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My CPA-FARmodule21

Notecards I made from Wiley's 2012 CPA Exam Review

Who establishes standards of financial reporting for governmental entities? Governmental Accounting Standards Board (GASB)
What is the hierarchy of sources of GAAP for state and local governments? GASB Statements and interpretations GASB technical bulletins and AICPA guides and statements cleared by GASB AICPA practice bulletins cleared by GASB Implementation guides publishes by GASB
Who are the primary users of the external state and local government financial reports? citizens, legislative and oversight bodies, investors and creditors
What are governmental financial reports primarily used for? comparison of actual financial results with budgets, assess financial condition and results, assist in determining compliance with finance laws, assist in evaluating effectiveness/efficiency
Same as in regular financial reporting, what basic characteristics should state and local financial governments possess? understandability, reliability, relevance, timeliness, consistency, and comparability
What is the primary objective of Service efforts and accomplishments reporting? provide more complete info about entities performance than traditional financial statements
What are the elements of a statement of financial position? statement of resource flows? 1.Assets, Liabilities, Deferred outflow resources, Deferred inflow resources, Net position (residual of all other elements in statement of financial position) 2.Outflow of resources, Inflow of resources (applicable to reporting period)
What are the two types of accountability focused on by governmental accounting? Operational accountability (how effective/efficient using resources and resources available to meet future obligations) and fiscal accountability (organizations compliance with laws and regulations)
What are the minimum requirements for basic financial statements for general purpose governments? Management DIscussion and analysis (MD&A), Government wide financial statements, Fund Financial statements (government, proprietary, fiduciary funds), Notes to financial statements, required supplementary information (other than MD&A)
If a government wants to include a comprehensive annual financial report in its other supplementary information, what is included? Intro section (letter of transmittal, organization chart, list officials) Financial section (auditors report, required info, other supplementary info) Statistical section(net assets by component, change in net assets, rev/debt capacity, demographic stats)
What is a special purpose government? engaged in one or more governmental activities, business-type activities, fiduciary activities, and both gov and bus type activities
What are the requirements for reporting for a special purpose government that engage in gov activities with more than one program? engaged both gov and bus type transactions? 1 gov activity? only bus type activity or fiduciary? 1. prepare both government wide and fund financial statements 2. prepare both government wide and fund financial statements 3. may combine government wide and fund financial statements 4. only prepare proprietary or fiduciary fund statements
What does a reporting entity consist of? Define these 1. primary government. either state government, general purpose local government, or special purpose local government(legally separate) 2. component unit- legally separate org that elected officials are financial responsible for
When is financial accountability for a legally separate organization assumed? primary gov appoints a voting majority of org's governing body and can impose will on organization or there is potential for org to provide benefits to or impose burdens on the primary government
Normally, component units are presented in a separate column to the right in financial statements. What would cause them to be blended with the primary government? 1governing body component substantially same as primary govt & financial relationship exists between units or primary govt operational responsable for component 2component provides services almost entirely for primary 3component debt expect pay by prima
What is provided in the management discussion and analysis section? overview of governments financial activities, comparison between current year results and prior year results. emphasis on prior year
What specifically is included in government wide financial statements? 1. statement of net assets, like BS use assets-liabilities= net assets 2. statement of activities (reports revenues and expenses. Consolidated but dont eliminate interfund transactions between gov and bus activities or primary and component)
In the statement of net assets, what are net assets broken down into? 1. invested in capital assets net of related debt (subtract accumulated depreciation too) 2. restricted (imposed by creditors or law) 3. unrestricted (plug figure)
In the statement of net assets, what are the columns used? 1. governmental activities 2. business type activities 3. total primary government 4. component units
In the statement of activities what are revenues reported as exchange revenues or nonexchange revenues? Exchange- goods/services transferred for payment of equal value Nonexchange-
In the statement of activities, what is included in program revenues? charges for services, operating grants/contributions, capital grants and contributions (not limited to these, fines may be included in charges for services, etc)
What is the difference between a extraordinary and special item? Both events that unusual/infrequent in occurrence, but special items are within the control of management
How is depreciation expense for infrastructure assets accounted for? Do not allocate to infrastructure, shown as expense for function that maintains (roads-public works)
What type of activities capitalize interest? business-type activities only, not governmental activities
What does it mean when a government chooses to use a modified approach for recording eligible infrastructure assets? assets are not required to be depreciated if 1. govt manages infrastructure with with an asset management system 2. govt documents that infrastructure is being preserved approximately at condition level established and disclosed by govt
What are the types of funds and where are they capitalized in the three fund sections? Governmental (general, special revenue, debt service, capital projects, permanent) Proprietary (internal service, enterprise) Fiduciary (agency, pension, investment trust, private-purpose trust)
What kind of funds are reported in the fun financial statements? How is it determined if they are classified as such? What happens to the rest of the funds? 1.Major (general fund always a major fund) assets/liabilities/revenues/expenses make up 10% of governmental category AND 5% of total government category combined. May also choose to report as major if consider useful. 3.add report in single colu
What is included in governmental funds? current financial resources raised and expended to carry out general government purposes. Funds include Special revenue(specific expenditures)Debt Service(pay long-term debt)Capital projects(capital outlays)Permanent(earnings not principal used)
What financial statements are required for governmental fund types? Balance sheet and statement of revenues, expenditures and changes in fund balance. Prepared on current financial resources measurement and modified accrual basis
What is meant by a restricted fund balance? committed fund balance? assigned? unassigned? 1.restricted to specific purpose 2.used for specific purpose imposed by highest level of govt 3.constrained by govt intent to use for specific purpose 4.balance not assigned to other funs nor restricted, committed, or assigned to a purpose in general f
What do proprietary funds focus on? total economic resources, income determination, and cash flow presentation. Include internal service funds(govt activity) and enterprise funds(business type)
When may an enterprise fund, found in proprietary funds, be used? 1. financed with debt secured only by pledge of net revenues of activity 2. activities cost recovered with fees/charges not tax 3. pricing policy of policy establishes fees and charges to cover costs including depreciation/debt service
What statements are required for proprietary funds? 1. Statement of net assets(orBS) 2. statement of revenues, expenses, and changes in Net assets(orFund equity) 3. Statement of cash flows GASB allows A=L+OE in this one
What are the differences between a regular statement of cash flows and one done under GASB rules? 1only direct method, reconciliation required 2reconciliation from OP income to net cash flow from OP activities(not NI) 3GASB has 4 categories not 3 4Interest received/paid is investing/financing not operating 5Capital asset purchase is financing not
What is the purpose of fiduciary fund financial statements? provide info on resources held/used by govt for other individual or entity with Statement of fiduciary net assets and changes in fiduciary net assets. Total all four fund types (pension trust, investment trust, private-purpose, agency)
What do pension trust funds account for? Investment trust funds? Private purpose trust funds? Agency funds? (government is trustee) 1.funds held intrust to pay employee retirement/other benefits external portions of investment pools all other trust arrangements where principal remains intact, interest used to benefit others 4.resources held in custodial capacity
How are agency funds treated in the statement of changes in fiduciary net assets? Not reported. In statement of fiduciary net assets only with only assets and liabilities
What is included in the required supplementary information section? 1two pension schedules (funding progress/employer contributions) 2schedules when govt sponsors a public entity risk pool 3budgetary comparison schedules 4schedules if modified approach infrastructure (reflect condition/compare needed&actual to maintain
How does the modified approach differ from the depreciation approach for infrastructure? Modified approach costs would be cost to extend the life and ordinary expenses Depreciation approach costs would be depreciation cost and ordinary expenses Both capitalize expenditures to add or improve asset
What are the two types of measurement focus required by GASB? two types of basic accounting? 1.economic resources measurement and CURRENT financial resources measurement 2. accrual and modified accrual
What does GASB define nontransaction statements as? What are their categories? 1. Gov't gives/receives value w/o directly receiving/giving equal value in exchange 2. Derived tax revenues, imposed nonexchange revenues, gov't mandated nonexchange transactions, voluntary nonexchange transactions
What are the four types of eligibility requirements that must be met in order for a receivable and revenue to be recognized? 1.required characteristics of recipient 2.time requirements(receivable/revenue not recognized till fiscal year required by provider 3.reimbursement- revenue recognized when expenditure occurs 4.Contingency-not recognized till contingency removed
What are derived tax revenues? When are they recored? on exchange transactions (sales, income) 2.when underlying income transaction takes place (the sale, the income)
What are imposed nonexchange transactions? when are revenues recorded? Whats different about property taxes? 1.taxes not derived from underlying transactions (property, fine, forefits) 2. when enforceable legal claim exists or resources are received (whichever 1st) 3. property tax recognized net of estimated refunds/uncollectable taxes when taxes are LEVIED
What are government-mandated nonexchange transactions? When are revenues recorded? 1.providing govt requires receiving govt to expend funds for a purpose 2.when all eligibility requirements have been met
What are voluntary nonexchange transactions? When are revenues recorded? 1.grants from one govt/individual to another govt and specific requirements are not imposed on the receiving govt (use may be restricted, but acceptance voluntary) 2.when all eligibility requirements have been met
What does accounting for intangible assets recognize? When are costs for internally generated intangible assets capitalized? Are intangible assets amortized? 1. only identifiable intangible assets 2.objective and service capacity have been determined, feasibility of completing is demonstrated, intention to complete/continue is demonstrated 3.Yes unless unless useful life not limited then considered indefinit
What circumstances would indicate the government is still involved in a sold receivable or future revenue, establishing it as a collateralized borrowing and not a sale? govt/buyer can cancel sale; govt can limit buyers ability to sell; govt has access to receivables, future revenues, or cash collected from them; govt can substitute/reacquire receivables w/o buyers consent; revenues r from goods/services provided by gov't
When is revenue recognized in a sale of receivables or future revenues? How is the difference between the carrying value of the receivable and funds received treated on accrual-basis financial statements? modified accrual basis? 1.proceeds are reported as deferred revenue and revenue is recognized over the life of the sales agreement 2.gain or loss on accrual basis 3.revenue on modified accrual basis
What are derivative instruments reported at on the statement of net assets? If the derivative is an investment or ineffective hedge, where should changes in FV be reported? A hedging derivative? 1.Fair value 2.reported as investment revenue in the flow of resources statement 3.deferred inflows or outflows in the statement of net assets
How is a hedge measured for effectiveness with the consistent critical terms method? consistent critical terms-qualitatively evaluates terms of the hedgeable item and potential hedging derivative instrument. If same/similar instrument is an effective hedge
How is a hedge measured for effectiveness with the 3 quantitative methods? All deal with hedgeable item and potential hedging derivative instrument 1.Regression analysis-examines statistical relationship 2.Synthetic instrument-combine cash flows see if offset 3.Dollar-offset-compare changes in fair value
What must the government do if it is determined they need to clean up a polluted area? estimate its expected outlays for remediation. Estimated using an "expected cash flows" measurement technique
What is a service concession arrangement? 1govt give operator right to provide public service thru operation of facility for consideration 2operator compensated by 3rd parties 3govt can modify/approve of services to be provided, whom provided to, and price 4end govt entitled residual interest
In a service concession arrangement, what should the government do if the facility is purchased, constructed, or improved by the operator? Govt should record a.New facility at FV when in operation b.related contractual obligations as liabilities c.corresponding deferred inflow of resources equal to the difference
What is the purpose of budgetary accounts? provide legislative control over revenues and other resource inflows and resource outflows. Also used to assess mgmt's stewardship by comparing budget v. actual
What is the entry made to the general ledger at the beginning of the period once estimated revenues and appropriations are made? D:Estimated revenues C:Appropriations D/C: Budgetary Fund balance (D if more appropriations C if more revenues) -individual revenues and appropriations are posted to subsidiary ledger -Reverse entry at year end closing process
What is the purpose of the encumbrances account? What is an example to record an encumbrance? Purpose of reserved encumbrance account? 1.prevent overspending appropriations, used when goods or services are ordered 2.D:Encumbrance (detail posted to subsidiary ledger) C:Reserved for encumbrances 3.Stop gap estimate until goods/services received. Then reverse 2, record expenditure & paya
What are the year end closing entries necessary? 1. Reverse beginning entry for appropriation(d)/Rev estimate(c) 2. D: Revenues C:Expenditures Encumbrances (if outstanding) Fund Balance-Unreserved (if Rev surplus. Otherwise, debit)
Where do fund balance-unreserved and reserved for encumbrances go in the financial statements? balance sheet equity accounts
What are the expenditure classifications? Give an example and a word on 3/5. Function-info on purpose of expenditures, represents major service.Education Organization unit-responsibility for dept is fixed.Police/Fire Activity-specific work performed by organization unit.Police Traffic control Charter- Object-
What are the expenditure classifications? Give an example and a word on 2/5. Function, Organization unity, Activity Charter- classify expenditures by fiscal period benefited. Capital outlays Object-classify according to types of items purchased. Supplies, Rent
What are the two entries for a transfer to a debt service? 1.D: Other financing Uses-Transfers Out C:Due to Debt Service fund 2.D: Due from General Fund C: Other Financing Sources-Transfers In
Do Property Taxes use a receivable? Sales Taxes? Fines/licenses/permits? 1.Yes if received to finance current periods budget (received at least 0 days after end) 2. Same as above 3. No
Where are all legal authorized appropriations debited to? Expenditures
How is the use of materials and supplies recorded? Reverse original entry. D:Reserved for Inventory of Materials and Supplies C:Materials and Supplies Inventory
What is the purpose for special revenue funds? account for and report process of specific revenue sources that are restricted/committed to specific purpose besides debt service or capital projects
In a special revenue fund, whens a grand recognized and what are the entries? Recognized when expenditure takes place. Record D:Exependiture C:Cash D:Grants Receivable C:Revenues-Grants Grant received, Record D:Cash C:Grants Receivable
Whats the purpose of capital project funds? What do these exclude? How are resources normally acquired? What happens with estimated budgets? 1account for financial resources restricted, committed,or assigned to capital outlay expenditure 2capital outflows financed by proprietary/fiduciary fund 3general longterm debt,govt grants,interfund transfers 4must approve, no legally adopted nor recor
What should impaired capital assets that are no longer used by the government reported at? What if it is in use and there is insurance recovery> 1.the lower of the carrying value or the fair value recovery against the impairment loss
What is the purpose of debt service funds? When are bond liabilities to be extinguished recorded in the debt service fund? 1.account for financial resources restricted, committed, or assigned to expenditure for payment of general obligation long term debt and interest 2.when bond matures
What is the purpose of permanent funds? account for resources that are restricted to the extent that only the earnings and not the principal may be used by the govt
What are special assessments? What are land and other real estate held by an endowment for investment purposes reported at? How is it accounted for if the govt is not liable for the debt? Primarily or potentially liable? 1.projects to be paid primarily by the owners who benefit from the improvement project 2.FV at each reporting date, Change in FV reported as part of investment income an agency fund 4.same as any other capital improvement and financing transaction
What are the two types of proprietary funds? A word on each. Internal service funds-acct for provision of goods/services from one govt department to another Enterprise funds-acct for govt providing good/services are rendered primarily to general public,financed substantially by user charges,intended selfsupporting
How are proprietary funds initially established? What do "advanced from" accounts signify? 1.contribution from the general fund D:Cash C:Transfer from general fund 2.liability is long term
When a transaction, such as a federal govt grant for bus purchases, is recorded in a governmental fund, what is the accounting treatment? And a proprietary fund? 1.record a revenue if expended, defer revenue if not 2.record as capital contributions
What is the purpose of fiduciary funds? What are pension trust funs required to have? 1.account for assets held by govt in a trustee capacity or agent for individuals/private orgs/other govt units 2Statement of fiduciary net assets, statement of changes in fiduciary net assets, schedule of funding status, schedule of employer contribution
What type of account may statewide Public Employee Retirement Systems be? agency defined benefit- maintain separate balances for each govt cost-sharing defined benefit-compute balances on statewide basis only Defined contribution- govt liable for required contributions not made
When should governments recognize a liability and an expense for voluntary termination benefits? involuntary termination benefits? What are the benefits measured at? 1.when the offer has been accepted and the amount can be estimated 2.when the plan has been approved and communicated to employees and amount can be estimated 3.PV of the expected future benefit payments
Define escheat property? property taken over by a government when the property is abandoned and the legal owners cannot be found
What are interfund loans and advances and how are they accounted for? transactions where one fund provides resources to another with requirement for repayment (use Due from/to for short term, advance to/from long term) A loan B A- D:Due from B C:Cash B- D:Cash C:Due to A
What additional entry must be made in long term interfund loans and advances? A loan B A- D:Fund balance-unreserved C:Fund balance-reserved for long term advances -Done to show the resources are not available for expenditure in the current period
What are interfund services provided and how are they accounted for? transactions where sales/purchases between funds are made at prices approximating external exchange price A charge B A- D:Due from B C:Operating revenues- Charges for x B- D:Expenditures C:Due to A
What are interfund transfers and how are they accounted for? nonreciprocal transfer between funds (repayment not expected) A transfer B A- D:Other financing uses- Transfer to B C:Cash B- D:Cash C:Other financing sources transfer from A
What are interfund reimbursements and how are they accounted for? repayments from funds responsible for expenditures to funds that initially payed them A paid for B A- D:Cash C:Expense originally charged B- D:Expenditures C:Cash
What are the changes necessary to convert from governmental fund statements to governmental activities portion of the government-wide statements? Record Capital Outlay Expenditures as fixed assets (record depreciation too), Convert other financing sources-Bonds to bonds payable, Expenditures-Bond Principal retirement decreases bonds payable, recognize revs- take 60daylate property tax from deferred
What type of guidance can public colleges and universities follow? 1. only business-type activities 2. only govt activities 3. both 2,3 require reporting statements same as govt(MD&A,govt wide finance state, fund FS, notes to FS, RSI) 1 require St Net Assets, St Rev/exp/change net assets, St cash flows,MD&A,RSI
Created by: Bsantoro
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