Transcript GASB 54: The New Fund Balance Reporting Requirements

Marcia Taylor, CPA, CGFM
William McKain, CPA
Pennsylvania Association of School Business Officials
March 17, 2011
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?
Issues with Current Fund Balance
Information
 Level of action
 Plopping
 Confusion on terminology
 Lack of comparability
 “Available” masked
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
Fund Definition Component
 FB affected by funds
 Lack of clarity?
 SRF – what resources?
 CPF – what projects?
 Activity versus revenue reporting
History of Project
 Deliberations began in late 1980’s
 Debated during S 34 – withdrawn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
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

New Guidance
Fund balance classification
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)
Components of fund balance
 Five categories
 Nonspendable
 Restricted
 Committed
 Assigned
 Unassigned
 Not all will always be present
Practitioner’s View of Implementing
GASB 54
Helpful reminder of the fund balance hierarchy
 Nobody
 Nonspendable
 Really
 Restricted
 Cares
 Committed
 About
 Assigned
 Us
 Unassigned
Nonspendable fund balance
 Not in spendable form
 Cannot ever be spent
 Cannot currently be spent
 Legally or contractually required to be
maintained intact
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
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
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
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 body’s intentions not management’s
 Never in excess of total fund balance less its
nonspendable, restricted and committed components
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
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)
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
Encumbrances
 Note disclosure (commitments)
 Categorization for display purposes dependent on
nature of constraint
Review of Recast Example
 Reserves – are they restrictions or commitments or?
 Designations – are they committed or assigned?
 Funds other than general – any negative balances?
New Guidance
Governmental fund type definitions
Fund type definitions
 General fund
 Special revenue funds
 Capital projects funds
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
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.
Special revenue funds
 Issues in practice
 Specified purposes
 Transferred resources
 Legally restricted (restrictions placed by government)
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.”
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
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?
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
Disclosure
 Committed fund balance
 Government’s 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.
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
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.
Disclosure (cont.)
 Special revenue funds
 For each major special revenue fund


Purpose of the fund
Revenues and other resources reported
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