Notes
Outline
State Agency Training Session
GASB Statements 34/35- Agencies Preparing Financial Statements
Afternoon Session B
April 30 and May 2, 2001
Course Agenda – Afternoon Session
GASB  33 Implementation Issues
STARS Changes
Internal versus External Activity/Balances
Account Code Changes
GASB 34 Financial Reporting Issues
Adoption of FASB Pronouncements
MD&A
Statement of Cash Flows
Open Forum
GASB 33
Implementation Issues
Statement Summary
Effective for the current fiscal year – June 30, 2001
In year of adoption, record cumulative effect of change in accounting principle
Most significant expected changes are with grant revenues (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
*  Most significant changes are expected here.
Voluntary Nonexchange Transactions
Legislative or contractual agreements entered into willingly by two or more parties
Examples
non-entitlement grant programs
private donations
Grants - Eligibility Requirements
Required characteristics of recipients
Provider specifies certain characteristics which recipient/subrecipient must possess
Example
 The type of entity eligible to receive the grant funds
Grants - Eligibility Requirements
Time requirements
Affect the timing of recognition of nonexchange transactions
Grant provider or legislation specifies time period during which funds may be spent or when use of funds is first permitted
Example
Grant period October 1, 2001 through September 30, 2002
Grants - Eligibility Requirements
Reimbursements
Provider requires a recipient/ subrecipient to first incur allowable costs in order to qualify for funding
Contingencies
Provider may require the recipient/ subrecipient to perform specific actions to qualify for funding
Example - matching funds
Grants
Revenues – once all eligibility requirements have been met,
revenues not received by June 30, report as grants receivable in the financial statements
Grant award less funds received to date = receivable
Received to date includes prior year funds
Grants
Revenue recognition
If governmental or expendable trust funds, funds must also be available
Considered available if received on or before June 30 or by July 31
Deferred revenue
record if grant funds are received prior to meeting all of the eligibility requirements
Grants
Expenses/expenditures – recognized once all eligibility requirements have been met by the recipient/subrecipient
payments not made at June 30, report as accounts payable in the financial statements
Grant award less funds paid to date = accounts payable
Paid to date includes prior year funds
Purpose Restrictions
Do not affect the timing of recognition of nonexchange transactions
Must report the net assets as restricted
Case Study No. 1
PRT submits an application for a state park facility grant (funds are available for the period October 1, 2000 through September 30, 2005.  PRT’s application and spending plan are approved.
Grant award - $5,000,000
At June 30, 2001 - $1,250,000 received
On July 20, 2001 – $500,000 is received
Case Study No. 1,  continued
What amounts should be reported as revenue and/or grants receivable in the financial statements as of June 30, 2001?
Case Study No. 2
A corporation pledges $1,000,000 over 5 years to a state higher education institution.  The donor card details that the coporation will pay $250,000 each year for 4 years.  Funds received must be expended in the year of receipt.
Case Study No. 2,  continued
When should the related revenue/ receivable be recognized?
At time of pledge
At time of receipt of annual funds
Other period
STARS Changes Effective for FY Beginning July 1, 2001
Internal Versus External Activity
Internal vs. External Activity and Balances
Government-wide financial statements
Requires some internal activity and balances must be:
Reclassified
Consolidated
Eliminated
STARS transactions must segregate between internal/external activity/balances
Internal Activity and Balances
Internal activity and balances
result of resource flows between the funds of a primary government
includes blended components, but not discrete component units
Internal Activity and Balances
Examples
Budget and Control Board
SC Retirement Systems
Tobacco Revenue Management Authority
*  Additional examples in handout – Question # 2
External Activity and Balances
External activity and balances
result of resource flows between the primary government and other external parties
i.e. vendors, contractors, legally separate discretely presented component units, etc.
External Activity and Balances
Examples
Private vendors
Public Service Authority
Connector 2000, Inc.
ETV Endowment of South Carolina
*  Additional examples in handout – Question # 3
Changes in STARS Required
Change in Preparation of Journal Vouchers
Batch Type “0” only  (no other batch entries affected)
Addition of an indicator in the document header
Will identify JVs as internal or external
Header Identifier Required
Required, preferably at top right of document header
“Zero-I” – all lines affect internal revenue/expenditure objects
“Zero-E” – all lines affect external revenue/expenditure objects
“Zero-Blank” – no lines affect revenue/expenditure objects
Questions Raised by Agencies
My agency does not have the resources to program its JV creation program to automatically print the I/E indicator in position 164 of the document header.  May I handwrite or stamp the I or E on each document?
Yes, preferably in RED, in the document header area
*  Handout Question # 5
Questions Raised by Agencies
Why do we have to do all of this work?
GASB 34 requires we distinguish between internal and external transactions and balances for the elimination/ reclassification of certain internal balances.
This change will allow the OCG to obtain this information for these batch transactions.
*  Handout Question # 15
Questions Raised by Agencies
I have a question about whether to use an I or E on a particular JV.  Who can help me?
Prior to July 1, 2001, Bryce Wilson or regular contact in OCG’s office for each agency.
Beginning July 1, 2001, direct all questions to the Central State Accounting Division
*  Handout Question # 16
Case Study No. 1
I need to correct a cash transfer or IDT (Batch Type 3 or 4).  Should the correcting JV be coded as I or E?
This is an “I” transaction as STARS will automatically code a transfer or IDT as internal.
*  Handout Question # 6
Case Study No. 2
During March, I deposited various checks from non-State parties an various IDT receipts into my agency’s Revenue Clr’g Subfund.  When clearing these balances out, which indicator should be used?
Both – 2 JVs must be prepared:  one for the checks and one for the IDT’s.
*  Handout Question # 7
Case Study No. 3
Is there any way to shortcut the work described in the previous question?
May request the OCG to establish a 3555 subfund, IDT receiving, for use beginning in FY 2002.
*  Handout Question # 8
Case Study No. 4
Suppose that in Question 7, I also had deposited checks from various State agencies into the Revenue Clearing subfund.  How should the balances for those transactions be cleared?
*  Handout Question # 9
Case Study No. 5
I need to move the entire balance in a particular revenue/expenditure object code in my agency’s 3035 subfund from mini-code 0057 to 0058.  How can I determine whether or how to split the balance between I and E?
*  Handout Question # 12
STARS Changes Effective for FY Beginning July 1, 2001
STARS Account Code Changes
Identified as of April 2001
STARS Object Code Changes
Changes required in STARS Object Codes to date relate primarily to:
Capital assets
Grant revenues (discussed in previous section)
Other changes identified include the deletion of several revenue codes not used in recent years
STARS Object Code Changes – Capital Assets
Capital Assets
Changes in revenue codes
Changes in expenditure codes
does not apply to colleges and universities/ component units
*  Review handout attachment
STARS Object Code Changes – Capital Assets
Revenue codes
Changes relate primarily to sales of capitalized and non-capitalized assets
Separate codes for items over and under the capitalization limits
*  Review handout attachment
STARS Object Code Changes – Capital Assets
Expenditure codes
Changes relate primarily to purchases of capitalized and non-capitalized assets
Changes for moveable assets and works of art, historical treasures
Changes for purchase or construction of other depreciable capital assets classes
*  Review handout attachment
STARS Object Code Changes – Grants
GASB 34 requires grant revenues to be reported in the following categories:
Program revenue – operating grants
Program revenue – capital grants
General revenue
STARS Object Code Changes – Grants
Program revenue
restricted for use by a particular agency/ grouping of agencies
General revenue
all other revenue
STARS Object Code Changes – Grants
Capital grants
Resources are restricted for capital purposes
Operating grants
Resources are used for operations or capital expenditures at the discretion of the Agency
Review handout attachment
Break
GASB 34 Financial Reporting Issues
Significant Changes
Significant Changes – Component Units/Financial Statement Agencies
Presentation Format Change
Net Assets Classifications
Segment Reporting
Adoption of FASB Statements
Management’s Discussion & Analysis (MD&A)
Statement of Cash Flows
Significant Changes – Colleges and Universities
Presentation Format Change
Treatment of Appropriations
Non-Infrastructure Capital Assets
Infrastructure
Enterprise Fund Financial Statements
Statement of Net Assets/Balance Sheet
Statement of Revenues, Expenses, and Changes in Fund Net Assets/Equity
Statement of Cash Flows
Enterprise Fund Statement of Net Assets
Classified format
Restricted assets should be reported separately
Fund net assets/equity-three classifications replace contributed capital and retained earnings
Invested in capital assets, net of related debt
Restricted
Unrestricted
Enterprise Fund Statement of Revenues, Expenses and Changes in Net Assets
Operating and non-operating distinction
Operating expenses classified by object or functional classification
State appropriations classified as non-operating
Special (one shots) and extraordinary items
GASB 34 Financial Reporting Issues
Management’s Discussion & Analysis

MD&A
New requirement of GASB 34
Required supplementary information – subject to “in-relation” audit opinion
Provides an objective and easy to read analysis of financial status and current activities
Not required to restate prior years for comparative purposes – in year of implementation

MD&A
Topics included in GASB 34 intended to be maximum presentation versus minimum
Brief description of basic statements
General discussion
Analysis of financial position and results of operations (significant variances)
Analysis of budgetary changes and results
MD&A
Significant debt and capital asset disclosure
Description of capital asset and long-term debt activity
Description of currently known facts, decisions, or conditions that are expected to have a material effect on the entity
Responsibility for compilation is management’s
GASB 34 Financial Reporting Issues
Adoption of FASB Pronouncements
Adoption of FASB Pronouncements
SC’s primary government has elected NOT to adopt GASB 20, paragraph 7.  So governmental and business-type activities must adopt only
GASB pronouncements
Other pronouncements issued on or before November 30, 1989, unless they conflict with or contradict GASB pronouncements (see handout)
Different application of APB 20 (GASB 34, Footnote 13)
Adoption of FASB Pronouncements
Retroactive adoption, except where GASB 34, paragraphs 146 and 307-309, grants specific relief
APB 12 and 21
FASB 23
GASB 34 omnibus expected to change application of FASB 34 to governmental activities;  FASB 34 still applies to proprietary funds
GASB 34 Financial Reporting Issues
Statement of Cash Flows
Statement of Cash Flows
Four categories of cash flows
Operating
Noncapital financing
Capital and related financing
Investing
Direct method required for operating activities
Reconciliation of operating cash flows to operating income
Statement of Cash Flows
Focus on cash and cash equivalents
Original maturities of 3 months or less
Cash equivalents readily convertible to cash
Insignificant risk of change in value
Statement of Cash Flows-Operating Activities
Direct reporting method used
Inflows reported by major type
Outflows reported by payment type
Accrual data converted to cash basis
Statement of Cash Flows-Operating Activities
Inflows include:
Cash inflows from sales of goods or services
Tuition and fees
Cash receipts from grants for specific operating activities
Other cash receipts related to operations
Statement of Cash Flows-Operating Activities
Outflows include:
Payments to vendors or suppliers
Payments to employees
Payments to faculty, staff, students (CU)
Other operating disbursements
Statement of Cash Flows-NonCapital Financing Activities
Noncapital debt and interest payments
Proceeds from issuance of non-capital debt
Funds held for others (CU)
Intergovernmental receipts and payments
Endowment gifts
Grant proceeds not specifically restricted to capital purposes
Grant payments
Statement of Cash Flows-Capital Financing Activities
Capital expenditures
Capital appropriations/gifts
Proceeds from sales of capital assets
Principal and interest on debt – capital borrowing
Proceeds from new issuances of debt – capital borrowing
Do not net related inflow/ outflow transactions
Statement of Cash Flows-Investing Activities
Purchase of investments
Sales of investments
Interest on investments
Loan collections (except for program loans)
Loans made to others (except for program loans)
Do not net related inflow/ outflow transactions
Reconciliation and Disclosure
Reconcile net operating income (loss) to cash provided by (used in) operating activities
Operating revenues over (under) expenses
Add noncash expenses – ie depreciation
Plus or minus changes in current assets and liabilities
Reconciliation and Disclosure
Disclose noncash transactions
Net appreciation/depreciation in value of investments reported at fair value (not classified as cash/ cash equivalents)
Open Forum for Questions
Conclusion