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CHAPTER 15 UNDERSTANDING THE ISSUES 1. GASB Statement No. 34 stipulates a new re- porting model that includes two separate, but related sets of financial statements. The first set, the fund financial statements, is similar to the current report- ing model and focuses on reporting activity as a col- lection of separate funds with both a current—work- ing capital focus using modified accrual basis of ac- counting—and government-wide statements that concentrate on the government as a whole with an economic long-term focus using full accrual basis of accounting. The value of both perspectives is the re- tention of a near cash or working capital focus on funding government with a longer term focus that measures whether such services can continue without attention to condition of all capital assets and recognition of and planning for increased expendit- ures in future periods. Capital assets and long-term liabilities are not accounted for in the governmental funds, but will be accounted for and reported in the government-wide financial statements. Thus, the “working capital” fund balance will be replaced with a long-term notion of net assets—broken into unres- tricted, restricted, and capital, net of related debt. 2. Separating activity into governmental, propriet- ary, and fiduciary funds allows for detailed reporting of resources and spending. Separating of activities also allows for a different measurement focus and basis of accounting depending on whether activities are general government or business-type activities. In addition, since the governmental activities are ac- counted for using a modified accrual basis of ac- counting in order to capture financial resource in- formation, the account groups have served to record (i.e., list) the long-term capital assets and liabilities. Proponents of this model argue that information gen- erated best serves the budget-planning process and answers questions relating to how much resources are needed to pay for the current level of services. 3. Budgets are the legal authorization to raise rev- enue, incur long-term debt, and appropriate resources. Authorized expenditures are termed ap- propriations. Budgetary totals are recorded in the general ledger as control accounts to allow for budgetary comparisons in the ledgers as well as to facilitate financial reporting of a budgetary comparis- on statement. 4. The advantage of reporting designations of the fund balance is improved communications of de- cisions made by the common council or town/village board that will impact the availability of resources for other purposes. While not restricted by external grantors or donors, these funds are internally desig- nated for specific purposes, e.g., planned pur- chases, reduction of taxes, and improvements in services. 5.
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