Quiz 16: Accounting for State and Local Governments, Part I

Business

(1) The Comptroller and Auditor General of India had enlarged the extent of independent auditors report in an audit of state or local government based on the Government Auditing Standards in comparison to a profit-business. This independent auditors reports the internal control procures of the government the compliance of the entity with those procedures and regulations. (2) The followings items are presented in order to reconcile the net changes in fund balances for the governmental funds and the changes in net assets: • Governmental internal service funds. • Expenses recognition. • Capitalizing the assets as expenditures in the fund-based financial statements. • Differences between the reporting of long-term debt issuance and payment. (3) From the given information, the largest sources of general revenues are property taxes and sales taxes. (4) The total amount of expenditures is recognized on the size of the government. The classification of this expenditure includes public safety, sanitation, and the like. (5) The General Fund should provide the current financial resources like cash, investments, receivables, and amounts due from other funds as its assets. However, prepaid accounts and inventory will also be included as assets, though they are not financial resources. (6) Refer to the notes to the financial statements, the payables and receivables will be reported as available, if they are collected within 60 days of the end of the year. (7) The size of the general fund balance increases during the most recent year. It has increased by 51 percent, or $69,318, to $205,205 at June 30, 2012.

One of the projects that the GASB recently worked on is Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The board is trying to reduce the time and money spent on preparing the financial statement. Previously, preparation of the income statement required that certain transactions be examined to determine if they should be reported under Extraordinary Items. By eliminating this concept, the entities preparing the financial statements would no longer be required to spend time, and money, figuring out if an infrequent item is to be reported as extraordinary. The transaction would simply be reported in the income statement as other transactions. The GASB adopted the new rule effective December 15, 2015. Entities will have the option to prepare only future financial statements using the new rule or to go back and prepare previous statements. If only future statements will be prepared using the new rule, the entity must disclose the fact that certain items were previously reported under Extraordinary Items.

Perform the steps 1, 2 and 3 as below: Use the following steps to create the spread sheet to predict the year in which the government will have a zero fund balance: Step 1: Create the following column headings: img Step 2: Enter the following amounts as below: img Step 3: Perform the calculations as below: • In Cell B6, enter the following formula to calculate the revenue change : =+C5*$G$5. • In Cell C6, enter the following formula to adjust revenues by revenue change: =+C5+B6 • In Cell D6, enter the following formula to calculate expenditures change: =+E5*$H$5 • In Cell E6, enter the following formula to change expenditures by expenditures Change:=+E5+D6 • In Cell F6, enter the following formula to calculate the new ending Fund Balance (sum of initial fund balance and the net of Revenue and Expenditures): =+F5+C6-E6 The relative spreadsheet will appear as below: img Hence, for the change of -2% in revenues and for +3% of expenses, the ending fund balance will be -$277,539. Now determine the fund balance with a change of -5% for revenues and -3% of expenses as below: img Hence, for the change of -5% in revenues and for -3% of expenses, the ending fund balance will be +$14,937. Now determine the fund balance with a change of 4% for revenues and 7% of expenses as below: img Hence, for the change of +4% in revenues and for +7% of expenses, the ending fund balance will be -$146,066. Hence, it may conclude that the government fund balance will have a zero balance based on the percentage of increase or decrease in revenues and expenditures.