HomeMy WebLinkAbout19. Governmental Accounting Standards
AGENDA MEMO
DATE:
June 28, 2011
TO:
Mayor and Members of the City Council
FROM:
Office of the City Manager
By: John Michicoff, Director of Finance
SUBJECT:GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT
NO. 54 FUND BALANCE CLASSIFICATIONS
RECOMMENDATION
That the City Council adopt the following:
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DOWNEY
1.
CLASSIFYING THE VARIOUS COMPONENTS OF FUND BALANCE AS
DEFINED IN GOVERNMENTAL ACCOUNTING STANDARDS BOARD
STATEMENT NO. 54 AND PROVIDING OTHER AUTHORIZATIONS AND
DISCLOSURES AS REQUIRED BY THE STATEMENT
Administrative Regulation No. 324 entitled “Financial Policy for GASB 54”
2.
BACKGROUND
The Governmental Accounting Standards Board (GASB) has issued its Statement No.
54,Fund Balance Reporting and Governmental Fund Type Definitions. The
requirements of this statement are intended to improve financial reporting by providing
fund balance categories and classifications that will be more easily understood. The
categories are more clearly defined to make the nature and extent of the constraints
placed on a government’s fund balance more transparent.
DISCUSSION
The GASB 54 Statement must be implemented for the 2010-11 fiscal year. The new
standard does not change the total amount of fund balance, but it substantially alters
the categories and terminology used to describe the components that make up a fund
balance. The new categories and terminology are designed to focus not on financial
resources available for appropriation within a fund, but the extent to which the City is
bound to honor constraints on the specific purpose for which amounts in the fund can
be spent.
GASB 54 defines the following five new components of fund balance that replace the
existing three components.
Non-spendable Fund Balance. That portion of a fund balance that includes amounts
that cannot be spent because they are either (a) not in a spendable form, such as
prepaid items, inventories, or loans receivable; (b) legally or contractually required to be
maintained intact, such as the principal portion of an endowment. This category was
traditionally reported as a “reserved” fund balance under the old standard.
CITY OF DOWNEY, CALIFORNIA
Restricted Fund Balance. That portion of a fund balance that reflects constraints placed
on the use of resources other than non-spendable items that are either (a) externally
imposed by creditors (such as through debt covenants), grantors, contributors, or laws
or regulations of other governments; or (b) imposed by law through constitutional
provisions or enabling legislation. This category was traditionally reported as a
“reserved” fund balance under the old standard.
Committed Fund Balance. That portion of a fund balance that includes amounts that
can only be used for specific purposes pursuant to constraints imposed by formal action
of the government’s highest level of decision making authority, and remain binding
unless removed in the same manner. This category was traditionally reported as a
“designated” fund balance under the old standard.
Assigned Fund Balance. That portion of a fund balance that includes amounts that are
constrained by the government’s intent to be used for specific purposes, but that are
neither restricted nor committed. Such intent needs to be established at either the
highest level of decision making, or by an official designated for that purpose. This
category was traditionally reported as a “designated” fund balance under the old
standard.
Unassigned Fund Balance. That portion of a fund balance that includes amounts that
do not fall into one of the above four categories. The General Fund is the only fund that
should report this category of fund balance. This category was traditionally reported as
an “undesignated” and “unreserved” fund balance under the old standard.
FISCAL IMPACT
There is no fiscal impact to implement this accounting policy. Depending on the
activities of the City and its related entities, the individual components of fund balance
may fluctuate but the total will not.
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RESOLUTION NO. _______
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
DOWNEY CLASSIFYING THE VARIOUS COMPONENTS OF
FUND BALANCE AS DEFINED IN GOVERNMENTAL
ACCOUNTING STANDARDS BOARD STATEMENT NO. 54 AND
PROVIDING OTHER AUTHORIZATIONS AND DISCLOSURES AS
REQUIRED BY THE STATEMENT
WHEREAS,
the Governmental Accounting Standards Board (GASB) has issued
its Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions with
the intent of improving financial reporting by providing fund balance categories that will be more
easily understood; and
WHEREAS,
the City Council of the City of Downey has considered
Administrative Policy No. 324 entitled “Financial Policy for GASB 54” which outlines the policy
and procedures enacted to accurately categorize and report fund balance in the Governmental
Fund; and
WHEREAS,
the new classification reflect an approach that focuses, not on
financial resources available for appropriation within a fund, but on the extent to which amount
in the fund can be spent; and
WHEREAS,
the City Council of the City of Downey designates the City Manager
and Director of Finance as the City official to determine and define the amounts of those
components of fund balance that are classified as “Assigned Fund Balance”; and
WHEREAS,
the classification and reporting of fund balance components as
required by Governmental Accounting Standards Board Statement No. 54 becomes effective,
starting with the 2010-11 fiscal year reporting.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF DOWNEY DOES
HEREBY RESOLVE AS FOLLOWS:
SECTION 1.
The City adopts the Governmental Accounting Standards Board
(GASB) Statement No. 54 and authorizes and directs City Manager and Director of Finance to
implement the policy hereby established.
SECTION 2.
The City authorize the City Manager or Director of Finance to
determine and define amounts of those components of fund balance that are classified as
“Assigned Fund Balance” and direct the preparation of financial reports which accurately
categorize fund balance and provide other disclosure as required by the Statement.
SECTION 3.
The City Clerk shall certify to the adoption of this Resolution.
APPROVED AND ADOPTED
this 28th day of June, 2011.
_____________________________
LUIS H. MARQUEZ, Mayor
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ATTEST:
_________________________________
JOYCE E. DOYLE, Interim City Clerk
I HEREBY CERTIFY
that the foregoing resolution was adopted by the City
Council of the City of Downey at a regular meeting held on the 28th day of June, 2011, by the
following vote, to wit:
AYES: Council Members:
NOES: Council Members:
ABSENT: Council Members:
ABSTAIN: Council Members:
_____________________________
JOYCE E. DOYLE, Interim City Clerk
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ADMINISTRATIVE REGULATIONS
OFFICE OF THE CITY MANAGER
Issued: June 28, 2011
Number: 324
Sections: 1-5
Effective Date: June 28, 2011
FINANCIAL POLICY FOR GASB 54
SUBJECT:
1. PURPOSE. To establish procedures for reporting unrestricted fund balance in the
Governmental Fund financial statements.
2. AUTHORITY. Section 604(h) of the City Charter of the City Charter
3. APPLICATION. This Administrative Regulation applies to all departments referred to in
the City Charter, Sections 604(h) and 701.
4. POLICY. The policy authorizes and directs the Director of Finance to prepare financial
reports which accurately categorize fund balance as per Governmental Accounting
Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental
Fund Type Definitions.
5. PROCEDURES. Fund balance is essentially the difference between the assets and
liabilities reported in a governmental fund. There are five separate components of fund
balance, each of which identifies the extent to which the City is bound to honor
constraints on the specific purposes for which amounts can be spent.
Non-spendable fund balance (inherently non-spendable)
Restricted fund balance (externally enforceable limitations on use)
Committed fund balance (self-imposed limitations on use)
Assigned fund balance (limitation resulting from intended use)
Unassigned fund balance (residual net resources)
5.1 Non-spendable Fund Balance
Amounts that cannot be spent due to form: for example, inventories and prepaid
amounts; or amount that must be maintained intact legally or contractually, for
example, principal of a permanent fund.
5.2 Restricted Fund Balance
Restricted are balances reflect the constrains placed on the use of resources that
are either (a) externally imposed by creditors, grantors, contributors, or laws or
regulations of other governments; or (b) imposed by law through constitutional
provisions or enabling legislations.
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CITY OF DOWNEY, CALIFORNIA
5.3 Committed Fund Balance
The City Council, as the City’s highest level of decision-making authority, may
commit fund balance for specific purposes pursuant to constraints imposed by
formal actions taken, such as an ordinance or resolution. These committed
amounts cannot be used for any other purpose unless the City Council removes
or changes the specified use through he same type of formal action taken to
establish the commitment. City Council action to commit fund balance needs to
occur within the fiscal reporting period; however the amount can be determined
subsequently.
5.4 Assigned Fund Balance
Amounts that are constrained by the City’s intent to be used for specific purposes,
but are neither restricted nor committed, should be reported as assigned fund
balance. This policy hereby delegates the authority to assign amounts to be used
for specific purposes to the Director of Finance for the purpose of reporting these
amounts in the annual financial statements.
5.5 Unassigned Fund Balance
These are residual positive net resources of the general fund in excess of what
can properly be classified in one of the other four categories.
5.6 Fund Balance Classification
The accounting policies of the City consider restricted fund balance to have been
spent first when expenditure is incurred for purposes for which both restricted and
unrestricted fund balance is available. Similarly, when an expenditure is incurred
for purposes for which amounts in any of the unrestricted classifications of fund
balance could be used, the City considers committed amounts to be reduced first,
followed by assigned amounts and then unassigned amounts.
This policy is in place to comply with GASB Statement No. 54. No other policy or
procedure supersedes the authority and provisions of this policy.
June 28, 2011
GERALD M. CATON, City Manager Date
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