Exam (elaborations)
CGFM -2 Chapter 5 (Sec 2 Ch 1)
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CGFM -2 Chapter 5 (Sec 2 Ch 1)
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CGFM #2: Chapter 5 (Sec 2 Ch 1)Financial Accounting Foundation -
full time chairman + 6 part time members
professional staff from various accounting sectors
appoints members to Governmental Accounting Standards Advisory Council (GASAC), an advisor
to GASB
users of financial reports -
citizens, including media & public interest groups
legislative and oversight bodies
investors and creditors
program managers are users but they're internal users and GASB doesn't set standards for internal
reporting
objectives of financial reporting -
- accountability and transparency
---sufficient current resources
---transactions allowable and within requirements
---demonstrate efforts and accomplishments
-evaluation of operating results
---sources and uses of financial resources
---sources of financing and meeting of cash requirements
---change in financial position as a result of operations
-assess level of services that can be provided and ability to meet obligations
---financial position and condition
---assets and useful lives and their potential
---legal and contractual restrictions and risks of potential loss
financial reporting entity (definition of) -
primary government + component units
component unit (definition of) -
organizations for which the primary government is financially accountable and other
organizations for which the nature and significance are such that their exclusion would cause the
reporting entity's financial statements to be misleading.
May be legally separate organizations.
Need to consider the complexity of legal, financial or administrative issues between the primary
government and potential component units.
primary government (definition of) -
any state or general-purpose local government (municipality, township, county)
a special-purpose government may be a primary government if: -
-is legally separate
, -has a separately elected governing body
-financially independent of other state and local governments
a special-purpose government is financially independent if it can: -
-determine budget without another government's substantive authority to approve and
modify
-levy taxes or set rates or charges without substantive approval of another government
-issue bonded debt without substantive approval of another government
determining component units -
-legal standing: is a component unit if not
---legally separate from primary government?
---corporate powers?
-financial accountability: will be a component unit if:
---primary gov't appoints majority of governing body and impose will or potentially provide funds
or impose financial burdens on
---fiscally dependent on primary government
GASB 39 -
Determining Whether Certain Organizations Are Component Units
Criteria to determine a component unit:
-economic resources held by PCU are (almost) entirely for the direct benefit of primary gov't
-primary gov't or PCU is entitled to or has access to majority of economic resources held/received
by PCU
-economic resources the primary gov't is entitled to or has access to are significant to the primary
gov't or PCU
methods for displaying component units -
-blending: presented in the financial statements in a manner similar to those of the primary
gov't
-discrete presentation: data presented separate from the primary gov't in the financial statements
-inclusion as a fiduciary fund: present as fiduciary fund.
criteria for determining if a PCU should be presented in blended format -
-composition of two boards: boards of both entities are made up of the majority of the same
individuals such that the PCU can't override the decisions of the primary gov't
-providing services to the primary gov't: who derives the primary benefit from the PCU? Primary
gov't, either directly or indirectly?
criteria for determining if a PCU should be presented in discrete format -
discretely presented major programs should be presented based on their significance and
relationships to the primary gov't in one of three ways:
-separate column for each major component unit (stmts of net assets and activities)
-PCU data aggregated in stmts of net assets and activities; combining stmts presented after fund
stmts.
-aggregate info in stmts of activities and net assets and condensed financial info for individual
major PCUs presented in the notes to the financial stmts.
related organizations -
disclosed in the notes
primary gov't is not financially accountable even though it appoints the voting majority of board.
Notes disclose the extent of the primary gov'ts involvement in the related organization.
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