Written by: Joy Strain
GASB 54 – Fund Balance Reporting and Governmental Fund Type Definitions
In March of 2009, the Governmental Accounting Standards Board (GASB) released GASB Statement #54, Fund Balance Reporting and Governmental Fund Type Definitions. This statement will not affect the calculation of fund balance, but will fundamentally alter the various components used to report it. The statement is effective for periods beginning after June 15, 2010.
The GASB Statement #54 is broken down into two parts. One is the five new components of fund balance. The Statement establishes criteria for classifying fund balance into specifically defined classifications. The classifications of fund balance should be based on a hierarchy that reflects the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent.
The five new components of fund balance are:
Amounts that cannot be spent because they are either in a non-spendable form (non cash items such as inventory and prepaid items) or legally or contractually required to be maintained intact (endowment principal).
Amounts constrained to be used for a specific purpose per an external party, contributor or enabling legislation. (example: liquid fuels funds)
Amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority. Formal action is required to change the original intended purpose for the funds.
Amounts that are constrained by the government’s intent to be used for a specific purpose. For the general fund the assigned fund balance must be for a specific purpose and for all other governmental funds the assigned fund balance represents the residual balance of the fund. Unlike committed fund balances, assigned fund balances can be changed without formal action.
Residual amount in the general fund after identifying and classifying all the other categories listed above. Only the general fund will have unassigned fund balance.
The government-wide financial statements are not effected by the new components of fund balance, only the governmental fund statements themselves.
Amounts recorded as committed, assigned and unassigned are considered unrestricted and available for appropriation. The notes to the financial statement must identify for committed funds the government’s highest level of decision-making authority and the formal action required to consider the funds committed and to rescind this action. The notes must also identify for the assigned funds the person(s) authorized to set aside amounts as assigned and the policy that grants this application.
The second part of the Statement clarifies the existing governmental fund type definitions to improve the comparability of governmental fund financial statements and help financial statement users to better understand the purpose for which governments have chosen to use particular funds for financial reporting.
The new definitions of the governmental fund types are:
Accounts for financial resources not reported in other funds.
Accounts for proceeds of revenue sources that are limited to specific expenditures. These revenues must provide a substantial amount of the funding accounted for in a special revenue fund. The standard further limits the use of this fund to expenditures that are not related to capital outlay or debt service.
Accounts for resources that are limited to expenditures for capital outlay.
Accounts for resources that are restricted, committed or assigned to expenditures for principal and interest. The fund may also be used to accumulate the resources to make future debt service payments.
Accounts for resources that benefit the government where only the earnings of the fund may be used for the government’s related purposes and the principal must remain intact.
Due to the new definitions above, capital reserve funds no longer meet the definition of special revenue funds. Therefore, it will be necessary to either reclassify current capital reserve funds as either capital project funds or general funds.
Board or council actions should be taken by year end to identify the various components of fund balance and to reclassify, if applicable, any of the governmental funds types. It is not necessary the board or council establish the amounts in each fund balance component, merely identify the classifications.
Additional information can be found at www.gasb.org or by calling our office. We will be working with management during the upcoming audits so that the financial statements and related footnotes contain the necessary information and disclosures related to GASB 54.
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