Tag: Governmental Accounting Standards Board

Significance of the GASB Statement No. 34 Requirements

Inclusion of Management Discussion and Analysis

The GASB Statement No. 34 (GASB 34) requires that every financial report, which is audited, include an MDA (Management Discussion and Analysis) section covering particular financial events. The section ought to be incorporated into the corresponding financial report as RSI (Required Supplementary Information). The MDA is essential in the report owing to various reasons. First, it presents the government’s general financial status or condition. Second, it assists users in determining whether or not the finances of the government have deteriorated or increased in the preceding year. Third, it reveals why there are considerable changes if any in the status instead of merely listing the changes as percentages or monetary values. Fourth, the MDA helps users in comparing the year-to-year finances in line with the government-wide type of information regarding expenditures, revenues, assets as well as liabilities.

Fifth, the inclusion of the MDA is important since it explains the variations that may be present between final and initial budget amounts. Sixth, the MDA helps describe long-term debt, as well as capital asset, activities in given years, including descriptions of any executed capital expenditure commitments. Seventh, the MDA presents users with discussions of any established or known, actualities that may be anticipated to impact on the financial positions of given governments in the days ahead, including tax changes and employment-base changes. Eighth, the MDA presents users with discussions of any established, or known, conditions that may be anticipated to impact on the financial positions of given governments in the days ahead, including tax changes and employment-base changes. Lastly, the MDA presents users with discussions of any established, or known, decisions that may be anticipated to impact on the financial positions of given governments in the days ahead as well.

Net Assets to Replace Fund Balance in the Statement of Net Assets’ Equity Section

GASB 34 requires that net assets replace fund balance in the net asset statement’s equity section. Notably, the statement was previously christened the balance sheet. Notably, the statement allows users to establish rapidly whether or not the financial condition of the government has deteriorated or improved by zeroing on the residual net assets at the end of a given accounting period.

The statement shows the degree of ease with which given assets may be sold since the assets are listed in it in line with a liquidity order. Assets that are listed in the statement as being current can be disposed of in a year. They are listed at top of the list. They include receivables, cash, and investments. The assets that are typified as non-current are listed below the current ones. They can be disposed of off to get cash in a period extending beyond a year. Governments report capital assets along with restricted assesses as non-current in the statements. The restricted ones are those that a given government is bound by law or externally not to utilize to attain any given operating goals. Consequently, the inclusion of net assets in the statement can be viewed as helpful in showing users the different forms of assets that are available to given governments for specific uses.

Inclusion of Statements of Activities

GASB 34 requires that statements of activities be included in the government’s financial reports. The inclusion of statements of activities in the financial report helps with the presentation of information regarding the costs of running the government’s programs. The inclusion of statements of activities in the financial report helps with the presentation of information regarding the costs related to the government’s programs. Besides, the inclusion of statements of activities in the financial report helps with the presentation of information regarding how the costs are shared out among the organizers of the civil actions aimed at promoting budgetary accountability.

Users find the statements rather useful in showing them the degrees to which specific government functions or mandates place on themselves by way of things like taxes. Besides, the statements assist users in assessing the bottom lines of their governments. One of the bottom lines is whether or not government expenditure is less than government spending. The second of the bottom lines is whether or not the government is running its operations using the resources accumulated over the years or burdening succeeding generations with the payment for the services it offers today.

Inclusion of Government-Wide Financial Statements (GWFS)

GASB 34 requires that GWFS be included in the government’s financial reports. Its inclusion in the reports is important since it provides users with a detailed overview of the finances available to or spent by the government in the same place. Previously, information regarding the finances available to or spent by the government was not found in the same place. The information includes the costs related to affording citizens specific services within a given. It is possible to provide users with a detailed overview of the finances available to or spent by the government in the same place since the GWFS are put together in line with the FABA (Full Accrual Basis of Accounting). Private enterprises as well use the FABA to ensure that they report own activities together rather than spreading them across several funds.

The FABA recognizes expenses along with revenues as they happen or occur. Every government activity is reported: current liabilities, current assets, lasting liabilities, and infrastructure assets. Every GWFS prepared using the FABA assists users more effortlessly appraise whether or not the financial position of the government has deteriorated or gotten better owing to the various activities it executes within the year.

Every GWFS prepared using the FABA assists users more effortlessly judge whether or not the activities are being paid for today or burden of paying for them is transferred to succeeding generations. Every GWFS prepared using the FABA assists users more effortlessly judge whether or not the activities are supported by user fees, or charges, or taxes. Besides, every GWFS prepared using the FABA assists users more effortlessly determine the government’s investment in specific infrastructure assets, including bridges and roads.

Presentation of Fund-Based Information (FBI) by Principal, or Major, Funds

A major fund is defined as the one whose liabilities, expenditures, revenues, and assets are as a minimum a tenth of the whole of that fund type or class and as a minimum a twentieth of all the related enterprise and governmental fund aggregates. The government can require that other funds be taken as major when reporting if the government views them as especially essential to users.

Enhanced Budget to Real Comparisons

To date, different governments provide specific information within own yearly reports showing how their general fund accrual results compare to their final budgets (Fischer, Taylor & Cheng, 2012; Gross, McCarthy & Shelmon, 2005). As well, to date, different governments provide specific information within own yearly reports showing how each of its principal special revenue fund, which has lawfully adopted a budget, compares with the others (American Institute of Certified Public Accountants, 1996; Financial Accounting Foundation, 1998). Even then, GASB 34 requires that the governments should provide information on their initially, or originally, adopted budgets.

The majority of governments execute the revision of own budgets severally within any given year (Heinfeld & Association of School Business Officials International, 2003). The GASB 34 requirement that the governments should provide information on their initially, or originally, adopted budgets and information on own actual and final budgets ought to assist users to easily, as well as readily, appraise the governments’ capacity to estimate own general resources (American Institute of Certified Public Accountants, 2002). The requirement ought to assist users to easily, as well as readily, appraise the governments’ capacity to manage own general resources.

Besides, the requirement ought to assist users easily, as well as readily, determine the budgetary compliance of the governments (Fischer, Taylor & Cheng, 2012; Gross, McCarthy & Shelmon, 2005). The schedules for comparing the different budgets are found in financial statements’ RSI sections. The comparisons and the related reconciliations presented in the statements assist users to appreciate how GWFS and the FBI relate with each other.

Infrastructure Asset Reporting

GASB 34 requires that GWFS include information regarding every capital asset. The assets that are typified as being capital in nature include every general government-owned infrastructure asset, including sewer systems, roads, and bridges. Before the actualization of GASB 34, the then financial statements were devoid of information regarding the capital assets (American Institute of Certified Public Accountants, 2002). The GASB 34 requirement that GWFS include information regarding every capital asset obligates the government to provide users with the information. American Institute of Certified Public Accountants, 2002).

In cases where governments supply the users with the information via condition assessment, the information becomes rather handy to users in varied ways. First, the information helps users assess the related infrastructure assets’ condition regularly. Second, the information sheds light on the approaches that the government employs in measuring, as well as reporting, the condition of infrastructure assets and their anticipated condition levels. Third, the information helps the users compare the yearly resources needed to maintain, as well as preserve, infrastructure assets with the corresponding actual expenses. Fourth, the information explains the factors that affect any trends defining the information that is disclosed in the RSI section.

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GASB Statement No 34 Main Sections Summary

The government came up with new guidelines that were supposed to be followed by the accountants in giving financial reports on their various departments. The new accounting standards were formulated in the year 1999, and that were supposed to create changes in the manner in which local governments gave their financial reports. For the first time in history, the government’s reports contained reports on how the governments used money for the creation and provision of services to the public. The statements gave a full report on the money that was spent in providing full services to the public by the government of the day, including any infrastructure that was built by the government. The civic federation was the first body to come up in full support of the adoption of the guidelines that were put in place for the accounting departments. Moreover, they issued a statement of support of the adoption of the new standards through a statement that was read in parliament by their representative in the advisory committee.

GASB Statement number 34 as a new concept required that all government entities to use the accrual procedures when conducting their accounting procedures such that all the capital assets are depreciated. The effective dates for the depreciation of the capital assets were based on the revenues that were gained during that particular financial year. Moreover, the depreciation of the mentioned assets was to be done in there phases. The assets that managed to generate a revenues of more than one hundred million or more had to be dealt with within the first fiscal year that begun immediately after June 15, 2001. Secondly, there were those assets that had managed to generate revenue of either equal to or more than ten million dollars but less than one hundred million dollars. Such assets were supposed to comply within the first financial year that begun on June 15, 2003.

In this case, the capital assets were defined as the assets that have a useful life that lasted for more than just the single reporting period, and they include assets such as land and the land improvements.  Additionally, other assets such as buildings and vehicles also fell under the same category. Others included assets such as the machineries and equipment are that were used by the governments in provision of services to the public. The works of art and the historical treasures were part of what were supposed to be considers as capital assets.

The infrastructure assets were those that were thought to have long lives that lasted for more than the fiscal financial reporting period. Moreover, such assets are in most cases stationary therefore becoming immovable. Such assets included assets such as roads, tunnels that mainly constructed to be use d by the commuter trains. Apart from that, there were lighting systems and bridges that were also constructed under the infrastructure assets category.  In giving financial reports for the infrastructures, the accounting bodies were expected to do so using the past historical costs that were incurred (Sage report). Such cost included the freight costs as well as any other installation charges that were incurred during that period.  For the case of the assets that were donated and not purchased, the accounting body was supposed to record their values at the fair market value during the period in which such assets were received.

For the case of the depreciable assets, their values were supposed to be reported on the net value of the accumulated depreciation. The amount of depreciation on the assets all depended on the timeframe that it took for such an asset to depreciate as well as the rate of use of such depreciable assets. On the other hand, the non-depreciable assets were supposed to be reported separately from the depreciable assets. In giving reports concerning the depreciable assets, such reports were supposed to be made on the statement of activities since such depreciations were experienced during the use of such assets (sage report).  In giving the final reports on the assets, it was important that the liabilities had to be subtracted first so that the net value of the assets is obtained. The remaining net value of the assets was supposed to be reported under the following categories:  The first category included the amount of money that was invested in the capital assets, and that would include the net value obtained after deducting the related debts owed to the creditors. Apart from that, there was the second category that included the restricted assets and the final category included the unrestricted assets. The restricted assets were considered to be those assets that had constraints imposed on them either for use by the contributors or by the creditors. In case of permanent endowments, the net assets were supposed to be displayed in two categories depicting whether they were expendable or non-expendable assets.  In case the assets were non-expendable then they would have to be retained in the perpetuity category for the purposes of consistency in reporting.

Finally, the depreciation of the assets was supposed to be calculated based on the useful life of the assets (Civic federation, 2004). Moreover, the depreciation was supposed to be conducted in both a systematic manner as well as a rotational manner. The accountants were allowed to sue either the straight line method of depreciating the assets or alternatively use the declining-balance method. For the case of the declining method, they could either use the double declining method or choose to use the 150 percent declining balance method. The value of the government’s assets could be determined through the use of published guidelines that could be obtained from the professional organizations.

Fund Accounting Under GASB Vs Under GAAP

Despite the fact that both the Financial Accounting Standards Board (FASB) and Governmental Accounting Standards Board (GASB) operate in a similar manner, they have certain accounting and reporting differences. The major purpose of the FASB is to assist investors and creditors make informed decisions on the financial health of a company. FASB establishes standards and guidelines that non-governmental organizations and companies should adhere to when making their financial reports. On the other hand, the major aim of the GASB is to improve accountability. GASB sets the financial reporting and accounting standards for local and state governmental bodies. Since government agencies operate in a different manner from profit-making organizations, their financial and accounting reporting standards are also different.

FASB and GASB also differ in their recognition of restricted cash contributions. FASB recognizes cash contributions as being temporary or permanently restricted. On the other hand, GASB necessitate governmental agencies to ensure that recognize restricted cash contributions as deferred revenue of the use of the resources if restricted for the future. As such, the recognition affects the liabilities, revenue, and deferred assets of the governmental agency.

There are also significant differences between FASB and GASB with respect to endowment pledges. According to the FASB, endowment pledges should be treated as permanently restricted net assets. On the other hand, GASB forbids the recognition of endowment pledges since it is impossible to satisfy the primary restriction of the endowment pledges prior to the receipt of the funds. The difference in the recognition of the endowment pledges according to FASB and GASB affects the net assets and gift revenues of governmental agencies and non-governmental organizations and companies (Gibson, 2012).

According to the GASB, a governmental agency must report the net investment and realized gains or losses as a single amount. On the other hand, FASB allows companies to report the net investment and realized gains or losses separately. According to the GASB, investment income may be the operating revenue is the source of the funds is from a student loan program (Weil, Schipper & Francis, 2012).

FASB and GASB also treat Pell grants differently. FASB treat Pell Grants as balance sheet pass through only entries. On the other hand, GASB treats the Pell grants as activity statement transactions. Use of GASB makes governmental agencies, such as universities, to have higher grant revenue, lower net tuition. It also leads to significant alterations in the liabilities and net assets of the public institutions (Gibson, 2012).

There are also several differences in how GASB and FASB treat funds held in trust by others. According to FASB, funds held in trust by others should be treated as an asset. On the other hand, GASB does not have provisions that would facilitate the recording and recognition of funds held in trust by others. However, public institutions may report assets held by foundations that are affiliated foundations under GASB 14 and GASB 15 (Weil, Schipper & Francis, 2012).

FASB and GASB have different provisions on the reporting of use of restricted funds. According to FASB, a company should reduce its restricted assets – even if it uses its unrestricted assets – if both the restricted and unrestricted assets are available for use in settling a certain expense. This is referred to as ‘first dollar release.’ On the other hand, GASB acknowledges that institutions may use different approaches to release their restricted funds. Therefore, it requires governmental agencies to ensure that they provide a disclosure explanation of how funds were released from restricted (Weil, Schipper & Francis, 2012).