Accounting Chapter 1 Homework Fa s b Website And allow Them See How Standards Are Ever Changing And Can

Chapter 01 – Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

1-1

CHAPTER 1: INTRODUCTION TO ACCOUNTING AND FINANCIAL

REPORTING FOR GOVERNMENT AND NOT-FOR-

PROFIT ENTITIES

OUTLINE

Number

Topic

Type/Task

Status

(re: 18/e)

Questions:

1-1

Differences between types of organizations

Identify

Same

1-2

Distinguishing between general purpose and

special purpose governments

Identify

Revised

1-3

Standards-setting bodies

Identify

Same

1-4

Not-for-profit financial reports

Identify

New

1-5

Relationship of interperiod equity and fiscal

accountability

Define/Compare

New

1-6

Determining the purpose of the two types of

accountability

Determine

Same

1-7

Primary reporting objectives for NFPs and

governments

Compare

Same

1-8

Objective of federal financial reports

Explain

New

1-9

Federal government performance and

accountability report

Identify/Describe

Same

1-10

NFP reporting of expenses

Explain

Same

Cases:

1-11

Research Case—Accountability Reporting

Report

New

1-12

Research Case—GASB

Analyze

Revised 1-11

1-13

Research Case—FASB

Explain

New

1-14

Research Case—FASB

Analyze

Same

1-16

Research Case—Federal Financial Reporting

Objectives

Analyze

Same

Exercises/Problems:

1-17

Examine the CAFR

Examine

Same

1-18

Financial statement differences

Differentiate

Same

1-19

Various

Multiple Choice

Items 4, and 7

other items

are the same

1-20

Matching concepts and reporting

Classify

Revised

1-21

Matching standards governing organizations

Classify

Revised

Chapter 01 – Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

CHAPTER 1: INTRODUCTION TO ACCOUNTING AND FINANCIAL

REPORTING FOR GOVERNMENT AND NOT-FOR-

PROFIT ENTITIES

Answers to Questions

1-1. Following is a list of some of the differences between business organizations and

government/not-for-profit organizations.

repayment or economic benefits

proportionate to the resources

expect repayment or economic

benefits proportionate to the

equivalent.

resources at liquidation.

General Problem Information: Differences between types of organizations

Learning Objective: 1-1

Topic: Differences Between Governmental and Not-for-Profit Organizations

Bloom’s Taxonomy: Remember

Accreditation Skills tag: AACSB: Communication, AICPA: BB Industry

Level of Difficulty: Easy

1-2. a. GP c. SP e. GP

b. SP d. GP f. SP

General Problem Information: Distinguishing between general purpose and special

Accreditation Skills tag: AACSB: Communication, AICPA: BB Industry

Level of Difficulty: Easy

Business Organizations

Government/Not-for-for profit

Organizations

provided.

resources provided.

Primary operations are undertaken

to provide goods or services at a

profit.

Primary operations are not

undertaken to provide goods or

services at a profit or profit

1-3

1-3. Illustration 1-1 shows the standard-setting jurisdiction of the FASB, GASB and FASAB.

As shown, the FASB has responsibility for setting accounting and financial reporting

standards for business entities and nongovernmental not-for-profit organizations. The

GASB has responsibility for setting standards for state and local governments and

General Problem Information: Standards-setting bodies

Learning Objective: 1-2

1-4. The required financial statements for a not-for-profit (NFP) organization applying the

FASB standards are (1) Statement of financial position or a balance sheet, (2) Statement

of activities, and (3) Statement of cash flows.

Although not a required statement, NFPs are also required to provide information on the

relationship between functional expenses and natural expenses. The FASB allows NFPs

to provide that information using a separate financial statement, a schedule in the notes,

or displayed on the statement of activities.

Bloom’s Taxonomy: Remember

Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting

Level of Difficulty: Easy

1-5. Interperiod equity is whether current period revenues are sufficient to pay for current

period services, and it is considered an important component of accountability. Failure to

pay for current period services means that the financial burden is being passed to future

year taxpayers who may not receive any benefit from the past services. Interperiod equity

Chapter 01 – Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

1-4

Ch. 1, Answers, Question 1-5 (Cont’d)

General Problem Information: Relationship of interperiod equity and fiscal

Bloom’s Taxonomy: Analyze

Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: BB Critical Thinking

Level of Difficulty: Medium

1-6. The purpose of operational accountability is to assess whether the government has used

its resources efficiently and effectively in meeting its operating objectives. The purpose

of fiscal accountability is to assess the short-term flow of current financial resources.

Government-wide financial statements are primarily focused on providing information to

assess operational accountability, while fund financial statements are focused on

providing information to assess fiscal accountability.

General Problem Information: Determining the purpose of the two types of

accountability

1-7. The primary financial reporting objective for not-for-profit organizations is to provide

decision-useful financial information to resource providers, such as donors, members,

and creditors. The primary financial reporting objective for a government organization is

accountability, but other objectives include providing useful information for economic,

social, and political decisions. Thus, the reporting focus for the two types of

organizations differs in that the not-for-profit organization financial reports are to focus

on providing information that is useful in making decisions; while the government

organization financial reports are to focus primarily on providing information that can be

used to assess whether public resources were raised and used for their intended purposes.

Bloom’s Taxonomy: Understand

Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting

Level of Difficulty: Medium

1-8. The FASAB indicates that federal financial reports are to help meet the needs of both

external and internal users. As such, financial reports are prepared to provide information

that is useful in assessing accountability, efficiency, effectiveness and the results of

providing and spending federal resources.

Chapter 01 – Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

1-5

Ch. 1, Answers, Question 1-8 (Cont’d)

General Problem Information: Objective of federal financial reports

Learning Objective: 1-5

1-9. The four sections of a federal agency’s performance and accountability report (PAR) are

(1) an MD&A, which provides a brief overview of the entire PAR and describes the

agency’s mission and performance goals, among other items; (2) the performance

section, essentially consisting of the agency’s annual performance report (APR); (3) the

basic financial statements, which are listed in this chapter; and (4) other accompanying

information, such as information about the nation’s tax burden, the tax gap, challenges

facing the agency’s management, and revenue foregone.

General Problem Information: Federal government performance and accountability

report

Learning Objective: 1-5

Topic: Financial Reporting of the Federal Government

1-10. Reporting program expenses separately from management and general expenses and

fund-raising costs provides information to donors, members, and oversight bodies to

assess the effectiveness of the organization in accomplishing its purpose. Most donors

and members wish to have the funds they contribute used for the organizational purpose

rather than supporting management costs or fund-raising expenses. This reporting is also

necessary for oversight bodies, such as the Internal Revenue Service, to permit the

continued existence of the organization as a not-for-profit.

Bloom’s Taxonomy: Understand

Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting

Level of Difficulty: Medium

Solutions to Cases

1-11. Instructors may want to note that answers for a are found under Impact, b under Datasets,

and c will be determined by the student. As with all websites, the location of the answers

may change. Accessing Open Government will provide students with insight into data

Chapter 01 – Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

1-6

Ch. 1, Solutions, Case 1-11 (Cont’d)

a. Data.gov increases the transparency of government, making it more open and

accountable to citizens, allowing data to have a greater impact. By making data

available, data.gov increases accessibility and transparency of government

information, allowing for more informed and increased public participation on

government policy and issues.

b. Data are available from states, cities, counties, foreign countries, and regions.

General Problem Information: Research Case—Accountability reporting

Learning Objective: 1-4

1-12. Instructors may wish to provide specific instructions for the format of the students’ brief

reports. Only some of the topics covered in the White Paper have been identified for this

assignment.

Major revenue sources – for-profits’ major revenue is generated from the goods or

services provided in exchange transactions. As a result, the principle for recognizing

revenue under the FASB standard is: “Recognize revenue to depict the transfer of

promised goods or services to customers in an amount that reflects the consideration to

which the entity expects to be entitled in exchange for those goods or services.” This is

Chapter 01 – Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

1-7

Ch. 1, Solutions, Case 1-12 (Cont’d)

Postemployment benefits: Although similar in several respects, postemployment benefit

accounting and reporting for government differs due to the longevity of governments, the

importance of information to policymakers and others on the cost of providing the

benefits, and the need to address interperiod equity.

As a result of these different information needs, accounting for postemployment benefits

for governments differs from the FASB standards in two key areas:

• The discount rate used for determining the actuarial present value of postemployment

benefits. The GASB allows the use of expected rate of return as the discount rate,

provided the postemployment plan is projected to have enough resources to cover all

projected benefit payments for current employees and retirees. If all or a portion of

• The effect of the benefit received by the employee for work provided is represented

as a percentage of projected pay over the projected career of the employee. This

differs from the FASB standard that bases the benefits formula on the assignment of

benefits to units of service credits.

General Problem Information: Research Case—GASB Understanding why

government reporting standards are different

Learning Objective: 1-2

1-13. Instructors may wish to provide specific instructions for the format of the students’ brief

reports. The objective of this case is to familiarize students with the FASB website and

allow them to see how standards are ever changing and can differ between for-profit

entities and NFPs. Following are the two updates related to intangible assets and

collections.

2019-06-Intangibles-Goodwill and Other: Extending the Private Company Accounting

Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit

Entities

This update provides not-for-profit entities an alternative to the annual impairment

testing of goodwill that is required of private companies. Under this alternative the

not-for-profit is allowed to amortize goodwill. A not-for-profit entity should

amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the

Chapter 01 – Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

1-8

Ch. 1, Solutions, Case 1-13 (Cont’d)

impairment when a triggering event occurs that indicates that the fair value of the

entity (or a reporting unit) may be below its carrying amount.

2019-03-Not-for-Profit Entities: Updating the Definition of Collections

The amendments in this update modify the definition of the term collections and

require that a collection-holding entity disclose its policy for the use of proceeds

when collection items are removed from a collection. If a collection-holding entity

General Problem Information: Research Case—FASB NFP reporting standards

changes

1-14. Instructors may wish to provide specific instructions for their students’ brief reports.

Unlike for-profit organizations, not-for-profit organizations do not have a profit indicator

such as net income to help users in determining how to allocate their scarce resources.

For this reason, it is important that financial reports assist the users in determining not

only that management has kept safe the assets of the organization, but that it has also

Bloom’s Taxonomy: Analyze

Accreditation Skills tag: AACSB: Communication, AICPA: FN Research

Level of Difficulty: Hard

1-15. Instructors may wish to provide specific instructions for their students’ brief reports.

FASAB’s website may change over time, but the website does provide extensive

information about the board’s mission, structure, and due process. A good source of

information is the Memorandum of Understanding between the Comptroller General,

Chapter 01 – Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

1-9

Ch. 1, Solutions, Case 1-15 (Cont’d)

All statements and other pronouncements of the FASAB are contained in a compendium

of all original pronouncements called Pronouncements as Amended and are available for

downloading from its website at no charge. All due process documents are available at

that site as well.

General Problem Information: Research Case—Understanding FASAB

Learning Objective: 1-2

Topic: Sources of Financial Reporting Standards

1-16. Instructors may wish to provide specific instructions for the format of the students’ brief

reports.

The four major groups of users identified by the board are citizens, Congress, executives,

and program managers.

Citizens – Citizens pay for and receive government services. Therefore, they are

interested in individual government programs, candidates for office, and the fiscal and

operational accountability of their elected officials. They want to know what services are

provided and what the outputs or outcomes of the services are, as well as the efficiency

and effectiveness with which they are provided.

Executives – Executives focus on strategic plans and programs to accomplish specific

goals and implement policies. One primary focus is on budgets, which are used to

provide funding for these plans and programs. They propose funding amounts to

Congress and develop plans for financing and generating revenues to provide the

funding. They are also concerned with the efficiency and effectiveness of plans and

programs.

Chapter 01 – Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

1-10

Ch. 1, Solutions, Case 1-16 (Cont’d)

General Problem Information: Research Case—Federal Financial Reporting

Objectives

Learning Objective: 1-3

Solutions to Exercises and Problems

1-17. As students may have different CAFRs, there is no single solution to this exercise. It

works well to devote class time to asking students some of the questions listed in the

exercise, and perhaps tabulating the number of reports containing statements that are

audited (1) by CPAs, (2) by state auditors, and (3) by employees of the reporting

government. If such a tabulation is made, students may be interested in knowing in which

states the local government units are located that are audited by each of the classes of

General Problem Information: Examine the CAFR

Learning Objective: 1-4

Topic: Financial Reporting of State and Local Governments

Bloom’s Taxonomy: Remember

1-18. Although the major similarities and differences have been provided below, students will

undoubtedly also find additional items that you may wish to discuss.

a. The following represent some of the similarities and differences in Denver’s

Statement of Net Position and the Promote Health Association’s (PHA) Balance

Sheet.

Similarities:

Chapter 01 – Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

1-11

Ch. 1, Solutions, Exercise 1-18 (Cont’d)

Dissimilarities:

• Denver does not provide a comparative year, as does the PHA.

• Denver has additional sections in its statement called Deferred Outflows of

Resources (this appears below Total Assets) and Deferred Inflows of Resources

(this appears below the Total Liabilities). The PHA has nothing similar to this.

b. Other than the name, there are very few similarities between Denver’s Statement of

Activities and the PHA’s Statement of Activities. Listed below are some similarities

and differences.

Similarities:

• Both use accrual accounting.

• Both use the terms revenues and expenses.

Dissimilarities:

• Denver divides its revenues into program revenues (charges for services,

operating grants and contributions, and capital grants and contributions) and

general revenues, whereas the PHA divides its revenues into contributions and

grants, and fees from exchange transactions.

• The general format of the statements is different, with Denver starting the

statement by listing expenses from which it deducts program revenues and

general revenues. The PHA uses the traditional format, starting with revenues and

deducting expenses.

Chapter 01 – Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

1-12

Ch. 1, Solutions, Exercise 1-18 (Cont’d)

General Problem Information: Financial statement differences

Learning Objective: 1-4

2. a. 7. c.

4. a. 9. c.

5. c. 10. d.

General Problem Information: Various

Learning Objective: 1-3

Learning Objective: 1-4

Learning Objective: 1-5

Learning Objective: 1-6

1-20. This is an exercise that may generate considerable discussion in class, as some of the

answers will be absolutely true and others partially true, depending on individual

judgments and interpretations. Keeping this in mind, you may wish to provide some

leeway in grading this exercise, depending on how literally you interpret the particular

item’s relationship to type of organization.

Chapter 01 – Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

Ch. 1, Solutions, Exercise 1-20 (Cont’d)

Characteristic, Concept, or

Financial Reporting

Requirement

State and

Local

Governments

Federal

Government

Nongovernmental

Not-for-profit

Organizations

Accountability is the foundation

of financial reporting

Y

N

analysis (MD&A)

Y

N

Performance & accountability

report

N

Y

N

Stewardship is identified as a

financial statement purpose

N

Y

A concern with budgetary

compliance

Absence of defined ownership

interests

Y

Oversight by the Financial

Accounting Foundation (FAF)

Y

N

Y

N

Required fund financial

statements are presented as

part of the financial report

Y

N

Considered private sector

standard-setting boards

Y

N

Y

Standards focus on just the

Y

N

Y

information

General Problem Information: Concepts and reporting characteristics or requirements

for governmental and NFP organizations

Learning Objective: 1-1

Learning Objective: 1-2

Learning Objective: 1-4

Learning Objective: 1-5

1-14

1-21 1. FB

3. FB

5. G

7. G

9. F

General Problem Information: Sources of financial reporting standards for various

organizations

Learning Objective: 1-2

Topic: Sources of Financial Reporting Standards