizing accountability rather than profitability, used by non-profit organizations and governments. In this system, a fund is a self-balancing set of accounts, segregated for specific purposes in accordance with laws and regulations or special restrictions and limitations*.
*Leon E. Hay (1980). Accounting for Governmental and Nonprofit Entities, Sixth edition, page 5.
Terminology
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AssetAsset Something owned by entitySomething owned by entity
LiabilityLiability Obligation of the entityObligation of the entity
Fund BalanceFund Balance Difference between assets & Difference between assets &
liabilitiesliabilities
RevenueRevenue Fees charged for servicesFees charged for services
ExpensesExpenses Cost of providing servicesCost of providing services
Terminology
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Normal Account Balances:
Debit balances for asset & expense/expenditure accounts
Credit balances for liability, revenue & Fund equity accounts
Debits must equal credits
Terminology
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Normal account balances:
Typical debit balances Paid vacation leave Capital assets (in service)
Typical credit balances Unpaid (accrued) vacation leave Fines & judgments (when known) Property tax revenue (any revenue)
Terminology
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Current Assets Used in operations or converted to cash within
1 year Capital Assets
Benefit the organization for more than 1 year (service life)
Includes intangible assets*
*GASB #51 – Accounting for Intangible Assets
– periods beginning after 6/15/2009 i.e. FY 2010
Terminology
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Current Liabilities Obligations due within 1 year (includes
current portion of Long Term Debt)
Non-Current Liabilities Obligations due more than 1 year hence
Terminology
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Total assets minus total liabilities Net assets
Fund level for proprietary & fiduciary funds
Fund balance* Fund level for governmental funds, i.e. unreserved fund
balance Owner’s Equity (private business)
*GASB #54 – Fund Balance Reporting and Governmental Fund Type Definitions Periods beginning after June 15, 2010 (FY 2011)
Terminology
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Fund Accounting (GASB#54)
Nonspendable Fund Balance Cannot be spent because of:
Form (e.g. inventory, prepaid assets) Must be maintained intact (e.g. principal of endowment
fund)
Restricted Fund Balance Externally enforceable limitations on use
By creditors, grantors, contributors, laws, By law- constitutional or enabling legislation
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Fund Accounting (GASB#54)
Committed Fund Balance Limitation in place before end of period Limitation is self imposed (e.g. carryovers) Must be removed by same “highest level” that imposed it
Assigned Fund Balance Limitation results from intended use
“Intended use” delegated to lower level May be removed by same level that received delegation
Unassigned Fund Balance Residual net resources Balance in excess of:
Nonspendable/restricted/committed/assigned i.e. surplus
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Fund Accounting
Use “minimum number” necessary for management & accountability
Three broad fund classifications: Governmental funds (5) Proprietary funds (2) Fiduciary funds (4)
11 fund types – (most important)
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Fund Accounting
Governmental Funds (5 types)1. General
To account for & report all financial resources not (required to be)* accounted for & reported in another fund
Only fund required by GAAP Only one ‘General Fund” Small Local Government may have only a General
Fund
*GASB #54 – definition update drops this phrase
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Fund Accounting
Governmental Funds (5 types)
2. Special Revenue Account for & report the proceeds of specific
revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects
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Fund Accounting
Governmental Funds (5 types)3. Debt Service
Resources accumulated to pay long term debt Principal & interest
4. Capital Projects Acquisition/construction of major capital assets*
i.e. not equipment units financed by proprietary funds
5. Permanent Resources restricted to extent that earnings and not
principal may be used for support of entity programs
*GASB #54 updates
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Fund Accounting
Proprietary Funds (2 types)1. Internal Service
Services provided by one agency, etc. to another on a cost reimbursement basis
2. EnterpriseOperations financed & operated similar to private
business i.e. user fees Accountability (not “profit “makers)
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Fund Accounting
Fiduciary Funds (4 types)1. Pension Trust Fund
Resources held in trust for others (Other Peoples Money)
2. Investment Trust Fund Pooled resources of legally separate entities Entity holds investments on behalf of others
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Fund Accounting
Fiduciary Funds (4 types)
3. Private-purpose Trust FundPrincipal & income benefit specific
individuals or organization
4. Agency FundPass-through funds (Other Peoples
Money) e.g. utility deposits
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Measurement Focus
WHAT transactions are measured
Economic resourcesProprietary & fiduciary funds
Current financial resourcesGovernmental funds
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Measurement Focus
Economic resources (Proprietary & Fiduciary Funds)Measure inflows & outflows of economic
resources Current (i.e. financial ) & noncurrent (i.e. economic)
Capital assets & long-term debt
Focuses on operational accountabilityWhether management efficiently uses resources in
providing services
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Measurement Focus
Current financial resources (Governmental Funds)Measure inflows & outflows of current financial
resourcesCash & other liquid assetsPayables from cash & other liquid assets
Focuses on fiscal accountabilityWhether managers have met budgetary & other
legal financial requirements
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The technical term that describes the criteria governing the timing of the recognition of transactions and events is basis of accounting. Revenues are recognized when available and
measurable Expenditures are recognized when:
a liability is incurred the amount is determinable the liability will be paid from current resources
Basis of Accounting
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Basis of Accounting
WHEN transactions are measuredAccrualModified accrualCash
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Basis of Accounting
Accrual basis Recognizes the financial effects of transactions,
events and interfund activities when they occur, regardless of the timing of related cash flows Revenues - When earned Expenses - When incurred
Example - proprietary funds
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Basis of Accounting
Modified accrual basisRevenues
When measurable & available 60 day criteria
Expenditures Expected to be liquidated with current financial resources i.e.
recognized in period governments liquidate the related liability rather than when the liability is first incurred.
Example - governmental funds
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Basis of Accounting
CashRecognizes transactions/events when
related cash amounts received or disbursed
Individual taxpayers
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Basis of Accounting
MeasurementFocus
Basis ofAccounting
Government wide statements
EconomicResources
Accrual
Governmental fund statements
Current FinancialResources
ModifiedAccrual
Proprietary fund statements
EconomicResources
Accrual
Fiduciary fund statements
EconomicResources
Accrual
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Claims & Judgments Occurrence probable & reasonable estimate of
amount is available
TANs/RANs Tax anticipation notes Revenue anticipation notes Fund liability even if maturity exceeds 12
months
Liabilities
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Debt
General Obligation (GO) Bonds Voter approval No specific pledge other than “full faith & credit”
Revenue Bonds Pledge of specified revenue source* or Restricted asset use or asset set aside Typically associated with enterprise borrowings but also
used for governmental borrowings
*GASB #48 – Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues
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Debt
GAAP generally requires recognition of expenditures when debt service payments are due Can recognize before due if due early in next FY and the
following are met: Using a debt service fund Advance provision of resources is mandatory Payment due in short time period (one month maximum)
Government-wide transactions Reconcile D/S expenditures to interest expense &
reductions of LTD Accrual of interest
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Debt Refunding
Why done Lower market interest rate available Eliminate onerous bond covenants Free up current pledged revenues
Types of refunding Advance Refunding Current Refunding
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Debt Refunding
Advance Refunding Old debt not yet callable New debt issued, proceeds placed in irrevocable
trust/escrow to meet debt service payments of old debt Old debt technically outstanding until call date or
maturity
New debt proceeds = “other financing sources” Trust/escrow payments = “other financing uses”
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Debt Refunding
Current Refunding Old issue is callable & retired with proceeds of
new debt New debt proceeds = “other financing sources” Payment of old debt = “debt service expenditure”
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Debt Refunding
Debt defeasance – advanced refunding In-substance defeasance
Proceeds placed in irrevocable trust Liability removed (issuer contingently liable)
Legal defeasance Proceeds placed in irrevocable trust Debt legally satisfied even though not repaid Matter of law
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Debt Refunding
Accounting Basics: Debt Refunding Arbitrage
Practice of investing low-yielding tax-exempt bond proceeds in higher-yielding taxable instruments
Highly technical area
Liability recognition may be required
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Capital Assets
Capital assets Governmental funds
Do not depreciate at fund level Reconcile from fund level to government wide
level Proprietary & fiduciary funds
Depreciate at fund level Depreciation at government wide level is
arithmetic total of funds
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Capital Assets
Benefit is more than a single fiscal period
Reported at: Actual/estimated historical cost Fair value (FV) if donated Interfund transfers at lower of Net Book Value
(NBV) or FV
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Capital Assets
Special issues Infrastructure
Immovable fixed assets Of value only to the government (GAAP) Modified approach (if used i.e. RSI)
Post-closure care for landfills Recognized over life of landfill
Intangibles* Easements; ”in-house” software
*GASB #51 – Accounting & Financial Reporting for Intangible Assets - periods beginning after 6/15/2009 (FY 2010)
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Capital Assets
Special issues Leased assets
Accounting at fund level Inception & subsequent
Capitalized interest Proprietary & fiduciary fund assets only
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Types of budgets Operating Budget Capital Budget Project Budget Cash
Budgets
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Operating Budget Adopted (legal) annual/biennial budget Typically “fixed”
Formal amendment required to change
Capital Budget Linked to Capital Improvement Plan (CIP) Can be multi-year Current year can be incorporated into operating
budget
Budgets
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Project budget Adopted for length of specific project Can be multi-year Current year can be incorporated into operating
budget Cash budget
Operating budget Capital projects
Budgets
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Odds and Ends
Reporting entityGAAP
Statement No. 14 Statement No. 39
Primary government States/local governments
General or special purpose Including fiduciary funds
Component units Financial accountability
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Reporting entity:Primary government is financially accountable for another organization if
It appoints a voting majority of the organization’s governing board AND
It can either Impose its will on that organization OR Potentially provide specific financial benefits to or
impose a financial burden on the other organization
Odds & Ends
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Reporting Entity If Primary Government DOES NOT appoint
majority of governing board, it is financially accountable for another organization if other organization:
Is fiscally dependent on Primary Government OR
Holds economic resources entirely/almost entirely for PG AND
PG entitled to/has ability to access majority of economic resources being held by other organization AND
Resources being held are significant to PG
Odds & Ends
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Odds & Ends
Reporting EntityA Joint Venture is/has: Contractual agreement Joint control of assets On-going financial relationship Not a component unit
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Odds & Ends
Non-Exchange transactions include: Derived Tax Revenues
Sales tax, income tax, fuel tax Imposed non-exchange revenues
Property tax (Ad valorem & personal), fines Government mandated non-exchange transactions
Formula grants Voluntary non-exchange transactions
Reimbursement grants & donations
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Odds & EndsNEW STATEMENTS:NEW STATEMENTS:
GASB GASB ## 57 - OPEB Measurements by Agent Employers 57 - OPEB Measurements by Agent Employers and Agent Multiple-Employer Plansand Agent Multiple-Employer Plans
GASB GASB ## 58 - Accounting and Financial Reporting for 58 - Accounting and Financial Reporting for Chapter 9 BankruptciesChapter 9 Bankruptcies
GASB GASB ## 59 - Financial Instruments Omnibus 59 - Financial Instruments Omnibus
GASB GASB ## 60 - Accounting and Financial Reporting for 60 - Accounting and Financial Reporting for Service Concession ArrangementsService Concession Arrangements
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Odds & Ends NEW STATEMENTS:NEW STATEMENTS:
GASB GASB ## 61 - The Financial Reporting Entity: Omnibus—an 61 - The Financial Reporting Entity: Omnibus—an amendment of GASB Statements No. 14 and No. 34amendment of GASB Statements No. 14 and No. 34
GASB GASB ## 62 - Codification of Accounting and Financial 62 - Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA PronouncementsFASB and AICPA Pronouncements
GASB GASB ## 63 – Financial Reporting of Deferred Outflows of 63 – Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net PositionResources, Deferred Inflows of Resources and Net Position
GASB GASB ## 64 – Derivative Instruments: Application of Hedge 64 – Derivative Instruments: Application of Hedge Accounting Termination Provisions – an amendment of Accounting Termination Provisions – an amendment of GASB Statement No. 53GASB Statement No. 53
