USCPA (FAR) – (32) Governmental Accounting Overview, Fund Structure and Fund Accounting

I would like to record about the key points of the US CPA exam content.

<Create and note the points based on mainly Becker’s workbook>

Government-wide Financial Statements

• Features and Purpose: Comprehensiveness: Reports the financial condition and performance of the entire government in an integrated format. Accounting Basis: Uses the Economic Resources Measurement Focus and Accrual Basis of Accounting.
• Governmental Activities / Scope: Governmental Funds. Reporting: Activities related to the provision of public services, reported using the accrual basis rather than the modified accrual basis.
• Business-type Activities: Scope: Proprietary Funds. Reporting: Activities related to providing commercial-type services, reported using the accrual basis.
• Regarding Fiduciary Funds, These funds are not included in the government-wide financial statements but are reported separately as fiduciary activities.
• This comprehensive approach allows for the evaluation of the government’s long-term financial health and aids in informed decision-making.
• In the government-wide statement of activities, property tax revenues that are measurable but not available at year-end are recognized as revenue. In contrast, in the governmental funds statements, the same revenue is recorded as deferred inflows of resources.
• Measurement focus for a governmental fund contemplates measurement of the flow of current financial resources and resulting financial position. Income determination is a focus of the proprietary and fiduciary funds. A fund’s measurement focus identifies what transactions should be recorded and how they should be reported. For governmental funds, the statement of revenues and expenditures should report resources received and consumed during the current period (current financial resources focus). The balance sheet shows available resources and current obligations (financial position focus).

Separate fund financial statements for its governmental and proprietary funds

• Separate fund financial statements should be presented for governmental and proprietary funds to report additional and detailed information about the primary government.

User of External financial reports

• External financial reports are used by three primary user groups including citizens, legislative/oversight groups, and investors/creditors. Advocate groups within the state are logically associated with citizens, citizen groups, etc.

Characteristics of service efforts and accomplishments

• Relevance means the information must bear a logical relationship with the needs for its purpose. It must also be reliable. The achievement of this reporting objective is more difficult to establish than it is to demonstrate consistency (adherence to the consistent application of GAAP from year to year) or comparability (the use of GAAP in a manner comparable to other governments). The timeliness objective requires that reports be issued early enough to facilitate timely decisions. The timeliness of reporting is relatively easy to demonstrate.

Governmental Funds

• Governmental funds are represented by the acronym “GRASPP,” which includes the following funds:
• General Fund
• Revenue (Special Revenue Fund)
• And
• Service (Debt Service Fund)
• Projects (Capital Projects Fund)
• Permanent Fund
• These governmental funds are required to use the Modified Accrual Basis of accounting.
• Revenues: Recognized when they are measurable and available to finance expenditures of the current period.
• Expenditures: Recognized when the related liability is incurred.
• Purpose: Focuses on evaluating short-term financial resources and cash flows.
• Characteristics : Measures the flow of current financial resources and financial position. The statement of revenues and expenditures reports the receipt and consumption of resources during the current period. The balance sheet shows available resources and current obligations.

Proprietary and Fiduciary Funds

• Proprietary and fiduciary funds are represented by the acronym “SE CIPPOE,” which includes the following funds:
• Service (Internal Service Fund) : Proprietary Funds
• Enterprise Fund : Proprietary Funds
• Custodial Funds
• Investment Trust Funds
• Private-Purpose Trust Funds
• Pension (and Other Employee Benefit) Trust Funds
• These funds are required to use the Accrual Basis of accounting.
• Characteristics of Proprietary Funds: Based on principles of commercial accounting, with a focus on income determination. Generates revenue with its own funds, and details the flow of revenues and expenses.
• Characteristics of Fiduciary Funds: Manages assets for the benefit of others. Emphasizes income determination, focusing on the management and distribution of assets.

Debt securities and those equity securities

• They have readily determinable fair values are measured at fair value in the statement of financial position. Gains and losses on investments are reported in the statement of activities. Investment income (e.g., dividends and interest) is reported in the period earned as an increase in net assets.