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Understanding GASB Statement 34/35 |
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Introduction by Dr. Ron Rhames, VP, Midlands
Technical College |
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Welcome by Comptroller General Jim Lander |
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Overview of Current Financial Reporting Process |
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Status of OCG’s GASB 34 Implementation Efforts |
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Overview of GASB 34/35 |
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Preliminary Discussion of STARS changes |
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Agency Monitoring Requirements |
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Administrative Information |
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Questions |
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GAAP = |
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Cash-Basis Balances + Accrual Adjustments |
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Adjust activity throughout the fiscal year
within/between GAAP funds |
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Between funds – convert to Transfers In/Out if
appropriate |
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Within the same fund – eliminate
revenues/expenditures if appropriate (i.e. eliminate double reporting) |
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Reclassify FM12/13 JV’s, Transfers, and IDT’s
posted after 6/30 to Due To/From Other Funds, Interfund
Receivables/Payables, Advances From/To Other Funds |
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Allocate investment purchases/sales unsettled at
6/30 to GAAP funds participating in pooled accounts |
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Obtained assistance from KPMG with GASB 34
Implementation efforts |
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Performed a Readiness Assessment of the OCG’s
ability to prepare GASB 34 compliant statements |
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Performed a separate assessment of the OCG’s
financial accounting and reporting systems’ abilities to produce GASB 34
compliant statements |
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Identified year-end closing packages that will
need significant revisions |
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Planned a training program for State agencies |
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Prepared an overall implementation work plan for
the Comptroller General’s Office |
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Review/conceptual design of STARS changes
currently in progress (to discuss in later section of training session) |
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In process (early stages) with Series Z
(financial reporting system) modifications |
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Establishment of a state-wide advisory committee |
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Training efforts |
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Implementation efforts will intensify upon
completion of the current year State of SC Comprehensive Annual Financial
Report (CAFR) |
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Overview of the Statements |
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Management’s Discussion and Analysis (MD&A) |
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Basic Financial Statements |
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Government-wide |
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Fund |
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Notes |
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Required Supplementary Information (RSI) |
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GASB 34/35 are required for South Carolina State
Agencies and Colleges & Universities reports for fiscal year |
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2002 |
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But in practice, processes must be
in place at least
12 months in advance |
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(July 1, 2001) |
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New Funds |
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Major Funds |
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Depreciation alternatives |
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Infrastructure modified approach |
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Capitalization thresholds |
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Valuation of assets |
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Enterprise activities |
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Indirect cost allocation |
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Internal Service activities |
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Program expense distribution |
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Program revenues |
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MD & A content |
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Budgetary presentation |
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Restricted assets |
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Major funds |
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Enterprise fund accounting |
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Internal service fund accounting |
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Infrastructure/modified approach |
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Capitalized interest cost |
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Depreciation/accum dep |
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Valuation of receivables |
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Inventory valuation |
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Restricted assets |
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L-T liabilities |
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Elimination of internal allocations |
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Accrual adjustments |
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Cost allocation |
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Interest exp distrib. |
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FASB stmts |
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Major funds |
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Enterprise funds |
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Internal service funds |
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Pensions |
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Liabilities |
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Fixed assets |
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Functional categories |
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Stmt of net assets |
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Stmt of activities |
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Direct stmt of cash flows |
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Footnotes & RSI |
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Budget presentation |
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MD&A |
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Gov’t wide vs fund reconciliation |
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Fixed asset infrastructure |
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Functionalization of revenues/expenses |
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Indirect cost allocation |
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Capitalized interest |
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Budget information |
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Government wide vs. fund reconciliation |
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Depreciation expense distribution |
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Long/short-term liabilities |
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Interfund transactions |
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Accrual basis adjustments |
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Report compilation |
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MD&A |
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GASB 34/35 Requirements – MD&A |
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Primarily impacts the OCG and State agencies who
prepare stand-alone financial statements |
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Brief description of basic statements |
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Condensed financial information for last year
and this year derived from government-wide financial statements |
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Analysis of financial position and results of
operations (significant variances) |
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Analysis of budgetary changes and results |
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Description of capital asset and long-term debt
activity |
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Description of currently known facts, decisions,
or conditions that are expected to have a material effect on the entity. |
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Governments are encouraged not to duplicate
MD&A information in the letter of transmittal |
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GASB 34/35 Requirements – Government-Wide
Statements |
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Statement of Net Assets |
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Statement of Activities--Cost of services
approach |
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Economic resources |
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Accrual basis |
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Consolidated |
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All assets (including infrastructure) and
liabilities |
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Net assets (rather than fund balances, retained
earnings,etc.) |
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Invested in capital assets, net of related debt |
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Restricted |
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Unrestricted |
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Choice between two formats |
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Most significant effect for closing package
agencies will be centered around the differences between modified accrual
basis information (currently submitted) and accrual basis information for
governmental funds |
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Long term assets |
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Receivables ( present value - APB 21) |
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Capital Assets (including interest - SFAS 34) |
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Liabilities -
separated between due dates less than 1 year and greater than one
year |
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Debt |
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Compensated absences |
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Claims and judgments |
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Pension benefit obligation |
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Inventory (expense when used rather than when
purchased) |
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Interest payable on long-term debt |
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Capital Assets and Infrastructure |
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Non-Depreciable Asset Classes |
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Land |
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Land Improvements |
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Construction in progress |
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Infrastructure – modified approach |
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Inexhaustible works of art & historical
treasures |
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State agencies will receive guidance on the
following areas from the OCG |
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Depreciable lives |
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Depreciable methods |
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Capitalization thresholds |
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$25,000
(land/bldgs.) |
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$1,000 (equipment) |
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TBD(infrastructure) |
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A Detailed, Auditable Property Record |
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Specific identification of assets |
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Historical cost |
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Year of purchase |
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An Adequate Software System/Process |
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Proper segregation of
depreciable/non-depreciable assets |
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Missing data |
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Title Issues |
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Improper classification of assets |
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Unrecorded retirements, additions &
transfers |
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Incorrect descriptions, serial number model,
etc. |
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Age of the current system |
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Infrastructure Assets, defined as: |
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Long-lived capital assets that are a part of a
network of assets that can be preserved for a significantly greater period
than most capital assets, and that |
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Are normally stationary. |
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Examples |
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Roads and bridges, dams, |
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Water and sewer systems |
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Few agencies are expected to have significant
infrastructure assets |
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Required to be reported for the first time by
governmental funds |
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Reporting alternatives |
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Historical cost-based depreciation |
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Modified approach |
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Infrastructure assets will be reported in the
statement of net assets based on historical costs (cost when built) |
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Infrastructure assets will be depreciated over
their useful lives |
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No depreciation is required if the government
demonstrates that it is maintaining qualifying infrastructure assets
approximately at or above the condition level that it established |
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Condition assessments must be performed at least
every three years |
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General infrastructure assets = infrastructure
assets of governmental funds |
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All “major” capital assets including: |
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Renovations |
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Restorations |
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Improvements |
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Determining “major” assets |
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Subsystem --5 percent |
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Network --10 percent |
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A capitalization threshold will be established
and communicated by the OCG |
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Retroactive to years ending after June 30, 1980
(NCGA Statement 1) |
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Phase I governments (State of SC) -- periods
beginning after June 15, 2005 (June 30, 2006) |
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Must begin capitalizing newly acquired
infrastructure assets on July 1, 2001 |
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Infrastructure assets will be reported in the
closing packages/statement of net assets at historical cost less
accumulated depreciation.
Historical cost includes estimated historical cost. |
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Replacement cost or current cost, which is then
deflated back to the acquisition date, is an acceptable method for
estimating original cost of
infrastructure in governmental funds. |
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Transition rules do not apply to enterprise
funds or to colleges/universities. |
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If infrastructure records of governmental funds
are inadequate or if determining actual historical cost is not practical |
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Report only the estimated historical cost for major
infrastructure assets and networks of infrastructure asset systems |
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Only major Infrastructure assets acquired or
assets that have had significant improvements in fiscal years ending after
June 30, 1980. |
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Net cost format (expenses minus program revenue
= net cost) |
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Expenses by functions/programs |
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Revenues by: |
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Charges for services |
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Operating grants and contributions |
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Capital grants and contributions |
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General (e.g., taxes and other non-program
revenue) |
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Special, extraordinary items, and transfers |
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Most significant impact on closing package
agencies will likely be the addition of separate accounts to identify
capital from operating grants/program from general grants (discussed in
next section) |
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Expenses are reported by function |
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Direct expenses--required |
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Indirect expense allocation permitted |
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Separate column for indirect expenses, if
allocated |
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Depreciation |
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Interest |
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Program revenues reduce the net cost of a
program |
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Charges for services |
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Program specific grants and contributions |
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Net cost is financed by general revenues |
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Recognition of revenues deferred because of
availability criteria |
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Recognition of expenses for long-term
liabilities |
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Compensated absences |
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Claims and judgments |
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Pension benefit obligation |
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FASB Statements |
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Identification of direct charges for services |
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Allocation of internal service fund equity |
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Elimination of interfund activities at
government wide level |
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GASB 34/35 Requirements - Fund Level Statements |
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Permanent fund |
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Enterprise fund |
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Internal service fund |
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Investment trust fund |
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Private purpose trust fund |
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Major funds |
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Nonmajor funds presented in a single column by
category |
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Concept does not apply to fiduciary funds and
internal service funds |
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Primarily impacts the OCG and State agencies who
prepare stand-alone financial statements |
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General fund always major |
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Individual fund is: |
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At least 10 percent of assets, liabilities,
revenues, or expenditures/expenses (excluding extraordinary items) of the
relevant fund category or fund type |
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At least 5 percent of total governmental and enterprise funds combined |
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Other funds that are important |
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Required statements: |
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Balance Sheet |
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Statement of Revenues, Expenditures, and Changes
in Fund Balances |
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Characteristics of governmental fund statements: |
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Current financial resources |
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Modified accrual |
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Reconciliation required for both statements |
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Remove the “doubling-up” effect of internal
service fund activity |
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Generally, assets and liabilities are reported
with governmental activities—internal service funds are not part of
business-type activities |
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Economic resources |
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Accrual basis |
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Enterprise redefined--debt\user charge-based;
definition is permissive but requires certain funds to be enterprise funds |
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Debt secured solely by pledge of net revenues
from fees or charges |
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Laws or regulations require recovery of cost |
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Pricing policy designed to recover cost |
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Statement of Net Assets/Balance Sheet |
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Statement of Revenues, Expenses, and Changes in
Fund Net Assets/Equity |
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Statement of Cash Flows |
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Reconciliation required for financial position
and operating statements (if necessary) |
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Classified – current vs. long-term |
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Restricted assets must be reported as such |
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Fund net assets/equity-three classifications
replace contributed capital and retained earnings |
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Invested in capital assets, net of related debt |
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Restricted |
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Unrestricted |
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Distinguish between operating and nonoperating |
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Capital contributions and transfers reported
separately |
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Four categories of cash flows |
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Operating |
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Noncapital financing |
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Capital and related financing |
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Investing |
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Direct method required for operating activities |
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Indirectly determining direct method cash flows |
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Adjust accrual basis revenues and expenses for
changes in receivables and payables |
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Most agencies with proprietary funds currently
report using the indirect method |
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Statement of Fiduciary Net Assets |
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Statement of Changes in Fiduciary Net Assets |
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Redefined--cannot be used to support the
government’s own programs |
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Economic resources |
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Accrual basis |
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Discrete presentation in government-wide
statements |
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Major component unit reporting choices: |
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Separate columns in the government-wide
statements |
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Separate statements after fund presentations |
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Condensed information in the notes |
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Primarily impacts the OCG and State agencies who
prepare stand-alone financial statements |
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Summary of significant accounting policies |
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Changes in capital assets and long-term
liabilities |
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Segment reporting |
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Other potential disclosures |
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Primarily impacts the OCG and State agencies who
prepare stand-alone financial statements.
Structure of fixed asset and liability closing packages also will
need to change. |
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Budgetary comparisons for general fund |
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Original and final budget |
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Actual on budgetary basis |
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Infrastructure-modified approach |
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Three most recent condition assessments |
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Estimated amount to maintain and preserve versus
actual amount for last five years |
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Primarily impacts the OCG and State agencies who
prepare stand-alone financial statements |
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Recap of Potential Significant Implementation
Issues |
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System capabilities |
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Chart of account changes |
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Subsidiary ledger changes |
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Capital assets |
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Accounts receivable |
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Inventory |
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Long-term obligations |
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Identification of program revenues vs. general
revenues (capital vs. operating grants) |
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Capital assets/infrastructure |
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Accounts receivable/valuation |
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Beginning net assets |
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Inventory – consumption method |
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System changes for reporting requirements |
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Preparation of direct method statement of cash
flows |
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Preparation of Management’s Discussion &
Analysis (MD&A) |
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Functionalization of revenues/expenditures |
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Accrual basis/modified accrual basis of
accounting for same transactions |
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Elimination of interfund activities at the
government-wide level |
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Method of reporting – Business -Type Activity
(BTA) |
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Classification of Expenses – natural vs.
functional |
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Segment reporting |
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Preparation of direct method statement of cash
flows |
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Preparation of MD & A |
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GASB Statement 34 |
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AICPA Publication |
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GASB – Implementation Guide |
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http://www.cg.state.sc.us/gasb34/gasb34.htm |
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Currently includes - |
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Advisory Committee Organizational Chart |
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Overview – GASB 34 Implementation in South
Carolina |
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Minutes of the Advisory Committee Meetings |
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Training for State Agencies |
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Links to Other Sites Containing GASB 34
Information * |
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* Includes
most of those shown on the next slide |
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www.aicpa.org |
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www.gfoa.org
(Government Finance Officers
Association) |
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www.nasact.org
(National Association of State Auditors,
Comptrollers and Treasurers) |
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www.aga.org
(Association of Government Accountants) |
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Other State Government websites |
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Internal resources e.g. Maintenance Engineers,
Inventory clerks |
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Upfront involvement of auditors |
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Other outside consultants |
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In government-wide financial statements, some
internal activity and balances must be reclassified, consolidated, or
eliminated. |
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Internal activity and balances – result of
resource flows between the funds of a primary government (including blended
components, but not discrete component units) |
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External activity and balances – result of
resource flows between the primary government and other parties external to
the primary government (i.e. vendors, contractors, legally separate
discretely presented component units, etc.) |
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2 options for distinguishing between
internal/external transactions in STARS: |
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Dual set of revenue/expenditure object codes –
one for transactions with internal parties, one for transactions with
external parties |
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New data element to identify each STARS document
as internal/external |
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Advantages for new data element option |
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STARS will automatically identify and record all
types of internal and external batch type transactions except journal
vouchers |
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Change for State Agencies |
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Change in Preparation of Journal Vouchers (JVs)
(batch “0”) only (no other batch entries affected) beginning July 1, 2001 |
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Addition of an indicator in document header
which identifies JVs as internal/external |
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“Zero-I” – all lines affect internal
revenue/expenditure objects |
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“Zero-E” – all lines affect external
revenue/expenditure objects |
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“Zero-Blank” – no lines affect
revenue/expenditure objects |
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GASB 34 requires grant revenues to be reported
in the following categories: |
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Program revenue – operating grants |
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Program revenue – capital grants |
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General revenue |
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Program revenue – restricted for use by a
particular agency or functional grouping of agencies |
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General revenue – all other revenue |
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Capital grants – grants used for capital assets
or other resources restricted for capital purposes |
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Operating grants – other grants |
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Beginning July 1, 2001, single object codes (ex.
2801 – Federal revenue) will be replaced with 3 separate object codes |
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Program revenue – operating grants |
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Program revenue – capital grants |
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General revenue |
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Some codes related to specific grants (ex. 2810
Child Support Enforcement Reimbursements) will continue to use single
object codes after June 30, 2001 |
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Objectives |
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Communicate state agency’s GASB 34 progress on a
quarterly basis |
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Identify significant agency issues/assist in
their resolution |
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Content |
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Initial Reporting - preliminary issues
identified |
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Quarterly Reporting Form |
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Progress toward initial implementation issues
identified |
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Additional significant issues identified –
progress reported |
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Significant roadblocks encountered |
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Steps |
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Complete/submit to OCG Initial Reporting Form
with preliminary issues identified |
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Complete/submit to OCG Quarterly Status Report
(7 days after quarter end – i.e. Jan., April, July, October) through June
30, 2002 |
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Initial Reporting and first Quarterly Status
Report due January 7, 2001. |
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Additional Training |
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STARS changes/significant issues (Spring 2001) |
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Revised closing packages (Spring 2002) |
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OCG Website |
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http://www.cg.state.sc.us/gasb34/gasb34.htm |
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Implementation Questions |
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Contact Barbara Hevener/Pat O’Cain |
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