As most readers of this blog know by now, governmental entities are now required to adopt “Governmental Accounting Standards Board Statement 54 (GASB 54) Fund Balance Reporting and Governmental Fund Type Definitions” for their Comprehensive Annual Financial Reports (CAFR) for the year ending June 30, 2011. We at Henry & Horne are well into our governmental audit season and have seen a few different ways to implement GASB 54 for presentation purposes in the governments CAFR’s. We have some clients that have decided to be bold and attempt to early implement GASB 54 in the prior year, which has served them well in the feedback often supplied by Governmental Finance Officer Association (GFOA) reviewers’ comments. In almost every case of implementing GASB 54 the largest difference noted from client to client has been the level of detail a client decides to supply on the face of their CAFR or in the disclosure to that CAFR in regards to fund balance types.
GASB 54 now requires a government to segregate their governmental funds equity, or fund balance, into five separate types (Nonspendable, Restricted, Committed, Assigned and Unassigned) as opposed to the simple reserved and unreserved fund balances we are all used to. This appears very straight forward and easy to implement. However, GASB 54 continues to require a government to display the first four of those types in a manner that distinguishes a specific purpose within those types. This is where the differences between governments begin to develop.
According to paragraph 22 of GASB 54, restricted, committed and assigned fund balance can be displayed either in the aggregate on the face of the Governmental Fund Statements, or it can be displayed in sufficient detail so that the major restrictions, commitments and assignments are evident to the financial statement user. However, there is a catch. According to paragraph 25 of GASB 54, if restricted, committed, or assigned fund balances are displayed in the aggregate on the face of the governmental fund statements, then specific purposes information, as required in paragraph 22, should be disclosed in the notes to the financial statements. Either way, specific purpose information must be reported in a manner that is evident to the financial statement user in at least one place of the CAFR.
Over the course of the past year, we have seen some clients incorrectly present fund balance types in the aggregate on the face of the governmental balance sheet, without the detail then required in the disclosures. On the other hand, we have seen highly detailed fund balance designations such as restrictions on a capital project for a library or police station. After reviewing many different early implemented governmental CAFR’s from the June 30, 2010 fiscal year, we noted that CAFR’s with highly detailed fund balance information, such as a specific impact fee category for libraries or police station projects, often do not have the space on the face of the governmental fund statements to present that detail. However, CAFR’s that only detail to the extent of say restricted for debt service in total or restricted for developer impact fees in total, have plenty of room to present on the face of the fund statements and have no need to add that detail to the ever expanding list of disclosures required each year. Either level of detail appears to meet the requirements spelled out in GASB 54, so long as the expected financial statement users, whoever they may be, are satisfied that they understand where each fund balance portion is designated. Keep in mind that according to paragraph 2 of GASB 54 the objective of all this is to “improve the usefulness, including the understandability, of governmental fund balance information.” In the end, the detail presented is a judgment call that appears to be interpreted differently throughout the governmental niche.
Brian Hemmerle, CPA