References are to paragraphs within GASB Statement 34 unless
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- I understand GASB 34 requires full accrual accounting. Will
we estimate our accruals for preparation of our first and second
No. While the new government-wide statements are prepared on the full accrual basis, accounting and budgeting for governmental funds are still on modified accrual. We anticipate that accounting and budgeting during the year, including interim reporting, will not change much.
- Will local educational agencies (LEAs) have to keep two sets of books?
No. During the year, LEAs will still do their accounting and budgeting on the same basis as they do now, and at the end of the year, LEAs will still close their books and prepare their fund statements as they do now. Then they will also prepare the new set of government-wide statements on the full accrual basis.
The California Department of Education (CDE) has modified its financial reporting software to help LEAs prepare the new statements on the full accrual basis.
- I am trying to determine when I must implement GASB 34. My 1998–99
revenues per my audit report do not match my 1998–99 revenues
per the list of tentative implementation dates that CDE issued.
Which should I use?
LEAs must base their implementation dates on their 1998–99 revenues as defined in paragraph 143 of GASB Statement 34 and as reflected in their audit reports.
An LEA's unaudited actual revenues per the J-200 report may differ from its revenues per its audit report due to audit adjustments and other reclassifications necessary to present its financial statements in conformity with generally accepted accounting principles.
CDE's list, based on unaudited actuals, was issued as a tentative and preliminary estimate of the number of LEAs that would implement each year.
- Should encumbrances be interpreted as Accounts Payable in the
full-accrual Statement of Net Assets?
No. Encumbrances and Accounts Payable are two different concepts.
Accounts Payable are amounts owed for goods or services received by the end of the fiscal period.
Encumbrance accounts are budgetary accounts used to show obligated portions of appropriations. During year-end closing, encumbrances are liquidated and encumbrance account balances are returned to the unappropriated fund balance.
Encumbered amounts might be accrued as Accounts Payable, but only if the goods or services for which the encumbrances were set up were received by the end of the year.
- Will GASB 34 affect the amount of reserves LEAs are required
No. Per the Criteria and Standards, reserve levels are based on budgeted General Fund expenditures, transfers out, and uses. General Fund budgets will continue to be prepared on the modified accrual basis as before.
- Why do we have to implement GASB 34? What are the consequences
if we do not?
LEAs are required to prepare their financial statements in accordance with Generally Accepted Accounting Principles (GAAP). Conformity with GAAP allows comparability among LEAs.
A specific consequence of not reporting in the new model is that an auditor may not issue an unqualified opinion on financial statements not prepared in accordance with GAAP. The American Institute of Certified Public Accountants (AICPA) has advised that statements not prepared according to the provisions of GASB 34 normally should result in an adverse opinion.
- How would an adverse opinion affect my district?
An adverse opinion might impede the LEA's ability to obtain financing or qualify for grants.
- Do the new government-wide full-accrual statements replace the
existing fund statements?
No. The new statements are in addition to, not instead of, the traditional fund statements. GASB recognizes the value of fund statements in demonstrating fiscal accountability , while the new government-wide statements demonstrate operational accountability .
- For negotiation purposes, are Net Assets the amount that is
available for salaries?
Generally, no. Net Assets include various liquid and non-liquid items, such as the cost of school buildings after depreciation and any related debt. It would not be advisable, for example, for an LEA to sell its school buildings to give salary increases.
- How do we establish the historical cost of a building erected
decades ago and remodeled several times since? No records exist
for its original cost or the early remodels.
If it is not possible to establish the historical cost, there are acceptable methodologies for estimating it. These include:
- The use of historical sources, such as vendor catalogs, to establish the cost of the same or a similar asset at the time of acquisition
- Backtrending, in which the current cost of a similar asset
is divided by the appropriate price index to arrive at the historical
LEAs may also wish to use the services of an Asset Valuation firm to assist in estimating the historical cost.
Ref: ¶¶18, 22
- Should we record capital assets by fund in order to record depreciation
No. Unless capital assets are specifically related to activities reported in proprietary or fiduciary funds, the assets are not reported or depreciated by fund. They are reported and depreciated in the government-wide statements, not in individual funds.
- Are small districts exempt from GASB 34?
No. Part of the rationale for the three-year phase-in for implementing the new model is to allow a longer period to benefit smaller entities that have fewer human and financial resources for implementation.
- Will the new government-wide statements, which are on the full
accrual basis, include our liability for retiree benefits?
Not yet. At this time, GAAP does not require that the liability for post-employment benefits be accrued.
GASB has been working for some years to establish a standard for measurement and financial reporting of "other post-employment benefits" (OPEB). Until they do so, no standard exists.
In the meantime, there are two sources of guidance for LEAs on reporting post-employment benefits:
1) GASB Statement 12 was issued in 1990 as an interim solution to the issues concerning the accounting and reporting of OPEB. It establishes minimum required disclosure (but not recognition) in the financial statements, including such factors as a description of the benefits provided, eligibility, and the accounting and funding or financing policies followed (e.g., pay-as-you-go or actuarially determined funding). GASB 12 does not, however, require accrual or disclosure of the actual liability.
2) Education Code Section 42140 requires LEAs that provide health and welfare benefits to retirees beyond age 65 to provide information annually to the governing board, at a public meeting, regarding the estimated accrued but unfunded cost of those benefits based on an actuarial study obtained at least every three years. Although EC 42140 requires that this information be provided to the board at a public meeting, it does not require that it be included in the financial statements.
GASB issued an exposure draft in February 2003 of its proposed standard for measuring and reporting OPEB. The proposed standard would take effect over three years, similar to GASB Statement 34, with the first LEAs implementing for 2006–07.
If the standard is issued as proposed, LEAs would recognize as a liability only the difference between their annual OPEB cost, as determined by an actuarial study or an alternative method, and their actual contributions to the OPEB plan. There would be no retroactive measurement of the liability. For most LEAs, the liability at implementation would be zero.
- Can I file a mandated cost claim for the costs of implementing
No. The costs of implementing GASB 34 are not claimable because GASB 34 is an accounting standard issued by the Governmental Accounting Standards Board, not a mandate imposed by the State of California.