GASB No. 54 – “Fund Balance Reporting and Governmental Fund Type Definitions” is effective for your 2010-2011 fiscal year. GASB No. 54 clarifies the definition of fund types and requires fund balances to be classified into new categories based on the level of availability for discretionary spending. In order to have a smooth transition to the new standard, there are several steps you should take prior to June 30, 2011.
Changes to Special Revenue Fund Type
GASB No. 54 now prescribes special revenue fund reporting only for specific activities where a restricted or committed revenue source comprises a substantial portion of the fund’s resources, and are expected to continue to do so in the future. Under this definition, it is clear that most athletics funds no longer qualify for special revenue fund treatment. The Michigan Department of Education has revised the 1022 Manual to now include athletic activities as part of the general fund coding structure. Districts should review their other special revenue funds to ensure these funds continue to warrant this treatment.
In order to transition the athletics activities to the general fund, consider the following tasks:
- General ledger coding will need revision to eliminate the athletics fund and expand the general fund codes to capture these activities
- Program codes and special reports may need to be developed to provide management information on the athletics activities
- Budgets for the special revenue and general funds may need amendments to reflect this new treatment
- Opening fund balance in the general fund at July 1, 2010, may need modification to incorporate any June 30, 2010, fund balance remaining in the old collapsed funds
Fund Balance Definitions
GASB No. 54 eliminates the current use of the terms “reserved” and “designated” in the reporting of fund balance, and replaces those terms with five new categories for segregating fund balance.
Following are the new categories and related definitions to be used for describing the components of your fund balance:
- Non-spendable – Includes amounts either not in spendable form or legally or contractually required to be maintained intact. This would include inventory, prepaids, and non-current receivables.
- Restricted – Reflects the same definition as restricted net assets: constraints placed on the use of amounts are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or imposed by law through constitutional provisions or enabling legislation. This would generally include amounts in bonded capital projects funds, debt service funds, and cafeteria and center program funds funded with federal program dollars.
- Committed — Includes amounts that are committed for specific purposes by formal action of the school board. Amounts classified as “committed” are not subject to legal enforceability like restricted fund balance; however, those amounts cannot be used for any other purpose unless the board removes or changes the limitation by taking the same form of action it employed to previously impose the limitation.
- Assigned — Amounts that are intended by the district to be used for specific purposes, but are neither restricted nor limited, should be reported as assigned fund balance. Intent should be expressed by the board itself or a subordinate high-level body or official possessing the authority to assign amounts to be used for specific purposes in accordance with policy established by the board. This would include ANY activity reported in a fund other than the general fund that is not otherwise restricted more narrowly by the above definitions.
- Unassigned — Includes any remaining amounts after applying the above definitions. Planned spending in the subsequent year’s budget would be included here and can no longer be described as “designated” unless formally committed or assigned.
The Michigan Department of Education has updated the state mandated chart of accounts for 2011 to reflect the new definitions, and the district will need to modify its general ledger coding and financial reporting practices, accordingly.
You will likely want to consider what formal “commitments” your board wishes to adopt, and adopt formal board policies or budget approvals to document these decisions. Commitments or assignments of fund balance should be made prior to June 30, 2011. Board policy should also indicate what district officials, if any, are granted authority to assign fund balance.
The standard also requires disclosure in the financial statements of any minimum fund balance policies, and the purposes for restrictions, commitments, and assignments of fund balance.
We encourage the district to become familiar with the new terms and definitions and work with the users of the financial statements to ensure a clear presentation and understanding of the new requirements.