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GASB 34 IMPLEMENTATION TRAINING Presented by: Office of Quality Assurance and Consultation Auditor of Public Accounts Edwa...
Introduction
What is GASB? <ul><li>Governmental Accounting Standards Board </li></ul><ul><ul><li>State and Local Governments are requir...
GASB Statement 34: <ul><li>More accurately reflects the financial activities of state and local governments in their finan...
GASB 34  Implementation Dates <ul><li>Operating Revenue*  </li></ul><ul><li>as of 6/30/99: </li></ul><ul><ul><li>$100M + <...
Components of the  GASB 34 Reporting Model <ul><ul><li>Management discussion and analysis  </li></ul></ul><ul><ul><ul><li>...
Basis of Accounting <ul><li>Generally Accepted Accounting </li></ul><ul><li>Principles (GAAP) </li></ul><ul><ul><li>Accrua...
Accrual Basis of Accounting <ul><li>Revenues are recognized when earned and realized, or realizable </li></ul><ul><li>Expe...
Modified Accrual Basis of Accounting <ul><li>Revenues are only recognized to the degree that they are available to finance...
Cash Basis of Accounting <ul><li>Revenues are recorded when received and expenditures are recorded when monies are paid </...
Modified Cash Basis of Accounting (as defined by the APA for local governments) <ul><li>Long-term assets are capitalized a...
Components of the GASB 34 Reporting Model  (Continued) <ul><li>Government-Wide Financial Statements  (New Format) </li></u...
Components of the GASB 34 Reporting Model  (Continued) <ul><li>Fund Financial Statements (No Significant Changes)   </li><...
Components of the GASB 34 Reporting Model  (Continued) <ul><li>Notes to the Financial Statements  </li></ul><ul><li>(No si...
Components of the GASB 34 Reporting Model  (Continued) <ul><li>Other Required Supplementary Information   </li></ul><ul><u...
Special-Purpose Governments <ul><li>Engaged in a single government program  </li></ul><ul><li>The Fund Financial Statement...
Special Purpose Governments <ul><li>Engaged only in business-type activities </li></ul><ul><li>Only required to present: <...
Capital Assets
Capital Assets have initial useful lives extending beyond a single reporting period <ul><ul><li>land,  </li></ul></ul><ul>...
Source for Capital Assets <ul><li>For GAAP entities </li></ul><ul><ul><li>General Fixed Assets Account Group </li></ul></u...
Establish a Capitalization Policy <ul><ul><li>A written capitalization policy must be developed, officially approved, and ...
Estimating Building Historical Cost  <ul><li>Assume building constructed in 1985 with no available construction cost recor...
Estimating Building Historical Cost <ul><li>Calculation: </li></ul><ul><ul><li>2002 Construction Cost = $4,000,000 </li></...
How do you  depreciate  capital assets?
Five elements must be known to calculate depreciation <ul><ul><li>Date the asset was placed in service </li></ul></ul><ul>...
Useful Lives of Capital Assets <ul><ul><li>Most capital assets have an identifiable useful life and should be depreciated ...
Salvage Value of Capital Assets <ul><li>The estimated value of the asset at the end of its useful life such as the: </li><...
Depreciation Approach <ul><ul><li>General straight-line depreciation to the original book value </li></ul></ul><ul><ul><li...
Accumulated Depreciation <ul><li>Total depreciation expense from acquisition thru current year </li></ul><ul><ul><li>Calcu...
How to use the Straight-Line Depreciation Method <ul><ul><li>$11,000 Copier </li></ul></ul><ul><ul><ul><li>Useful Life of ...
Are library books considered capital assets? <ul><li>Library books, as well as other assets, with </li></ul><ul><li>useful...
Implementation Guide #1 (Q.#26) <ul><li>Are library books depreciable capital assets? </li></ul><ul><ul><li>If library boo...
GASB Statement 34, para. 27-  Reporting works of art and historical treasures <ul><li>Governments are encouraged, but  not...
GASB Statement 34, para. 29 -  Reporting works of art and historical treasures <ul><li>Capitalized collections or individu...
Implementation Guide #2 (Q.#30) <ul><li>Should a government’s capitalization policy be applied only to individual assets o...
Implementation Guide #2  (Answer to Q. #30) <ul><li>Authoritative pronouncements do not address the manner in which a capi...
Management’s Discussion and Analysis (MD&A)
Management’s Discussion & Analysis (MD&A) <ul><li>Information required to be presented in the  audit report, separate from...
When must MD&A be completed? <ul><ul><li>Begin MD&A preparation after closing of books </li></ul></ul><ul><ul><li>Submit t...
Common Components of MD&A <ul><li>Introduction </li></ul><ul><li>Financial Highlights </li></ul><ul><li>Overview of the Fi...
Common Components of MD&A (continued) <ul><li>General Fund Budgetary Highlights </li></ul><ul><li>Capital Assets </li></ul...
Introduction <ul><li>Provides an overview </li></ul><ul><li>Read in conjunction with the financial statements </li></ul>
Financial Highlights <ul><li>How did net assets change over the year? </li></ul><ul><li>Did governmental activities revenu...
Overview of the Financial Statements <ul><li>The two government-wide financial statements </li></ul><ul><ul><li>Statement ...
Financial Analysis of the Library as a whole <ul><li>Did net assets increase or decrease during the year and what brought ...
Financial Analysis of the Library’s Funds  <ul><li>Did the Library’s funds increase or decrease  over the course of the ye...
General Fund Budgetary Highlights <ul><li>Did the Library amend the original budget for the general fund and why? </li></u...
Capital Assets <ul><li>Did the Library invest more funds in capital assets in the current year? </li></ul><ul><li>What typ...
Debt <ul><li>Did the Library’s debt increase or decrease during the year?  Why? </li></ul><ul><li>Did the Library obtain n...
Economic Factors and Next Year’s Budget and Rates <ul><li>What is currently known that will impact the next budget? </li><...
Contacting the Library <ul><li>If citizens have questions, they may call, write or email. </li></ul><ul><ul><li>Telephone ...
Auditor’s Reporting and Required Supplementary Information <ul><ul><li>Failure to prepare an MD&A will not affect the audi...
GASB Statement 34 Resources   <ul><ul><li>GASB’s  Guide to Implementation of GASB Statement 34 on Basic Financial Statemen...
GASB Statement 34 Resources <ul><ul><li>www.kyauditor.net </li></ul></ul><ul><ul><li>Select “GASB 34” and click on section...
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Bymarker

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  • Good Morning. On behalf of Mr. Hatchett, myself, and my staff…..we appreciate your taking time from your busy schedules to attend this very important training. Before I start my brief introduction on GASB #34, I want to share a comment with you, made by the APA’s own Libby Carlin. Libby and I have been working with Randy Thompson, Franklin County Road Superintendent and Barbara Smither, Franklin County Road Department Administrative Assistant on valuing their infrastructure so we can have real world examples and experiences to share with you during our session. Libby predicted in ten years we would all be asking ourselves why we didn’t include the infrastructure on the financial statements sooner. I agree with her. I also predict that in ten years we will all question why we didn’t want to report using the GASB #34 model. Now I’m not going to stand here and tell you in the first year of your implementation it won’t be more difficult, because it will. I’m also not going to pretend we have all the answers, because we don’t. What I will tell you is that our office is committed to helping you transition into GASB #34 in the easiest way possible. Now, let’s get started……..
  • Phase I-Jefferson and Fayette Phase II-Boone, Campbell, Christian, Daviess, Franklin, Hardin, Harlan, Henderson, Kenton, Laurel, Madison, McCracken, Pike, Pulaski, Scott, and Warren. Phase III-all others
  • Per GAFFR (“Blue Book”) : Accrual basis of accounting: A method of accounting that recognizes the financial effect of a transaction, event, or interfund activity when it occurs, regardless of the timing of related cash flow. Expenses are recognized in the period in which related revenue is recognized (Matching Principle). Economic resources measurement focus: Measurement focus under which the aim of a set of financial statements is to report all inflows, outflows, and balances affecting or reflecting an entity’s net assets. The economic resources measurement focus is used for proprietary and fiduciary funds, as well as for government-wide financial reporting. It also is used by business enterprises and not-for-profit organizations in the private sector.
  • Thus, the major complexities of GAAP are avoided
  • Hybrid method combines features of both the cash basis and the accrual basis. Modifications to the cash basis accounting include such items as the capitalization of assets and the accrual of income taxes. If these modifications are made, the resulting balance sheet would include long-term assets, accumulated depreciation, and a liability for income taxes. The income statement would report depreciation expense and income tax expense. Modified cash basis financial statements are intended to provide more information to users than cash basis statements while continuing to avoid the complexities of GAAP.
  • Statement of net assets will now include the capital assets and infrastructure. In the past, these items were not on your financial statements. It will also include the other types of assets and liabilities you are accustomed to seeing. It will no longer refer to the difference between your assets and liabilities as fund balance. This amount will now be referred to as Net Assets. Statement of Activities will be a truer reflection of the current activities of the government as a whole. From this statement, you will be able to determine which programs (or functions) are a financial benefit or burden to your taxpayers.
  • These financial statements will look very similar to the financial statements that have always been presented in your audits. The focus at this level is on the funds.
  • Example of a note would be Bonds.
  • Any type of administrative policy should be in writing and approved by the fiscal court It can be a different level for each major class of asset or infrastructure For internal control purposes, will still need to tag and track inventory and assignments as before. You do not need to keep all the original cost or acquisition data for depreciation. The State tags inventory for anything over $500 so that nothing walks away. However, for reporting purposes, they only capitalize inventory over $1000 (is this correct? What is the capitalization policy for the state?)
  • Any type of administrative policy should be in writing and approved by the fiscal court It can be a different level for each major class of asset or infrastructure For internal control purposes, will still need to tag and track inventory and assignments as before. You do not need to keep all the original cost or acquisition data for depreciation. The State tags inventory for anything over $500 so that nothing walks away. However, for reporting purposes, they only capitalize inventory over $1000 (is this correct? What is the capitalization policy for the state?)
  • We’ve already discussed items 1 and 2 and now we are going to discuss the salvage value and the estimated useful life
  • Show both the examples for Useful lives for capital assets and for infrastructure
  • Reporting works of art and historical treasures GASBS34, Par. 27 27. Except as discussed in this paragraph, governments should capitalize works of art, historical treasures, and similar assets at their historical cost or fair value at date of donation (estimated if necessary) whether they are held as individual items or in a collection. Governments are encouraged, but not required, to capitalize a collection (and all additions to that collection) whether donated or purchased that meets all of the following conditions.22 The collection is: a. Held for public exhibition, education, or research in furtherance of public service, rather than financial gain b. Protected, kept unencumbered, cared for, and preserved c. Subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections. Governments should disclose information about their works of art and historical collections as required by paragraph 118. GASBS34, Par. 28 28. Recipient governments should recognize as revenues donations of works of art, historical treasures, and similar assets, in accordance with Statement 33. When donated collection items are added to noncapitalized collections, governments should recognize program expense equal to the amount of revenues recognized. GASBS34, Par. 29 Capitalized collections or individual items that are exhaustible, such as exhibits whose useful lives are diminished by display or educational or research applications, should be depreciated over their estimated useful lives. Depreciation is not required for collections or individual items that are inexhaustible. Reporting Works of Art and Historical Treasures Q&amp;A Statement 34 -- Question 76 76. Q—Are monuments considered “noncapitalizable works of art, historical treasures, or similar assets”? A—Monuments are capital assets that may qualify as works of art, historical treasures, or similar assets if they meet the requirements of paragraph 27. Q&amp;A Statement 34 -- Question 77 77. Q—Should the organizational policy referred to in paragraph 27c be a formal policy? A—Statement 34 does not require this to be a formal policy; however, there should be some evidence to support the existence of the policy. Q&amp;A Statement 34 -- Question 78 78. Q—If an organization at the time of the passage of Statement 34 has had capitalized collections, may it de-recognize the collection according to paragraph 27? A—No. Collections capitalized prior to passage of Statement 34 should continue to be reported (footnote 22), and additions to the collections should be capitalized. Q&amp;A Statement 34 -- Question 79 79. Q—A government has multiple collections, works of art, and historical treasures. Should the recognition provisions of paragraph 27 be applied for the entire entity or on a collection-by-collection basis? A—The provisions of paragraph 27 may be applied on a collection-by-collection basis. Q&amp;A Statement 34 -- Question 80 80. Q—What is meant by “inexhaustible” collections or individual works of art or historical treasures? A—Inexhaustible collections or individual works of art or historical treasures are those with extraordinarily long useful lives. Because of their cultural, aesthetic, or historical value, the holder of the asset (or assets) applies efforts to protect and preserve the asset in a manner greater than that for similar assets without such cultural, aesthetic, or historical value. GASB Implementation Guide #2 Q. 30 30. Q—Should a government’s capitalization policy be applied only to individual assets or can it be applied to a group of assets acquired together? Consider a government that has established a capitalization threshold of $5,000 for equipment. If the government purchases 100 computers costing $1,500 each, should the computers be capitalized? A—Authoritative pronouncements do not address the manner in which a capitalization policy should be established and applied. However, capitalization policies adopted by a government should find an appropriate balance between ensuring that all material capital assets, collectively, are capitalized and minimizing the cost of record keeping for capital assets. It may be appropriate for a government to establish a capitalization policy that would require capitalization of certain types of assets whose individual acquisition costs are less than the threshold for an individual asset. Computers, classroom furniture, and library books are assets that may be immaterial for capitalization on an individual basis, yet might be considered material collectively. 26. Q—Are library books depreciable capital assets? A—If library books are considered to have a useful life of greater than one year, they are capital assets and are depreciable. Because most library collections consist of a large number of books with modest values, group or composite depreciation methods (as discussed in paragraphs 163 through 166) may be appropriate. (See Q51.) In certain situations, library books may be considered works of art or historical treasures and could be reported using the provisions in paragraphs 27 through 29.
  • Transcript of "Bymarker"

    1. 1. GASB 34 IMPLEMENTATION TRAINING Presented by: Office of Quality Assurance and Consultation Auditor of Public Accounts Edward B. Hatchett Auditor of Public Accounts 105 Sea Hero Road, Suite 2 Frankfort, KY 40601 (502) 573-0050 ehatchett @kyauditor.net
    2. 2. Introduction
    3. 3. What is GASB? <ul><li>Governmental Accounting Standards Board </li></ul><ul><ul><li>State and Local Governments are required to look to the Governmental Accounting Standards Board (GASB), established in 1984 as the standard-setting authority for generally accepted accounting principles (GAAP) </li></ul></ul><ul><ul><li>GAAP describe the body of principles that govern the accounting for financial transactions underlying the preparation of a set of financial statements </li></ul></ul>
    4. 4. GASB Statement 34: <ul><li>More accurately reflects the financial activities of state and local governments in their financial reports </li></ul><ul><li>Reports on the overall state of the government's financial health, not just its individual &quot;funds&quot; </li></ul><ul><li>Provides the most complete information ever available about the cost of delivering services to their citizens </li></ul>
    5. 5. GASB 34 Implementation Dates <ul><li>Operating Revenue* </li></ul><ul><li>as of 6/30/99: </li></ul><ul><ul><li>$100M + </li></ul></ul><ul><ul><li>$10M-$100M </li></ul></ul><ul><ul><li>-$10M </li></ul></ul><ul><ul><li>*Operating Revenue = </li></ul></ul><ul><ul><li>Total Revenues LESS </li></ul></ul><ul><ul><li> -bond proceeds </li></ul></ul><ul><ul><li> -transfer amounts </li></ul></ul><ul><li>Required Date of Implementation by: </li></ul><ul><ul><li>6/30/02 </li></ul></ul><ul><ul><li>6/30/03 </li></ul></ul><ul><ul><li>6/30/04 </li></ul></ul><ul><li>Phase </li></ul><ul><ul><li>I </li></ul></ul><ul><ul><li>II </li></ul></ul><ul><ul><li>III </li></ul></ul>
    6. 6. Components of the GASB 34 Reporting Model <ul><ul><li>Management discussion and analysis </li></ul></ul><ul><ul><ul><li>(New and will be discussed separately) </li></ul></ul></ul><ul><ul><li>Government-wide financial statements </li></ul></ul><ul><ul><li>Fund financial statements </li></ul></ul><ul><ul><li>Notes to the financial statements </li></ul></ul><ul><ul><li>Other required supplementary information </li></ul></ul>
    7. 7. Basis of Accounting <ul><li>Generally Accepted Accounting </li></ul><ul><li>Principles (GAAP) </li></ul><ul><ul><li>Accrual basis of accounting </li></ul></ul><ul><ul><li>Modified accrual basis of accounting </li></ul></ul><ul><li>Other Comprehensive Basis of </li></ul><ul><li>Accounting (OCBOA) </li></ul><ul><ul><li>Cash basis of accounting </li></ul></ul><ul><ul><li>Modified cash basis of accounting </li></ul></ul>
    8. 8. Accrual Basis of Accounting <ul><li>Revenues are recognized when earned and realized, or realizable </li></ul><ul><li>Expenses are recognized in the period incurred, without regard to the time of receipt or payment of cash </li></ul><ul><li>Applied to the Government-Wide Financial Statements, Proprietary Fund Financial Statements, and Fiduciary Fund Financial Statements </li></ul>
    9. 9. Modified Accrual Basis of Accounting <ul><li>Revenues are only recognized to the degree that they are available to finance expenditures of the fiscal period </li></ul><ul><li>Debt service payments and specific accrued liabilities are only recognized as expenditures when payment is due because it is only at that time that they normally are liquidated with expendable available financial resources </li></ul><ul><li>Recognizes increases and decreases in financial resources only to the extent that they reflect near-term inflows or outflows of cash </li></ul><ul><li>Applicable to Governmental Funds </li></ul>
    10. 10. Cash Basis of Accounting <ul><li>Revenues are recorded when received and expenditures are recorded when monies are paid </li></ul><ul><li>Long-term assets are not capitalized, therefore, no depreciation or amortization is recorded </li></ul><ul><li>No accruals are made for encumbrances, payroll-related expenses, or pension costs </li></ul><ul><li>No prepaid assets are recorded </li></ul>
    11. 11. Modified Cash Basis of Accounting (as defined by the APA for local governments) <ul><li>Long-term assets are capitalized and reported on the Balance Sheet net of accumulated depreciation </li></ul><ul><li>Depreciation expense is reported in the Statement of Activities </li></ul><ul><li>Modified cash basis financial statements are intended to provide more information to users than cash basis statements while continuing to avoid the requirements of GAAP. </li></ul>
    12. 12. Components of the GASB 34 Reporting Model (Continued) <ul><li>Government-Wide Financial Statements (New Format) </li></ul><ul><ul><li>Statement of net assets </li></ul></ul><ul><ul><ul><li>Capital assets (previously in account group if you are on GAAP basis) </li></ul></ul></ul><ul><ul><ul><li>Long-term Debt (previously in account group if you are on GAAP basis) </li></ul></ul></ul><ul><ul><li>Statement of activities </li></ul></ul><ul><ul><ul><li>Function </li></ul></ul></ul>
    13. 13. Components of the GASB 34 Reporting Model (Continued) <ul><li>Fund Financial Statements (No Significant Changes) </li></ul><ul><ul><li>Various financial statements </li></ul></ul><ul><ul><li>Focus on information about the government’s major funds </li></ul></ul>
    14. 14. Components of the GASB 34 Reporting Model (Continued) <ul><li>Notes to the Financial Statements </li></ul><ul><li>(No significant changes) </li></ul><ul><ul><li>Provide useful information </li></ul></ul><ul><ul><li>Essential to user in understanding the financial statements </li></ul></ul>
    15. 15. Components of the GASB 34 Reporting Model (Continued) <ul><li>Other Required Supplementary Information </li></ul><ul><ul><li>Budgetary comparison schedules </li></ul></ul><ul><ul><ul><li>No significant changes </li></ul></ul></ul><ul><ul><ul><li>General fund </li></ul></ul></ul><ul><ul><ul><li>Major special revenue funds </li></ul></ul></ul>
    16. 16. Special-Purpose Governments <ul><li>Engaged in a single government program </li></ul><ul><li>The Fund Financial Statements and the Government-Wide Financial Statements may be combined using a columnar format </li></ul><ul><li>The combined financial statement reconciles individual line items of fund financial data to government-wide data in a separate column on the financial statement </li></ul>
    17. 17. Special Purpose Governments <ul><li>Engaged only in business-type activities </li></ul><ul><li>Only required to present: </li></ul><ul><ul><li>MD&A </li></ul></ul><ul><ul><li>Statement of Net Assets </li></ul></ul><ul><ul><li>Statement of Revenues, Expenses, and Changes in Fund Net Assets </li></ul></ul><ul><ul><li>Statement of Cash Flows </li></ul></ul><ul><ul><li>Notes to the Financial Statements </li></ul></ul><ul><ul><li>RSI </li></ul></ul>
    18. 18. Capital Assets
    19. 19. Capital Assets have initial useful lives extending beyond a single reporting period <ul><ul><li>land, </li></ul></ul><ul><ul><li>buildings, </li></ul></ul><ul><ul><li>building improvements, </li></ul></ul><ul><ul><li>easements, </li></ul></ul><ul><ul><li>equipment, </li></ul></ul><ul><ul><li>machinery, </li></ul></ul><ul><ul><li>vehicles, </li></ul></ul><ul><ul><li>works of art and historical treasures, </li></ul></ul><ul><ul><li>library books, </li></ul></ul><ul><ul><li>and all other tangible or intangible assets used in operations. </li></ul></ul>
    20. 20. Source for Capital Assets <ul><li>For GAAP entities </li></ul><ul><ul><li>General Fixed Assets Account Group </li></ul></ul><ul><ul><ul><li>Complete listing of capital asset </li></ul></ul></ul><ul><ul><ul><li>No longer reported as an account group </li></ul></ul></ul><ul><li>For OCBOA entities </li></ul><ul><ul><li>Physical inventory </li></ul></ul><ul><ul><li>Purchasing documents </li></ul></ul>
    21. 21. Establish a Capitalization Policy <ul><ul><li>A written capitalization policy must be developed, officially approved, and implemented for financial statement reporting </li></ul></ul><ul><ul><li>Includes the dollar threshold for each asset class </li></ul></ul><ul><ul><li>Includes the estimated useful life for each asset class </li></ul></ul><ul><ul><li>Includes the depreciation method for each asset class </li></ul></ul>
    22. 22. Estimating Building Historical Cost <ul><li>Assume building constructed in 1985 with no available construction cost records </li></ul><ul><li>Estimate the construction cost of what it would cost to build today </li></ul><ul><li>Deflate back to year of construction using a Building Cost Construction Index </li></ul>
    23. 23. Estimating Building Historical Cost <ul><li>Calculation: </li></ul><ul><ul><li>2002 Construction Cost = $4,000,000 </li></ul></ul><ul><ul><li>Construction Cost Index: </li></ul></ul><ul><ul><ul><li>1985 Index / 2002 Index = Cost Index Percentage </li></ul></ul></ul><ul><ul><li>2002 Construction Cost Index Percentage: 2428/3623 = 67% </li></ul></ul><ul><ul><li>2002 Construction Cost x Cost Index Percentage </li></ul></ul><ul><ul><ul><li>$4,000,000 x 67% = $2,680,000 (1985 Estimated Historical Cost) </li></ul></ul></ul><ul><li>Building Construction Cost Index Website </li></ul><ul><ul><li>http://enr.construction.com/features/conEco/costIndexes/bldIndexHist.asp </li></ul></ul>
    24. 24. How do you depreciate capital assets?
    25. 25. Five elements must be known to calculate depreciation <ul><ul><li>Date the asset was placed in service </li></ul></ul><ul><ul><li>Historical cost or fair market value for donated items </li></ul></ul><ul><ul><li>Estimated useful life </li></ul></ul><ul><ul><li>Salvage value (if any) </li></ul></ul><ul><ul><li>Depreciation method </li></ul></ul><ul><ul><ul><li>Straight-line Depreciation </li></ul></ul></ul>
    26. 26. Useful Lives of Capital Assets <ul><ul><li>Most capital assets have an identifiable useful life and should be depreciated over that lifetime </li></ul></ul>
    27. 27. Salvage Value of Capital Assets <ul><li>The estimated value of the asset at the end of its useful life such as the: </li></ul><ul><ul><li>scrap value, </li></ul></ul><ul><ul><li>resale value, </li></ul></ul><ul><ul><li>trade-in value, </li></ul></ul><ul><ul><li>pre-determined value for the structure </li></ul></ul>
    28. 28. Depreciation Approach <ul><ul><li>General straight-line depreciation to the original book value </li></ul></ul><ul><ul><li>Provides accounting information only </li></ul></ul><ul><li>Cost of Asset </li></ul><ul><li>Less: Salvage Value </li></ul><ul><li>Depreciable Cost </li></ul><ul><li>Divided by: Useful Life </li></ul><ul><li>Equals: Annual Depreciation Expense </li></ul>
    29. 29. Accumulated Depreciation <ul><li>Total depreciation expense from acquisition thru current year </li></ul><ul><ul><li>Calculate: </li></ul></ul><ul><ul><li>Annual Depreciation Expense </li></ul></ul><ul><ul><li>Times: Number of Years (thru June 30) </li></ul></ul><ul><ul><li>Equals: Accumulated Depreciation </li></ul></ul><ul><li>Historical Cost </li></ul><ul><li>Less: Accumulated Depreciation </li></ul><ul><li> Equals: Current Asset Value </li></ul>
    30. 30. How to use the Straight-Line Depreciation Method <ul><ul><li>$11,000 Copier </li></ul></ul><ul><ul><ul><li>Useful Life of 5 years </li></ul></ul></ul><ul><ul><ul><li>Placed in service July 2000 </li></ul></ul></ul><ul><ul><ul><li>$1000 Salvage Value </li></ul></ul></ul><ul><ul><ul><li>Straight-line Depreciation </li></ul></ul></ul><ul><ul><ul><li>$2,000 per year depreciation </li></ul></ul></ul><ul><ul><li>(Cost – Salvage Value) divided by Useful Life = Depreciation Cost per year </li></ul></ul><ul><ul><ul><li>($11,000 – $1000) / 5 years = $2,000 Annual Depreciation </li></ul></ul></ul><ul><ul><li>Age of Asset x Annual Depreciation = Accumulated Depreciation </li></ul></ul><ul><ul><ul><li>3 years x $2,000 = $6,000 Accumulated Depreciation </li></ul></ul></ul><ul><ul><li>Cost – Accumulated Depreciation = Asset Value at June 30, 2003 </li></ul></ul><ul><ul><ul><li>$11,000 - $6,000 = $5,000 Asset Value at June 30, 2003 </li></ul></ul></ul>
    31. 31. Are library books considered capital assets? <ul><li>Library books, as well as other assets, with </li></ul><ul><li>useful lives exceeding one year may be </li></ul><ul><li>considered capital assets. Note, however, </li></ul><ul><li>this is dictated by your capitalization </li></ul><ul><li>policy. </li></ul>
    32. 32. Implementation Guide #1 (Q.#26) <ul><li>Are library books depreciable capital assets? </li></ul><ul><ul><li>If library books are considered to have a useful life of greater than one year, they are capital assets and are depreciable. Because most library collections consist of a large number of books with modest values, group or composite depreciation methods may be appropriate. In certain situations, library books may be considered works of art or historical treasures and could be reported using the provisions in paragraphs 27 through 29. </li></ul></ul>
    33. 33. GASB Statement 34, para. 27- Reporting works of art and historical treasures <ul><li>Governments are encouraged, but not required , to capitalize a collection (and all additions to that collection) whether donated or purchased that meets all of the following conditions: </li></ul><ul><li>a. Held for public exhibition, education, or research in furtherance of public service, rather than financial gain </li></ul><ul><li>b. Protected, kept unencumbered, cared for, and preserved </li></ul><ul><li>c. Subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections. </li></ul>
    34. 34. GASB Statement 34, para. 29 - Reporting works of art and historical treasures <ul><li>Capitalized collections or individual items that are exhaustible, such as exhibits whose useful lives are diminished by display or educational or research applications, should be depreciated over their estimated useful lives. Depreciation is not required for collections or individual items that are inexhaustible. </li></ul>
    35. 35. Implementation Guide #2 (Q.#30) <ul><li>Should a government’s capitalization policy be applied only to individual assets or can it be applied to a group of assets acquired together? Consider a government that has established a capitalization threshold of $5,000 for equipment. If the government purchases 100 computers costing $1,500 each, should the computers be capitalized? </li></ul>
    36. 36. Implementation Guide #2 (Answer to Q. #30) <ul><li>Authoritative pronouncements do not address the manner in which a capitalization policy should be established and applied. However, capitalization policies adopted by a government should find an appropriate balance between ensuring that all material capital assets, collectively, are capitalized and minimizing the cost of record keeping for capital assets. It may be appropriate for a government to establish a capitalization policy that would require capitalization of certain types of assets whose individual acquisition costs are less than the threshold for an individual asset. Computers, classroom furniture, and library books are assets that may be immaterial for capitalization on an individual basis, yet might be considered material collectively </li></ul>
    37. 37. Management’s Discussion and Analysis (MD&A)
    38. 38. Management’s Discussion & Analysis (MD&A) <ul><li>Information required to be presented in the audit report, separate from the basic financial statements. </li></ul><ul><li>MD&A, prepared by the Library’s </li></ul><ul><li>managers, precedes the presentation of </li></ul><ul><li>basic financial statements. </li></ul>
    39. 39. When must MD&A be completed? <ul><ul><li>Begin MD&A preparation after closing of books </li></ul></ul><ul><ul><li>Submit to auditors before the end of fieldwork </li></ul></ul>
    40. 40. Common Components of MD&A <ul><li>Introduction </li></ul><ul><li>Financial Highlights </li></ul><ul><li>Overview of the Financial Statements </li></ul><ul><li>Financial Analysis of the Library as a whole </li></ul><ul><li>Financial Analysis of the Library’s Funds </li></ul>
    41. 41. Common Components of MD&A (continued) <ul><li>General Fund Budgetary Highlights </li></ul><ul><li>Capital Assets </li></ul><ul><li>Debt </li></ul><ul><li>Economic Factors and Next Year’s </li></ul><ul><li>Budget and Rates </li></ul><ul><li>Contacting the Library </li></ul>
    42. 42. Introduction <ul><li>Provides an overview </li></ul><ul><li>Read in conjunction with the financial statements </li></ul>
    43. 43. Financial Highlights <ul><li>How did net assets change over the year? </li></ul><ul><li>Did governmental activities revenues exceed expenditures? </li></ul><ul><li>Did business-type activities revenues exceed expenditures? </li></ul><ul><li>Did the Library receive any significant grants? </li></ul><ul><li>Was a large portion of debt paid-off? Incurred? </li></ul><ul><li>How did the general fund do in the current year? Deficit or surplus fund balance? </li></ul>
    44. 44. Overview of the Financial Statements <ul><li>The two government-wide financial statements </li></ul><ul><ul><li>Statement of Net Assets </li></ul></ul><ul><ul><li>Statement of Activities </li></ul></ul><ul><li>The various fund financial statements </li></ul><ul><li>Special Purpose Government-combined statements </li></ul><ul><li>Notes to the financial statements </li></ul><ul><li>Required Supplementary Information </li></ul><ul><li>Basis of accounting </li></ul>
    45. 45. Financial Analysis of the Library as a whole <ul><li>Did net assets increase or decrease during the year and what brought about this change? </li></ul><ul><li>Did governmental activities increase or decrease? What was the reason? </li></ul><ul><li>Did business-type activities increase or decrease? What was the reason? </li></ul>
    46. 46. Financial Analysis of the Library’s Funds <ul><li>Did the Library’s funds increase or decrease over the course of the year? </li></ul><ul><li>What brought about these increases or decreases? </li></ul><ul><li>Did taxes increase or decrease and why? </li></ul><ul><li>Was a major construction project started? </li></ul><ul><li>Did major types of expenditures increase or decrease and why? </li></ul>
    47. 47. General Fund Budgetary Highlights <ul><li>Did the Library amend the original budget for the general fund and why? </li></ul><ul><li>How much did revenues and expenditures exceed or fall below the final budget and why? </li></ul>
    48. 48. Capital Assets <ul><li>Did the Library invest more funds in capital assets in the current year? </li></ul><ul><li>What types of capital assets did the Library purchase? </li></ul><ul><li>How did the Library fund these capital assets? </li></ul>
    49. 49. Debt <ul><li>Did the Library’s debt increase or decrease during the year? Why? </li></ul><ul><li>Did the Library obtain new debt? </li></ul><ul><li>Did the Library pay-off current debt? </li></ul><ul><li>What is the new debt related to? </li></ul>
    50. 50. Economic Factors and Next Year’s Budget and Rates <ul><li>What is currently known that will impact the next budget? </li></ul><ul><li>Did tax rates increase? </li></ul><ul><li>Did the Library impose a new tax? </li></ul><ul><li>Was a lawsuit recently settled? </li></ul>
    51. 51. Contacting the Library <ul><li>If citizens have questions, they may call, write or email. </li></ul><ul><ul><li>Telephone number </li></ul></ul><ul><ul><li>Library address </li></ul></ul><ul><ul><li>Email address </li></ul></ul>
    52. 52. Auditor’s Reporting and Required Supplementary Information <ul><ul><li>Failure to prepare an MD&A will not affect the auditor’s opinion on the financial statements </li></ul></ul><ul><ul><li>Auditors must include an explanatory paragraph if: </li></ul></ul><ul><ul><ul><li>MD&A is omitted, or </li></ul></ul></ul><ul><ul><ul><li>MD&A contains materially misleading information </li></ul></ul></ul>
    53. 53. GASB Statement 34 Resources <ul><ul><li>GASB’s Guide to Implementation of GASB Statement 34 on Basic Financial Statements- and Management’s Discussion and Analysis- for State and Local Governments </li></ul></ul><ul><ul><li>GASB’s Guide to Implementation of GASB Statement 34 and Related Pronouncements </li></ul></ul><ul><ul><li>http://www.gasb.org/repmodel/gasb34main.html </li></ul></ul><ul><ul><li>Select “Resources On Line” and “Early Implementers of Statement 34” for example financial statements prepared using Statement 34; and Statement 34 implementation discussions </li></ul></ul>
    54. 54. GASB Statement 34 Resources <ul><ul><li>www.kyauditor.net </li></ul></ul><ul><ul><li>Select “GASB 34” and click on section for City Officials and Managers </li></ul></ul><ul><ul><li>APA GASB 34 Team </li></ul></ul><ul><ul><li>call 1-800-KYALERT or </li></ul></ul><ul><ul><li>email [email_address] </li></ul></ul>
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