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Financial Accounting for Local and State School Systems: 2009 Edition
NCES 2009-325
June 2009

Chapter 1: Introduction

The 2009 edition of the National Center for Education Statistics (NCES) handbook Financial Accounting for State and Local School Systems reflects changes in new accounting and financial reporting guidance that have been made since the 2003 edition was released. The handbook will receive periodic updates to ensure that contemporary issues are regularly incorporated into the accounting guidance for schools. The online version will be updated as revisions are approved.

This handbook represents a national set of standards and guidance for school system accounting that incorporates guidance from the Governmental Accounting Standards Board (GASB) Statements through Statement 47. Its purpose is to help ensure that education fiscal data are reported comprehensively and uniformly. To be accountable for public funds and to assist education decisionmakers, all school financial reports need to contain the same types of financial statements for the same categories and types of funds. This revised and restructured guidance focuses on the following:

  • defining account classifications that provide meaningful financial management information for its users;
  • complying with Generally Accepted Accounting Principles (GAAP) established by GASB;
  • recognizing the changes that have taken place in technology, safety, and security; and
  • supporting federal reporting requirements.

The statutes and regulations regarding school accounting differ from state to state. These differences may require states, school districts, and schools to adapt the guidance that appears in this handbook. However, consistent practices and terminology are critical to accountability for government funds. The accounting methods used must be capable of producing financial reports that conform both with GAAP and with the legal requirements of each state, if they differ.

Guidance regarding the use and reporting of finance data can be found in the Forum Guide to Core Finance Data Elements (NFES 2007-801), produced by the National Forum on Education Statistics (2007). That publication includes a review of the federal datasets containing finance data, commonly reported finance measures, and performance indicators.

Major Changes and Chapter Highlights

This 2009 edition of the handbook maintains the general style and format of the 2003 edition. The following is a summary of the topics covered in each chapter.

Chapter 2: Financial Reporting Within a System of Education Information

This discussion of the role of the fiscal data system in education management and policymaking includes an examination of the advantages of aligning the fiscal data system with a comprehensive information system and an overview of the users of education information.

Chapter 3: Budgeting

This chapter describes budgeting methods and budget preparation, including capital budgeting. It addresses budgetary approaches and responsibilities, financial forecasting, and special budgeting practices such as multiyear construction projects.

Chapter 4: Governmental Accounting

This chapter provides descriptions of accounting systems and requirements for governmental accounting systems to provide information on internal control practices, as well as information on fund level reporting and government-wide reporting required by GASB Statement 34 and related statements.

Chapter 5: Financial Reporting

This chapter outlines the major financial statement elements and reporting requirements for governments. It includes the most significant additions and modifications in this version of the handbook.  Financial statements for governments are highlighted, particularly in regard to changes related to GASB Statement 34 and subsequent statements. The GASB statements that have been issued since the last edition of this handbook and have potentially significant impact on governmental entities are referenced in this version. These statements are as follows:

  • GASB Statement 40, Deposit and Investment Risk Disclosure—an Amendment of GASB Statement 3;
  • GASB Statement 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries;
  • GASB Statement 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans;
  • GASB Statement 44, Economic Condition Reporting: The Statistical Section—an Amendment of National Council on Governmental Accounting (NCGA) Statement 1;
  • GASB Statement 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions;
  • GASB Statement 46, Net Assets Restricted by Enabling Legislation—an Amendment of GASB Statement 34; and
  • GASB Statement 47, Accounting for Termination Benefits.

Although all of the above statements have the potential to affect the accounting and financial reporting practices of governmental entities that use this handbook as a resource, some will have particularly significant effects:

  • GASB Statement 40 will influence every governmental entity's note disclosures regarding deposit and investment risk categorizations;
  • GASB Statement 42, while not affecting every government in every year, addresses how governments deal with significant capital assets that become impaired;
  • GASB Statement 44 will affect every governmental entity that prepares a Comprehensive Annual Financial Report (CAFR). This statement has significantly changed the content and format of the statistical section of the CAFR; and
  • GASB Statement 45 will impact all governmental entities that offer postemployment benefit plans. Significant disclosure requirements, as well as potential financial statement impacts of such plans, are addressed in this statement.

In addition to these new GASB Statements, this chapter also addresses E-Rate. E-Rate is a discount available to schools and libraries for telecommunications services such as Internet access, wiring for access, and so on. Though GASB has not specifically addressed this issue, this handbook provides an overview of how E-Rate works and general guidance on its accounting and financial reporting implications.

Chapter 6: Account Classification Descriptions

This chapter provides account codes. Obsolete language has been removed and codes for technology and tuition have been expanded. Gifted and talented programs are no longer classified as special education programs, but are now part of other instructional programs. A detailed list of account code changes is presented in appendix A.

Chapter 7: Cost Accounting and Reporting for Educational Programs

Equity and accountability issues have expanded the need for cost information at school and program levels. This chapter presents cost accounting methods and examples of the use of existing data systems to provide this information.

Chapter 8: Activity Fund Guidelines

This chapter addresses the complex issues surrounding student activity funds. It defines and distinguishes activity funds and provides proper classifications. The chapter gives initial guidance for improving controls over, and for accounting for and reporting, these funds. The requirements of the most recent GASB standards are also addressed.