Notes
Outline
State Agency Training Session
GASB Statements 34/35 Implementation
Morning Session
April 30 and May 2, 2001
Welcome and Introduction
SC Department of Archives and History
Dr. Rodger E. Stroup, Executive Director (April 30, 2001)
Ms. Milly A. Hough, Director of External Affairs (May 2, 2001)
SC Office of the Comptroller General
Comptroller General Jim Lander
Presenters
Kathy Glass, Senior Manager
KPMG LLP, Greenville, SC
Jack Reagan, Senior Manager
KPMG LLP, Washington, DC
Administrative Items
Drinks available in hall at breaks
No food/drinks allowed in auditorium
Drinks allowed in Wachovia rooms
Telephones
Restrooms
Lunch break – map with area restaurants
Sign-in for morning and afternoon sessions
CPE forms
Course evaluation
Course Agenda – Morning Session
GASB 34/35 – Overview of the Statements
March 2001 Quarterly Reporting Progress
Technical Discussion
 Capital Assets Requirements
 GASB 33 - Overview
Technical Literature/Resources
Questions
Course Agenda – Afternoon Sessions
GASB  33 Implementation Issues
Closing Package/Financial       Reporting Issues
STARS Changes
Other Discussion
Open Forum
GASB Statements 34/35
Overview of the Statements
Primary Features
Management’s Discussion and Analysis (MD&A)
Basic Financial Statements
Government-wide
Fund
Notes
Required Supplementary Information (RSI)
Effective Date
GASB 34/35 are required for South Carolina State Agencies and Colleges & Universities reports for fiscal year
Slide 10
Overview of the Statements –
MD&A
MD&A – Key Elements
Primarily impacts the OCG and financial statement preparers
Brief description of basic statements
Significant variances
Analysis of budgetary changes and results
Description of capital asset and long-term debt activity
Overview of the Statements –
Government-Wide Statements
Government-wide Statements
Statement of Net Assets
Statement of Activities
Consolidated
Include governmental and business type activities
Economic resources measurement
Accrual basis of accounting
Statement of Net Assets
All assets (including infrastructure) and liabilities
Net assets (rather than fund balances, retained earnings,etc.)
Invested in capital assets, net of related debt
Restricted
Unrestricted
Classified balance sheet
Statement of Activities
Net cost format (expenses minus program revenue = net cost)
Expenses by functions/programs
Revenues by:
Charges for services
Operating grants and contributions
Capital grants and contributions
General (e.g., taxes and other non-program revenue)
GASB 34/35 Requirements -
Fund Level Statements

Governmental Fund Statements
Characteristics of governmental fund statements:
Current financial resources measurement
Modified accrual basis of accounting
Reconciliation required between fund and government-wide statements
No capital assets or long term obligations
Permanent funds
Proprietary Fund Statements
Accrual basis of accounting
Enterprise funds redefined
Fund net assets
Replace retained earnings/contributed capital
Must distinguish between operating and non-operating revenues/expenses
Direct method required for cash flow statements
Fiduciary Fund Statements
Economic resources measurement
Accrual basis of accounting
Redefined--cannot be used to support the government’s own programs
Replace expendable and non-expendable trust fund types
Results of Agency Quarterly Reporting Process
Agency Quarterly Reports
Agency Quarterly Reports
Overall Objectives
Communicate state agency’s GASB 34 progress on a quarterly basis
Identify significant agency issues/assist in their resolution
Due each quarter through June 30, 2002
Agency Quarterly Reports
Form Content
Progress toward initial implementation issues identified
Additional significant issues identified – progress reported
Significant roadblocks encountered
Agency Progress –
December ‘00 to March ‘01
CATEGORY
Agency Submissions
No Significant Issues
No Progress Toward Issues
Fixed Assets -
  Significant Issue
Summary Progress at March 31, 2001
Significant Issues (Projects) / Progress
Fixed Assets
System requirements
Proper classification
Title issues
Financial Statement Preparation
STARS Changes – internal versus external transactions
Summary Progress at March 31, 2001
General Areas of Concern
Accounting issues – understanding OCG policies
System modifications – for reporting
Available resources/staffing
Auditor approval of changes
"Capital Assets and Infrastructure"
Capital Assets and Infrastructure
Guidance from the OCG
Issued in February 2001
Excludes specific infrastructure policies
Includes:
Policies - depreciable lives/methods, works of art, historical treasures
Capitalization limits
Example display of classes of assets
Example worksheet model for depreciation
Valuation – Purchased Assets
Recorded at historical cost
Cost includes necessary charges for placing asset in service
Freight charges
Professional fees
Site preparation costs
Valuation – Donated Assets
Recorded at estimated fair value (date of donation)
Fair value – amount exchanged in transaction by willing parties
Recent sales of similar assets
Price quotes
Manufacturer catalogs
Capitalization Limits –
Effective July 1, 2001
Land/non-depreciable land improvements
All must be capitalized – no threshold
Depreciable land improvements, buildings, building improvements
$100,000
Intangible assets
$100,000
Capitalization Limits, continued
Machinery and equipment, vehicles, works of art and historical treasures
$5,000
Infrastructure
To be finalized (at least $500,000)
Capitalization Limits, continued
Assets recorded below capitalization limits at July 1, 2001
Required removal from agency’s capital assets ledger
Amount removed required to be disclosed in closing packages at June 30, 2002 or on financial statements
Movable Assets Below New Limit
Movable assets between $1,000 and $5,000
Required to continue to tag for internal control purposes
Required to maintain a current listing
Tag number
Description
Location
Cost
Do not report on closing package or on financial statements
Additional Changes
For permanent improvement projects $25,000 - $100,000
Agencies no longer required to submit Form A-13 to the OCG
Continue to report active permanent improvement projects below threshold if included in CIP at June 30, 2001
Upon completion of project, remove from records
Capital Asset Classes
Non-Depreciable
Land/ improvements
Inexhaustible works of art, historical treasures
CIP
Asset Classes
Land improvements – non depreciable
Produce permanent benefits
Example- filling and excavation costs
Land improvements – depreciable
Deteriorate with use or the passage of time
Example – fencing, landscaping, lighting, parking lots, paving
Asset Classes
Buildings/building improvements – depreciable
Capitalize improvements if:
Adds square footage to asset
Prepares building for new use (major renovation)
Extends useful life
Record as repairs/maintenance expense if does not meet capitalization criteria
Asset Classes
Buildings/building improvements – depreciable
May use composite method (i.e. parts of a single building)
Intangible assets
Include external purchased software
Trademarks, patents
Asset Classes – Works of Art, Historical Treasures
Works of art, historical treasures
Individual items – must always capitalize
Collections
Collections – optional capitalization if meet 3 requirements
Held for public exhibition, education, research
Protected and preserved
Proceeds from sales used to further collection (must establish a policy)
Asset Classes – Works of Art, Historical Treasures
For collections
if capitalized at June 30, 1999 – must remain capitalized
may apply criteria to all or on a collection-by-collection basis
Additional disclosures are required if collections are not capitalized
Asset Classes – Works of Art, Historical Treasures
Donated collection items added to a noncapitalized collection
Must report in closing packages at year end to provide data for footnotes
If issue audited financial statements, required to recognize donation as revenue and expense
Asset Classes – Works of Art, Historical Treasures
Exhaustible versus inexhaustible
Exhaustible – record depreciation
Inexhaustible – extraordinarily long useful lives – depreciation optional
Possible Limitations of Current Recorded Assets
Missing data
Title issues
Improper classification of assets
Unrecorded retirements, additions & transfers
Incorrect descriptions, serial number model, etc.
Adequacy of capital asset systems
Break
Depreciation Expense
Required for first time for general government fixed assets
(i.e. currently reported in the general fixed assets closing package/GFAAG)
Agency systems must be modified by  July 1, 2001
Depreciation Expense
Requires assigning a useful life and charging cost over that life
OCG policy method -  straight-line, full year of expense in year of acquisition
General calculation
Cost (less salvage value) / estimated useful life = depreciation expense
Depreciation Expense – Required Elements for Calculation*
Acquisition cost
Year of acquisition
Year of disposition
Estimated useful life
Salvage value
Type of funds used to acquire asset
Depreciation Also Requires:
A Detailed, Auditable Property Record
Specific identification of assets
Historical cost
Year of purchase
An Adequate Software System/Process
Proper segregation of depreciable/non-depreciable assets
Depreciation – Estimated Useful Lives
Guidance issued by OCG – includes ranges of common assets*
Specific determination based on:
Asset’s present condition
How the asset is used/maintained
Historical information of similar assets
Expectations of service life
*  Review handout attachment
Depreciation – Estimated Useful Lives
Agencies should review established useful lives on an annual basis
Changes in useful lives – depreciate remaining cost over new life
Salvage value – estimated fair value remaining at end of useful life
Only use salvage value if considered substantial
Reporting Requirements – All Fund Types (including  Proprietary Funds)
Required for each capital asset category
Start-of-year balances *
End of year balances *
Capital asset additions, sales, retirements
Current-year depreciation expense
Required to report historical cost and accumulated depreciation
* Review handout attachment
"Infrastructure"
Infrastructure
Infrastructure
Required to be reported for the first time by governmental funds
OCG in process of finalizing policies
Capitalization limit will be at least $500,000
Based on current information, expected to be significant issue only for SCDOT
Questions?
Discussion of GASB 33
Overview
Statement Summary
Effective for the current fiscal year –
June 30, 2001
Classes of nonexchange transactions
Most significant expected changes are with grants/entitlements (non-exchange)
Definition
Nonexchange transaction – transactions in which the agency gives (or receives) value without directly receiving (or giving) something of equal value in return
Exchange transactions – each party to the transaction receives and gives up something of essentially the same value
Classes of Nonexchange Transactions
Derived tax revenues
Imposed nonexchange transactions
Government mandated nonexchange transactions
Voluntary nonexchange transactions
Derived Tax Revenues
Assessment imposed by governments on exchange transactions
Examples
personal and corporate income taxes
sales and use taxes
Recognition of Derived Tax Revenues
Assets
Recognize in period in which the underlying exchange transaction occurs, or
when the resources are received, whichever occurs first
Recognition of Derived Tax Revenues
Revenues
Recognize in period in which the underlying exchange transaction occurs
Must also be available (governmental and expendable trust funds)
Revenues received in advance of the underlying exchange are deferred
Imposed Nonexchange Transactions
Assessments by governments on nongovernmental entities other than assessments on exchange transactions
Examples
property taxes
fines and penalties
asset seizures
Recognition of Imposed Non-Exchange Transactions
Assets
Recognize in period when an enforceable legal claim arises, or
when the resources are received, whichever is earlier
Recognition of Imposed Non-Exchange Transactions
Revenues
Recognize in period in which the resources are required to be used, or
when use may begin
Must also be available (governmental and expendable trust funds)
Amounts billed or received in advance of the period in which they are to be used are deferred
Government Mandated Nonexchange Transactions
Government at one level provides resources to a government at another level and requires the funds to be used for a specific purpose
Examples
federal mandates on state & local governments
state mandates on local governments
Voluntary Nonexchange Transactions
Legislative or contractual agreements entered into willingly by two or more parties
Examples
non-entitlement grant programs
private donations
*  Changes in receivable/deferred revenue calculations for the grants/entitlement closing packages for 2001.
Recognition of Government Mandated/ Voluntary Non-Exchange Transactions
Recognition is based on
the governmental entity meeting all  eligibility requirements
including time requirements
Purpose Restrictions
Do not affect the timing of recognition of nonexchange transactions
Must report the net assets as restricted
"Technical Literature/"
Technical Literature/ Resources
Technical Literature
GASB Statement 34
AICPA Publication
GASB – Implementation Guide
GFOA “Blue Book”
NACUBO GASB 35 Implementation Guide
OCG Contacts for Questions
Capital Assets
Betsy Lawson
Telephone:  (803) 734-2617
E-mail:  blawson@cg.state.sc.us
Grants/GASB 33
Kim Elliott
Telephone:  (803) 734-2621
E-mail:  kelliott@cg.state.sc.us
OCG Contacts for Questions
STARS Internal/External Indicator – Accounting Questions
Bryce Wilson
Telephone:  (803) 734-2616
E-mail:  bwilson@cg.state.sc.us
STARS Internal/External Indicator – Data Processing Questions/Testing
Scott Houston
Telephone:  (803) 734-2569
E-mail:  shouston@cg.state.sc.us
OCG’s GASB 34 Website
http://www.cg.state.sc.us/gasb34/gasb34.htm
New Information
Training for State Agencies
Agency Monitoring Form
Capital Assets – Excel Worksheet
State of SC’s GASB 34 Policies and Procedures
Links to Other Sites Containing GASB 34 Information (includes most of those shown on the next slide)
Other Websites
www.aicpa.org
www.gfoa.org
(Government Finance Officers
Association)
www.nasact.org
(National Association of State Auditors,
Comptrollers and Treasurers)
www.aga.org
(Association of Government Accountants)
Other State Government websites
Questions?
Break for Lunch