Loading...
HomeMy WebLinkAbout17 - BA-047 - Governmental Accounting Standard Board (GASB) Statement 34City Council Meeting May 22, 2001 Agenda Item No. 17 CITY OF NEWPORT BEACH ADMINISTRATIVE SERVICES DEPARTMENT Resource Management • Fiscal Services • M.I.S. • Revenue • Accounting May 22, 2001 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dennis C. Danner, Administrative Services Director RE: GOVERMENTAL ACCOUNTING STANDARD BOARD (GASB) STATEMENT NO. 34 RECOMMENDATION Approve a budget amendment in the amount of $40,000 to provide various clerical, accounting, and engineering valuation services related to the implementation of GASB Statement No. 34. If approved, the budget amendment will utilize General Fund, unappropriated surplus fund balance. BACKGROUND Norwalk, CT, June 10, 1999 - By unanimous vote, the Governmental Accounting Standards Board (GASB) gave the go -ahead to issue the most comprehensive governmental accounting rule ever developed. The new standard (Statement No. 34) will significantly change the way state and local governments report their finances to the public. One of the more controversial features of this new reporting model is the treatment of infrastructure assets (i.e., roads, sidewalks, bridges, piers etc). Traditionally, state and local governments have not been required to report infrastructure assets of the general government in their financial reports. The new GASB standard now requires that infrastructure assets be reported and depreciated in the financial statements of state and local governments. Although the GASB asserts that governmental infrastructure should be capitalized because it will provide valuable information to financial statement users, many finance officers disagree and question the value of this information. In either case, it is universally believed to be an expensive endeavor to accomplish. The new standard includes a requirement for state and local governments to compile historical cost infrastructure information for the last twenty years. For obvious reasons, popular focus has been on the controversial infrastructure topic but the new statement also contains many other wide sweeping financial reporting changes. GASB Statement No. 34 Page 2 For instance, the new statement expands the minimum reporting requirements to include two perspectives on the reporting on the City's financial status. The first will be to maintain the individual fund perspective utilizing the modified accrual basis of accounting that focuses on current resources and excludes long -term resources and long -term liabilities (similar to a checkbook basis of accounting). The second perspective will focus on a government -wide view, only reporting on the City's "Major" funds utilizing a full accrual basis of accounting (similar to commercial accounting standards). The two bases of accounting will create numerical differences between the individual fund statements and the government -wide statements. The reconciling differences will be explained in the notes to the financial statements. The entity wide balance sheet and income statement will also be presented in a different format with a different focus. The traditional balance sheet becomes a "Statement of Net Assets" focusing on the equity interest in capital assets and idle resources. The traditional income statement becomes a "Statement of Activities" focusing on the source of funding and level of tax support each activity receives. The new standard also includes a requirement to include a structured Management Discussion and Analysis (MD &A). The MD &A disclosures originated from an SEC compliance requirement but has now become a basic financial reporting requirement for state and local governments. The dual perspective approach, combined with a myriad of other new reporting requirements, will certainly further complicate an already complicated annual financial reporting process. REQUIRED ACTION In order to issue the City's Comprehensive Annual Financial Report (CAFR) in compliance with Generally Accepted Accounting Principles (GAAP), and ultimately receive an unqualified or clean audit opinion, the City will have to comply with the new standard. The requirements of the new statement become effective for governments in three phases based on a government's total annual revenues. Since the City's annual revenues are in excess of $100 million, the statement's effective date for the City will be fiscal years beginning after June 30, 2001. Therefore, to comply with the new standard, the City will begin accounting for new infrastructure additions and deletions effective July 1, 2001, By June 30, 2002, the City will incorporate the new expanded financial reporting elements (including government -wide statements and MD &A) into its Comprehensive Annual Financial Report (CAFR). The City will also begin the retroactive valuation of existing infrastructure in the next several months but the complete retroactive valuation data is not required until June 30, 2006, REALITY As with any new technical standard there will be much dust to settle between the technical theory and what becomes accepted practice. Since the City will be among the first phase of governments to implement this standard, we will be setting precedent for other GASB Statement No. 34 Page 3 governments and will not enjoy the benefit of hindsight from other implementers. Therefore, we believe it will be necessary to enlist the services of our auditors and other accounting professionals that are in tune with this newly developing industry practice. Although City staff will be coordinating and performing much of this implementation and asset valuation effort, we plan to utilize outside advisory assistance to discuss ideas and develop data where necessary. Therefore, we respectfully request a budget amendment in the amount of $40,000 to provide various clerical, accounting, engineering valuation and other advisory services necessary to fund this effort. Thank you for your consideration. City of Newport Beach BUDGET AMENDMENT 2000 -01 EFFECT ON BUDGETARY FUND BALANCE: Increase Revenue Estimates Increase Expenditure Appropriations AND X Transfer Budget Appropriations SOURCE: from existing budget appropriations from additional estimated revenues qx from unappropriated fund balance EXPLANATION: This budget amendment is requested to provide for the following: NO. BA- 047 AMOUNT: $40,000.00 Increase in Budgetary Fund Balance Decrease in Budgetary Fund Balance No effect on Budgetary Fund Balance To increase expenditure appropriations to prepare for the Implementation of Governmental Accounting Standard Board (GASB) Statement No. 34. ACCOUNTING ENTRY: BUDGETARY FUND BALANCE Fund Account Description 010 3605 Fund Balance REVENUE ESTIMATES (3601) Fund /Division Account Description EXPENDITURE APPROPRIATIONS (3603) Description Division Number 0650 Administrative Services. Accounting Account Number 8076 Services - Accounting Division Number Account Number Amount Debit Credit $40,000.00 $40,000.00 Division Number Account Number Division Number Account Number Automat/c System Enhy. Signed: � Fin cial proval: Administr ativ Services Director Date Signed: �7 Administrative ApproCity Manager D e v : Signed: City Council Approval: City Clerk Date