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Financial 9 (Governmental and Not-for-Profit Organizations) GOVERNMENTAL ACCOUTNING (PART B) Accountability Operational Accountability o Focus of governmental-wide financial statements Meet its operating objectives efficiently and effectively o Fiscal Accountability Focus of the fund financial financi al statements o o Demonstrate government complied with public decisions concerning raising and spending the public funds in the short-term Reporting for General Purpose Governmental Units Management’s Discussion and Analysis (MD&A) before F/S o (Narrative Analysis) through the eyes of management NO: 1) variance analysis 2) reconciliation of fund F/S Gov’t-wide F/S o Government-wide F/S (reconcile with fund financial F/S) A) Statement of Net Assets (B/S) o Carry All assets, All liabilities, fixed assets, LTD Fiduciary Funds (PAPI) are not included Component units included (ex. Rescue squad or Board of Education) Three components of net assets 1) Invested in Capital Assets (net of related debt) Groups all capital asset less accum depr and outstanding debt 2) Restricted Net Assets 3) Unrestricted Net Assets As restrictions are satisfied, reclassify to unrestricted Artwork and Historical Treasures Capitalize at historical or FV at date of the donation Elect not to capitalize 1) Collection is held for public exhibition 2) The collection is protected 3) The proceeds from sale of collections items to be used to acquire other items for collection B) Statement of Activities (full accrual) o Functions/ programs 1) Primary Government Governmental Activities GRaSPP + S 2) Primary Government Business-Type Activities E 3) Component Units Rescue Squad & Board of Education Government can “SOC ” away these revenues: Services (charges for) Operating grants and contributions Capital grants and contributions Fund Financial Statements (reconcile with governmental-wide F/S) o 1) Governmental Funds GRaSPP a) B/S Major Fund Rules – two criteria ( must meet both) A) 10% or more of total revenues, expenditures/expenses, assets or liabilities 1) All governmental funds or 2) enterprise funds o •
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B) 5% or more of revenues, expenditures/expenses, asset or liabilities 1) All governmental fund and 2) all enterprise fund o b) Statement of Revenues, Expenditures, and Changes in Fund Balance •
2) Proprietary Funds SE a) Statement of Net Assets (B/S) b) Statement of Revenues, Expenses, and Changes in Fund Net Assets Depreciation expense Operating expense Interest Expense Non-operating expense c) Statement of Cash Flows, similar to commercial enterprise, except: 1) Direct method is required (no indirect) 2) Reconciliation of operating income to net cash 3) 4 categories instead of 3 categories in commercial accounting a) Operating Activities b) Invest Activities c) Capital and related Financing Activities d) Non-Capital Financing Activities 4) Interest income “investing activities” (not operating) 5) Interest expense (not operating) Either, a) capital financing, or b) non-capital financing 6) Capital asset purchases = “financing activities” (not investing) o 3) Fiduciary Funds PAPI a) Statement of Fiduciary Assets (assets, liabilities, net assets) b) Statement of Changes in Fiduciary Net Assets (additions and deductions) Notes to the F/S Required Supplementary Information (RSI) other than MD&A Pension (sche. of funding) o Funding progress, schedule of employer contributions Budgets (budget comparison sche.) o Variance between budget and actual (Optional) Variance between original and final amended budget (Optional) Infrastructure (roads & bridges) o Condition of the infrastructure Estimated annual amount to maintain and preserve Optional Reporting Comprehensive Annual Financial Report (CAFR) o
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1) Intro section (unaudited) 2) Basic F/S & RSI (audited) 3) Statistical Section Financial Reporting Entity Primary Government Entities if they can take care of them SELF, then primary gov’t o 1) Separately -Elected governing body 2) Legally separate o 3) Fiscally independent of other state and local governments o Component Units an org. for which an elected officer of primary gov’t are financially accountable 1) Blended Presentation o a) A board of the component unit is substantively the same as primary gov’t b) The component unit serves the primary gov’t exclusively c) Component unit is not a separate legal entity 2) Discrete (or separate presentation) o Most component units should use discrete presentation o
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NOT-FOR-PROFIT ORGANIZATIONS Follow FASB, not GASB Classification of net assets as unrestricted, temporarily restricted, and permanently restricted Revenue recognition concepts related to unconditional pledges and support Distinguishing between restricted revenue and conditional pledges Distinguishing between restricted revenues and the absence of variance power Statement of Financial Position (B/S) Assets, Liability, and Net Assets (equity) Net Assets (restricted & unrestricted) [Not-for-Profit PUT their net assets in these cate.] Unrestricted Net Assets o Internal board-designated funds are considered unrestricted Available to finance general operation May be expended at the discretion of the governing board Temporarily Restricted Net Assets o Similar to permanently restricted net assets, except donor-imposed stipulations either expire by time or fulfilled Permanently Restricted Net Assets o Donor-imposed stipulations that neither expire by time nor can be fulfilled • • • •
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Statement of Activities (I/S) Four required elements o Change in total assets (assets) Change in unrestricted net assets o o Change in temporarily restricted net assets Change in permanently restricted net assets o Expense Classification in the statement of activities Programs Services activities for which the organization is chartered o Universities – education and research, Hospitals – patient care Support Services include everything not classified as a program service o •
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Fund-raising, administration, management and general, membership Statement of Cash Flows (CF) Classification of Sources and Uses of Cash o Operating Activities Contribution, program income, and interest or dividend income - investments Financing Activities o Cash transactions related to borrowing Donor imposed restrictions (increases to endowment, purchases of assets, or annuity agreement o Investing Activities Proceeds from sale of works of art or purchases or works of art Investment in the equipment Proceeds from sale of assets and restricted to investment in equipment Statement of Functional Expenses required for voluntary health and welfare org. Functional Classification of Expenses o 1) Program Support Expenses Expenses directly related to the organization’s program Program: Cancer Research actual expense research on cancer 2) Fund-Raising Expenses unsolicited merchandise sent out o Cost of transmitting appeals to the public and the salaries of personnel connected with fund-raising campaigns o 3) Management and General Expenses for overall direction of the organization, general recordkeeping, etc 4) Multiple cost items – related to several categories o Accounting for Contributions Received and Contributions Made Cash Contributions Received = Revenue Recognized as revenue or gain in period they are received, measure at FV (gift) o Unconditional Promises Pledge = Revenue Promise to give (pledge) is recorded at its FV when the promise is made o Conditional Promises Earned = Revenue Promise to give (pledge) that depends on an a future and uncertain event o Recognize when condition are substantially met and promises become unconditional o Multi-year Pledge PV pledge o a) Now = revenue b) Future = temp restricted revenue o Allowance for Uncollectible Pledges NRV (full accrual) Donated Services @ FMV, only if: A) They create or enhance a non-financial asset (Ex. Land, Building, Inventory, etc), or B) Require special skills that would otherwise be purchased (Ex. Attorney, Accountant, etc) Contribution of services are recognized “some” of the time: •
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Donated Collection Items Contributed art or historical treasures, not required to report (if all met) Item is part of a collection, which is held for public viewing, exhibition, education The collection is cared for • •
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The proceeds from sale of donated items were used to reinvest in other collection items Note: if all requirements are not met, the donation must be recognized as asset and revenue Donated Materials @ FV •
Recording Promises to Contribute 1) Unrestricted Contributions •
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Restricted Contributions
Exchange Transactions Buyer and Seller Each party receives and sacrifices something approx. equal value and exchanged o Cost of premium (calendars, coffee mugs, etc.) given to donors as part of fundraising o are classified as fund-raising expense
Transfers of Assets to Not-for-Profit Organizations Recipient Accounting Without Variance Power Not-for-Profit acts as agent / no benefit or power o Donor agrees to use or manage on behalf of beneficiary Assets valued at FV and as a liability to the beneficiary Granted Variance Power Not-for-Profit acts as agent / has power o Authority to redirect assets to another beneficiary Assets valued at FV and as a contribution revenue when received •
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Financially Interrelated – Granted Variance Power
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Not-for-Profit agent/has power
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Asset valued at FV and recognized as contribution revenue when received and expensed when distributed to the beneficiary
Beneficiary Accounting Recognized Interest – Financially Interrelated equity o
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Recognized Beneficial Interest – Pools of Assets Revenue Unconditional right to receive specified CF from pools of assets
Recognized Receivable and Contribution Revenue Revenue In cases that do not involve recognition of net assets or beneficial interests
Endowment Fund used to account for donated assets, the principal must be retained intact Permanent Endowment Income is expendable as direct by donor and recorded based on donor restrictions o Corpus (principal) not permitted to be spent Term Endowment o Assets that must be held for a specified term Reported as temporarily restricted net assets Quasi-Endowment Internal governing board of an institution (not the donor) determined that the funds o are to be retained and invest for specified purposes (not loans) Reported as appropriations of unrestricted net assets Colleges and Universities Revenue o Student tuition and fess (gross amount) Government aids and grants o Expenses Scholarship and fellowship o o Maintenance, research, teaching Health Care Organizations Revenue increases in unrestricted net assets and are reported by their source Patient revenue are reported on an accrual basis o 1) Charity Care services that are provided but never expected to result in cash flow Not recorded as a receivable or as revenue 2) Other Operating Revenue Tuition from Schools Revenues from Educational Programs Donated Supplies and Equipment / Medical Transcription fees Specific Purpose Grants Cafeteria Revenue / Parking fees / Gift shop revenue 3) Non-Operating Revenue and Support Gains and Losses •
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Unrestricted interest and dividend income from investment Unrestricted gifts and bequests Unrestricted grants Unrestricted income from endowment funds Unrestricted income from board-designated funds Donated Services
Deductions o Contractual adjustment for third-party payments Policy discounts o Administrative adjustments o Nursing services / bad debts / depreciation / interest expense / professional services o
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