Governmental Financial Reporting The Reporting Entity

1
Governmental Financial ReportingThe Reporting
Entity

• Chapter 5 Part 1
• The Reporting Entity

2
Key Concepts

• Financial reporting entity
• Component units
• Financial reporting
• Model
• Government wide statements
• Fund level statements
• Major funds
• Components of financial statements
• Required reconciliations

3
The Financial Reporting Entity

• Accountability of elected officials
• Primary government
• Component units
• Legally separate organization
• Over which PG is financially accountable OR
• Include to prevent FS from being
  misleading/incomplete
• Distinguish between PG CUs
• Communicate info
• Avoid perception of one entity

4
Primary Government

• Primary government meet ALL
• Separate elected governing body
• Legally separate
• Corporate powers
• Sue/be sued buy, sell, lease property
• Fiscally independent of other SLGs
• Do ALL without approval of any other government
• Establish budget
• Levy taxes/set rates
• Issue LTD

5
Examples of Component Units

• Governmental component units
• Governmental enterprises
• Public benefit corporations authorities
• PERS
• Governmental
• Utilities
• Hospitals
• Other healthcare providers
• Colleges universities

6
Accounting Reporting for Component Units

• GASB 14
• GASB 39
• Accounting Reporting Issues
• Different Fiscal Years
• Inter-Agency Transactions

7
Primary GovernmentFinancial Accountability

• Of PG for component units
• Financial accountability is CERTAIN
• PG appoints majority of board AND
• Able to impose will OR
• Organization has potential to provide specific
  financial benefits to PG or impose financial
  burden on PG

8
Primary Government Financial Accountability -
Imposition of Will

• Influence programs, projects, service levels, or
  activities
• Remove governing body members at will
• Modify/approve budgets
• Modify/approve rate changes
• Overrule/modify decisions
• Appoint, hire, fire, or reassign management

9
Potential Financial Benefit to or Burden on
Primary Government

• Organization has potential to provide specific
  financial benefits to or impose financial burden
  on PG
• PG legally entitled to/access resources OR
• PG legally obligated/assumed obligation for
  deficits or providing financial support OR
• PG obligated in some manner to debt in some way

10
Potential Financial Benefit or Burden on Primary
Government

• Obligated in some manner
• Legally obligated to repay
• Required to cover DS shortfalls
• Required/authorized to does set aside reserve
  to repay debt
• Authorized to does establish fund for debt
  redemption
• May cover deficiencies in event of default
• Legal decision makes it likely PG will be
  responsible for debt in default

11
Primary GovernmentFinancial Accountability

• Component unit may be financially accountable to
  PG if fiscally dependent on PG
• Regardless of
• Separate elected board
• Board appointed by higher level of government
• Jointly appointed board

12
Component UnitsFiscal Independence

• Must meet ALL
• Determine budget without other government having
  authority to approve/modify it AND
• Levy taxes or set rates/charges without approval
  of other government AND
• Issue bonded debt without approval of other
  government
• No authority to issue debt does not prohibit
  fiscal independence

13
Financial Reporting of Component Units

• Blended
• Close relationship
• Boards of both substantially same
• CU services/primarily services PG
• General fund of blended CU special revenue fund
  of PG
• All others reported in applicable fund
  category/type
• Discrete
• Most CUs
• Separate column to right pages 150 152

14
Financial Reporting of Component Units

• Footnotes
• Significance of CU to total discrete CUs
• Nature significance of CU relationship to PG
• Condensed financial info - major CUs
• Balance sheet
• Operating statement

15
GASB No. 39

• Amends/clarifies GASB No. 14
• Objective provide criteria for determining
  whether certain organizations should be reported
  as component units
• No financial accountability will, board,
  financial benefit/liability - by PG

16
GASB No. 39 Criteria

• Criteria No. 1
• The economic (vs. financial) resources received
  or held by the separate organization are entirely
  or almost entirely for the direct benefit of the
  primary government, its component units, or its
  constituents

17
GASB No. 39 Criteria

• Criteria No. 2
• The primary government, or its component units,
  is entitled to, or has the ability to otherwise
  access, a majority of the economic (vs.
  financial) resources received or held by the
  separate organization

18
GASB No. 39 Criteria

• Criteria No. 3
• The economic (vs. financial) resources received
  or held by an individual organization that the
  specific primary government or its component
  units, is entitled to, or has the ability to
  otherwise access, are significant to that primary
  government

19
Component Unit Issues

• Different FS format
• 501 (c) (3) entities
• CUs with GTAs BTAs
• Differing fiscal year ends
• FYE within PG FY
• CU FYE 1st quarter of PG FY
• Inter-agency transactions
• Blended vs. discrete
• Receivables payables/revenues expenses
• Leases
• Role in MDA
• Focus is PG

20
Class Exercises Part 1

• Interpretive Exercise page 128
• Chapter Exercise 5-4 page 178
• NOTE These are not part of your required
  assignment for this chapter. They simply
  represent things we will discuss in class for
  this part of Chapter 5.