Kế toán, kiểm toán - Chapter 1: Introduction to governmental and not - For - profit organizations

Essentials of Accounting for Governmental and Not-for-Profit OrganizationsChapter 1 Introduction to Governmental and Not-for-Profit OrganizationsCopyright © 2015 McGraw-Hill Education.  All rights reserved.Chapter 1 – Learning ObjectivesObtain an overview of financial reporting for nonbusiness entitiesDistinguish between private and public sector organizationsIdentify the sources of authoritative accounting standards for various public and private sector organizationsDefine the 11 fund types used by state and local governmentsWhy Study GNP Accounting?Governments and NFP organizations hire accountants Governments and NFPs engage accountants to perform their auditsAs citizens and donors we wish to better understand how taxes and charitable donations are usedDifferences in the GNP Environment Organizational Purposes: Governments exist for the well being of citizens by providing public services, not for the purpose of generating returns to owners.Sources of Revenues: Governments derive many of their resources from taxes and other non-exchange transactions. Differences in the GNP EnvironmentPotential for Longevity: Governments very rarely go out-of-business. This long term view of operations changes the focus of accounting to a longer-term focus on the sustainability of services and the ability to meet future demand.Relationship with Stakeholders: Governments have an obligation to demonstrate accountability for public funds. Role of the Budget: Government budgets often carry the authority of law, preventing public officials from spending outside their budgetary authority. How Accounting Must Adapt to GNP Environmental DifferencesTraditional view of the equity accounts must be modifiedBudget compliance may be as important as income measurementWhen do we recognize revenue in the absence of an exchange transaction?Reports must reflect the existence of restrictions on the use of certain resources Non-financial performance measures are relatively more important for measuring effectivenessU.S. STANDARD SETTERSFederal government and its agenciesFASAB - Federal Accounting Standards Advisory BoardGAO – Governmental Accountability OfficeU.S. Treasury DepartmentOMB - Office of Management and BudgetSTANDARD SETTERS cont’dState and Local Governments - Covers basic governments and entities owned or controlled by governmentsPredecessor: NCGA - National Council on Governmental AccountingPrivate Not-for-profits - Covers not-for-profits not related to government entities — private nonprofit hospitals, colleges, museums, etc.Authoritative LiteratureStatements, Interpretations, and Technical Bulletins are primary literature that specifies GAAP (generally accepted accounting principles)However, in absence of adequate guidance, preparers may look at other documentsGAAP hierarchy (Illustration 1-2) guides the preparer in the priority of importance for accounting guidanceState and Local Government:GAAP hierarchyCategoryGASB (STATEMENT 55)State and Local GovernmentsA.GASB Statements and InterpretationsB.GASB Technical Bulletins and, if cleared by the GASB, AICPA Industry Audit and Accounting Guides and Statements of PositionC.AICPA Practice Bulletins that have been cleared by the GASBD.Implementation guides (Q&As) published by the GASB staff, and practices that are widely recognized and prevalent in state and local governments.Concepts StatementsConcepts project began in the 1970s to guide the standard setters in establishing GAAPConcepts statements guide the development of new standardsConcepts statements are not intended as authoritative GAAP, but are used for guidance only if no other literature addresses an issueConcepts StatementsAll three standard setting bodies have a series of Concepts Statements:FASAB – federal governmentFASB – private entitiesGASB – state and local governmentsFASAB Concepts: Six Concept StatementsConcepts 1: Objectives of Federal Financial ReportingConcepts 2: Entity and DisplayConcepts 3: Management’s Discussion and AnalysisConcepts 4: Intended Audience and Qualitative Characteristics for the Consolidated Financial Report of the United States GovernmentConcepts 5: Definitions of Elements and Basic Recognition Criteria for Accrual-Basis Financial StatementsConcepts 6: Distinguishing Basic Information, Required Supplementary Information, and Other Accompanying InformationFASB Concepts Statement No. 6: Objectives of NFP Financial reportsMain Objective of NFP Financial Statements isTo provide information useful to present and potential resources providers and others in making decisions about allocating resources to the NFP organizationWhich emphasizes thatDonors, government grantors and banks are primary users GASB Concepts Statements: Statement #1 – Objectives Citizens have a right to know why resources are being raised and how they will be usedGASB #1 Objectives of Financial Statements:Allow comparison of actual with budgeted resultsHelp users assess financial condition and results of operationsShow compliance with laws, rules and regulationsAssist in evaluating efficiency and effectivenessConcept Statement #2Service Efforts and Accomplishments Reporting (covered in Chapter 13) and amended by Concepts Statement 5Includes both Financial and Nonfinancial measures of performanceConcept Statement #3Communication Methods in General Purpose Financial Reports that Contain Basic Financial StatementsEstablished the framework for what information is presented in:Basic Financial StatementsNotesRequired Supplementary InformationSupplementary InformationHow Do GASB’s Objectives Differ from Business Objectives? There is more emphasis onThe budgetLegal complianceEfficiency and effectiveness measures other than net incomeGASB Concepts Statement No. 2 explains that nonfinancial measures (i.e. measures other than dollars) are required to assess effectivenessCodificationsThe GASB, FASB and FASAB publish codifications (organized versions) of accounting standards. As you would expect, the GASB Codification includes statements, interpretations and technical bulletins issued by the GASB. However the Codification also includes level-B standards issued through AICPA Audit and Accounting Guides and Statements of Position. Using the GASB codificationCodification references are presented in two parts: the first (section) identifies a topic and the second identifies a paragraph within the codification. Section #sTopics1000 - 1900General Principles2000 - 2900Broad Financial Reporting RequirementsLetters (A – Z)Specific Balance Sheet or Operating AccountsDouble lettersSpecialized Industries or Reporting UnitsParagraph #sLevel of Authority100 - 499GASB Standards (Level A GAAP)500 - 599Definitions600 - 699GASB Technical Bulletins and AICPA Audit and Accounting Guides and Statements of Position (Level B GAAP)700 - 799AICPA Practice Bulletins (Level C GAAP)900 - 999Non-authoritative discussionsFormat of Codification ReferencesRequired Content of State and Local Government Financial ReportsOverview of Basic Financial StatementsGovernment-wide StatementsStatement of Net PositionSimilar to business balance sheetStatement of ActivitiesSimilar to business income statementFund Financial StatementsDetailed reports of governmental, proprietary, and fiduciary activitiesIllustrated in Chapter 2Overview of Fund Financial StatementsGovernmental — general citizen services Balance SheetStatement of Revenues, Expenditures, and Changes in Fund BalanceProprietary — business-like activities such as water utilityStatement of Net PositionStatement of Revenues, Expenses, and Changes in Fund Net PositionStatement of Cash FlowsFiduciary — holding money in trust for othersStatement of Fiduciary Net PositionStatement of Changes in Fiduciary Net PositionReporting PerspectivesInternal accounting still tends to emphasize individual funds (pools of money)Government-wide reports are an attempt to aggregate data into a format more familiar to users — business-type financial statementsAccrual and Modified Accrual BasisAccrual Basis/Economic Resources Measurement Focus: General business concepts of revenue and “expense” apply when recording exchange-like transactionsModified Accrual Basis/Current Financial Resources Measurement Focus:Applies to funds financed by taxes and other involuntary contributionsModified Accrual BasisRevenues are recorded when “measurable and available”For example, property taxes revenues are recorded as revenues if levied this year and collected this year, or soon enough after the year end to still pay current year billsOutflows are called “expenditures”Expenditures are recorded in the fund when a liability is incurredWhat is a “fund” - as the term is used for state and local government accounting?A fund Represents a part of the activities of some organizationIs an accounting entitySelf-balancing set of accounts, reflecting the assets, liabilities, net assets, and changes in those balancesSegregates resources for specific activities In such a way as to ensure compliance with appropriate regulations or restrictionsState and Local Government Fund TypesGovernmental typeUsed for activities that are largely unique to the government environment and do not fall into either the proprietary or fiduciary categoriesProprietary typeBusiness-type activitiesFiduciary typeActing as an agent or trustee of moneys that generally belong to other partiesFive Governmental-Type FundsPERMANENT FUNDS - account for and report resources that are restricted to the extent that only earning, and not principal, may be used for purposes that support the reporting government’s programsCAPITAL PROJECTS FUNDS - account for and report financial resources that are restricted, committed or assigned to expenditure for capital outlays. As such, it accounts for the purchase or construction of major capital improvements, except those purchased or constructed by a proprietary (and less commonly, fiduciary) fundFive Governmental-Type FundsDEBT SERVICE FUNDS - account for and report financial resources that are restricted, committed or assigned to expenditure for principal and interest, other than interest or principal on proprietary or fiduciary activities.Five Governmental-Type Funds, con’tSPECIAL REVENUE FUNDS - account for and report the proceeds of specific revenue sources that are restricted or committed (not merely assigned) to expenditure for specified purpose other than debt service or capital projects. These include activities funded by federal or state grants or by taxes specifically restricted to certain activities.GENERAL FUND ‑ accounts for most of the basic services provided by the government. Technically, it accounts for and reports all financial resources not accounted for and reported in another fund.Two Proprietary Funds TypesENTERPRISE FUND - An enterprise fund is a fund established for the purpose of measuring net income for a governmental department providing goods or services primarily to outside consumers, in which it is the intent of the government that the department operate on a cost-recovery or profitable basis.INTERNAL SERVICE FUND - An internal service fund is a fund established for the purpose of measuring net income for a governmental department providing services primarily to other departments or agencies within the government, in which it is the intent of the government that the department operate on a cost reimbursement basis.Four Fiduciary Fund TypesAGENCY FUND - An agency fund is used to account for resources held by a governmental entity which are not owned by the entity, but which are payable to some outside party such as another governmental unit. Assets = LiabilitiesINVESTMENT TRUST FUND - Accounts for the external portion of investment pools reported by the sponsoring government. PENSION FUND - Pension funds are used to account for assets provided to pension trusts. The earnings of these assets are used to pay the pensions of public (government) employees.PRIVATE-PURPOSE TRUST FUNDS - report all other trust arrangements under which principal and income benefit individuals, private organizations, or other governments.How Many Funds Are Needed?Must have one and only one General fundMay not need one of every fund typeNo outstanding long-term debt? Don’t need a debt service fund.More than one of some types of fundsFour building projects? A government might use four capital projects funds; or could choose to combine some. Exact number depends on judgment. Use the minimum number that will allow compliance with legal and other restrictionsImportance of the Budget in Governmental AccountingEvery government should adopt an annual budgetAccounting system should make it possible to compare actual and budgeted resultsBudget vs. actual comparisons are included in the required supplemental information for the general fund and special revenue funds for which an annual budget is adoptedComprehensive Annual Financial ReportThe CAFR contains the financial report of the governments. The components of a CAFR will be illustrated in Chapter 2