1.2 Basis of Accounting - GAAP and Budgetary Reporting
(Last Modified on February 25, 2016)
Basis of accounting refers to when revenues, expenses, and related assets, deferred outflows of resources, liabilities, and deferred inflows of resources are recognized in the accounts and reported in the financial statements. Specifically, it relates to the timing of the measurements made, regardless of the measurement focus applied.
1.2.1 GAAP Reporting
(Last Modified on August 8, 2019)
GASB Statement No. 34, Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Governments, and 35, Basic Financial Statements-and Management’s Discussion and Analysis-for Public Colleges and Universities, requires that colleges and universities that report as Business Type Activities (BTAs) present financial statements using the economic resources measurement focus and the accrual basis of accounting.
Revenues, expenses, gains, losses, assets, deferred outflows of resources, liabilities, and deferred inflows of resources resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets, deferred outflows of resources, liabilities, and deferred inflows of resources resulting from non-exchange activities are generally recognized when all applicable eligibility requirements, including time requirements, are met.
Fiduciary Fund Types:
In January 2017, the Government Accounting Standards Board (GASB) issued Statement No. 84, Fiduciary Activities, which identified four types of fiduciary funds: (1) pension trust funds; (2) investment trust funds; (3) private-purpose trust funds, and (4) custodial funds. The USG reports two fiduciary fund types, pension trust funds and custodial funds. Pension trust funds are used to accumulate resources to fund pension and other post-employment (OPEB) plans. The Board of Regents Retiree Health Benefit Fund, Augusta University’s Early Retirement Plan and the Deferred Compensation Plan are reported as pension trust funds. Custodial funds make up the remainder of fiduciary funds reported by the USG. Custodial funds are received and administered for others and generally include club accounts, student organizational accounts and scholarship accounts. These funds are reported in the fiduciary fund financial statements using the economic resources measurement focus and the accrual basis of accounting.
Elements of Financial Statements:
In GASB Concepts Statement No. 4, Elements of Financial Statements, the GASB has identified and defined seven elements as the fundamental components of financial statements of state and local governments:
1. Assets – Resources with a present service capacity that the government presently controls
2. Deferred outflows of resources –A consumption of net assets that is applicable to a future reporting period
3. Liabilities – Present obligations to sacrifice resources that the government has little or no discretion to avoid
4. Deferred inflows of resources – An acquisition of net assets that is applicable to a future reporting period
5. Net position – The residual of all other elements presented in a statement of financial position (assets + deferred outflows – liabilities – deferred inflows = net position)
6. Outflow of resources – A consumption of net assets by the government that is applicable to the reporting period (includes expenditures, expenses, losses, etc.)
7. Inflow of resources – An acquisition of net assets by the government that is applicable to the reporting period (includes revenues, receipts, gains, etc.)
1.2.2 Budgetary Reporting
(Last Modified on August 7, 2019)
The State of Georgia’s statutory basis of accounting/Budgetary Compliance Reporting (BCR) is a comprehensive basis of accounting other than GAAP.
USG presents its BCR statements using the statutory basis of accounting that is substantially the same as the accrual basis of accounting, with the following major exceptions:
- Receivables and revenues of State appropriations are recorded when appropriations are allotted to the budget units by the Office of the State Treasurer.
- For expenditure-driven funding arrangements (grants, sales and services), receivables and revenues are recorded when qualifying statutory-basis expenditures are recorded or when services have been provided.*
- All other revenues may be recorded when received in cash in accordance with SAO policy or accrued if intended to cover current operating costs.
- Liabilities and expenditures are recorded when purchase orders or other contractual obligations to procure goods or services have been executed.*
- Expenditures for items not requiring purchase orders are recorded when the goods or services are received. However, institutions may record these expenditures when presented for payment as long as the application of this method is applied consistently and the appropriate number of occurrences is reflected each year. For example, an institution may record utility invoices one month in arrears, provided that 12 (and only 12) monthly utility invoices are recorded per fiscal year.
- Prior period adjustments and certain other items are reported as additions to and deductions from beginning fund balances.
* Restricted Funds do not report encumbrances as expenditures.
The laws of the State of Georgia require that certain funds appropriated for a specific fiscal year must be “expended or obligated” in that fiscal year, or “lapse” and be returned to the state treasury to be available for future appropriations.
“Obligated” funds are commonly referred to as encumbrances – meaning the institution has issued a purchase order for goods and services or has signed a contract. Although encumbrances are not expenses for GAAP purposes, they represent an expense of the institution for that particular budget year, and therefore represent an expense for the State of Georgia’s statutory basis of accounting/ Budgetary Compliance Reporting (BCR).
Surplus (Lapse) – Unless eligible to be kept as reserves, current funds that are not contractually obligated (not encumbered) and prior year funds that are unencumbered lapse and must be returned to the Office of the State Treasury as a portion of surplus. Each institution returns its surplus funds to the University System Office (USO) and the USO returns these funds to the Office of the State Treasury.
The fund groups that are included in accordance with the State of Georgia statutory basis of accounting/Budgetary Compliance Reporting (BCR) and having funds subject to lapsing are:
- 10xxx Educational and General
- 11xxx Other Organized Activities
- 50000 Unexpended Plant
Encumbrances for Statutory Basis of Accounting/Budgetary Compliance Reporting
Required Information for Valid Encumbrance (Obligation)
A valid encumbrance should be supported by the following information:
- Confirmed Vendor
- Specific Project/Services/Goods
- Specific Price for Project/Services/Goods
- State Time or Range of Time for Delivery/Completion
Documentation of this type should be available from appropriately executed purchase orders, contracts, etc. The presence of these conditions correspond to the elements of an enforceable contract in that they support the concept of mutual assent, this is, the parties have agreed on the specific product or service at the given price and time.
The rules for managing prior year purchase orders issued from Funds 10xxx, Funds 11xxx, and Fund 50000: (for managing surplus).
- Purchase orders issued and encumbered in a previous fiscal year that are paid in the following fiscal year for exactly the encumbered amount have no effect on “surplus”.
- Purchase orders issued and encumbered in a previous fiscal year that are paid (as final payment with PO closed) for an amount less than the encumbered amount will contribute the difference between original encumbrance amount and payment amount to “surplus”. No journal entry or other action is required, since the “surplus” amount to be returned to the state treasury is already in the appropriate net asset account due to the previous fiscal year being closed using GAAP/GASB closing rules. GAAP/GASB closing rules do not expense encumbrances.
- Purchase orders issued and encumbered in a previous fiscal year that need to be paid for an amount greater than the encumbered amount should have the excess amount charged to the current budget period. The original encumbered amount may be paid against the original budget period. The excess amount should be paid against the current budget period
- If a vendor cannot supply the item(s) ordered:
- An institution that does not desire to reissue the purchase order to a new vendor can simply cancel the purchase order. The entire purchase order amount will become surplus.
- Purchase orders issued and encumbered in a previous fiscal year that are cancelled in a subsequent fiscal year may be reissued to a different vendor for similar goods and services (like and kind) in an amount not to exceed the original purchase order amount. The reissued purchase order must reflect the budget period of the original purchase order. If the reissued purchase order is less than the original purchase order amount, the difference will increase “surplus”.
Other laws of the State of Georgia allow year-end fund balances for certain funds to be exempt from state law concerning lapsable funds. The fund groups that are audited in accordance with State of Georgia statutory basis of accounting/Budgetary Compliance Reporting (BCR) but are exempt from lapsing due to state law are:
- 14000 Departmental Sales and Services Revenues and Expenditures
- 15000 Indirect Cost Recovery and Administrative Cost Allowance Revenues and Expenditures
- 16000 Technology Fee Revenues and Expenditures
Other laws of the State of Georgia allow year-end fund balance in fund 10500 Tuition to be exempt from the state law concerning lapsable funds up to a threshold of 3% of current year tuition revenues.
In addition to the fund groups indicated above, another set of restricted funds are audited within the context of BCR to report expenditures in relation to approved budget values. However, these fund groups are not subject to having funds lapse. These restricted fund groups are:
- 20000 Restricted Educational and General
- 21xxx Restricted Other Organized Activities