GASB 54: The New Fund Balance Reporting Requirements Wednesday, July 22, 2009

GASB 54: The New Fund Balance Reporting Requirements

Marcia Taylor, CPA, CGFMWilliam McKain, CPAPennsylvania Association of School Business Officials March 17, 20111Need for the ProjectFund balance widely recognized as one of most used elements in financial statementsWhat is available to be spent?What is available to pay debt or other long term obligations?

Issues with Current Fund Balance InformationLevel of actionPloppingConfusion on terminologyLack of comparabilityAvailable maskedObjectiveDo current reporting requirements adequately meet needs of users?Assess financial flexibilityAssess liquidityClarify distinctions between reserved and un, reserved and net assets

Fund Definition ComponentFB affected by fundsLack of clarity?SRF what resources?CPF what projects?Activity versus revenue reporting

History of ProjectDeliberations began in late 1980sDebated during S 34 withdrawnNew project in 2002 resulted in Net Assets Statement (46) with no FB changesAnother new project in October 2006Two documents for public commentField testTask forceFinal February 2009

Scope and effective dateScopeChanges how fund balance is presentedClarifies use of governmental fund types

Effective dateFiscal period ending 6/30/11Early implementation encouragedRetroactive reporting encouraged for statsNew GuidanceFund balance classificationFocus of classificationThe 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 balanceFive categoriesNonspendableRestrictedCommittedAssignedUnassignedNot all will always be presentPractitioners View of Implementing GASB 54Helpful reminder of thefund balance hierarchyNobodyReallyCaresAboutUs

NonspendableRestrictedCommittedAssignedUnassignedNonspendable fund balanceNot in spendable formCannot ever be spentCannot currently be spentLegally or contractually required to be maintained intactCategories representing spending constraintsThree categoriesRestricted fund balanceCommitted fund balanceAssigned fund balanceNo requirement that constraint be narrower than the purpose of the fundRestricted fund balanceConstraints on purpose/circumstances of spending that are legally enforceable by outside partiesCreditorsGrantors and contributorsLaw or regulations of other governments Constitutional provisions/enabling legislationSame rules now used to classify restricted net assetsCommitted fund balanceConstraints on purpose/circumstances of spending imposed by government itselfFormal actionMeans will differ among governmentsHighest level of decision-making authorityBinding unless removed in the same mannerAction taken prior to the end of the reporting periodAmount can be determined at a later dateAssigned fund balanceIntent to use resources for a specific purposeGovernment bodySubordinate high-level body or official delegated to make such assignments in accordance with policy established by the governing bodyGoverning bodys intentions not managementsNever in excess of total fund balance less its nonspendable, restricted and committed componentsUnassigned fund balanceResidual balance reported in general fundThe use of some other fund type presumes that all of the resources reported in that fund are either restricted, limited, or assignedAlso used to report deficits in other fund typesComponents of fund balanceNonspendable fund balance (inherently nonspendable)Not in spendable form or requirement to maintain intactRestricted fund balance (Externally enforceable limitations on use)Outside partiesConstitutional provisions or enabling legislationCommitted fund balance (Self-imposed limitations)Formal action by end of periodHighest level of decision makingAssigned fund balance (Limitation resulting from intended use)Less formal actionHighest level of decision making or designated body or officialUnassigned fund balance (Residual net resources)Stabilization (rainy day) fundsResources that can be spent only if certain specific circumstances occurUse of special revenue fund for this purpose not permittedReport in general fundRestricted or committedPresumption that specific circumstances in which spending is permitted would not be expected to occur routinelyNever classified as assigned

EncumbrancesNote disclosure (commitments)Categorization for display purposes dependent on nature of constraintReview of Recast ExampleReserves are they restrictions or commitments or?Designations are they committed or assigned?Funds other than general any negative balances?New GuidanceGovernmental fund type definitionsFund type definitions General fundSpecial revenue fundsCapital projects fundsGeneral fundPrior definitionTo account for all financial resources except those required to be reported in another fundNever intended to limit the ability to use another fund type voluntarilyUse required only when a primary government is incorporating the general fund of a blended component unitTerm required dropped from the definitionSpecial revenue fundsHistoryDesigned for specific revenue sources that are legally restricted to expenditure for specified purposesOften used for resources that have been earmarked, regardless of source.Special revenue fundsIssues in practiceSpecified purposesTransferred resourcesLegally restricted (restrictions placed by government)

New DefinitionSpecial 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 issuesSpecific revenue source MUST be foundation of fundTransfers allowed provided that they are not substantial part of fundGovernment can restrict

Prior definition: capital projects fundsto 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 DefinitionCapital 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 facilitiesDisclosureCommitted fund balanceGovernments highest decision-making authorityFormal action required to establish, modify or rescind a commitmentAssigned fund balanceBody or official authorized to make assignmentsPolicy established by the governing body pursuant to which that authorization is given.Disclosure (cont.)Flow assumptionsWhether restricted or unrestricted resources are considered to be spent first when both are available for the same purposeOrder in which committed, assigned, and unassigned resources are considered to be spent when they are available for the same purposeDisclosure (cont.)Stabilization arrangementsAuthority for establishingRequirement for additionsConditions that need to be met for spending to be permitted.Minimum fund balance requirementsDescription of the policy that sets forth the details of the requirement, including the action taken to establish it.Disclosure (cont.)Special revenue fundsFor each major special revenue fundPurpose of the fundRevenues and other resources reportedImplementation ThoughtsReview fund structure Policies:Use of restricted or unrestricted first if both availableWithin unrestricted order of useClassification of ending fund balancesActions:Commitments BEFORE end of yearAuthority for designationsPresentation levels