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Chapter 7, FAR740165, FAR740189, Effect on a put option if company…

- - - - "Accounting for infrastructure assets using modified approach is not a reconciliation item as its can be used both as per modified accrual basis as well accrual basis for government-wide financial statements. A modified approach is for accounting for infrastructure assets where depreciation is not charged (based on some conditions) because the assets have an indefinite life."
- - - - "Accounting for infrastructure assets using modified approach is not a reconciliation item as its can be used both as per modified accrual basis as well accrual basis for government-wide financial statements. A modified approach is for accounting for infrastructure assets where depreciation is not charged (based on some conditions) because the assets have an indefinite life."
- - - - Governmental accounting Standards Board (GASB 76) established authoritative hierarchy of GAAP as it relates to local and state government entities as follows:
      - Category A (most authoritative) : GASB statements and interpretations
      - Category B:
        
        GASB technical bulletins.
        
        GASB implementation and guides.
        
        AICPA literature cleared by GASB.
      - The correct order of authoritative hierarchy of Generally Accepted Accounting Principles (GAAP) applicable to state and local government entities starting with the highest is IV, II, III and I.
- - - - Government wide financial statements are prepared using accrual basis. Under fund financial statements, governmental funds use modified accrual basis to prepare financial statements and other fund types such as proprietary and fiduciary fund financial statements are prepared using accrual basis of accounting.
      - While every governmental fund has a general fund, debt service funds are used to accumulate resources for payment of general long term debt and interest and are used only if the entity has issued general obligation bonds or other debt obligations.
      - Special revenue funds are part of governmental funds and are used to account for proceeds of specific revenues that’s restrict expenditures for specific purposes only whereas activities for which fees are charged for a service provided are reported as part of proprietary funds.
      - Internal service funds are funds which report activities that provide goods / services internally at a cost basis for other departments within the government. While these are reported under proprietary funds in fund financial statements, they are also reported as governmental activities in the government wide financial statements. A reconciliation is required to be presented from the amounts in the governmental funds to the amounts reported as governmental activities in the government wide financial statements. Other items of reconciliation include adjustment for accounting on a modified accrual basis to accrual basis.
- - - - Fund financial statements consist of a series of statements that focus on information about governmental, enterprise and fiduciary funds along with its discrete component units. In presenting the fund financial statements, for each of the fund category, there is a separate column for each major fund and a total for all minor funds in that category.
      - General fund is always a major fund in the governmental funds category. Other funds representing BOTH of the below are considered major funds:
      - At least 10% of the total assets of the category assets, liabilities, revenues or expenditures of either governmental or enterprise category, AND
      - At least 5% of the total entity (governmental and enterprise) assets, liabilities, revenues or expenditures
      - Any other fund which the government believes is particularly important to financials statement users.
- - - - Governmental fund financial statements are prepared using modified accrual basis and current financial resources approach whereas government wide financial statements are prepared using accrual basis and economic resources approach. When governmental fund financial statements are incorporated into the government wide financial statements, they are converted from modified accrual to accrual basis. Adjustments may include:
      - Capital assets at historical cost and not as expenditure.
      - Any general long term liabilities not due and payable in the current period.
      - Deferred revenue that has been earned but is not available to spend in the current period (or within 60 days after the end of the period).
      - Internal service funds balance.
      - The statement of position of the government wide financial statements is bifurcated as government type activities and business type activities (along with component unit activities). As per GASB 34, the total governmental fund balances are required to be reconciled with the net position of governmental activities.
      - Long term debt issued two years ago would have been reported as a source of funds in the statements of revenues, expenditures and changes in fund balances and would appear as a reconciliation item two years ago and not in the current year. However, accounting for interest would still be a reconciliation item because it would be an accrual in the statement of activities and not be accrued in the statement of changes in the revenues, expenditures and changes in fund balances because it will not be paid till the end of the five year term.
      - Accounting for infrastructure assets using modified approach is not a reconciliation item as its can be used both as per modified accrual basis as well accrual basis for government wide financial statements. Modified approach is for accounting for infrastructure assets where depreciation is not charged (based on some conditions) because the assets have an indefinite life.
      - Assets and liabilities are reported in the statement of net position / statement of fund balances and not in statement of changes in net position / statement of revenues, expenditures and changes in fund balances.
- - - - As per GASB 68, the discount rate to be considered for pension calculations should be the single rate that reflects the following:
      - The long-term expected rate of return on pension plan investments that are expected to be used to finance the payment of benefits, to the extent that (1) the pension plan’s fiduciary net position is projected to be sufficient to make projected benefit payments and (2) pension plan assets are expected to be invested using a strategy to achieve that return;
      - A yield or index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA / Aa or higher or equivalent to the extent that the conditions in (a) are not met.
- - - - Governmental fund financial statements are prepared using modified accrual basis and current financial resources approach. The concept of the modified accrual basis is focus on a single period. Revenues of the period are intended to cover the spending of that period and future periods are essentially ignored.
      - Revenues are recognized when they are measurable and available to spend. Expenditures are recognized where the focus is on the outflow of financial resources. Both capital purchases and operating expenditures are treated as spending and recorded as current year expenditures.
      - Expenditure on acquisition of fixed assets is treated as a utilization of funds and proceeds from long term debt are recognized as a source of funds in the statement of revenue, expenditures and changes in fund balances. Interest on long term debt is recognized as expenditure when it is due and payable.
      - However, depreciation is not charged on fixed assets and is never reported on the statement of revenues, expenditures and changes in fund balances.
- - - - GASB 68 requires that the liability of employers for defined benefit pensions to be measured as the portion of the present value of projected benefit payments to be provided through the pension plan to current employees attributed to those employees’ past periods of service, less the amount of the pension plan’s fiduciary net position.
      - This means that the pension liability reported on the balance sheet is the net pension liability which is total pension liability - pension plan’s fiduciary net position (plan assets).
      - The actuarial present value of projected benefit payments is required to be attributed to periods of employee service using the entry age actuarial cost method.
      - Projected benefit payments are required to be discounted using the single rate that reflects (1) a long-term expected rate of return on pension plan investments to the extent that the pension plan’s fiduciary net position is projected to be sufficient to pay benefits and (2) a tax-exempt, high-quality municipal bond rate to the extent that the conditions for use of the long-term expected rate of return are not met.
- - - - Government-wide financial statements will help users:
      - Assess the finances of the government in its entirety, including the year’s operating results.
      - Determine whether the government’s overall financial position improved or deteriorated.
      - Evaluate whether the government’s current-year revenues were sufficient to pay for current-year services.
      - See the cost of providing services to its citizens.
      - See how the government finances its programs—through user fees and other program revenues versus general tax revenues.
      - Understand the extent to which the government has invested in capital assets, including roads, bridges and other infrastructure assets.
      - Make better comparisons between governments.
- - - - A reciprocal transfer is a transfer made to a party for an exchange of something else. A quasi external transaction, which is a payment from one fund to another for goods and services and a loan, which is a temporary transfer between funds that are to be repaid at a later date are both reciprocal transfers. The reciprocal transfers made by the capital projects fund are: a) the amount paid by the capital project fund to the enterprise fund for use of electricity $570 and b) loan given by capital projects fund to special revenue fund of $600. Total reciprocal transfers by the capital projects fund would be equal to $1,170.
      - A non-reciprocal transfer is when an asset is given to a party with no expectation of payment of any kind in exchange. An operating transfer, which is a movement of cash from one fund to another and reimbursements, which is a repayment from one fund to another for costs paid earlier on its behalf are non-reciprocal transfers. The non-reciprocal transfer made by the capital project fund is the transfer from capital project fund to general fund for paying back to the general fund for expenses for training attended by employees in the capital project fund $380.
      - The transfer from general fund to debt service fund for payment of interest for a debt raised for a capital project is a non-reciprocal transfer, but it’s a transfer made by the general fund and would not be included in the non-reciprocal transfer made by the capital project fund.
- - - - GASB -42 - Accounting and financial reporting for impairment of capital assets and for insurance recoveries - establishes accounting and financial reporting standards for impairment of capital assets. Governments are required to evaluate events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. A capital asset generally should be considered impaired if both the following conditions occur:
      - (a) Decline in service utility of the capital asset is large in magnitude; and
      - (b) Event or change in circumstance is outside the normal life cycle of the capital asset.
- - - - All defined benefit pension plans will disclose information that includes the following:
      - Descriptive information, such as the types of benefits provided, the classes of plan members covered, and the composition of the pension plan’s board.
      - Pension plan investment information, such as the pension plan’s investment policies, how fair value is determined, concentrations of investments with individual organizations equaling or exceeding 5 percent of the pension plan’s fiduciary net position and the annual money-weighted rate of return on pension plan investments.
      - Other information, such as contributions, reserves and allocated insurance contracts.
      - Single-employer and cost-sharing plans will disclose additional information, such as:
      - The total pension liability of the participating employers, the pension plan’s fiduciary net position, the net pension liability and the pension plan’s fiduciary net position as a percentage of the total pension liability.
      - Significant assumptions used to measure the total pension liability, such as inflation, salary changes, discount rate and mortality.
- - - - Deferred inflow of resources is the acquisition of net assets by the government, applicable to the future reporting period. This is similar to unearned revenue (liability). Grant expenditure which is received in advance is applicable to the future periods and can be said to be deferred inflow of resources.
      - Grant expenditures paid in advance of meeting timing requirements represent a deferred outflow of resources.
      - Advances of derived tax revenues represent a liability.
      - Receipt of prepayments represents a liability.