From time to time, a new Governmental Accounting Standards Board (GASB) statement comes along that represents a major change in financial reporting for local governments. GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definition, is one of those statements. This reporting standard significantly alters how fund balance information is reported in governmental funds. Major changes in financial reporting require research and accumulation of additional information. However, they can also provide an opportunity to review past reporting practices.
Radford University and the City of Roanoke, Virginia, are both located in Southwest Virginia. The Governmental and Nonprofit Assistance Center (GNAC) is part of Radford University, and the director of the GNAC is also an accounting faculty member. Both the director of the GNAC and the Roanoke director of finance have been active in the statewide professional association for local governments. After many years of professional and instructional work with one another, they discussed a possible student project that could:
* Assist the city in identifying implementation issues with GASB Statement No. 54.
* Provide an accounting professor with an opportunity to see how theory is put into practice.
* Provide a Radford University MBA student with a factual implementation project.
After several discussions, an MBA applied project was established for the 2011 spring semester.
THE INITIAL MEETINGS
The director of the GNAC met with the Roanoke finance director and the MBA student and reviewed the new fund balance classifications. They then discussed the current governmental funds and their respective fund balances. The current fund balance section of the balance sheet had a reserve for encumbrances and five unreserved designations, and the nature of the different designations was also discussed.
The director of the GNAC raised several issues based on his understanding of GASB Statement No. 54. A number of items reported in the financial statements were from transactions and reporting decisions made in the past, and the director of finance decided it would be helpful to include senior staff in these discussions, since they were knowledgeable about the past transactions and would be responsible for making any changes in financial reporting.
The second meeting was held with the original group and several accounting and finance staff members from both the city and the City of Roanoke School System. The director of the GNAC began the meeting with a detailed discussion about the five fund balance classifications and specific issues related to governmental funds, making preliminary recommendations. The director of the GNAC and the MBA student agreed to do additional research on questions and to contact staff at GASB for additional clarifications.
At the third meeting, the GNAC director reviewed his research and made several recommendations on reporting fund balance information. The staff discussed how the recommendations would alter internal processes and change how some amounts were previously reported in the financial statements. After much discussion, general consensus was reached on several of the recommendations. The next steps for the city finance staff will be to discuss these recommendations with other city administrators and the auditors, both internal and external, in an effort to obtain consensus from various stakeholders regarding these implementation decisions. Further changes to policies may be required to comply with terminology of GASB Statement No. 54, and other steps will need to be taken to implement the standard.
For financial reporting purposes, Roanoke has only one special revenue fund, one debt service fund, and one capital project fund. The following issues were identified, and suggestions were offered as a result of the applied graduate project. …