Academic journal article The Journal of Government Financial Management

STATEMENT 54: Implementation Problems and Solutions

Academic journal article The Journal of Government Financial Management

STATEMENT 54: Implementation Problems and Solutions

Article excerpt

In March 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions? The objectives of the new standards are to improve the usefulness and comparability of fund balance information, by reporting fund balance in more intuitive and meaningful components and clarifying the definitions of the types of governmental funds. GASB and many practitioners believe that the current fund balance classifications - reserved fund balance, unreserved-designated fund balance and unreserved-undesignated fund balance - are problematic because the standards defining them are vague, leading to considerable variation in how governments report fund balance and divergence from the intent of the standards.

The new hierarchical classification is based primarily upon the extent to which a government is bound to follow constraints on resources accounted for in the governmental funds. The new fund balance classifications include nonspendaUe, committed, restricted, assigned and unassigned. The amount reported in each classification depends on the strength of the constraint that controls how resources are spent. The next section of this article discusses the new fund balance classifications adopted in Statement 54. The third section summarizes the governmental fund type definitions in Statement 54. The final section discusses the implementation timeline and potential implementation problems and solutions.

NEW FUND BALANCE CLASSIFICATIONS

The first category in the new hierarchy is nonspendable fund balance. The nonspendable category includes amounts that literally cannot be spent either because of their physical form or because of legal or contractual requirements that prevent them from being spent. Amounts reported in the nonspendable fund balance category generally correspond to those amounts reported as reserved fund balance under the pre-GASB 54 standards. Amounts not spendable because of physical form include assets that are not expected to be converted into cash. For example, assets such as inventory and prepaid expenses are not expected to be converted into cash and therefore cannot be spent; the amounts corresponding to these assets would be included in the nonspendable fund balance category.2 Nonspendable because of physical form would also include amounts corresponding to long-term receivables and property acquired for resale, unless the proceeds from the collection of those long-term receivables or from the sale of those properties meet the criteria (discussed below) for being classified as restricted, committed or assigned. The corpus or principal included in a permanent fund is an example of an amount considered nonspendable because of legal or contractual restrictions.

The next category is restricted fund balance. Amounts reported in the restricted category are spendable but must be used as directed by an external party such as a donor or other governmental unit or by constitutional provision or enabling legislation. A property tax levy that includes an amount that must be used to pay off a particular bond issue because of provisions included in the bond indenture would be included in the restricted fund balance category.

The third category is committed fund balance. Committed fund balance includes amounts that can only be used as specified by the "formal action of the government's highest level of decision-making authority."3 Amounts reported as committed can be redeployed for other purposes by using the same formal process that created the commitment (for example, resolution, ordinance, etc.).

The fourth category is assigned fund balance. These are amounts that the government intends to use for a specific purpose. Intent does not require formal action by the government's highest level of decision-making authority. Likewise, redeploying assigned resources to an alternative use does not require formal action by the government's highest level of decision-making authority. …

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