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This edition first published 2017
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ISBN 978-1-119-38146-4 (pbk) ISBN 978-1-119-38147-1 (ebk)
ISBN 978-1-119-38148-8 (ebk) ISBN 978-1-119-38149-5 (ebk)
Governmental accounting is a specialized area that has undergone significant changes over the past few decades. As governmental accounting standards have developed, the complexities of preparing financial statements for governmental entities have greatly increased. Providing meaningful financial information to a wide range of users is not an easy task. Adding to these challenges, the Governmental Accounting Standards Board (GASB) brought sweeping changes to the governmental financial reporting model and is now continuing the process of addressing many important accounting areas related to that model.
Given this rapidly changing environment, the financial statement preparer needs a technical resource that provides more than accurate, competent technical information. The resource needs to be written to fit today's governmental accounting environment. It needs to take a fresh look at some of the long-standing accounting questions faced by governments and to provide meaningful up-to-date information on recently issued and soon-to-be-issued accounting pronouncements.
The purpose of this book is to meet these needs by providing a useful, complete, and practical guide to governmental accounting principles and financial reporting. Throughout, the book will provide the reader with:
The approach used in this book is to provide the reader with useful information in a usable format. Accounting theory must correspond with practical examples to be useful, because theory seldom matches the specific situation. For technical information to be usable, it must be clearly presented without clutter and unnecessary repetition. The substance of accounting requirements must also be understood in order for them to be properly applied. Understanding the reasons why technical requirements exist is an important ingredient in properly applying accounting standards.
The 2017 edition of this book begins with an overview of governmental accounting principles and a description of the various types of funds currently in use by governmental entities. It then describes basic financial statements and provides guidance for reporting various assets, liabilities, revenues, and expenses/expenditures. Finally, it examines the accounting and financial reporting requirements for several specific types of governmental entities. The book also includes a “Disclosure Checklist,” which should prove very helpful in determining the completeness of a governmental entity's financial statement disclosures.
This book would not have come to fruition without the hard work and perseverance of a number of individuals. John DeRemigis of John Wiley & Sons had the confidence to work with me in developing the original concept for the book and in ensuring its continuing quality and success. Pam Reh's efforts in producing past editions of the book are greatly appreciated, as are the current members of the Wiley team.
Of course, the time and effort needed to write and maintain this book would not be possible without a supportive family, for which I am grateful to my wife, Marie, and my sons, Christopher and Gregory.
Warren Ruppel, CPA
Woodcliff Lake, NJ
March 2017
Warren Ruppel, CPA, is a Partner at Marks Paneth LLP, New York, in the firm's Nonprofit, Government and Healthcare Group, where he serves as the Practice Leader for Government Services. He formerly was the assistant comptroller for accounting of the City of New York, where he was responsible for all aspects of the City's accounting and financial reporting. He has over 35 years of experience in governmental and not-for-profit accounting and financial reporting. He began his career at KPMG after graduating from St. John's University, New York. His involvement with governmental accounting and auditing began with his first audit assignment—the second audit ever performed of the financial statements of the City of New York. From that time he served many governmental and commercial clients until he joined Deloitte & Touche in 1989 to specialize in audits of governments and not-for-profit organizations. Mr. Ruppel has also served as the chief financial officer of an international not-for-profit organization.
Mr. Ruppel has served as an instructor for many training courses, including specialized governmental and not-for-profit programs and seminars. He has also been an adjunct lecturer of accounting at the Bernard M. Baruch College of the City University of New York. He is the author of five other books, OMB Circular A-133 Audits, Not-for-Profit Organization Audits, Not-for-Profit Accounting Made Easy, Government Accounting Made Easy, and Not-for-Profit Audit Committee Best Practices. He is also the government specialist for SmartPros online CPA Report, in which he appears quarterly to provide a governmental accounting and auditing update.
Mr. Ruppel is a member of the American Institute of Certified Public Accountants as well as the New York State Society of Certified Public Accountants, where he serves on the board of directors and chairs its Audit Committee. He also serves on the Governmental Accounting and Auditing Committee and is a past president of the Foundation for Accounting Education. He is a past president of the New York Chapter of the Institute of Management Accountants. Mr. Ruppel is a member of the New York State Government Finance Officers Association, where he serves on its Accounting, Auditing and Financial Reporting Committee. He also serves on the Special Review Committee of the national Government Finance Officers Association. In addition, he is a member of the Executive Advisory Board to the Department of Accounting and Taxation of St. John's University.
The 2017 Governmental GAAP Guide incorporates all of the pronouncements issued by the Governmental Accounting Standards Board (GASB) through February 2017. This chapter is designed to keep the reader up to date on all pronouncements recently issued by the GASB and their effective dates, as well as to report on the Exposure Drafts, Preliminary Views, and Invitations to Comment for proposed new statements or interpretations that are currently outstanding. This chapter also includes relevant information on the GASB's Technical Agenda for the upcoming year to give readers information as to potential areas for future GASB requirements.
| GASB Statement | Effective Date | Where in This Book | |
| 72 | Fair Value Measurement and Application | Periods beginning after June 15, 2015 | Chapter 12 |
| 73 | Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 | Fiscal years beginning after June 15, 2016, for pensions not within the scope of GASB 68 Fiscal years beginning after June 15, 2015, for asset reporting and GASB 67 and 68 Amendments |
Chapter 17 |
| 74 | Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans | Fiscal years beginning after June 15, 2016 | Chapter 22 |
| 75 | Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions | Fiscal years beginning after June 15, 2017 | Chapter 17 |
| 76 | The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments | Periods beginning after June 15, 2015 | Chapter 2 |
| 77 | Tax Abatement Disclosures | Periods beginning after December 15, 2015 | Chapter 9 |
| 78 | Pensions Provided through Certain Multi-Employer Defined Benefit Plans | Periods beginning after December 15, 2015 | Chapter 17 |
| 79 | Certain External Investment Pools | Periods beginning after June 15, 2015 | Chapter 12 |
| 80 | Blending Requirements for Certain Component Units—An Amendment of GASB Statement No. 14 | Periods beginning after June 15, 2016 | Chapter 11 |
| 81 | Irrevocable Split-Interest Agreements | Periods beginning after December 15, 2016 | Chapter 12 |
| 82 | Pension Issues—An Amendment of GASB Statements No. 67, No. 68, and No. 73 | Periods beginning after June 15, 2016 | |
| 83 | Certain Asset Retirement Obligations | Periods beginning after June 15, 2018 | Chapter 14 |
| 84 | Fiduciary Activities | Periods beginning after December 15, 2018 | Chapter 8 |
The GASB has a number of Exposure Drafts and Preliminary Views that it has issued, which will affect future accounting and financial reporting requirements when final standards are developed. The following provides a brief synopsis of what is being covered by each Exposure Draft and Preliminary Views document. Readers should always be aware that the GASB often modifies proposal stage literature based upon its continuing deliberations and consideration of comments that it receives on each Exposure Draft and Preliminary Views document.
The GASB has two Exposure Drafts related to implementation guides.The first, which was issued in November 2016, will result in an annual update to the GASB's Comprehensive Implementation Guide. The second, which was issued in December 2016, will contain implementation guidance for GASB Statement Nos. 74 and 75 on Other Postemployment Benefits.
GASB Implementation Guides are considered authoritative GAAP for governments and consist of a series of very specific questions and answers that are designed to assist financial statement preparer and auditors implement GASB Statements. In some cases they address practice questions that arise; in other cases they address questions that the GASB chose not to specifically address in a GASB Statement itself.
The GASB issued this Exposure Draft in September 2016 to address certain specific issues across a wide variety of topics. Specifically, the Exposure Draft states that its objective is to address practice issues that have been identified during implementation and application of certain GASB Statements. The Exposure Draft addresses a variety of topics including issues related to component unit presentation, goodwill, fair value measurement and application, and postemployment benefits (pensions and other postemployment benefits [OPEB]).
Specifically, a Statement resulting from this Exposure Draft would address the following topics:
The requirements of this proposed Statement would be effective for reporting periods beginning after June 15, 2017. Earlier application would be encouraged.
The GASB issued this Exposure Draft in August 2016. Its Summary highlights the following items that are addressed.
Statement No. 7, Advance Refundings Resulting in Defeasance of Debt, requires that debt be considered defeased in substance if the debtor irrevocably places refunding debt proceeds with an escrow agent in a trust to be used solely for satisfying scheduled payments of both principal and interest of the defeased debt. The trust also is required to meet certain conditions for the transaction to qualify as an in-substance defeasance. This Exposure Draft would establish essentially the same requirements if a government places only existing resources in a trust to extinguish the debt. Any difference between the reacquisition price (the amount required to be placed in the trust) and the net carrying amount of the debt defeased in substance using only existing resources would be recognized as a separately identified gain or loss in the period of the defeasance in financial statements using the economic resources measurement focus.
Governments that defease debt using only existing resources would provide a general description of the transaction in the notes to the financial statements in the period of the defeasance. In all periods following an in-substance defeasance of debt using only existing resources, the amount of that debt that remains outstanding at period-end would be disclosed.
For governments that extinguish debt, whether through a legal extinguishment or through an in-substance defeasance, this Exposure Draft would require that any remaining prepaid insurance related to the extinguished debt be included in the net carrying amount of that debt for the purpose of calculating the difference between the reacquisition price and the net carrying amount of the debt.
One of the criteria for determining an in-substance defeasance is that the trust be limited to holding only monetary assets that are classified as being essentially risk free. If the substitution of essentially risk-free monetary assets with monetary assets that are not essentially risk free is not prohibited, governments would disclose that fact in the period in which the debt is defeased in substance. In subsequent periods, governments would disclose the amount of debt defeased in substance that remains outstanding for which that risk of substitution exists.
The requirements of this proposed Statement would be effective for reporting periods beginning after June 15, 2017. Earlier application would be encouraged.
The GASB issued this Exposure Draft in January 2016. A Standard resulting from this Exposure Draft will result in significant changes in the accounting for leases. This project is similar to a project completed by the FASB, although the accounting requirements are not at all identical.
The Summary of the Exposure Draft provides the following information.
A lease would be defined as a contract that conveys the right to use a nonfinancial asset (the underlying asset) for a period of time in an exchange or exchange-like transaction. Examples of nonfinancial assets include buildings, land, vehicles, and equipment. Any contract that meets this definition would be accounted for under the proposed leases guidance, unless specifically excluded.
The lease term would be defined as the period during which a lessee has a noncancelable right to use an underlying asset, plus the following periods, if applicable, covered by a lessee's option to:
A fiscal funding or cancellation clause would be considered in determining the lease term only when it is reasonably certain that the clause will be exercised.
Lessees and lessors would reassess the lease term only if the lessee does either of the following:
A lessee would recognize a lease liability and a lease asset at the beginning of a lease, unless the lease is a short-term lease or transfers ownership of the underlying asset. The lease liability would be measured at the present value of payments expected to be made for the lease term. The lease asset would be measured at the amount of the initial measurement of the lease liability, plus any payments made to the lessor at or before the beginning of the lease and certain indirect costs.
A lessee would reduce the lease liability as payments are made and recognize an outflow of resources for interest on the liability. The lessee would amortize the lease asset in a systematic and rational manner over the shorter of the lease term or the useful life of the underlying asset. The notes to the financial statements would include a description of leasing arrangements, the amount of lease assets recognized, and a schedule of future lease payments to be made.
A lessor would recognize a lease receivable and a deferred inflow of resources at the beginning of a lease, with certain exceptions (including a short-term lease or a lease that transfers ownership of the underlying asset). A lessor would not derecognize the asset underlying the lease. The lease receivable would be measured at the present value of lease payments expected to be received for the lease term. The deferred inflow of resources would be measured at the value of the lease receivable plus any payments received at or prior to the beginning of the lease that relate to future periods.
A lessor would recognize interest revenue on the lease receivable and an inflow of resources (for example, revenue) from the deferred inflow of resources in a systematic and rational manner over the term of the lease. The notes to the financial statements would include a description of leasing arrangements and the total amount of revenue recognized from leases.
Generally, a government would account for the lease and nonlease components of a lease as separate contracts. If a lease involves multiple underlying assets, lessees and lessors generally would account for each underlying asset as a separate lease contract. To allocate consideration required under the contract to different components, lessees and lessors would use contract prices for individual components if reasonable based on observable stand-alone prices. Under certain circumstances, multiple components in a lease contract would be accounted for as a single lease unit. Contracts that are entered into at or near the same time with the same counterparty and meet certain criteria would be considered part of the same lease contract and would be evaluated in accordance with the guidance on contracts with multiple components.
A short-term lease would be defined as a lease that, at the beginning of the lease, has a maximum possible term under the contract of 12 months or less, including any options to extend, regardless of its probability of being exercised. Lessees and lessors would recognize short-term lease payments as outflows of resources or inflows of resources, respectively, based on the payment provisions of the contract.
An amendment to a lease contract would be considered a lease modification, unless the lessee's right to use the underlying asset decreases, in which case it would be a partial termination. A lease termination would be accounted for by reducing the carrying values of the lease liability and lease asset by a lessee, or the lease receivable and deferred inflow of resources by the lessor, with any difference being recognized as a gain or loss. A lease modification generally would be accounted for by remeasuring the lease liability and adjusting the related lease asset by a lessee, or remeasuring the lease receivable and adjusting the related deferred inflow of resources by a lessor.
Subleases would be treated as transactions separate from the original lease. The original lessee that becomes the lessor in a sublease would account for the original lease and the sublease as separate transactions as a lessee and lessor, respectively.
A transaction would qualify for sale-leaseback accounting only if it includes a qualifying sale. Otherwise, it is a borrowing. The sale and leaseback portions of a transaction would be accounted for as separate sale and lease transactions, except that any difference between the carrying value of the capital asset that was sold and the net proceeds from the sale would be reported as a deferred inflow of resources or a deferred outflow of resources and recognized over the term of the leaseback.
A lease-leaseback transaction would be accounted for as a net transaction. The gross amounts of each portion of the transaction would be disclosed.
The requirements of this proposed Statement would be effective for reporting periods beginning after December 15, 2018. Earlier application is permitted. Leases would be recognized and measured using the facts and circumstances that exist at the beginning of the period of implementation (or, if applied to earlier periods, the beginning of the earliest period restated). However, lessors would not restate the assets underlying their existing sales-type or direct financing leases. Any residual assets for those leases would become the carrying values of the underlying assets.
In December the GASB issued this ITC to address the accounting used by governmental funds, currently the modified accrual basis of accounting and the current financial resources measurement focus. This ITC requests commentary on three different replacement models for the current model. These are the near-term financial resource model (near-term meaning 60–90 days), the short-term resources model (short-term meaning one year) and the long-term financial resources model (similar accounting to what is used in the government-wide statements, except that capital assets would not be recorded.)
The ITC also requests comments on alternative presentations for the resource flows statement, the requirement for presenting a cash flows statement, and a proposed simplification between the government-wide and governmental fund financial statements.
While this is a very preliminary phase of this project, it seems almost certain that there will be changes made to the basis of accounting and measurement focus used by governmental funds.
The GASB has a number of additional important projects on its agenda that will likely affect governmental accounting and financial reporting in the future. Some of the more significant projects are as follows.
Financial reporting model. The ITC discussed earlier in this chapter is part of this project, which is taking a fresh look at the basic financial reporting model required by GASBS 34, as amended, to determine if it is working effectively and whether any changes to the model need to be made.
Revenue and expense recognition. This project is somewhat in response to a recent FASB standard on revenue recognition. The GASB is examining whether a similar standard should be adopted for governments. The GASB has also added expense recognition to this project.
The GASB, as always, maintains an active agenda, and the accounting and financial reporting standards for governments are consistently evolving. Financial statement preparers need to keep an eye on emerging new GASB pronouncements to ensure that they have adequate time to plan for their implementation, as well as to inform financial statement users about their potential impacts.