GASB 34 Implementation and Other Financial Reporting Issues

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GASB 34 Implementation and Other Financial
Reporting Issues

• August 23, 2002
• Ren E. Wiles
• Preeta Nayak

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GASB 34

• FYE 6/30/2002, 28 BOEs will be using the new
  financial reporting model.
• 88 BOEs to implement GASB 34 in the 2002-2003
  fiscal year.

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BOEs implementing this year
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What is GASB 34 and what does it mean to me?

• Measuring what it costs to run the entire school
  operation, rather than What resources do I have
  for the next fiscal year?

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To those of you in Phase 1

• What have you learned that you wish someone had
  told you before you got into this?

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Overview of Changes

• Financial statements under GASB 34 will apply
  full accrual accounting to governmental funds.
• Infrastructure will be recognized.
• GFAAG GLTDAG will be gone.
• Depreciation will be taken as an expense on all
  depreciable assets.

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Continued

• The cost of services/programs will be disclosed.
  
• Program expenses will be shown on the Statement
  of Activities.
• Revenues directly related to the program will be
  matched.
• Unmatched revenues will be reported as General
  Revenues.

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What to expect this first year.We expect that

• This has not had/will not have a tremendous
  impact on your day-to-day accounting.
• PREPARING to present on GASB 34 basis has
  been/will be a time consuming processes.
• Phase 2 Boards, make friends with the Phase 1
  BOE most like your own.

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How will this affect NC Boards of Education?

• What level of expenses will you show?
• GASB Statement 34, paragraphs 39 40
• Detail should match what is shown on statement of
  revenues, expenditures changes in fund balance.
  
• Should at least be by Function.
• Show more detail is it improves usefulness.

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The A word.

• Stands for Allocation
• Certain expenses should be matched to the
  function they support.
• Employee Benefits
• Depreciation
• Capital Outlay

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Employee Benefits

• Allocate the expenses in the 5900 and 6900
  purpose codes.
• 5910 5920 sub-purpose codes should be allocated
  to the appropriate function.
• Look to your information technology staff. Can
  they extract the information you need?
• Same applies to 6910 6920.

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continued,

• 5930 6930 for staff development may be reported
  as Other Instructional (Support) Programs.
• Accumulated annual leave should be allocated
  also.

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Phase 1 Boards

• Phase 1 boards, talk early with your auditor
  about the materiality level of the
  government-wide statements.
• Because local, federal state will be
  together in the government-wide statements, the
  materiality level should be higher than what we
  are used to.

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Phase 2 Board

• Make friends with a Phase 1 board that is similar
  to your own.

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Question 108, Implementation Guide

• Should depreciation be charged to specific
  functions or programs in the government-wide
  statements?
• ADepreciation expense for the following types
  of capital assets is required to be included in
  the direct expenses of functions or programs
• Capital assets that can be specifically
  identified with a function or program
• Shared capital assets (for example, a
  facility that houses the police department, the
  building inspection office, and the water utility
  office).
• Depreciation expense for capital assets that
  essentially serve all functions, such as a city
  hall or a state administrative office building,
  may be
• Included in an indirect expense allocation
  (optional) to the various functions or programs
  (Appendix 3, Exhibit 2)
• Reported as a separate line in the statement of
  activities however, the account title should
  make the reader aware that it does not include
  all depreciation (for example, unallocated
  depreciation) (Appendix 2, Exhibits 21 and 33)
• Reported as part of the general government
  (or its counterpart) function (Appendix 2,
  Exhibit 2).
• Depreciation expense for infrastructure assets
  associated with governmental activities should be
  reported as either
• A direct expense of the function (for example,
  public works or transportation) that is normally
  used for capital outlays for and maintenance of
  infrastructure assets (Appendix 2, Exhibit 2)
• A separate line in the statement of activities
  (again noting the extent of the depreciation
  expense presented) (Appendix 2, Exhibits 21 and
  33).

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Expected Allocation

• School bus depreciation should be accounted for
  in purpose code 6500, Business Support Services.
  
• Computers used only in classrooms should be
  accounted for in purpose code 5100, Regular
  Instruction Program

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Unallocated Depreciation

• Because some assets may serve multiple functions,
  the depreciation may be presented as a separate
  line item.
• Disclose on the face of the statement of
  activities that this amount does not include
  direct depreciation.

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Depreciation continued.

• Note disclosure should contain full depreciation
  information. I.E., what was allocated as a
  direct expense and what was not.

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Capital Outlay

• Not a program on the government-wide statements.
  
• Majority of the expenditures will be capitalized
  depreciated.
• Items not capitalized should be matched with the
  specific purpose/function.

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Category 1, not capitalized

• Likely these assets are for maintenance repair
  work.
• These should be allocated to the 6500 purpose
  code, Business Support Services, because physical
  plant maintenance would go to the 6580 purpose
  code.

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Category 2, not capitalized

• Remember, as much as possible should be allocated
  to the specific function/purpose that it serves.
  
• For those expenditures which cant be allocated,
  purpose code 6500 again appears to be the best
  allocation.

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Category 3, not capitalized

• Items here are related to transportation, purpose
  code 6550.
• Therefore, items not capitalized nor allocated to
  a specific program/function, should be allocated
  to purpose code 6500, Business Support Services.

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Indirect Costs.

• Because the government-wide statements will
  combine several funds, indirect cost allocations
  should be eliminated.
• Revenue Code 4880, indirect cost revenue in Local
  Current Exp. and expenditure in purpose code 8000
  should be eliminated.
• See Memo 973 for further details.

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But what about Revenues?

• Revenues must be classified as
• Charges for service,
• Operating Grants and Contributions,
• Capital Grants and Contributions, or
• General Revenues
• Appendix B to Memo 973 will classify the
  majority of school revenues.

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Single Audit issues

• By change in State law, the staff of the LGC now
  assembles, approves and distributes the
  Compliance Supplements. Formerly the State
  Auditors responsibility.

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Single Audit issues, 2

• State Public School Building Bond Fund and State
  Public School Building Capital Fund are grants to
  the counties.
• Schools report revenues expenditures, if they
  are performing the transactions.
• Should appear on the schools Schedule of
  Expenditures of State Federal Awards

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Single Audit issues, 3

• GAGAS findings and Single Audit findings should
  all have corrective action plans.
• A contact person and anticipated completion date
  should be included.

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Single Audit issues, 4

• Cluster of Programs should be treated as one
  program.
• Summer School Lunch program (10.559) is part of
  the Child Nutrition Cluster. This program should
  be included in the cluster audit.

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Single Audit issues, 5

• Medicaid Reimbursement
• NC Information Highway
• Appeared on several Schedule of Expenditure of
  Fed. St. Awards last year.
• Our understanding is that these are not financial
  assistance. They should not be on the Schedule.

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Questions on the Preceding?

• Contact Mr. Jim Burke, 919-807-2383.
• Or, Ms. Jean Slaughter, 919-807-2391.

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Major changes to the audit manual

• Technical adjustments to
• Valuation of investments
• Risk management note
• Show contribution of school buses
• Adjust forfeited vehicle note.
• Include contingent liability note for pending
  litigation.

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Charter Schools

• All NC charter schools should be Phase 3
  implementation, 2003-04 fy.
• Area of concern, related party transactions.
• Make sure that conflict of interest policy is
  adopted.
• Make sure that policy is followed.
• Disclose related party transactions.