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Account Classification
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Table of Contents
Introduction
Uses of Information
Governmental GAAP Hierarchy
Measurement Focus and Basis of Accounting
Fund Structure
Internal Control Structure
Other Issues Affecting Educational Entities
Budgeting
Unlike most private sector organizations, governmental entities must be responsive to a
number of different groups and organizations, including elected officials, other units of
governments, investors, creditors, and citizens that are focused on monitoring their activities.
Financial Accounting
All forms of monitoring include collecting and interpreting data, and this oversight function is
Cost Accounting and
often performed through information provided in governmental reports. Among the most
Reporting for Educational important types of communication is the annual financial report, which presents the financial
Programs
position, operating results, and cash flows for a particular accounting period. All governments,
Activity Fund Guidelines including school districts, develop their annual financial reports in accordance with principles
established by standard-setting authorities to provide consistency and comparability for users.
Summary of Account
Code Changes and other
For governments to achieve the objective of accountability, financial information must be both
Appendices
relevant and reliable for reasonably informed users. Financial reports must satisfy numerous
PDF File (1044 KB)
and diverse needs or objectives, including short-term financial position and liquidity, budgetary
and legal compliance, and issues having a long-term focus such as capital budgeting and
maintenance. Additionally, differences exist in the amount of detail that various users need.
Governmental
Accounting
Contact:
Frank Johnson
(202) 502-7362
Following a decade of research and analysis, the GASB recently concluded that to meet the
varied needs of a wide range of users, governmental reports must provide information
regarding the public entity as a whole in addition to the traditional fund financial statements.
Accordingly, in June 1999 GASB introduced a new financial reporting model in Statement
34, Basic Financial Statements—and Management's Discussion and Analysis—for State and
Local Governments. The new model integrates the traditional focus of governmental fund
financial statements relating to fiscal accountability (and the modified accrual basis of
accounting) with new forms of reporting (e.g., governmentwide financial statements). The two
levels of financial reporting are intended to
provide more relevant information that will result in greater accountability by state and
local governments and
enhance the understandability and usefulness of the annual financial reports to users of
these reports to enable them to make more informed economic, social, and political
decisions.
This chapter provides an overview of governmental accounting and financial reporting,
including the new requirements, as well as a discussion of current approaches used in
compiling financial reports. In particular, the following elements are included:
Governmental GAAP Hierarchy
Measurement Focus and Basis of Accounting
Fund Structure
Internal Control Structure
Other Issues Affecting Educational Entities
It is important for governments to provide effective financial information to constituencies in a
consistent and clear format. Specifically, the information provided by governments should
contribute to accountability in the following areas:
Financial position and results of operations
Actual financial results compared with adopted budgets
Compliance with finance-related laws, rules and regulations
Efficiency and effectiveness of operations
Maintenance of governmental assets
Consistency in financial reporting by governments is provided through accounting standards.
GASB is the standard-setting authority of generally accepted accounting principles (GAAP) for
state and local governments, including school districts. In cases for which no GASB
pronouncement is applicable, other authoritative sources of guidance exist. The following
chapter presents a hierarchy of GAAP in descending order of authoritative literature for
governments. The hierarchy was established in Statement of Auditing Standards (SAS) 69, The
Meaning of Presents Fairly in Conformity with Generally Accepted Accounting Principles in the
Independent Auditor's Report, effective March 15, 1992, and issued by the American Institute
of Certified Public Accountants (AICPA).
[back to top]
Governmental GAAP Hierarchy
Category (a) consists of GASB Statements and Interpretations and AICPA and Financial
Accounting Standards Board (FASB) pronouncements that have been specifically made
applicable to state and local governmental entities by GASB Statements or
Interpretations (periodically incorporated in the Codification of Governmental
Accounting and Financial Reporting Standards).
Category (b) consists of GASB Technical Bulletins and AICPA Industry Audit and
Accounting Guides and Statements of Position that have been specifically made
applicable to state and local governments by the AICPA and approved by the GASB.
Category (c) consists of AICPA Accounting Standards Executive Committee (AcSEC)
Practice Bulletins that have been specifically made applicable to state and local
governments by the AICPA and approved by the GASB. Also included are consensus
positions of groups of accountants organized by the GASB that attempt to reach
consensus on accounting issues applicable to statement and local governmental
entities. (GASB has not organized such a group as of the date this handbook was
released.)
Category (d) includes GASB Implementation Guides published by GASB staff.
Additionally, practices that are widely recognized and prevalent in state and local
government are included in this category.
In the absence of a pronouncement covered by Rule 203 or another source of
established accounting principles, other accounting literature, such as the following,
may be considered, depending on its relevance to the circumstances:
GASB Concepts Statements
o
Pronouncements referred to in categories (a) through (d), SAS 69, paragraph
10, of the hierarchy for nongovernmental entities when not specifically made
applicable to state and local governments:
o
FASB Concepts Statements
o
AICPA Issues Papers
o
Statements of the International Accounting Standards Committee
o
Pronouncements of other professional associations or regulatory agencies
o
Technical Information Service Inquiries and Replies included in AICPA Technical
Practice Aids
o
Accounting textbooks, handbooks, and articles
The appropriateness of other accounting literature depends on its relevance to particular
circumstances, the specificity of the guidance, and the general recognition of the issuer or
author as an authority.
[back to top]
Measurement Focus and Basis of Accounting
Traditionally, the majority of governmental financial information has been maintained and
reported in the fund financial statements on the modified accrual basis of accounting or the
accrual basis for business-type activities. The recently enacted GASB Statement 34 establishes
additional reporting (the governmentwide statements) that represents a major shift in the
focus and content of governmental financial statements. Collecting and reporting additional
financial information required by the governmentwide statements add to the complexity of
financial reporting activities and have significant implications for the traditional focus and basis
of accounting used in governmental financial statements.
The new governmentwide financial statements consist of a Statement of Net Assets and a
Statement of Activities and are prepared using the economic resources measurement focus and
the accrual basis of accounting. Thus, revenues are recognized in the accounting period in
which they are earned and become measurable without regard to availability, and expenses are
recognized in the period incurred, if measurable.
Governmental fund financial statements continue to be prepared using the current financial
resources measurement focus and the modified accrual basis of accounting. Revenues are
recognized in the accounting period in which they become available and measurable, and
expenditures are recognized in the period in which the fund liability is incurred, if measurable,
except for unmatured interest on general long-term debt, which should be recognized when
due.1Proprietary fund financial statements continue to be prepared using the economic
resources measurement focus and the accrual basis of accounting.
Like proprietary fund financial statements, fiduciary fund financial statements are prepared
using the economic resources measurement focus and the accrual basis of accounting. Table 1
summarizes the measurement focus and basis of accounting for each reporting element and
type of fund.
Table 1. Measurement Focus and Basis of Accounting for Financial Statements
Financial Statements
Measurement Focus
Basis of
Accounting
Governmentwide Financial Statements
Economic Resources
Accrual
Governmental Funds Financial
Statements
Current Financial
Resources
Modified Accrual
Proprietary Funds Financial Statements
Economic Resources
Accrual
Fiduciary Funds Financial Statements
Economic Resources
Accrual
GASB Statement 20, as amended by Statement 34, allows a government the option of applying
FASB Statements and Interpretations issued after November 30, 1989, except for those that
conflict with or contradict GASB pronouncements, to enterprise funds and governmentwide
financial statements. The election is made on a fund-by-fund basis; however, consistency in the
application within a particular entity fund is encouraged.
[back to top]
Fund Structure
For governmental entities to ensure the proper segregation of resources and to maintain proper
accountability, an entity's accounting system should be organized and operated on a fund
basis. Each fund is a separate fiscal entity and is established to conduct specific activities and
objectives in accordance with statutes, laws, regulations, and restrictions or for specific
purposes. A fund is defined in GASB Codification Section 1300 as a fiscal and accounting entity
with a self-balancing set of accounts recording cash and other financial resources, together
with all related liabilities and residual equities or balances, and changes therein, which are
segregated for the purpose of carrying on specific activities or attaining certain objectives in
accordance with special regulations, restrictions, or limitations.
Statement 34 modified the structure of two categories of funds used by local governmental
entities. Specifically, the new reporting model introduces two new types of funds:
Permanent funds (in the governmental fund category). Permanent funds are required
to be used to report resources that are legally restricted to the extent that only
earnings (and not principal) may be used for purposes that support the reporting
government programs.
Private-purpose trust funds (in the fiduciary fund category). Private-purpose trust
funds should be used to report all other trust arrangements under which principal and
income benefit individuals, private organizations, or other governments.
The new model eliminates expendable and nonexpendable trust funds to focus fiduciary
reporting on resources held for parties external to the reporting government: individuals,
private organizations, and other governments. Fiduciary funds, therefore, cannot be used to
support the government's own programs.
With the incorporation of these changes, three categories of funds remain:
Governmental funds are those through which most governmental functions are
accounted for. The acquisition, use, and balances of the government's expendable
financial resources and the related current liabilities-except those accounted for in
proprietary funds-are accounted for through governmental funds (general, special
revenue, capital projects, debt service, and permanent funds).
Proprietary funds are used to account for a government's ongoing organizations and
activities that are similar to those often found in the private sector. All assets, liabilities,
net assets, revenues, expenses, and transfers relating to the government's business
and quasi-business activities-in which changes in net assets or cost recovery are
measured-are accounted for through proprietary funds (enterprise and internal service
funds). Generally accepted accounting principles for proprietary funds are similar to
those applicable to businesses in the private sector; the measurement focus is on
determining operating income, financial position, and cash flows.
Fiduciary funds are used to account for assets held by a government in a trustee
capacity or as an agent for individuals, private organizations, or other governmental
units. The fiduciary fund category includes pension (and other employee benefit) trust
funds, investment trust funds, private-purpose trust funds, and agency funds.
Additional information on the governmental fund structure may be found in chapter 5.
Major Funds
The concept of major fund reporting is introduced and defined by GASB Statement 34 to
simplify the presentation of fund information and to focus attention on the major activities of
the entity. Rather than require each type of fund to be individually presented, Statement 34
requires the individual presentation of only major funds, with all other funds combined into a
single column. This reduces the number of funds presented on the face of the financial
statements and directs the focus on the significant funds of the reporting entity. Major fund
reporting is applied only to governmental (i.e., general, special revenue, debt service, capital
projects, and permanent funds) and enterprise funds. Internal service funds are excluded from
the major fund reporting requirements. Fiduciary fund information is presented by type of fund
rather than by major funds.
GASB defines major funds as those meeting the following criteria:
Total assets, liabilities, revenues, or expenditures/expenses of the individual
governmental or enterprise fund are at least 10 percent of the corresponding total
(assets, liabilities, and so forth) for all funds of that category (governmental funds) or
type (enterprise funds).
Total assets, liabilities, revenues, or expenditures/expenses of the individual
governmental fund or enterprise fund are at least 5 percent of the corresponding total
for all governmental and enterprise funds combined.
Both criteria must be met in the same element (assets, liabilities, etc.) for both the 10 percent
and 5 percent tests for a fund to be defined as major. However, Statement 34 permits a
government to designate a particular fund that is of interest to users as a major fund and to
individually present its information in the basic financial statements, even if it does not meet
the criteria. However, a government does not have the option to NOT report a fund as major if
it meets the criteria above.
It should be noted that in applying the major fund criteria to enterprise funds, the reporting
entity should consider both operating and nonoperating revenues and expenses, as well as
gains, losses, capital contributions, additions to permanent endowments, and special items.
When the major fund criteria are applied to governmental funds, revenues do not include other
financing sources and expenditures do not include other financing uses. However, special items
would be included.
[back to top]
Internal Control Structure
An integral part of proper accounting procedures rests in issues of controls and begins with
internal accountability structures. The AICPA's Statement on Auditing Standards No.
78, Consideration of Internal Control in a Financial Statement Audit: An Amendment to
Statement on Auditing Standards No. 55, (which incorporates the Committee of Sponsoring
Organizations Report, Internal Control Framework) indicates that the elaborateness of the
system of internal controls established within an organization is a matter of judgment on the
part of management, with careful consideration for circumstances, such as the size of the
organization and the number of personnel available, and the relationship between the costs
and benefits of designing and implementing controls. In addition, the nature of internal control
is such that even appropriate methods and systems will not guarantee that an entity's
Statement 34. This accounting standard requires governmental agencies, including school
districts, to increase their financial reporting to include governmentwide financial statements as
well as the traditional fund reporting. Although this new reporting model does not change the
basic internal control expectations for governments, GASB Statement 34 presents new financial
reporting challenges for school districts.
[back to top]
Footnote
Codification of Governmental Accounting and Financial Reporting Standards, section
1100.110.
1
U.S. Department of Education
Institute of Education Sciences
National Center for Education Statistics
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EDITORIAL
Government Introduces More Efficient
Accounting System
By February 12, 2004
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Story Highlights
The Government of Jamaica is introducing the accrual system of accounting in the public sector,
which will allow for greater efficiency in the management of resources.
Presently, ministries and departments use the cash accounting system, which recognises
transactions between the government and its clients only when the money is paid.
The accrual system of accounting however will recognise those transactions within the time period
that they occur.
Referring to the country’s fiscal deficit, Deputy Financial Secretary, Robert Martin, told JIS News that
outstanding tax revenues amounted to some $15 million and noted that if the accrual accounting
system was in place, then those revenues would have been in the books of government up to the
end of March 2004.
“Any outstanding expenditure would have been brought to book and recognised in the books of
government and so you would have a proper picture of exactly where government is in terms of its
assets and liabilities; its balance sheet and other financial statements,” Mr. Martin explained.
The Deputy Financial Secretary said that the government’s balance sheet might reflect a positive net
worth if the accrual system of accounting was being used.
Explaining, Director of Systems for the Public Expenditure Policy Coordinating (PXPC) Division,
Berome Edwards said the accrual system allowed government to determine the value of its fixed
assets at any particular point in time.
The cash system accounts for fixed assets, such as buildings, motor vehicles and equipment at the
time of their purchase or disposal but does not account for the value of those assets over time. He
added that fixed assets such as buildings with a depreciable life of 25 years were written off as
expenditure in the year of purchase.
The introduction of the accrual accounting system will begin on April 1 on a phased basis at the
Ministries of Finance and Planning and Transport and Works. Public institutions, however, that were
converted to Executive Agencies, have already adopted the accounting procedure as part of their
new paradigm.
Both ministries will implement the change as part of a pilot project for six months before it is rolled
out to other ministries over a ten-year period. A total of 80 accounting staff members in both
ministries are being trained to carry out the new procedure using the software known as the
Financial Management (FinMan) system.
The training will seek to change the culture and approach to business in government offices where
bills are not accrued but are filed until funds are made available for settlement.
“In cash accounting, someone receives a bill for payment, they will keep that bill in the office and it
wouldn’t be brought to book in the accounting system until the bill is paid. In the accrual system
however, that unpaid bill is booked as expenditure in the accounts the moment it is received (and
validated),” Mr. Edwards explained.
In response to the changes, the ministries, with the assistance of the Cabinet Office, have revamped
job titles and job descriptions to match the adjustments in work procedures.
Additionally, the Institute of Chartered Accountants of Jamaica (ICAJ) will help to train persons in the
new accounting procedure, while Fiscal Services Limited will provide technical assistance.
Head of the Information Technology Unit at the PXPC Division of the Finance Ministry, Joseph
Manley said that the transition to accrual accounting involved a move from accounting software that
was “after-the-fact accounting” to software that became more of a “management tool”.
He added that accrual accounting was critical to the concept of connective government as it was
capable of treating government’s resources as a consolidated whole. “We intend to eventually,
(perhaps in the next five to 10 years) come to a situation of consolidated national accounts through
software where there is one database that covers all of government’s expenditure,” he said.
Consolidation will also be possible, as the accrual system will see a greater use of the Taxpayers
Registration Number (TRN) in identifying clients.
Currently, with the exception of the Revenue Departments, a person or organisation doing business
with several government agencies is assigned a different transaction number by each of those
institutions. The use of the TRN for identity will help government to readily determine the quantum of
business being undertaken with a particular client.
Mr. Manley said that the new software was currently being installed and that technical training would
begin soon. He explained however, that the transition Management Information System (FMIS) and
is capable of carrying out both cash and accrual accounting.
The move towards the use of accrual accounting in government is among measures outlined in
Ministry Paper 56, titled Public Sector Modernisation; Vision and Strategy 2002 – 2012.
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Accrual Accounting And Fiscal
Discipline In Government
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Published:Friday | December 28, 2012
Don Wehby, Financial Gleaner Guest Columnist
By Don Wehby, Financial Gleaner Guest Columnist
In view of the global financial crisis and recent debt crises in several countries, there has been growing
recognition worldwide of the need to strengthen public-sector financial systems and procedures.
This has been accompanied by increased demand for accountability and transparency.
Many countries, initially using cash-based accounting, have moved to more sophisticated modified cash or accrualbased accounting.
When one considers how cash accounting actually distorts the true picture, then the case for accrual becomes even
more evident.
In Jamaica, there is the non-recording of pension liabilities, arrears to suppliers, tax on interest refund arrears and
deferred financing, to name a few disadvantages. All of these are significant liabilities which are not recorded when
incurred.
The accrual accounting method recognises expenses when they are incurred and revenue when it is earned, rather
than when payment is made or received - for example, sales are recorded as revenue when goods are shipped even
though payment is not expected for days, weeks, or months.
Most firms use the accrual basis of accounting in recording transactions.
A recent report from the International Public Sector Accounting Standards Board stated that over 80 countries have
either adopted, or have processes in place to adopt these international accounting standards for public-sector
financial management reporting. They include New Zealand, Australia, Italy, Germany, the Cayman Islands and
Barbados.
Our country's own macroeconomic performance in the last 20 years indicates that there is dire need to strengthen the
system of public-sector financial management. In this period, economic growth has averaged in the region of one per
cent.
The fiscal balance over the same period has averaged -4.9 per cent annually, and the debt-to-GDP ratio has moved
from 87.3 per cent in 2000 to 129.3 per cent in 2010.
Adopting accrual accounting across Government, as opposed to cash management, should be, at the very least, a
medium-term objective for Jamaica.
This is all very relevant to the day-to-day work of public-sector accountants, as the introduction of such a system
would mean that their roles would change.
For the transition to accrual accounting to be effective, it cannot be undertaken by itself. It should form part of a larger
programme of economic reform - for example, three possible reform options are:
1) implementation of a 'Central Treasury Management Unit';
2) improvement of the existing budget process; and
3) improved accuracy and availability of fiscal data - to be able to set proper macroeconomic targets.
The Central Treasury Management Unit would be given the specific mandate, in the first instance, to focus on cash
management.
It is very inefficient for the Government to simultaneously have cash-rich entities earning minimal interest rates and
cash-strapped entities incurring huge overdraft interest rates.
There needs to be a concerted effort to minimise such inefficiencies throughout Government, especially in light of our
current financial situation and the reported poor state of fiscal accounts.
The cash basis of preparing budgets allows for incomplete recording of transactions, which renders it difficult to
estimate the full cost of government operations.
This, of course, has implications for the quality of decisions made by the Ministry of Finance and the Public Service.
I am an advocate of accrual accounting because:
a) At the aggregate level, accrual-based fiscal indicators provide better information about the sustainability of fiscal
policies; provide a stronger basis for government accountability and provide a better measure of the effects of
government policies on aggregate demand; and
b) At the organisational level, accrual-based financial statements provide better measures of organisational efficiency
and effectiveness and reduce opportunities for fraud and corruption.
benefits of making the switch
The case of New Zealand is an example of the benefits to be gained from making the switch. The government of New
Zealand first produced fully accrual-based combined financial statements in 1992. By 1994, New Zealand had started
to see marked improvements in its debt-to-GDP ratio - a significant change from the prior 20-year slide in the fiscal
accounts.
Gross financial liabilities were 65 per cent of GDP in 1993; by 2005 they were 23 per cent of GDP. As such, a fiscal
surplus was recorded, and that started a trend which continues today.
What is even more noteworthy is that all commentators agree that the reforms engendered a much greater sense of
fiscal discipline throughout the public service. This is what is needed in Jamaica.
Introduction of accrual accounting is, however, not without its challenges.
The most challenging aspect is the training of accounting staff, as this method is not currently used in central
Government.
With any introduction of accrual accounting in the public sector a timeline should be worked out with a specific project
unit, along with methodology to implement it. If it is done right, the benefits to the fiscal accounts would be significant.
Don Wehby is group chief executive officer of GraceKennedy [email protected]
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Ministry of Transport, Works & Housing
JOB CATEGORIES
Ministry of Transport, Works & Housing
Accounting [7]
Construction [2]
Education [6]
General [5]
Health [2]
Management Accountant
Information
Category:
Accounting
Description:
* Capital Projects
Technology [1]
Management [7]
Sales/Marketing
[7]
Responsible for the preparation and implementation of the Ministry’s Capital
budget (i.e. Capital A and B budgets) in accordance with the approved
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corporate plan and the guidelines prescribed by the Financial Secretary as
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well as the priorities and policies of Government.
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Responsible for the contingency and cash advances received from the
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Qualifications:
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First Degree in Accounting or Management with Accounting major or;
Equivalent Education Training and experience plus; - Government
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Accounting Level 2 Modules 1-5. Plus the new Level 3 (Diploma in
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Government Accounting);
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Eight (8) years’ experience at the Professional Accountant level
Excellent oral and written communication skills
Customer and quality focus
Analytical problem solving and decision making skills
Ability to work as a team
Time Management skills
Excellent Budgeting and cash management skills
Knowledge of GOJ Financial Regulations (FAA Act)
Skills in operating GOJ Computerised Accounting System and in the use of
Microsoft Office and its Applications
Deadline:
September 21, 2012
Contact Information
Name:
N/A
Address:
Senior Director
Human Resource Management & Administration
Ministry of Transport, Works and Housing
138h Maxfield Avenue
Kingston 10
Email:
[email protected]
Telephone:
N/A
Fax:
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Ad Post Date:
2012-09-17
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Account Classification
Description
–Quick Code Finder by
Number/Category
–Code Descriptions in
Alphabetical Order
Table of Contents
Introduction
Uses of Information
Governmental GAAP Hierarchy
Measurement Focus and Basis of Accounting
Fund Structure
Internal Control Structure
Other Issues Affecting Educational Entities
Budgeting
Unlike most private sector organizations, governmental entities must be responsive to a
number of different groups and organizations, including elected officials, other units of
governments, investors, creditors, and citizens that are focused on monitoring their activities.
Financial Accounting
All forms of monitoring include collecting and interpreting data, and this oversight function is
Cost Accounting and
often performed through information provided in governmental reports. Among the most
Reporting for Educational important types of communication is the annual financial report, which presents the financial
Programs
position, operating results, and cash flows for a particular accounting period. All governments,
Activity Fund Guidelines including school districts, develop their annual financial reports in accordance with principles
established by standard-setting authorities to provide consistency and comparability for users.
Summary of Account
Code Changes and other
For governments to achieve the objective of accountability, financial information must be both
Appendices
relevant and reliable for reasonably informed users. Financial reports must satisfy numerous
PDF File (1044 KB)
and diverse needs or objectives, including short-term financial position and liquidity, budgetary
and legal compliance, and issues having a long-term focus such as capital budgeting and
maintenance. Additionally, differences exist in the amount of detail that various users need.
Governmental
Accounting
Contact:
Frank Johnson
(202) 502-7362
Following a decade of research and analysis, the GASB recently concluded that to meet the
varied needs of a wide range of users, governmental reports must provide information
regarding the public entity as a whole in addition to the traditional fund financial statements.
Accordingly, in June 1999 GASB introduced a new financial reporting model in Statement
34, Basic Financial Statements—and Management's Discussion and Analysis—for State and
Local Governments. The new model integrates the traditional focus of governmental fund
financial statements relating to fiscal accountability (and the modified accrual basis of
accounting) with new forms of reporting (e.g., governmentwide financial statements). The two
levels of financial reporting are intended to
provide more relevant information that will result in greater accountability by state and
local governments and
enhance the understandability and usefulness of the annual financial reports to users of
these reports to enable them to make more informed economic, social, and political
decisions.
This chapter provides an overview of governmental accounting and financial reporting,
including the new requirements, as well as a discussion of current approaches used in
compiling financial reports. In particular, the following elements are included:
Governmental GAAP Hierarchy
Measurement Focus and Basis of Accounting
Fund Structure
Internal Control Structure
Other Issues Affecting Educational Entities
It is important for governments to provide effective financial information to constituencies in a
consistent and clear format. Specifically, the information provided by governments should
contribute to accountability in the following areas:
Financial position and results of operations
Actual financial results compared with adopted budgets
Compliance with finance-related laws, rules and regulations
Efficiency and effectiveness of operations
Maintenance of governmental assets
Consistency in financial reporting by governments is provided through accounting standards.
GASB is the standard-setting authority of generally accepted accounting principles (GAAP) for
state and local governments, including school districts. In cases for which no GASB
pronouncement is applicable, other authoritative sources of guidance exist. The following
chapter presents a hierarchy of GAAP in descending order of authoritative literature for
governments. The hierarchy was established in Statement of Auditing Standards (SAS) 69, The
Meaning of Presents Fairly in Conformity with Generally Accepted Accounting Principles in the
Independent Auditor's Report, effective March 15, 1992, and issued by the American Institute
of Certified Public Accountants (AICPA).
[back to top]
Governmental GAAP Hierarchy
Category (a) consists of GASB Statements and Interpretations and AICPA and Financial
Accounting Standards Board (FASB) pronouncements that have been specifically made
applicable to state and local governmental entities by GASB Statements or
Interpretations (periodically incorporated in the Codification of Governmental
Accounting and Financial Reporting Standards).
Category (b) consists of GASB Technical Bulletins and AICPA Industry Audit and
Accounting Guides and Statements of Position that have been specifically made
applicable to state and local governments by the AICPA and approved by the GASB.
Category (c) consists of AICPA Accounting Standards Executive Committee (AcSEC)
Practice Bulletins that have been specifically made applicable to state and local
governments by the AICPA and approved by the GASB. Also included are consensus
positions of groups of accountants organized by the GASB that attempt to reach
consensus on accounting issues applicable to statement and local governmental
entities. (GASB has not organized such a group as of the date this handbook was
released.)
Category (d) includes GASB Implementation Guides published by GASB staff.
Additionally, practices that are widely recognized and prevalent in state and local
government are included in this category.
In the absence of a pronouncement covered by Rule 203 or another source of
established accounting principles, other accounting literature, such as the following,
may be considered, depending on its relevance to the circumstances:
GASB Concepts Statements
o
Pronouncements referred to in categories (a) through (d), SAS 69, paragraph
10, of the hierarchy for nongovernmental entities when not specifically made
applicable to state and local governments:
o
FASB Concepts Statements
o
AICPA Issues Papers
o
Statements of the International Accounting Standards Committee
o
Pronouncements of other professional associations or regulatory agencies
o
Technical Information Service Inquiries and Replies included in AICPA Technical
Practice Aids
o
Accounting textbooks, handbooks, and articles
The appropriateness of other accounting literature depends on its relevance to particular
circumstances, the specificity of the guidance, and the general recognition of the issuer or
author as an authority.
[back to top]
Measurement Focus and Basis of Accounting
Traditionally, the majority of governmental financial information has been maintained and
reported in the fund financial statements on the modified accrual basis of accounting or the
accrual basis for business-type activities. The recently enacted GASB Statement 34 establishes
additional reporting (the governmentwide statements) that represents a major shift in the
focus and content of governmental financial statements. Collecting and reporting additional
financial information required by the governmentwide statements add to the complexity of
financial reporting activities and have significant implications for the traditional focus and basis
of accounting used in governmental financial statements.
The new governmentwide financial statements consist of a Statement of Net Assets and a
Statement of Activities and are prepared using the economic resources measurement focus and
the accrual basis of accounting. Thus, revenues are recognized in the accounting period in
which they are earned and become measurable without regard to availability, and expenses are
recognized in the period incurred, if measurable.
Governmental fund financial statements continue to be prepared using the current financial
resources measurement focus and the modified accrual basis of accounting. Revenues are
recognized in the accounting period in which they become available and measurable, and
expenditures are recognized in the period in which the fund liability is incurred, if measurable,
except for unmatured interest on general long-term debt, which should be recognized when
due.1Proprietary fund financial statements continue to be prepared using the economic
resources measurement focus and the accrual basis of accounting.
Like proprietary fund financial statements, fiduciary fund financial statements are prepared
using the economic resources measurement focus and the accrual basis of accounting. Table 1
summarizes the measurement focus and basis of accounting for each reporting element and
type of fund.
Table 1. Measurement Focus and Basis of Accounting for Financial Statements
Financial Statements
Measurement Focus
Basis of
Accounting
Governmentwide Financial Statements
Economic Resources
Accrual
Governmental Funds Financial
Statements
Current Financial
Resources
Modified Accrual
Proprietary Funds Financial Statements
Economic Resources
Accrual
Fiduciary Funds Financial Statements
Economic Resources
Accrual
GASB Statement 20, as amended by Statement 34, allows a government the option of applying
FASB Statements and Interpretations issued after November 30, 1989, except for those that
conflict with or contradict GASB pronouncements, to enterprise funds and governmentwide
financial statements. The election is made on a fund-by-fund basis; however, consistency in the
application within a particular entity fund is encouraged.
[back to top]
Fund Structure
For governmental entities to ensure the proper segregation of resources and to maintain proper
accountability, an entity's accounting system should be organized and operated on a fund
basis. Each fund is a separate fiscal entity and is established to conduct specific activities and
objectives in accordance with statutes, laws, regulations, and restrictions or for specific
purposes. A fund is defined in GASB Codification Section 1300 as a fiscal and accounting entity
with a self-balancing set of accounts recording cash and other financial resources, together
with all related liabilities and residual equities or balances, and changes therein, which are
segregated for the purpose of carrying on specific activities or attaining certain objectives in
accordance with special regulations, restrictions, or limitations.
Statement 34 modified the structure of two categories of funds used by local governmental
entities. Specifically, the new reporting model introduces two new types of funds:
Permanent funds (in the governmental fund category). Permanent funds are required
to be used to report resources that are legally restricted to the extent that only
earnings (and not principal) may be used for purposes that support the reporting
government programs.
Private-purpose trust funds (in the fiduciary fund category). Private-purpose trust
funds should be used to report all other trust arrangements under which principal and
income benefit individuals, private organizations, or other governments.
The new model eliminates expendable and nonexpendable trust funds to focus fiduciary
reporting on resources held for parties external to the reporting government: individuals,
private organizations, and other governments. Fiduciary funds, therefore, cannot be used to
support the government's own programs.
With the incorporation of these changes, three categories of funds remain:
Governmental funds are those through which most governmental functions are
accounted for. The acquisition, use, and balances of the government's expendable
financial resources and the related current liabilities-except those accounted for in
proprietary funds-are accounted for through governmental funds (general, special
revenue, capital projects, debt service, and permanent funds).
Proprietary funds are used to account for a government's ongoing organizations and
activities that are similar to those often found in the private sector. All assets, liabilities,
net assets, revenues, expenses, and transfers relating to the government's business
and quasi-business activities-in which changes in net assets or cost recovery are
measured-are accounted for through proprietary funds (enterprise and internal service
funds). Generally accepted accounting principles for proprietary funds are similar to
those applicable to businesses in the private sector; the measurement focus is on
determining operating income, financial position, and cash flows.
Fiduciary funds are used to account for assets held by a government in a trustee
capacity or as an agent for individuals, private organizations, or other governmental
units. The fiduciary fund category includes pension (and other employee benefit) trust
funds, investment trust funds, private-purpose trust funds, and agency funds.
Additional information on the governmental fund structure may be found in chapter 5.
Major Funds
The concept of major fund reporting is introduced and defined by GASB Statement 34 to
simplify the presentation of fund information and to focus attention on the major activities of
the entity. Rather than require each type of fund to be individually presented, Statement 34
requires the individual presentation of only major funds, with all other funds combined into a
single column. This reduces the number of funds presented on the face of the financial
statements and directs the focus on the significant funds of the reporting entity. Major fund
reporting is applied only to governmental (i.e., general, special revenue, debt service, capital
projects, and permanent funds) and enterprise funds. Internal service funds are excluded from
the major fund reporting requirements. Fiduciary fund information is presented by type of fund
rather than by major funds.
GASB defines major funds as those meeting the following criteria:
Total assets, liabilities, revenues, or expenditures/expenses of the individual
governmental or enterprise fund are at least 10 percent of the corresponding total
(assets, liabilities, and so forth) for all funds of that category (governmental funds) or
type (enterprise funds).
Total assets, liabilities, revenues, or expenditures/expenses of the individual
governmental fund or enterprise fund are at least 5 percent of the corresponding total
for all governmental and enterprise funds combined.
Both criteria must be met in the same element (assets, liabilities, etc.) for both the 10 percent
and 5 percent tests for a fund to be defined as major. However, Statement 34 permits a
government to designate a particular fund that is of interest to users as a major fund and to
individually present its information in the basic financial statements, even if it does not meet
the criteria. However, a government does not have the option to NOT report a fund as major if
it meets the criteria above.
It should be noted that in applying the major fund criteria to enterprise funds, the reporting
entity should consider both operating and nonoperating revenues and expenses, as well as
gains, losses, capital contributions, additions to permanent endowments, and special items.
When the major fund criteria are applied to governmental funds, revenues do not include other
financing sources and expenditures do not include other financing uses. However, special items
would be included.
[back to top]
Internal Control Structure
An integral part of proper accounting procedures rests in issues of controls and begins with
internal accountability structures. The AICPA's Statement on Auditing Standards No.
78, Consideration of Internal Control in a Financial Statement Audit: An Amendment to
Statement on Auditing Standards No. 55, (which incorporates the Committee of Sponsoring
Organizations Report, Internal Control Framework) indicates that the elaborateness of the
system of internal controls established within an organization is a matter of judgment on the
part of management, with careful consideration for circumstances, such as the size of the
organization and the number of personnel available, and the relationship between the costs
and benefits of designing and implementing controls. In addition, the nature of internal control
is such that even appropriate methods and systems will not guarantee that an entity's
Statement 34. This accounting standard requires governmental agencies, including school
districts, to increase their financial reporting to include governmentwide financial statements as
well as the traditional fund reporting. Although this new reporting model does not change the
basic internal control expectations for governments, GASB Statement 34 presents new financial
reporting challenges for school districts.
[back to top]
Footnote
Codification of Governmental Accounting and Financial Reporting Standards, section
1100.110.
1
U.S. Department of Education
Institute of Education Sciences
National Center for Education Statistics
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EDITORIAL
Government Introduces More Efficient
Accounting System
By February 12, 2004
Story Highlights
The Government of Jamaica is introducing the accrual system of accounting in the public sector,
which will allow for greater efficiency in the management of resources.
Presently, ministries and departments use the cash accounting system, which recognises
transactions between the government and its clients only when the money is paid.
The accrual system of accounting however will recognise those transactions within the time period
that they occur.
Referring to the country’s fiscal deficit, Deputy Financial Secretary, Robert Martin, told JIS News that
outstanding tax revenues amounted to some $15 million and noted that if the accrual accounting
system was in place, then those revenues would have been in the books of government up to the
end of March 2004.
“Any outstanding expenditure would have been brought to book and recognised in the books of
government and so you would have a proper picture of exactly where government is in terms of its
assets and liabilities; its balance sheet and other financial statements,” Mr. Martin explained.
The Deputy Financial Secretary said that the government’s balance sheet might reflect a positive net
worth if the accrual system of accounting was being used.
Explaining, Director of Systems for the Public Expenditure Policy Coordinating (PXPC) Division,
Berome Edwards said the accrual system allowed government to determine the value of its fixed
assets at any particular point in time.
The cash system accounts for fixed assets, such as buildings, motor vehicles and equipment at the
time of their purchase or disposal but does not account for the value of those assets over time. He
added that fixed assets such as buildings with a depreciable life of 25 years were written off as
expenditure in the year of purchase.
The introduction of the accrual accounting system will begin on April 1 on a phased basis at the
Ministries of Finance and Planning and Transport and Works. Public institutions, however, that were
converted to Executive Agencies, have already adopted the accounting procedure as part of their
new paradigm.
Both ministries will implement the change as part of a pilot project for six months before it is rolled
out to other ministries over a ten-year period. A total of 80 accounting staff members in both
ministries are being trained to carry out the new procedure using the software known as the
Financial Management (FinMan) system.
The training will seek to change the culture and approach to business in government offices where
bills are not accrued but are filed until funds are made available for settlement.
“In cash accounting, someone receives a bill for payment, they will keep that bill in the office and it
wouldn’t be brought to book in the accounting system until the bill is paid. In the accrual system
however, that unpaid bill is booked as expenditure in the accounts the moment it is received (and
validated),” Mr. Edwards explained.
In response to the changes, the ministries, with the assistance of the Cabinet Office, have revamped
job titles and job descriptions to match the adjustments in work procedures.
Additionally, the Institute of Chartered Accountants of Jamaica (ICAJ) will help to train persons in the
new accounting procedure, while Fiscal Services Limited will provide technical assistance.
Head of the Information Technology Unit at the PXPC Division of the Finance Ministry, Joseph
Manley said that the transition to accrual accounting involved a move from accounting software that
was “after-the-fact accounting” to software that became more of a “management tool”.
He added that accrual accounting was critical to the concept of connective government as it was
capable of treating government’s resources as a consolidated whole. “We intend to eventually,
(perhaps in the next five to 10 years) come to a situation of consolidated national accounts through
software where there is one database that covers all of government’s expenditure,” he said.
Consolidation will also be possible, as the accrual system will see a greater use of the Taxpayers
Registration Number (TRN) in identifying clients.
Currently, with the exception of the Revenue Departments, a person or organisation doing business
with several government agencies is assigned a different transaction number by each of those
institutions. The use of the TRN for identity will help government to readily determine the quantum of
business being undertaken with a particular client.
Mr. Manley said that the new software was currently being installed and that technical training would
begin soon. He explained however, that the transition Management Information System (FMIS) and
is capable of carrying out both cash and accrual accounting.
The move towards the use of accrual accounting in government is among measures outlined in
Ministry Paper 56, titled Public Sector Modernisation; Vision and Strategy 2002 – 2012.
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Accrual Accounting And Fiscal
Discipline In Government
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Published:Friday | December 28, 2012
Don Wehby, Financial Gleaner Guest Columnist
By Don Wehby, Financial Gleaner Guest Columnist
In view of the global financial crisis and recent debt crises in several countries, there has been growing
recognition worldwide of the need to strengthen public-sector financial systems and procedures.
This has been accompanied by increased demand for accountability and transparency.
Many countries, initially using cash-based accounting, have moved to more sophisticated modified cash or accrualbased accounting.
When one considers how cash accounting actually distorts the true picture, then the case for accrual becomes even
more evident.
In Jamaica, there is the non-recording of pension liabilities, arrears to suppliers, tax on interest refund arrears and
deferred financing, to name a few disadvantages. All of these are significant liabilities which are not recorded when
incurred.
The accrual accounting method recognises expenses when they are incurred and revenue when it is earned, rather
than when payment is made or received - for example, sales are recorded as revenue when goods are shipped even
though payment is not expected for days, weeks, or months.
Most firms use the accrual basis of accounting in recording transactions.
A recent report from the International Public Sector Accounting Standards Board stated that over 80 countries have
either adopted, or have processes in place to adopt these international accounting standards for public-sector
financial management reporting. They include New Zealand, Australia, Italy, Germany, the Cayman Islands and
Barbados.
Our country's own macroeconomic performance in the last 20 years indicates that there is dire need to strengthen the
system of public-sector financial management. In this period, economic growth has averaged in the region of one per
cent.
The fiscal balance over the same period has averaged -4.9 per cent annually, and the debt-to-GDP ratio has moved
from 87.3 per cent in 2000 to 129.3 per cent in 2010.
Adopting accrual accounting across Government, as opposed to cash management, should be, at the very least, a
medium-term objective for Jamaica.
This is all very relevant to the day-to-day work of public-sector accountants, as the introduction of such a system
would mean that their roles would change.
For the transition to accrual accounting to be effective, it cannot be undertaken by itself. It should form part of a larger
programme of economic reform - for example, three possible reform options are:
1) implementation of a 'Central Treasury Management Unit';
2) improvement of the existing budget process; and
3) improved accuracy and availability of fiscal data - to be able to set proper macroeconomic targets.
The Central Treasury Management Unit would be given the specific mandate, in the first instance, to focus on cash
management.
It is very inefficient for the Government to simultaneously have cash-rich entities earning minimal interest rates and
cash-strapped entities incurring huge overdraft interest rates.
There needs to be a concerted effort to minimise such inefficiencies throughout Government, especially in light of our
current financial situation and the reported poor state of fiscal accounts.
The cash basis of preparing budgets allows for incomplete recording of transactions, which renders it difficult to
estimate the full cost of government operations.
This, of course, has implications for the quality of decisions made by the Ministry of Finance and the Public Service.
I am an advocate of accrual accounting because:
a) At the aggregate level, accrual-based fiscal indicators provide better information about the sustainability of fiscal
policies; provide a stronger basis for government accountability and provide a better measure of the effects of
government policies on aggregate demand; and
b) At the organisational level, accrual-based financial statements provide better measures of organisational efficiency
and effectiveness and reduce opportunities for fraud and corruption.
benefits of making the switch
The case of New Zealand is an example of the benefits to be gained from making the switch. The government of New
Zealand first produced fully accrual-based combined financial statements in 1992. By 1994, New Zealand had started
to see marked improvements in its debt-to-GDP ratio - a significant change from the prior 20-year slide in the fiscal
accounts.
Gross financial liabilities were 65 per cent of GDP in 1993; by 2005 they were 23 per cent of GDP. As such, a fiscal
surplus was recorded, and that started a trend which continues today.
What is even more noteworthy is that all commentators agree that the reforms engendered a much greater sense of
fiscal discipline throughout the public service. This is what is needed in Jamaica.
Introduction of accrual accounting is, however, not without its challenges.
The most challenging aspect is the training of accounting staff, as this method is not currently used in central
Government.
With any introduction of accrual accounting in the public sector a timeline should be worked out with a specific project
unit, along with methodology to implement it. If it is done right, the benefits to the fiscal accounts would be significant.
Don Wehby is group chief executive officer of GraceKennedy [email protected]
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Ministry of Transport, Works & Housing
JOB CATEGORIES
Ministry of Transport, Works & Housing
Accounting [7]
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Management Accountant
Information
Category:
Accounting
Description:
* Capital Projects
Technology [1]
Management [7]
Sales/Marketing
[7]
Responsible for the preparation and implementation of the Ministry’s Capital
budget (i.e. Capital A and B budgets) in accordance with the approved
ARTICLES
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corporate plan and the guidelines prescribed by the Financial Secretary as
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well as the priorities and policies of Government.
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Responsible for the contingency and cash advances received from the
Ministry of Finance and Treasury deposits.
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Qualifications:
In focus
First Degree in Accounting or Management with Accounting major or;
Equivalent Education Training and experience plus; - Government
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Accounting Level 2 Modules 1-5. Plus the new Level 3 (Diploma in
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Government Accounting);
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Eight (8) years’ experience at the Professional Accountant level
Excellent oral and written communication skills
Customer and quality focus
Analytical problem solving and decision making skills
Ability to work as a team
Time Management skills
Excellent Budgeting and cash management skills
Knowledge of GOJ Financial Regulations (FAA Act)
Skills in operating GOJ Computerised Accounting System and in the use of
Microsoft Office and its Applications
Deadline:
September 21, 2012
Contact Information
Name:
N/A
Address:
Senior Director
Human Resource Management & Administration
Ministry of Transport, Works and Housing
138h Maxfield Avenue
Kingston 10
Email:
[email protected]
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Ad Post Date:
2012-09-17
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