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CGFM Exam 2 - Section 1
Taxes - Resources for gov are derived primarily from Grants and shared revenues - Gobs receive revenue from other levels of gov through Budget - Primary control device in gov Financial reporting - Primary mechanism to demonstrate accountability Financial reports - Shows how much was raised, how it was spent, and whether spending followed the budget Performance reports - Inform users how well gov is operating and whether it is achieving goals in effective/efficient manner 10th Amendment - Reserve Clause - Establishes two levels of gov - federal and state based on delegation of powers Interperiod Equity - Current period taxpayer's are paying current period's services Accountability - Cornerstone of financial reporting Gov accountability - Based on belief that gov has responsibility to report, public has right to know, and ultimate power belongs to people Ballot box, referendum, initiatives - How people exercise power Legal accountability - Need to comply with laws, rules, regulations Performance accountability - Ensuring government act in efficient, effective, or economic manner Fiscal accountability - Associated with raising of resources and allocation of those resources accomplish objectives
Operational accountability - Associated with stewardship of public resources. Public officials must ensure resources are used appropriately Performance measures and performance reporting - Ways to address operational accountability Executive branch - Accountable to legislative branch and the public Operating in efficient and effective manners, collecting and using revenues - How is executive branch accountable to public Using resources in accordance with legislative mandates within fiscal constraints imposed by legislative branch - How is executive branch accountable to legislative branch Legislative branch - Accountable to public for raising of resources and for determining how those resources are to be used Debt ceiling - Accountability mechanism that allows congress to monitor financial effects of spending and tax policies Determine compliance with contractual agreements related to debt issues - How do investors and creditors use financial reports Assess accountability and help make social, economic, and political decisions - How do financial reports assist users Financial reporting - Primary communication device for assessing accountability GASB Concept Statement No 1 - Contains hierarchy of objectives of financial operations and how the operations focus on accountability Accountbaility - Overall goal listed in GASB Concept Statement No 1 Raising resources and for determining how resources are to be used - Public officials are responsible for Enactment of budget -
Consistency of reports Like entities should report same info in same way - Comparability of reports Recovery.gov - Created to allow citizens to monitor progress in awarding funding intended to stimulate economy and create jobs Recovery.gov - Catalyst in expanding access to disaggregated gov financial info Open Gov Initiative - Effort by fed gov to create level of openness in gov Connected gov act - Federal websites are required to be mobile friendly Digital Accountability and Transparency Act (DATA Act) - Established requirement for development of gov wide financial data standards and increased availability, accuracy, and usefulness of fed spending info DATA Act - Expand Fed Funding Accountability and Transparency Act. Establish gov wide data standards for financial data. USAspending.gov. Simplify reporting for entities receiving fed funds. DATA Act - Calls for OMB to offer recommendations to eliminate unnecessary duplication in financial reporting and reduce compliance costs, for recipients of fed awards SEC - Established in 1934 and vested with power to regulate securities market Mission of GASB - Set and improve standards of state and local accounting and financial reporting that will result in useful info for users of financial reporting. Guide and educate public Mission of FASAB - Serve public interest by improving fed financial reporting through issuing fed financial accounting standards and providing guidance after considering needs of external and internal users of fed financial info. Mission of FASB - Set and improve financial accounting and reporting standards that provide decision useful info to investors and other users of financial statements.
Expected benefits exceed expected costs - Standards are only established when Discussion Memorandum - Outlines results of research efforts of staff and defines accounting as reporting issues for subject area. Respondents asked to comment on each aspect of issue. (Rare) Invitation to comment - Staff document. May contain elements of discussion memo, a preliminary views document, or both, but does not present any board views. Respondents could be asked to comment on research report, monograph, standards or proposed standard issued by another standard setting body Preliminary Views - Board's initial proposal for accounting and reporting standard. May be single view which board is seeking input or there may be several views (majority view and minority view) Exposure Draft - Last due process document that must be published before final standard is issued. In format of final standard, but constituents have opportunity to react and provide comments. "Statement" of accounting standard - Final document issued by board. Sets forth accounting and reporting standard that should be followed along with date it becomes effective concept statement - Does not establish standards. Describes concepts the board will use as framework for evaluating existing standards and practices and for establishing new standards Interpretations, technical bulletins, technical releases - Issued y board to clarify points that may be ambiguous in previous standard GAAP Hierarchy - Consists of sources of accounting principles and framework for selecting principles used in prep of GPFR Statement of Federal Financial Accounting Standards 34 - FASAB Hierarchy GAAP, technical bulletins, technical releases, implementation guides - FASAB Hierarchy GASB Statement 76 - GASB Hierarchy
Direct tracing - Preferred method for assigning costs Cause and effect basis - Used when impractical to use direct tracing. Based on premise that outputs require performance of certain activities, or use of certain resources to occur and that activities or resource use cause the results (results in the cost) Cost allocation - Used when impractical or not economically feasible to assign costs directly or through use of cause and effect Reasonable and consistent - Costs should be allocated on what basis Federal Financial Accounting Standards 4 - Managerial cost accounting standards and concepts issued by FASAB Federal financial accounting standards 4 - Contains five requirements aimed at providing reliable and timely info on full cost of fed programs, their activities, and outputs
- Each reporting entity should accumulate and report costs of its activities on a regular basis for management info purposes.
- Management of each reporting entity should define and establish responsibility segments
- All reporting entities should report the full costs of outputs in GPFR
- Inter-entity costs
- Costs of resources consumed by responsibility segments should be accumulated by type of resource such as employees, materials, capital, utilities, etc - Five requirements of SFFAS 4 Responsibility segment - Responsible for carrying out mission, conducting major line of activity, or producing one or group of related products and services
- Define and accumulate outputs if feasible, quantify each type of output in units.
- Accumulate costs and quantitative units of resources consumed in producing outputs
- Assign costs to outputs and calculate cost per unit of each type of output - What should be done for each responsibility segments Costs of resources consumed by segment that directly or indirectly contribute to the output and costs of identifiable supporting services provided by other responsibility segments within reporting entity and by other reporting entities - Full cost of output produced by responsibility segments is sum of Financing source -
How does reviving entity report imputed value of goods/services When they relate to business type activities - When should inter-entity costs be imputed Activity based costing - Focuses on activities of a production cycle, based on premise that an output requires activities to produce and activities consume resources Cost drivers - What does activity based costing systems use to assign costs through activities to outpits Job order costing - Accumulates and assigns costs to discrete jobs Process costing - Accumulated costs by individual processing divisions Standard clstkng - Established predetermined or expected costs that can be applied to activities, services, or products on a per unit basis OMB Circular A-87 - Cost principles for state, local, and Indian tribe to a OMB Circular A-21 - Cost for educational institutions OMB Circular A-122 - Cost Principles for Non-Profit Organizations Necessary and reasonable for proper and efficient performance and admin of fed awards. Be allocable to fed awards as provided in Uniform Guidance. Be authorized or not prohibited under state or local laws and regulations. Conform to any limitations or exclusions. Be consistent. Consistent treatment. Determined in accordance with GAAP. not included as cost or used to meet cost sharing or matching requirements of other fed award. Be net of all applicable credits. Be adequately documented. - Requirements for allowable costs of grant Goods/services involved are chargeable or assignable to such cost objective in accordance with relative benefits received - When are costs allocable Direct costs of program plus allocable portion of allowable indirect costs less applicable credits - Total cost of fed awards is comprised of
Budgetary accounting/reporting, centralized controls, agency controls - Parts of budget execution process Org structure of the gov - What are expenditure budgets usually organized around Fund, org unit, function, program, category, line item/object class - Elements of budget document Org unit - Dept, division, agency, bureau, board, commission, or other org unit that is responsible for carrying out gov operations Function - Major gov service classifications (public safety, social services, public works, education, etc) Program - Group of activities within a function (tax enforcement, clean air, lunch program, traffic enforcement, street resurfacing, housing rehab, etc) Program level - Where associated performance measures are most likely to be presented Category or source - Type of revenue generated Character - Fiscal period that expenditures are presumed to benefit Current period - Current expenditures benefit Present and Future periods - Capital outlay benefits Past, present, and future periods - Debt services benefit Object class - Type of items purchased or services obtained Line item Program Baseline Zero based
Performance budgeting - Budgetary approaches Line item budget - Traditional approach. Each org unit prepares budget by line item or object class. Usually based on amount spent prior FY. Baseline budgeting - Technique tha facilitate yes prep of line item budget. Based on premise that currently provided programs will continue into next budget period without increase/decrease in level of service. Baseline budgeting - Useful when resources are impacted by economic conditions and conservative budget approach is needed to maintain sound financial condition Program budgeting - Considers proposed expenditures in relation to programs or services for which monies would be spent. Zero based budgeting - Each org unit begins with zero budget and must justify even continuation of existing programs Performance budgeting - Emphasizes importance of performance measurement. Used to improve effectiveness and efficiency of programs. Lack of knowledge of connection between resources and result. Lack of cost accounting systems that could track resources dedicated to intended results. Potential impact of external factors - What makes performance budgeting, in contrast to program budgeting, difficult No - Does fed gov finance capital projects separately from operating activities Five year period - How long is typical capital plan Notes and bonds Intergovernmental grants Special assessments Current resources - Financing for capital projects Only those who benefit from project pay for it -
Used to assure budgets are not overspent Establish memo accounts for each budget appropriation and source of revenue - How do state and local govs prevent overspending the budget Assets = liabilities + fund balance (or net position) - Balance sheet format accounting equation Fund balance/net position - Difference between assets and liabilities Balance sheet - Represents amounts as of end of the reporting period Obligation - Formal reservation of budget authority that will result in future expenditure of funds from Treasury Over-obligating budget authority - Anti deficiency act violation Budgetary resources = status of budgetary resources - Fed budget equation Budget execution - What part of budget phase or obligations or encumbrances used Encumbrance is reversed - What happens to encumbrance at state/local level once goods/services are received Obligation not reversed. Status of obligation changes from undelivered orders - unpaid to delivered orders - unpaid - What happens to obligation at fed level when goods/services are recieved Cash - Fed budget is primarily what basis Budget status report - Most important report issued during operating year Unexpended balance - amount remaining for future spending Assessment of governmental program performance and evaluation of relevance of priorities for delivery of services - Objectives achieved by monitoring budget
By quarter. But can be made for specific purposes (by program or sub org unit) - How are apportionments usually distributed Control spending and ensure funds are available for entire year - Why are funds apportioned by quarter Ensure funds will be expended consistent with admin's priorities - Why would funds be apportioned by program or sub unit Vacancy credit - Level of savings can result if position is eventually filled Accrual accounting - Attempts to match inflows and outflows to the proper period When earned - When are revenues reported with accrual accounting When incurred - When are expenses reported with accrual accounting Governmental Proprietary Fiduciart - Three categories of activities Modified accrual - System of accounting developed for governmental activities Accrual - System of accounting used by business type activities Accrual - System of accounting used by fiduciary activities current financial resources measurement focus - Measurement focus for governmental activities GAAP - What mandates the measurement focus that should be used for external reporting purposes Fixed assets are capitalized and depreciated Debt proceeds are recorded as liabilities - Economic resources measurement focus uses these principles
Where is repayment of debt (principle and interest) recorded (current financial resources) Cash and claims to or against cash - Current financial resources primarily consist of what Current - Financial resources received prior to end of period are considered what Determine if there are sufficient current financial resources available to pay for goods/services. Not to match revenues to expenses and determine net income or loss. No ability to match revenues to expenditures. - Objective of current financial resources measurement focus Measurement of revenues to identify the amount that has, or will become, available to pay for goods/services - Focus of current financial resources Payment is made - When is settle of claim recognized as expenditure (current financial resources) Capital assets and long term debt - Major differences of measurement focuses are cording of which transactions Economic resources - Transactions involving capital assets and long term debt have no effect on operating statement under which measure focus Current financial resources - Transactions involving capital assets are reported as expenditures and long term debt is reported as other financing sources under which measurement focus Current financial resources - No impact on balance sheet from transaction involving capital assets and long term debt transactions (until payment is made) under which measurement focus Compensated absences and claims and judgements (do not require use of current financial resources) - Other major difference in measurement focuses involving long term obligations other than debt Reported as expenses and liabilities when obligation is incurred - How compensated absences, claims, and judgements are recorded (economic resources) Reported in period when current financial resources are used - How compensated absences, claims, and judgements are reported (current financial resources)
Accrual Modified accrual Cash - Three bases of accounting Only state and local govs - Who uses modified accrual accounting Statement of cash flows - Required when gov uses accrual basis and economic measurement focus When earned - When is revenue reported (accrual) When due to the gov - When is tax/grant revenue reported (accrual) When incurred - When are expenses/liabilities reported (accrual) Accrual - What basis of accounting consumes capital assets over useful life Asset until it is incurred - How prepaid expenses are recorded (accrual) Asset until it is consimed - How inventory is recorded (accrual) Modified accrual basis - Revenues and other financial resource increments are recognized when they become susceptible to accrual - when they become measurable and available to finance expenditures of current period Amount can be determined - What does measurable mean under modified accrual basis Resources have already been revived or will be received sufficiently soon after end of FY in order to pay liabilities of current FY - What does available mean under modified accrual basis When fund liability is incurred (goods/services have been provided) - When are expenditure recognized (modified accrual) When payment is made -
Licenses, permits - Examples of exchange like transactions Admission to parks, tolls, water, electricity - Examples of exchange transactions Receivavle - Recognized if payment has not been revived for exchange like transaction at the time the transaction takes place (accrual AND modified accrual) Taxes Fines Grants Donations - Non exchange transactions When underlying transaction takes place - When is receivable and revenue recognized for non exchange transactions (accrual) When resources are available - When is revenue recognized for non exchange transaction (modified accrual) When gov has established legal claim - When is revenue recognized when there is no exchange All eligibility requirements have been met - When does grant recipient recognize revenue When grant is awarded - When does grant recipient recognize revenue if there's no eligibility criteria When eligibility requirements are met - When does grantor agency recognize liability/expenditure/expenses Probable that receivables recorded at financial statement date will not be collected and incollectible amount can be reasonably estimated - When should allowance for doubtful accounts be recorded
- Amount of specifically identified receivables that are not likely to be collected.
- Percent of receivables method
- Percent of revenues method - Three methods used to determine allowance for doubtful accounts Percent of receivables method - Ending balance of receivables is multiplied by historical percentage of bad debts to arrive at amount to be estimated as accumulated bad debt
Percent of revenues method - Total revenues for period are multiples by historical percentage of bad debts to arrive at amount to be considered in collectible for the period
