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The name and city of the auditors for the CAFR is City of Cincinnati, Ohio 

1. What do you learn about your CAFR entity from the Government Wide Financial Statements? Use the name of the financial statement as a heading and list each financial statement as presented in the index to the CAFR.

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Use the notes to the financial statements and the RSI to assist in your postings as you ‘tell the story’ of your government entity.

1 page document.

Reference

https://www.cincinnati-oh.gov/finance/financial-reports/2020-comprehensive-annual-financial-report/

ACCT 410 – Second Class

1

Agenda (Selected Topics)

Fiduciary Funds

Program Revenue

Building the Budgets

Non-Exchange

Deferred Outflow/Inflow

Pension

GL examples

Fixed assets

Other funds

Upcoming Assignments

2

Fiduciary Funds

Tracks items that a state or local entity does not truly own

State or local entity has a responsibility to track items for another group (e.g., a teacher’s pension)

Not included in government-wide statements

3

Fiduciary Funds

Trust Funds – Held for another entity

Pension Trust Funds (e.g., retirement fund for teachers)

Investment Trust Funds – for the external portion

Private-Purpose Trust Funds – account for other trust arrangements for which the principal and income benefit individuals; an example is property that no one can initially claim (e.g., someone dies with no will and no initial heirs) – escheat property

Custodial – (holds money temporarily for another group – like a mail carrier) to receive and disburse funds – changed name from Agency, as the work Agency could be confusing – See GASB 84 for details – https://www.gasb.org/jsp/GASB/Document_C/DocumentPage?cid=1176168786182&acceptedDisclaimer=true – effective 2021

4

Program Revenues

Three categories:

Services, often charging consumers

Operating grants – another entity (e.g., federal government) provides funds

Capital Grants and Contributions – another groups gives funds for particular purpose

5

Program Revenues

Example – State of Maryland

6

Building the Budget

Estimated Revenues shows expected revenue in the year

Estimated other financial sources – transfers from other funds and debt (e.g., bonds that state / local entities issues)

7

Non Exchange

Obtaining funds that are not sales and not receiving equal amounts (such as water)

Categories

Derived tax revenue – assessments on transactions, such as income taxes and sales taxes. Recognized when the underlying transaction occurs

Imposed nonexchange revenues – assessed on various non-governmental groups. Example are property taxes

Government-mandated nonexchange transactions – a government provides resources to another government ,and requires the recipient to use the resources for a specific purpose. Example is the federal funds provided for food and nutrition programs in school districts

Voluntary nonexchange transaction – legislative or contractual agreements, other than exchanges, entered into willingly by two or more groups

8

Component

Has separate budget and management and included in some way with state/local entity

Could be discrete (separate column in financial statements) or blended (included in governmental)

Discrete – criteria include separate management, independent budget, services not to government

Blended – serves other parts of government, also required for a component unit, incorporated as a not-for-profit corporation with the government as the only corporate member

9

Deferred Outflow/Inflow

Obtaining/using net assets that will result in future use of resources

Similar to Comprehensive Income in the for-profit realm, and used for similar items (e.g., certain pension costs)

Future outflow – shown following assets and before liabilities (debit)

Paid more for bond than the value – will pay more later – (Reacquisition cost in excess of carrying value is a deferred outflow)

Future inflow – reported following liabilities and before equity (credit) – expected fund – example is certain grants received before timing requirement (debit cash, CR def rev)

10

Deferred Outflow/Inflow

Future revenue

intra-entity transfers of future revenues

Lease sale / leaseback – deferred inflow or outflow

Definition: (1) deferred outflows of resources, and (2) deferred inflows of resources. A deferred outflow of resources is defined as “a consumption of net assets by the government that is applicable to a future reporting period,” and a deferred inflow of resources is defined as “an acquisition of net assets by the government that is applicable to a future reporting period.”

Source: https://osc.state.ny.us/localgov/pubs/releases/files/DeferredInflowsOutflowsGASB6365.pdf

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Deferred Outflow/Inflow

Deferred Inflow Examples

Example “Imposed Nonexchange Revenue Transactions (e.g., real property taxes) Resources received prior to the period when they are required to be used, or when use is first permitted, do not meet the definition of a liability because the government is not obligated to sacrifice resources. Therefore, a deferred inflow of resources should be reported for resources associated with these transactions received or reported as a receivable before (a) the period for which the property taxes are levied, (b) the period when resources are required to be used, or (c) the time when use is first permitted. This change is also applicable to governmental funds, subject to reporting distinctions of those funds.”

https://osc.state.ny.us/localgov/pubs/releases/files/DeferredInflowsOutflowsGASB6365.pdf

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Deferred Outflow/Inflow

Example – State of Maryland

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Deferred Outflow/Inflow

Example – State of Maryland (continued)

14

GL Examples

Tax Collections

 DR Real property taxes receivable—current $3,600,000

CR Revenues—property taxes $3,240,000

CR Allowance for uncollectible taxes

receivable—current 360,000

Note – revenue = net amount entity expects to receive

15

Pension

State and local must track costs of pension, including liability

Similar to for-profit requirements

Some items will be in current expense, others in deferred outflow/inflow (including actuarial differences)

Numerous required disclosures – see GASB rules at https://gasb.org/jsp/GASB/Pronouncement_C/GASBSummaryPage&cid=1176160219492

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Pension

Example – State of Maryland expenses for Teachers Retirement and Pension System (TRS)

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GL – Debt Service

Bond Issuance ($2 million) – in governmental fund

DR Cash $2,000,000

CR Other financing sources $2,000,000

18

Net Position

Government-wide statements = total assets + deferred outflows – liabilities – deferred inflows = Net Position

Three categories – RUN

Restrictions (external entity)

Net Investment in Capital Assets

Unrestricted

19

Net Position Example

20

20

GL Examples

In governmental fund

Buys fire truck for $50,000 in cash

DR Expenditure—capital outlay $50,000

CR Cash $50,000

Note – not expense, expenditure

21

CAFR

Comprehensive Annual Financial Report (CAFR) is similar to the 10Ks for the for-profit publicly traded entities, or accountability report for USA federal entities

Provide financial statements and other data

Required sections include

Government-wide Financial Statements

Footnotes

Management Discussion & Analysis (similar to for-profit)

22

CAFR

Fund financial statements

For governmental funds

Includes the fund balance

Government-wide

Combines various funds the government owns

Includes governmental and proprietary

For more details, see 217 page Government Accounting with Journal Entries, including Exhibit 7

23

Finance Function in Local Governments

State and Local have many challenges, including:

Limited resources

Obtaining qualified staff

Potential changes

Carefully analyze outsourcing – the contracts may help the for-profit companies but not the actual state/local/tribal government

Some high-profile failures in recent years

If the contractor fails, state/local entities still must pick up the pieces

Finance professionals could lead transformational efforts

Need buy-in from key stakeholders

Entities must have proper communications

Need sufficient resources

Source: Chartered Global Financial Management Institute at https://www.cgma.org/content/dam/cgma/resources/downloadabledocuments/transformation-improving-government-performance.pdf

24

Tribal Finances

State and Local also include Tribal (Native American) governments

The Financial Reporting and Information Guide for Tribal Governments and Enterprises (Orange Book) addresses the complex economic activity and related entity differences of tribal settings.

Presents an overview of the financial reporting framework in a tribal setting.

Includes ten chapters covering the unique operating environment of tribal governments from financial reporting with business activities to fiduciary activities to federal tax and information reporting. The Orange Book was informally reviewed by accounting standard setters and includes sample tribal financial statements.

Source: https://www.nafoa.org/

25

Tribal Finances – Example

26

26

Tribal Finances – Example

27

CCR Reports

Citizen Centric Reports provide summarized data that is in non-accounting terms

Demonstrates distribution of money into a state/local entity and how a state/local entity spends money

Shows high-level demographic and economic data

Shows upcoming efforts

28

CCR Reports

See following from Fairfax City, VA

Source: https://www.fairfaxva.gov/home/showdocument?id=10713

29

Long-term assets

Interest is expensed on capitalized assets (unlike for-profit or for IFRS compliant entities)

Change in GAAP – interest used to be capitalized in proprietary funds

See details at:

https://www.bkd.com/sites/default/files/2018-10/GASB-Updates-Interest-Capitalization-Rules.pdf

30

Long-term assets

In some cases, infrastructure assets could not be on balance sheet

Must meet several criteria, including

Has assessment of assets

Must determine costs of maintaining assets each year

Must have evidence of last three assessments

31

Artwork

State and local entities are allowed to not capitalize artwork if three conditions exist:

Art for general public, not for gains (profit)

Artwork is protected, tracked and maintained

Proceeds from sale used to buy more art work

Similar to heritage assets in federal

Akin to family heirlooms that a family would normally not sell

32

GASB #96 – Recent Update

Covers “subscription-based information technology arrangements (SBITAs) for government end users (governments).”

Establishes that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability;

Provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and

Requires note disclosures regarding a SBITA.

Details at: https://www.gasb.org/jsp/GASB/Document_C/DocumentPage?cid=1176174710997&acceptedDisclaimer=true

33

Upcoming Assignments

Read the 217 page Government Accounting Manual (Financial Accounting for Local and State School Systems) – pages 51-100

Helpful publication for this class

Week 2 – Due Nov 2, 2021

HW 1

Discussions for Week 2

Two postings for each topic – initial post and response to other student

Week 3 – Due Nov 9, 2021

Discussions for Week 3

Two postings for each topic – initial post and response to other student

Exam 1–see next slides

34

Quiz 1 Notes

Coverage

Readings (especially the Government Accounting Manual with Journal Entries) for Weeks 1 and 2

Roger CPA review

Slides

Homework 1

35

Quiz 1 Notes

Multiple Choice

Two hour limit – may be penalty for late submission (more than two hours)

Topics include (not full listing)

Modified accrual v. full accrual

CAFR, including sections

Encumbrances

Accounting for difference of asset and liabilities

36

Mauna Loa – biggest mountain in the world (Hawaii)

37

Class 2 – The Class “Climb” Continues

37

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