Spring 2006 issue of Horizons

• Various debt issuance transactions in the governmental fund's statement of revenues, expenditures and changes in fund balances are not being reported properly. The following are common errors in reporting debt transactions: - When issuing long-term debt, the debt proceeds often are reported net, rather than gross, in the other financing sources section of the statement of revenues, expenditures and changes in fund balances. In other words, the face amount of the debt is shown net of premiums, discounts and issuance costs. GASB34 requires the face amount of long-term debt, rather than the net proceeds, to be reported as another financing source. - The issuance premium or discount should be separately reported as other financing sources or uses. - Debt issue costs paid out of debt proceeds, such as under- writer fees, should be reported as expenditures and not other financing uses. - Debt payments from current refundings must be reported as other financing uses. • Incorrectly reporting property tax receivables and related deferred revenue in the governmental fund financial state- ments. A common error made in reporting receivables from property (ad valorem) taxes is the reporting of only the por- tion of the receivable that meets the “available” criterion under the modified accrual basis of accounting. GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions (GASB33), requires govern- ments to “recognize assets from imposed nonexchange rev- enue transactions in the period when an enforceable legal claim to the assets arises or when resources are received, whichever occurs first.” For property taxes, the date when an enforceable legal claim to taxable property arises generally is specified in the enabling legislation, normally as the lien date or assessment date. The amount of the property taxes receivable that does not meet the available criterion as well as property taxes collected in advance of the period for which they are levied should be offset by deferred revenue and rec- ognized as revenue in the period for which they are levied and meet the available criterion. • Outdated language for the accounting treatment for com- pensated absences. As stated above, the issuance of GASB Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements, attempted to eliminate the inconsisten- cies in accounting for compensated absences. A common mistake is the use of outdated language when describing the Notes to Financial Statements

accounting policy for compensated absences. Language such as “matured and became due” should be used as opposed to “payable with current resources.” • The omission of detailed descriptions of activities accounted for in major funds other than the general fund. A description of the types of activities reported in each major fund and internal service and fiduciary fund types appearing in the basic fund financial statements is required by generally accepted accounting principles unless the caption of the related column makes the nature of those activities self-evident. Major funds are the main focus of the govern- mental funds and enterprise funds within the basic fund financial statements. Although the fund description can be generic for the general fund, other major funds and fund- type columns within the financial statements should have more specific disclosure of their unique activities and pur- pose. This specific description is not required for columns containing the aggregate data from nonmajor governmental and enterprise funds. • Various disclosures related to long-term debt and liabilities are frequently omitted or done incorrectly, such as the omis- sion of the changes in all long-term debt and liabilities and the amounts due in one year. The definition of long-term debt and liabilities includes not only long-term debt instruments (e.g., bonds, loans, and capitalized leases), but also other long-term liabilities (e.g., estimated liabilities related to com- pensated absences and claims and judgments), which often are omitted. GAAP defines the noncurrent portion of capital leases, compensated absences, claims and judgments, pen- sions, special termination benefits, and landfill closure and post-closure care liabilities as general long-term liabilities. Required disclosures for long-term liabilities should include: a. Beginning and end-of-year balances (regardless of whether prior-year data are presented on the face of the gov- ernment-wide perspective financial statements)

b. Increases and decreases (separately presented) for the period

c. The portions of each item that are due within one year of the statement date (excluding the Net Pension Obligation)

d. Which governmental funds typically have been used to liq- uidate other long-term liabilities (such as compensated absences and pension liabilities) in prior years

It is quite common, although inappropriate, to net increases

42 • spring 2006 issue