Lecture note Government and not-for-profit accounting: Concepts and practices (7th edition) – Chapter 11: Issues of reporting, disclosure, and financial analysis

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Lecture note Government and not-for-profit accounting: Concepts and practices (7th edition) – Chapter 11: Issues of reporting, disclosure, and financial analysis. Chapter 11 - Issues of reporting, disclosure, and financial analysis. In this chapter, the learning objectives are: Conversion of Fund statements to government-wide, why the make-up of a government’s or not-for-profit’s reporting entity is an issue, the criteria that the GASB has established to determine the units that constitute a government’s reporting entity,...
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Lecture note Government and not-for-profit accounting: Concepts and practices (7th edition) – Chapter 11: Issues of reporting, disclosure, and financial analysis. Chapter 11 - Issues of reporting, disclosure, and financial analysis. In this chapter, the learning objectives are: Conversion of Fund statements to government-wide, why the make-up of a government’s or not-for-profit’s reporting entity is an issue, the criteria that the GASB has established to determine the units that constitute a government’s reporting entity,....

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Click icon to add picture Chapter 11 Issues of Granof, et al. – 7th edition sis Reporting, Disclosure, and Financial © 2016 John Wiley & Sons, Inc. Chapter 11 | 1 All rights reserved. Learning Objectives •Conversion of Fund Statements to Government-wide •Why the make-up of a government’s or not-for-profit’s reporting entity is an issue •The criteria that the GASB has established to determine the units that constitute a government’s reporting entity •Various ways of reporting component units •Reports of special-purpose entities •Main elements of a government’s CAFR •Critical factors to consider in assessing a government’s financial condition Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 11 | 2 All rights reserved. General Approach to convert governmental funds statement to government-wide statement Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 11 | 3 All rights reserved. Reporting Entity •Why is the reporting entity an issue? • An organization’s legal entity may differ from its economic entity. •Composition of reporting entity includes • Primary government (Creating government) • Component units (Created government) Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 11 | 4 All rights reserved. Reporting Entity •Primary government • any state government, general purpose local governments, or a special purpose state or local government •Special purpose government must: • have a separately elected governing body • be legally separate from other primary governments • be fiscally independent of other governments • have authority to determine its budget, levy taxes, and issue bonds •Component unit • Legally separate government for which elected officials of primary government are financially accountable Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 11 | 5 All rights reserved. Flowchart for Evaluation and Presentation Component Units Figure 11­1 Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 11 | 6 All rights reserved. Reporting Entity •Exclusion of component unit might cause the primary government’s statements to be misleading. • Example: State of New York established Municipal Assistance Corporation to help the City of New York during financial difficulties. • Function of corporation was to supervise city’s fiscal affairs and issue bonds on its behalf • City is financially accountable to corporation • Corporation would not have qualified as component unit Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 11 | 7 All rights reserved. Criteria for Reporting Entities •Key criteria as to whether a primary government is financially accountable for another government thus qualifying the other government as a CU: • The primary government appoints a voting majority of the unit’s governing body (and) • 1) it is able to impose its will on that unit (or) • 2) there is a potential for the organization to provide specific financial benefits to or impose specific financial burdens on the primary government Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 11 | 8 All rights reserved. Criteria for Reporting Entities (Cont’d) Primary government able to impose its will on potential component unit if it satisfies any one of the following: • Can remove appointed members of the CU’s governing board • Has the authority to modify of approve the CU’s budget • Can approve or modify the CU’s fee charges • Can veto, overrule, or modify decisions of the CU’s governing board • Can appoint, hire, reassign, or dismiss CU’s managers responsible for D2D operations CU is able to provide special financial benefits, or impose specific financial burdens on primary government if: • primary government is entitled to CU’s financial resources • Legally obligated for or assumed obligation to finance the CU’s deficits or is obligated to support CU’s operations or • Is obligated “in some manner” for CU’s debt Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 11 | 9 All rights reserved. Criteria for Reporting Entities (Cont’d) General rule • Potential CU is fiscally accountable to primary government if primary government controls appointment of its governing board • GASB provides exception • Even if board is independently elected, potential component unit may be considered financially accountable if it is fiscally dependent on primary government CU is fiscally dependent on primary government if it is unable to determine its own budget, levy taxes or set rates, or issue bonds without approval of primary government and there is potential for CU to provide specific financial benefits, or impose specific financial burdens on the primary government. Granof, et al. – 7th edition © 2016 John Wiley & Sons, Inc. Chapter 11 | 10 All rights reserved. Reporting Component Units

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