Wiley GAAP for Governments 2019 by Warren Ruppel
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WILEY GAAP for Governments 2019

Interpretation and Application of GENERALLY ACCEPTED ACCOUNTING PRINCIPLES for State and Local Governments



Warren Ruppel




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PREFACE

Governmental accounting is a specialized area that has undergone significant changes over the past few decades. As governmental accounting standards have developed, the complexities of preparing financial statements for governmental entities have greatly increased. Providing meaningful financial information to a wide range of users is not an easy task. Adding to these challenges, the Governmental Accounting Standards Board (GASB) brought sweeping changes to the governmental financial reporting model and is now continuing the process of addressing many important accounting areas related to that model.

Given this rapidly changing environment, the financial statement preparer needs a technical resource that provides more than accurate, competent technical information. The resource needs to be written to fit today’s governmental accounting environment. It needs to take a fresh look at some of the long‐standing accounting questions faced by governments and to provide meaningful up‐to‐date information on recently issued and soon‐to‐be‐issued accounting pronouncements.

The purpose of this book is to meet these needs by providing a useful, complete, and practical guide to governmental accounting principles and financial reporting. Throughout, the book will provide the reader with:

  • An understanding of the concepts and theories underlying each topic discussed.
  • A complete, authoritative reference source to assure the reader that all aspects of a particular topic are covered.
  • Practical guidance to allow financial statement preparers and auditors to meet the requirements of generally accepted accounting principles for governments and to efficiently and effectively implement new requirements.

The approach used in this book is to provide the reader with useful information in a usable format. Accounting theory must correspond with practical examples to be useful, because theory seldom matches the specific situation. For technical information to be usable, it must be clearly presented without clutter and unnecessary repetition. The substance of accounting requirements must also be understood in order for them to be properly applied. Understanding the reasons why technical requirements exist is an important ingredient in properly applying accounting standards.

The 2019 edition of this book begins with an overview of governmental accounting principles and a description of the various types of funds currently in use by governmental entities. It then describes basic financial statements and provides guidance for reporting various assets, liabilities, revenues, and expenses/expenditures. Finally, it examines the accounting and financial reporting requirements for several specific types of governmental entities. The book also includes a “Disclosure Checklist,” which should prove very helpful in determining the completeness of a governmental entity’s financial statement disclosures.

This book would not have come to fruition without the hard work and perseverance of a number of individuals. John DeRemigis of John Wiley & Sons had the confidence to work with me in developing the original concept for the book and in ensuring its continuing quality and success. Pam Reh’s efforts in producing past editions of the book are greatly appreciated, as are the current members of the Wiley team.

Of course, the time and effort needed to write and maintain this book would not be possible without a supportive family, for which I am grateful to my wife, Marie, and my sons, Christopher and Gregory.

Warren Ruppel, CPA
Woodcliff Lake, NJ
May 2019

ABOUT THE AUTHOR

Warren Ruppel, CPA, is a Partner at Marks Paneth LLP, New York, in the firm’s Nonprofit, Government and Healthcare Group, where he serves as the Practice Leader for Government Services. He formerly was the assistant comptroller for accounting of the City of New York, where he was responsible for all aspects of the City’s accounting and financial reporting. He has over 35 years of experience in governmental and not‐for‐profit accounting and financial reporting. He began his career at KPMG after graduating from St. John’s University, New York. His involvement with governmental accounting and auditing began with his first audit assignment—the second audit ever performed of the financial statements of the City of New York. From that time he served many governmental and commercial clients until he joined Deloitte & Touche in 1989 to specialize in audits of governments and not‐for‐profit organizations. Mr. Ruppel has also served as the chief financial officer of an international not‐for‐profit organization.

Mr. Ruppel has served as an instructor for many training courses, including specialized governmental and not‐for‐profit programs and seminars. He has also been an adjunct lecturer of accounting at the Bernard M. Baruch College of the City University of New York. He is the author of five other books, OMB Circular A‐133 Audits, Not‐for‐Profit Organization Audits, Not‐for‐Profit Accounting Made Easy, Government Accounting Made Easy, and Not‐for‐Profit Audit Committee Best Practices. He is also the government specialist for SmartPros online CPA Report, in which he appears quarterly to provide a governmental accounting and auditing update.

Mr. Ruppel is a member of the American Institute of Certified Public Accountants as well as the New York State Society of Certified Public Accountants, where he served on the board of directors and chaired its Audit Committee. He also serves on the Governmental Accounting and Auditing Committee and is a past president of the Foundation for Accounting Education. He is a past president of the New York Chapter of the Institute of Management Accountants. Mr. Ruppel is a member of the New York State Government Finance Officers Association, where he serves on its Accounting, Auditing and Financial Reporting Committee. He also serves on the Special Review Committee of the national Government Finance Officers Association. In addition, he is a member of the Executive Advisory Board to the Department of Accounting and Taxation of St. John’s University.

1
NEW DEVELOPMENTS

INTRODUCTION

The 2019 Governmental GAAP Guide incorporates all of the pronouncements issued by the Governmental Accounting Standards Board (GASB) through December 2018. This chapter is designed to keep the reader up to date on all pronouncements recently issued by the GASB and their effective dates, as well as to report on the Exposure Drafts, Preliminary Views, and Invitations to Comment (ITCs) for proposed new statements or interpretations that are currently outstanding. This chapter also includes relevant information on the GASB’s Technical Agenda for the upcoming year to give readers information as to potential areas for future GASB requirements.

RECENTLY ISSUED GASB STATEMENTS AND THEIR EFFECTIVE DATES

GASB Statement Effective Date Where in This Book
74 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans Fiscal years beginning after June 15, 2016 Chapter 22
75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions Fiscal years beginning after June 15, 2017 Chapter 17
76 The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments Periods beginning after June 15, 2015 Chapter 2
77 Tax Abatement Disclosures Periods beginning after December 15, 2015 Chapter 9
78 Pensions Provided through Certain Multi‐Employer Defined Benefit Plans Periods beginning after December 15, 2015 Chapter 17
79 Certain External Investment Pools Periods beginning after June 15, 2015 Chapter 12
80 Blending Requirements for Certain Component Units—An Amendment of GASB Statement No. 14 Periods beginning after June 15, 2016 Chapter 11
81 Irrevocable Split‐Interest Agreements Periods beginning after December 15, 2016 Chapter 12
82 Pension Issues—An Amendment of GASB Statements No. 67, No. 68, and No. 73 Periods beginning after June 15, 2016 Chapter 17
83 Certain Asset Retirement Obligations Periods beginning after June 15, 2018 Chapter 14
84 Fiduciary Activities Periods beginning after December 15, 2018 Chapter 8
85 Omnibus 2017 Periods beginning after June 15, 2017 Chapters 11, 12, 14, 17
86 Certain Debt Extinguishment Issues Periods beginning after June 15, 2017 Chapter 15
87 Leases Periods beginning after December 15, 2019 Chapter 19
88 Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements Periods beginning after June 15, 2018 Chapter 15
89 Accounting for Interest Costs Incurred before the End of a Construction Period Periods beginning after December 15, 2019 Chapter 15
90 Majority Equity Interests—An Amendment of GASB Statements No. 14 and No. 61 Periods beginning after December 15, 2018 Chapter 11

The GASB has a number of Exposure Drafts, Preliminary Views, and Invitations to Comment that it has issued, which will affect future accounting and financial reporting requirements when final standards are developed. The following provides a brief synopsis of what is being covered by each Exposure Draft and Invitation to Comment document. Readers should always be aware that the GASB often modifies proposal stage literature based upon its continuing deliberations and consideration of comments that it receives on each Exposure Draft and Invitation to Comment document.

EXPOSURE DRAFTS

Exposure Drafts—Implementation Guide

The GASB issued an Exposure Draft of an Implementation Guide for Leases, which will address issues relating to GASBS 87 on Leases. The requirements of a final Implementation Guide would be effective for reporting periods beginning after December 15, 2019, with earlier application encouraged if GASBS 87 has been implemented.

GASB Implementation Guides are considered authoritative GAAP for governments and consist of a series of very specific questions and answers that are designed to assist financial statement preparers and auditors to implement GASB Statements. In some cases, they address practice questions that arise; in another case, they address questions that the GASB chose not to specifically address in a GASB Statement itself.

PRELIMINARY VIEWS

Financial Reporting Model Improvements

In September 2018 the GASB issued this PV to address the accounting used by governmental funds, currently the modified accrual basis of accounting and the current financial resources measurement focus. This PV follows the Invitation to Comment on the same topic. The GASB has reached a preliminary view that the current financial resources measurement focus will be replaced by a short‐term financial resource model, where short‐term is defined as one year.

The PV also addresses other issues including the format of the resource flows statement for the governmental funds, communication of major component unit information, a schedule of government‐wide expenses by natural classification, and budgetary comparison reporting.

INVITATION TO COMMENT

Revenue and Expense Recognition

In January 2018 the GASB issued this ITC related to a project to develop a comprehensive revenue and expense model. According to the ITC, the GASB believes this is necessary because:

  • Existing guidance for exchange revenue and expense transactions is limited, resulting in inconsistent reporting of information by governments.
  • Existing guidance for nonexchange revenue and expense transactions, though generally effective, could be clarified and improved.
  • Other accounting standards setters are considering or implementing a “performance obligation” approach for revenue recognition.
  • A comprehensive model is expected to result in more robust, principles‐based guidance for addressing a wide range of transactions that will improve comparability and provide more useful information.

    As stated, the GASB will be considering whether it would be appropriate to adopt a “performance obligation” approach for revenue recognition, which is the basis used in a recent FASB standard on revenue recognition. Clearly, this project is broader that the FASB’s standard in that it also addresses expense recognition.

GASB PROJECT PLAN

The GASB has a number of additional important projects on its agenda that will likely affect governmental accounting and financial reporting in the future. Some of the more significant projects are as follows.

Financial reporting model. The PV discussed earlier in this chapter is part of this project, which is taking a fresh look at the basic financial reporting model required by GASBS 34, as amended, to determine if it is working effectively and whether any changes to the model need to be made.

Conduit debt. This project will address the accounting and financial reporting for entities that issue debt on behalf of other organizations, such as industrial development agencies. In most cases, these entities do not report the debt on their financial statements. This project will address whether that continues to be the appropriate accounting treatment and whether there would be any circumstance in which the debt would be reported by the issuing entity.

Public‐private partnerships. The growing use and diversity of these relationships has prompted the GASB to address this area and determine whether additional guidance or modifications to the guidance already provided for service concession agreements would be appropriate.

Deferred compensation plans. This is an area that the GASB has not looked at for a long period of time and has begun a project to reexamine the accounting and financial reporting for these plans.

SUMMARY

The GASB, as always, maintains an active agenda, and the accounting and financial reporting standards for governments are consistently evolving. Financial statement preparers need to keep an eye on emerging new GASB pronouncements to ensure that they have adequate time to plan for their implementation, as well as to inform financial statement users about their potential impacts.