V542: Governmental Financial Accounting and Reporting


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V542: Governmental Financial Accounting and Reporting

  1. 1. Indiana University Master of Public Affairs Program School of Public and Environmental Affairs V542: Governmental Financial Accounting and Reporting Spring 1999 Professor Robert S. Kravchuk Class Meets: M/W 1:00 PM Office: SPEA 410D Office Hrs: Tu 9:00-11:00 AM Phone: 855-0193 E-Mail: kravchuk@indiana.edu COURSE OVERVIEW This course addresses the modern theory and practice of governmental and nonprofit accounting and financial reporting. The accounting system is the foundation of the modern governmental financial function. As such, around two-thirds of the course is devoted to gaining a firm grasp of modern governmental accounting processes and practice, including accounting for governmental funds, proper financial reporting, and auditing. This is to be considered a minimum competency for all well-prepared public finance professionals. Where appropriate, the accounting and financial reporting concepts will be employed as a point of departure for related public financial management issues and topics. The related topics include: revenue and expenditure administration, cash and investments management; capital budgeting; public employee retirement systems (PERS); and public debt management. Although technical concerns will dominate much of the discussion in this course, the focus is squarely on financial policy and the presentation of the results of government and nonprofit operations. COURSE REQUIREMENTS General Requirements. This course requires a great deal of work, for both students and the instructor. The value of the lectures and homework assignments will be greatly enhanced through adequate preparation. The subject matter tends to cumulate over the weeks. This means that “doing it all at the end” will not be possible in this course. Students simply must keep up with the work. Attendance. While attendance will not be taken, the student is forewarned that regular attendance is required in order to successfully complete the course. Missing even a single class can seriously jeopardize a student’s performance on the exams. The instructor will trust in the student’s professionalism. Assigned Work. Given the cumulative nature of the course material, each student is responsible for the completion of all required work due for the class period that such work is assigned. Failure to complete the assigned readings and other work can cause as many problems as missing class. Again, professionalism is at a premium. - 1 - V542: Govermental Accounting & Reporting
  2. 2. Spring 1999 Course Outline and Schedule page two. Homework Assignments. There will be regular homework assignments. These must be completed and turned in on the date that such work is due. There will be no exceptions, since solutions will be posted on the course website the day after the homework is due. Further, unless otherwise directed, all homework assignments should be completed using a recent version of a spreadsheet package (EXCEL is recommended). All accompanying text must also be generated by either a spreadsheet or by a standard word processing package (e.g., WORD). No exceptions. Policy on Grades. Grades will be based on a Midterm Examination (currently scheduled for March 31), the Final Examination, and the homework assignments. Approximate weighting will be one-third each. Make-up exams will not ordinarily be given, except in extreme circumstances (such as a bona fide family emergency, serious illness, killer comets, or the collapse of Western Civilization – the instructor will be the final judge of what qualifies as such). The instructor may request from students evidence of such circumstances in order to grant an exception. REQUIRED TEXTS The following texts are required for purchase: (1) Earl R. Wilson; Leon E. Hay; and Susan C. Kattelus. Accounting for Governmental And Nonprofit Entities, 11th edition. Boston: Irwin, McGraw-Hill, 1999. (2) Joan W. Norvelle. Introduction to Fund Accounting, 5th edition. (Tuscon, Arizona: Thoth Books, 1994) TOPICAL OUTLINE Dates Topic January 11 & 13 I. Course Introduction and Overview. January 20, 25, 27 & February 1 II. Governmental Accounting Concepts and Conventions. February 3, 8 & 10 III. Accounting for General and Special Revenue Funds. February 15 & 17 IV. Capital Projects Funds and the General Fixed Assets Account Group (GFAAG). February 22 & 24 V. Debt Service Funds and the General Long-Term Debt Account Group (GLTDAG). March 1 & 3 VI. Accounting for Proprietary Funds. March 8 Midterm Examination - PART 1 March 10 Midterm Examination - PART 2 March 15 & 17 No Classes - Spring Break March 22 Midterm Exam Re-Cap Period. March 24 & 29 VII. Accounting for Fiduciary Funds. March 31, April 5 & 7 VIII. Governmental Financial Reporting and Auditing. April 12 & 14 IX. Accounting for Nonprofit Organizations. April 19 & 21 X. Regulation and Taxation of Nonprofits. V542: Govermental Accounting & Reporting Spring 1999 Course Outline and Schedule page three.
  3. 3. April 26 & 28 XI. Accounting for Colleges and Universities. [Week of May 3-7] Final Comprehensive Examination (Date and Time t.b.a.) COURSE SCHEDULE AND OUTLINE January 11 & 13 I. INTRODUCTION. A. Course Overview B. The Finance Function in Government 1. Financial Management in Perspective 2. Financial Decision Making 3. Legal Environment 4. Role of the Finance Officer C. Public Budgeting and Public Finance in their Relation to Financial Administration. D. Elementary Principles of Public Finance 1. Macroeconomic Considerations 2. Microeconomic Considerations E. The Role of Accounting in Financial Management 1. The Accounting Cycle 2. Points of Interface Between the Public Budgeting and Accounting Cycles Required Work: Norvelle, Chapter 1 WHK, Chapter 1 January 20, 25, 27 & February 1 II. GOVERNMENTAL ACCOUNTING CONCEPTS AND CONVENTIONS A. Basic Governmental Accounting Concepts 1. The Governmental Environment 2. The 3 Governmental Financial Reporting Objectives 3. Introduction to GAAP; Hierarchy of GAAP 4. Historical Development of Fund Accounting 5. Models of Fund Accounting: Basis of Accounting a. Cash Basis of Accounting V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page four.
  4. 4. II. GOVERNMENTAL ACCOUNTING CONCEPTS AND CONVENTIONS (continued) b. Accrual Basis of Accounting c. Modified Accrual Basis of Accounting 6. Major Fund Classifications a. Governmental Funds b. Proprietary Funds c. Fiduciary Funds 7. Self-Balancing Groups of Accounts a. General Fixed Assets Group of Accounts b. General Long-Term Debt Group of Accounts 8. Role of GASB; Codification of Standards 9. State Laws and Regulations B. Accounting Conventions 1. Measurement Focus and Basis of Accounting (“MuFBA”) a. Flow of Economic Resources (Economic Model) b. Flow of Current Financial Resources (Current Model) c. GASB "Dual Perspective" Model - Proposed 2. Double-Entry Bookkeeping 3. Entity Concept 4. Operating Statements and Funds Statements Basics 5. The Meaning of “Fund Balance” 6. Operating Statement Account Classifications a. Revenues b. Expenditures c. Other Financing Sources and Uses d. Changes in Equity 7. Proprietary Fund Account Classifications a. Operating Revenues b. Operating Expenses c. Nonoperating Revenues and Expenses d. Operating Transfers e. Changes in Equity 8. The Accounting Cycle a. Classification of Transactions b. Recording of Transactions c. T-Accounts and Journal Entries d. Trial Balances e. Closing Entries f. Format and Preparation of Operating and Funds Statements V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page five.
  5. 5. II. GOVERNMENTAL ACCOUNTING CONCEPTS AND CONVENTIONS (continued) C. Major Fund Groups and Accounting Requirements 1. General Fund 2. Special Revenue Funds 3. Debt Service Fund 4. Capital Projects Funds 5. Enterprise Funds 6. Internal Service Funds 7. Trust and Agency Funds a. Expendable Trust Funds b. Nonexpendable Trust Funds c. Pension Funds d. Agency Funds 8. Accounting Issues Unique to each Fund 9. Format and Preparation of Required Fund Statements Required Work: WHK, Chapter 2 Norvelle, Chapters 2-4 Homework #1: [Due February 1] (See Course Website) February 3, 8 & 10 III. ACCOUNTING FOR GENERAL AND SPECIAL REVENUE FUNDS A. General Purpose Funds and their Accounting Requirements B. Budgets and Budgetary Accounts 1. Recording the Budget 2. Accounting for Revenues 3. Encumbrances and Expenditures 4. Classification of Appropriations and Expenditures a. by Fund b. by Function or Program c. by Organizational Unit d. by Activity e. by Character f. Object V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page six.
  6. 6. III. ACCOUNTING FOR GENERAL AND SPECIAL REVENUE FUNDS (continued) 5. Classification of Estimated Revenues and Revenues a. Property (ad valorem) Taxes b. Interest and Penalties on Delinquent Taxes c. Sales tax, Income taxes, Gross Receipts taxes d. Special Assessments e. License and Permit Fees f. Intergovernmental Revenue g. Charges for Services h. Fines and Forfeits 6. Interfund Transactions and Transfers a. Quasi-External Transactions b. Reimbursements c. Interfund Transfers 7. Proceeds of Debt Issues; Capital Leases 8. Representative Transactions and Entries 9. Accounting for Subsequent Events a. Revision of the Budget b. Collection of Current Taxes c. Repayment of Tax Anticipation Notes d. Prior Year Encumbrances 10. Adjusting Entries 11. Pre-Closing Trial Balance 12. Closing Entries 13. Preparation of Funds Statements Required Work: WHK, Chapters 3 & 4 Norvelle, Chapters 5 & 6 Homework #2 [Due February 10] (See Course Website.) February 15 & 17 IV. CAPITAL PROJECTS FUNDS AND GENERAL FIXED ASSETS ACCOUNT GROUP (GFAAG) A. General Fixed Assets - Definition B. Capital Projects Accounting 1. Legal Requirements V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page seven.
  7. 7. IV. CAPITAL PROJECTS FUNDS AND GENERAL FIXED ASSETS ACCOUNT GROUP (GFAAG), (continued). 2. Bond Anticipation Notes 3. Encumbrances 4. Recording Contract Costs 5. Collection of Revenues from Other Funds 6. Repayment of Bond Anticipation Notes 7. Retained Percentages 8. Capitalization of Interest Expense 9. Year-End Closing Entries C. Special Assessments D. Combining Financial Statements for Capital Projects Funds E. General Fixed Assets Account Group 1. Types of General Fixed Assets a. Land b. Buildings and Improvements (Other Than Buildings) c. Machinery and Equipment d. Construction-in-Progress e. Assets Acquired Under Capital Leases 2. Illustrative Entries 3. Subsidiary Ledger 4. Statements of General Fixed Assets Required Work: WHK, Chapter 5 Homework #3 [Due February 17] (See Course Website.) February 22 & 24 V. DEBT SERVICE FUNDS AND GENERAL LONG-TERM DEBT ACCOUNT GROUP (GLTDAG) A. Types of Debt Service Funds 1. Regular Serial Bonds 2. Deferred Serial Bonds 3. Annuity Serial Bonds 4. Irregular Serial Bonds B. Budgeting for Debt Service C. Number of Debt Service Funds V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page eight.
  8. 8. V. DEBT SERVICE FUNDS AND GENERAL LONG-TERM DEBT ACCOUNT GROUP (GLTDAG), (continued). B. Accounting for Regular Serial Bonds 1. Revenues and Cash Transfers In 2. Recording Bond Interest Payable 3. Payment of Bond Interest 4. Closing Entries 5. Treatment of Fund Balance and Equity Transfers E. Accounting for Deferred Serial Bonds 1. Budgeting Fund Revenues and Expenditures 2. Recording the Budget 3. Recognition of Bond Principal and Interest Payable 4. Payment of Interest and Repayment of Principal 5. Recording the Tax Levy 6. Collection of Taxes 7. Handling Investments and Investment Income 8. Closing Entries F. Accounting for Term Bonds 1. Recording the Budget 2. Recording the Tax Levy 3. Collection of Taxes 4. Handling Investments 5. Payment of Interest 6. Closing Entries G. Required Disclosures in “Notes to the Financial Statements” H. Amortization of Premium and Discount on Investments I. Accounting for Special Assessment Debt J. Accounting for Debt Refunding 1. Treatment of Refunded Debt: Other Financing Sources 2. Handling Advance Refunding of Debt K. General Long-Term Debt Group of Accounts 1. Recording Long-Term Debt 2. Handling Capital Leases 3. Principal and Interest Payable in Future Years 4. Debt Limits and Debt Margin Required Work: WHK, Chapter 6 Homework #4 [Due February 24] (See Course Website.) V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page nine.
  9. 9. March 1 & 3 VI. ACCOUNTING FOR PROPRIETARY FUNDS A. Characteristics of Proprietary Funds B. Internal Service Funds 1. Establishment and Operation 2. Cash and Equity Transfers In 3. Advances from Other Funds 4. Illustrative Entries - Similar to a Business a. Purchases b. Depreciation of Long-Term Assets c. Handling Expenses d. Billings to Other Departments e. “Retained Earnings” - Excess of Net Billings over Costs f. Adjustments to the Equity Accounts 5. Preparation of Financial Statements a. Operating Statement b. Statement of Cash Flows c. Combining Statements d. Balance Sheet C. Enterprise Funds 1. Accounting Identical to Investor-Owned Enterprises 2. Asset Accounting a. Current and Accrued Assets b. Restricted Assets c. Construction Work-in-Progress 3. Accounting for Liabilities a. Current Liabilities b. Liabilities Payable from Restricted Assets c. Long-Term Debt 4. Fund Equity and Retained Earnings 5. Preparation of Financial Statements a. Operating Statement b. Balance Sheet c. Statement of Cash Flows d. Combining Statements e. Required Segment Information Required Work: WHK, Ch. 7 [Note: Skim the details of the Water Utility Fund example on pp. 266-283. You may ignore completely the Solid Waste landfills discussion on pp. 284-287.] V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page ten.
  10. 10. Homework # 5 [Due March 3] (See Course Website.) March 8 & 10 MIDTERM EXAMINATION - IN TWO PARTS The midterm examination will be a 150-minute, in-class, closed-book format test, given in two 75-minute parts. Part One on March 8 will be in a multiple-choice, short answer format. Part Two on March 10 will be problem-oriented. Students should be prepared to deal with each stage of the accounting cycle, from initial recording of the budget, to recording transactions, posting of closing entries, trial balances, and preparation of funds statements in good form. All material up to and including March 3, 1999 will be “fair game” for inclusion on the examination. [Note: In the event of a school closing due to the weather, the start of any missed part of the exam will be postponed until the very next possible class period.] March 15 & 17 NO CLASSES -- SPRING RECESS March 22 MIDTERM EXAM RE-CAP March 24 & 29 VII. ACCOUNTING FOR FIDUCIARY FUNDS A. Agency Funds 1. Agency Funds Characteristics 2. Types of Agency Funds a. Deferred Compensation Plans b. Special Assessment Debt Service c. Tax Agency Funds 3. Required Financial Statements 4. “Pass-Through” Agency Funds 5. Cash and Investment Pools B. Trust Funds 1. Types of Trust Funds a. Expendable Trust Funds b. Nonexpendable Trust Funds 2. Illustrative Entries 3. Preparation of Financial Statements C. Pension Funds 1. Characteristics of Public Employee Retirement Systems (PERS) 2. Required Financial Statements and Disclosures V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page eleven.
  11. 11. VII. ACCOUNTING FOR FIDUCIARY FUNDS (continued) a. Balance Sheet b. Comprehensive Annual Financial Report (CAFR) 3. Illustrative Entries 4. Types of Pension Plans a. Defined Benefit Plans b. Defined Contribution Plans 5. Actuarial Valuation Concepts 6. “Unfunded” Liability - How Real is It? Required Work: WHK, Chapters 8 & 9. John E. Peterson, "Public Pension Funds," Ch. 13 in J. R. Aronson & Eli Schwartz, Management Policies in Local Government Finance, 4th edition. (Washington, D.C.: ICMA, 1996), pp. 339-363. [On Reserve in Library.] Homework #6 [Due March 29] (See Course Website.) March 31, April 5 & 7 VIII. GOVERNMENTAL FINANCIAL REPORTING AND AUDITING A. The Comprehensive Annual Financial Report (CAFR) 1. Six Characteristics of Financial Reporting a. Understandability b. Reliability c. Relevance d. Timeliness e. Consistency f. Comparability 2. Logical Structure of the CAFR a. Financial Report b. General Purpose Financial Statements (GPFS) c. Combined Statements d. Combining Statements (by Fund Type) e. Individual Fund Statements f. Notes to the Financial Statements g. Auditor’s Report h. State Single Audit (In Some States) 3. CAFR Sections and Required Contents a. Introductory Section V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page twelve.
  12. 12. VIII. GOVERNMENTAL FINANCIAL REPORTING AND AUDITING (continued) b. Financial Section c. Statistical Section d. Independent Auditor’s Report e. Notes to the Financial Statements B. Unresolved Issues: "MuFBA, again!" C. Auditing and Internal Controls 1. Three Elements of Internal Control a. Control Environment b. Accounting System c. Control Procedure 2. Generally Accepted Auditing Standards (GAAS) 3. Government Auditing Standards 4. Types of Government Audits a. Financial Audits b. Performance Audits 5. The “Single Audit” a. Single Audit Act of 1984 b. Review of Major Programs c. Evaluation of the System of Internal Control d. Compliance Audits e. Single Audit Reports 6. The Audit Process a. Review of Internal Controls b. Audit Tests c. Statistical Testing d. Management’s Role 7. The Role of the Independent Auditor 8. The Auditor’s Opinion Required Work: Norvelle, Chapter 7. WHK, Chapters 10 & 12. Homework #7 [Due April 7] (See Course Website.) April 12 & 14 IX. ACCOUNTING FOR NONPROFIT ORGANIZATIONS A. Defining Characteristics of Nonprofit Organizations (NPOs). V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page thirteen.
  13. 13. IX. ACCOUNTING FOR NONPROFIT ORGANIZATIONS (continued). B. Organizational Forms 1. Taxable NPOs 2. Non-taxable NPOs C. Non-taxable NPOs. 1. Mutual Nonprofits [Sec. 501(c)5-23; Sec. 521(a)] -- professional associations, cooperatives. 2. Social Welfare Organizations [Sec. 501(c)4] -- civic leagues, local Employee associations) 3. Charitable, Educational and Scientific [Sec. 501(c)3] a. Public Charities -- private schools, nonprofit health care, colleges and universities, community foundations, others. b. Private Foundations [Sec. 509(a)] -- independent or corporate; operating or nonoperating 4. Religious Communities [Sec. 501(d)] D. GAAP Standard-Setting Bodies for NPOs: Role of FASB E. Financial Accounting and Reporting: An "Aggregate View" 1. Required Financial Statements [Under SFAS No. 117 (1993)] a. "Statement of Financial Position" - Akin to a Balance Sheet, except that there are special asset categories b. "Statement of Activities" - Akin to an Income Statement, except that the S/A measures: Changes in Net Assets, less Expenses and Losses c. "Statement of Cash Flows" - After 1993, required of all NPOs, as well as for-profit concerns d. "Notes to the Financial Statements" - are an integral part of the financial statements e. "Statement of Functional Expenses" - required only of voluntary health and welfare organizations (VHWOs) F. Accounting for Revenues, Gains and Financial Support 1. Contributions Received 2. Pledges - conditional and unconditional 3. Donations-in-kind 4. Special Events G. Accounting for Expenses 1. Functional Expense Classifications 2. Costs of Fund-Raising Appeals H. Accounting for Assets 1. Investments - at "fair market value" [SFAS No. 124 (1995)] 2. Endowments - the importance of donative intent 3. Collection Items 4. Disclosure Requirements Under SFAS No. 124(1995) I. Optional Fund Accounting Procedures for NPOs (permitted under SFAS No. V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page fourteen.
  14. 14. IX. ACCOUNTING FOR NONPROFIT ORGANIZATIONS (continued). 117 (1993)] -- special fund categories are prescribed J. The Problem of "Financially Interrelated Entities" K. Illustrative Entries Required Work: WHK, Chapter 16 Homework #8 [Due April 14] (See Course Website.) April 19 & 21 X. REGULATION AND TAXATION OF NONPROFIT ORGANIZATIONS A. Oversight Authority and State Regulation 1. Incorporation Laws 2. Licenses and Tax Exemption 3. Lobbying and Political Influence B. Federal Regulatory Authority 1. Requirements for IRS Tax Exempt Status 2. Annual Compliance Reporting - Form 990 a. Issues in Compliance Reporting b. "990 in 2000 Project" of the Nonprofit Form 990 Accountability Collaborative - Status as of late 1998 c. "Quality Form 990 Resolution," and its 12 Recommendations, Adopted September 9, 1998. 3. Public Charities and Private Foundations 4. Unrelated Business Income (UBI) Taxes 5. Political Acitivity 6. Sanctions for Noncompliance 7. Reorganization and/or Dissolution C. Governance Issues D. Benchmarking Performance of NPOs Required Work: WHK, Chapter 17 Homework #9 [Due April 21] (See Course Website.) V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page fifteen.
  15. 15. April 26 & 28 XI. ACCOUNTING FOR COLLEGES AND UNIVERSITIES A. Accounting and Financial Reporting Standards - the division of labor between GASB and FASB, and the Potential for Change in the Accounting Model B. Accounting for Public Colleges and Universities - GASB Jurisdiction 1. Unique Funds Types 2. Current Funds a. Current Fund Revenue Categories b. Expenditures and Transfers c. Assets, Liabilities and Fund Balances 3. Loan Funds 4. Endowment and Similar Funds a. Term Endowment Funds b. Funds Functioning as Endowment c. Quasi-Endowment Funds 5. Annuity and Life Income Funds a. Annuity Funds b. Life Income Funds c. Financial Statement Presentation 6. Plant Funds Group a. Unexpended Plant Funds b. Funds for Renewals and Replacements c. Funds for Retirement of Indebtedness d. Investment in Plant 7. Agency Funds 8. Illustrative Transactions and Financial Statements (AICPA Model) C. Accounting for Private Colleges and Universities - FASB Jurisdiction 1. Handling Contributions 2. Tuition Revenue 3. Functional Expenses 4. Other Issues a. Split-Interest Gifts b. Library and Other Collections, Archives, etc. c. Gifts-in-Kind d. Contributed Services D. Auditing Colleges and Universities 1. Federal Financial Assistance 2. Related Entities E. Proposed Dual Perspective Model Required Work: V542: Governmental Accounting & Reporting Spring 1999 Course Outline and Schedule page sixteen.
  16. 16. XI. ACCOUNTING FOR COLLEGES AND UNIVERSITIES (continued) WHK, Chapter 18 Homework #10 [Due April 28] (See Course Website.)