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Intermediate Governmental Accounting

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Intermediate Governmental Accounting INTERMEDIATE GOVERNMENTAL ACCOUNTING June 19 - 20, 2019 ILLINOIS GOVERNMENT FINANCE OFFICERS ASOCIATION INTERMEDIATE GOVERNMENTAL ACCOUNTING AGENDA Wednesday June 19 CHAPTER SPEAKER 9:00 – 9:15 Introduction and Overview IGFOA Representative 9:15 – 9:40 Hierarchy of Generally Accepted Accounting Principles Fred Lantz 9:40-10:40 General Purpose External Financial Statements Overview Fred Lantz 10:40 – 10:50 Break 10:50-12:00 Fund Classifications and use of Conversion Funds Bill Hannah 12:00-12:50 Lunch 12:50 - 2:20 Measurement focus and basis of accounting Fred Lantz 2:20 – 2:35 Break 2:35 – 4:00 Governmental fund revenue and expenditure recognition and converting to governmental activities Bill Hannah Thursday June 20 9:00 – 9:30 Budgets and budgetary reporting Bill Hannah 9:30 – 10:35 Debt service funds and general long-term debt Fred Lantz 10:35 – 10:45 Break 10:45 – 12:00 Capital projects funds and general capital assets Bill Hannah 12:00 – 12:50 Lunch 12:50 – 1:30 Enterprise and internal service fund accounting and reporting Bill Hannah 1:30 – 2:30 Accounting for pensions and postemployment benefits Fred Lantz 2:30 – 2:45 Break 2:45 – 3:30 Equity accounting and reporting Bill Hannah 3:30 – 4:00 Accounting for interfund transactions Fred Lantz 4:00 Adjourn © Illinois Government Finance Officers Association INTERMEDIATE GOVERNMENTAL ACCOUNTING Hierarchy of Generally Accepted Accounting Principles 1 GAAP VS GARP ◼ Accounting Process of assembling, analyzing, classifying and recording relevant data ◼ Cash transactions ◼ Noncash transactions ◼ Substance over form ◼ Financial reporting Process of taking accounting information and articulating it in a usable format for those who need it (users) ◼ Internal financial reporting ◼ Special purpose external financial reporting State Comptroller AFR Department of Insurance pension AFR School District ISBE reporting ◼ General purpose external financial reporting Basic Financial Statements Notes to the financial statements Required supplementary information 2 PAGE 3 WHAT IS GAAP? ◼ Generally Accepted Accounting Principles ◼ Standard setting bodies who set GAAP? 1934 NCMA 1951 NCGA (Committee) ◼ Issued first Blue Book (GAAFR) in 1968 1979 NCGA (Council) ◼ 7 statements, 11 interpretations ◼ Recognized as the standard setter by the AICPA in SOP 80-2 3 WHAT IS GAAP? ◼ 1984 GASB was formed Created under Financial Accounting Foundation ◼ Sister to FASB ◼ 7 member board Chair, vice chair ◼ Director of research ◼ 12-15 research staff 91 Statements, 6 Interpretations, 6 Concept Statements, Numerous Technical Bulletins, Implementation Guides 4 PAGE 4 Old Hierarchy of Government GAAP GASB NCGA FASB AICPA OTHERS Category 1 Statements Statements Interpretations Interpretations Category 2 Statements APB Opinions Interpretations ARB Bulletins Category 3 Technical Technical Industry audit Bulletins Bulletins guides Industry accounting guides Statements of position Category 4 Accounting Recognized and Interpretations prevalent industry practice or pronouncements Category 5 Concepts Concepts Concepts APB Statements Textbooks Statements Statements Statements Issues Papers Articles Action Report Status Report GFOA Publications 5 HIERARCHY OF GAAP ◼ Pre Statement on Auditing Standards (SAS) No. 69 GASB issued negative pronouncements GASB Statement No. 4 ◼ Don’t apply FASB Statement No. 87 ◼ Post SAS 69 Moved FASB Statements and Interpretations 6 PAGE 5 SAS 69 Hierarchy of Government GAAP GASB NCGA FASB AICPA OTHERS Category 1 Statements Statements Pronouncements Interpretations Interpretations made applicable by GASB Category 2 Technical Audit and Bulletins accounting guide Statements of Position "Cleared" by GASB Category 3 Emerging issues ACSEC Practice Task force Bulletin "Cleared" by GASB Category 4 Implementation Audit and Widely Recognized Guide Accounting and Prevalent Guides Industry Statements of Practice Position not "Cleared" by GASB Category 5 Concepts Concepts Concepts Technical Accounting Statements Statements Statements Practice Aids Textbooks, Action Report Handbooks and Audits GFOA Publications 7 HIERARCHY OF GAAP ◼ Post SAS 69 Problem with enterprise funds Specifically, NCGAS-1, paragraph 18 states that "generally accepted accounting principles [for proprietary funds] are those applicable to similar businesses in the private sector...." ◼ GASB Statement No. 20 solution, one of two approaches for proprietary funds GASB S&I plus FASB S&I issued through November 30, 1989 (SFAS 101) GASB S&I plus all FASB S&I 8 PAGE 6 GASB S 55 Hierarchy of Government GAAP GASB NCGA FASB AICPA OTHERS Category 1 Statements Statements Interpretations Interpretations Category 2 Technical Audit and Bulletins accounting guide Statements of Position "Cleared" by GASB Category 3 Emerging issues ACSEC Practice Task force Bulletin "Cleared" by GASB Category 4 Implementation Widely Recognized Guide and Prevalent Industry Practice 9 HIERARCHY OF GAAP ◼ GASB Statement No. 55 GASB/NCGA Statements and Interpretations GASB Technical Bulletins, certain AICPA Audit Guides, SOPs AICPA Practice Bulletins, GASB Emerging Issues Task Force GASB Implementation Guides, widely accepted practice Missing FASB ◼ GASB Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards ◼ GASB Statement No.62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements 10 PAGE 7 GASB S 76 Hierarchy of Government GAAP Issued June 2015 GASB NCGA FASB AICPA OTHERS Category A Statements Statements Interpretations Interpretations Category B Technical Audit and Bulletins accounting guide Implementation Statements of Guides Position "Cleared" by GASB 11 12 ◼ AICPA STATE AND LOCAL GOVERNMENT AUDIT GUIDE Defines a “government” that should follow GAAP as defined by GASB All state and local governments, both general purpose and special purpose Public corporations and bodies corporate and politic Other entities that meeting one or more of the following: ◼ Popular election of officers or appointment of a controlling majority of the organizations Board by one or more governments ◼ Potential for dissolution of the organization with the net assets reverting to a government; or ◼ Ability to enact and enforce a tax levy ◼ If the criteria is not met, the organization should follow GAAP as defined by FASB 12 PAGE 8 HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Hierarchy-1 PAGE 9 GAAP and the Government Environment A. To properly assess why governments have unique accounting and a separate accounting standard-setting body, one must first understand the environment in which governments operate. B. Three characteristics have been identified that significantly influence the government environment. 1. Structure of government - various levels and branches of government create a system of checks and balances. a. Federal model allows states to determine their own structure of local government. b. Local government only posses the powers expressly granted to them by the state (Dillon’s Rule). Statutes tell you what you can do, not what you can’t do. Accounting standards follow the same principle. c. Some states, like Illinois, grant home rule powers that expand a local governments powers. 2. Nature of resource providers - in the commercial sector there is a direct relationship between goods or services provided by a company and the price paid by the customer. However, in the government environment this relationship does not exist for many transactions financed through tax resources. In these instances, the taxpayer is in effect an involuntary resource provider. 3. Political process - pressure on elected officials to provide the maximum amount of services at the lowest possible revenue level. This may lead to future years’ taxpayers financing goods and services that are currently being provided by the government. This is often referred to as intergenerational equity. C. Because of the environmental influences just noted, governments have established certain controls to maintain the integrity of budgeting, accounting and financial reporting. These controls include: 1. Legally adopted budgets - as will be discussed in further detail, budgets that are legally controlled are unique to government. 2. Fund accounting - although the reliance on the ability to segregate monies for specific purposes has been reduced with the introduction of more sophisticated Hierarchy-2 PAGE 10 accounting systems, fund accounting remains a primary element in demonstrating accountability. 3. Internal control - The internal controls encompasses those policies and procedures established by management to provide reasonable assurance that specific entity objectives (e.g., compliance with legal requirements) will be achieved (referred to in the past as accounting and administrative controls). The internal control framework contains five distinct elements: - provide a favorable control environment; - provide for the continuing assessment of risk (both of misappropriation of assets and misstatements of financial statements); - provide for the design, implementation and maintenance of effective control-related policies and procedures; provide for the effective communication of information, and provide for the ongoing monitoring of effectiveness of control related policies and procedures. D. These controls are specifically influenced by the accounting standard setting process. Generally accepted accounting principles (GAAP) have evolved
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