Chapter 1: Introduction
The 2014 edition of the National Center for Education Statistics (NCES) handbook Financial Accounting for State and Local School Systems reflects changes in accounting and financial reporting guidance that have been made since the 2009 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 can be found at http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2015347.
This handbook represents a national set of standards and guidance for school system accounting that incorporates relevant guidance from the Governmental Accounting Standards Board (GASB) Statements (through Statement 70). Its purpose is to help ensure that public elementary and secondary education finance 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 (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
The 2014 edition of the handbook maintains the general style and format of the 2009 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 as well as an overview of the users of school finance information.
Chapter 3: Budgeting
This chapter describes budgeting methods and budget preparation, including capital budgeting for governmental entities. It addresses budgetary approaches and responsibilities, financial forecasting, and special budgeting practices, such as those for 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 the information on fund-level reporting and government-wide reporting required by GASB Statement 34 and related statements.
Chapter 5: Financial Reporting
TThis chapter outlines the major financial statement elements and reporting requirements for governments. As in previous editions, it includes the most significant additions and modifications to financial reporting that are covered in the handbook. In particular, there are significant changes related to GASB Statement 51, Accounting and Financial Reporting for Intangible Assets; GASB Statement 54, Fund Balance Reporting and Governmental Fund Type Definitions; and GASB Statement 65, Items Previously Reported as Assets and Liabilities. These statements will have the most extensive impact on school districts of any of the GASB statements issued since the 2009 edition.
GASB has issued a significant number of new statements that have either become effective since the publication of the 2009 edition or that will become effective within the next several years. The statements with direct relevant impact on governmental entities that are referenced in this edition are as follows:
- GASB Statement 51, Accounting and Financial Reporting for Intangible Assets;
- GASB Statement 52, Land and Other Real Estate Held as Investments by Endowments;
- GASB Statement 53, Accounting and Financial Reporting for Derivative Instruments;
- GASB Statement 54, Fund Balance Reporting and Governmental Fund Type Definitions;
- GASB Statement 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments;
- GASB Statement 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards
- GASB Statement 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans.
- GASB Statement 61, The Financial Reporting Entity; Omnibus—An amendment of GASB Statements No. 14 and No. 34
- GASB Statement 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements;
- GASB Statement 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position;
- GASB Statement 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions—An Amendment of GASB Statement No. 53;
- GASB Statement 65, Items Previously Reported as Assets and Liabilities;
- GASB Statement 67, Financial Reporting for Pension Plans—An amendment of GASB Statement No. 25;
- GASB Statement 68, Accounting and Financial Reporting for Pensions—An amendment of GASB Statement No. 27;
Although all of these statements have the potential to affect the accounting and financial reporting practices of the governmental entities that use this handbook, those with the most significant effects—and which are therefore highlighted in this edition—are as follows:
- GASB Statement 51 provides definitive guidance on the accounting and financial reporting of intangible assets. Although much of the guidance simply codifies what had been generally accepted practice, it marks the first time that governmental GAAP directly addresses the specific issues of internally generated assets. (Effective for financial statements beginning after June 15, 2009.)
- GASB Statement 53 provides accounting and financial reporting guidance for governmental entities that have derivative instruments. The vast majority of governmental entities that utilize this guide as a resource will, in all likelihood, not be affected by this standard, but it should be noted as a potential resource if circumstances warrant. (Effective for financial statements after June 15, 2009.)
- GASB Statement 54 has the most significant impact on governmental entities of any of the standards identified. Any governmental entity that reports governmental funds is affected by the requirements of this standard. The primary effects are twofold. First, the official definitions of the general fund, special revenue fund, debt service fund, capital projects fund, and permanent fund have been clarified. In some cases, these changes may necessitate a change in the use of certain fund types by some governmental entities. The second, and more far-reaching, impact of this statement is the complete change in the fund balance classifications used by governmental fund types. The new approach classifies fund balance based on constraints imposed on the resources reported in governmental funds, as opposed to the historical approach of classifying fund balance based on its availability for appropriation. (Effective for financial statements beginning after June 15, 2010.)
- GASB Statement 55 codifies the governmental GAAP hierarchy within the GASB literature. While this does not change the governmental GAAP hierarchy, it is no longer referenced only within the American Institute of Certified Public Accountants (AICPA) auditing standards.
- GASB Statement 61 is primarily an update of GASB Statement 14, The Financial Reporting Entity, and modifies certain requirements for inclusion of component units in the financial reporting entity. GASB Statement 61 is required to be implemented for fiscal periods that begin after June 15, 2012, although earlier implementation is encouraged. For organizations that previously were required to be included as component units by meeting the fiscal dependency criterion, a financial benefit or burden relationship must now also exist between the primary government and the organization for it to be included as a component unit. Also, the standard slightly amends the criteria for blending component units. For component units that are blended because their governing bodies are "substantively the same," there is a further requirement that either (1) the primary government and the component unit have a financial benefit or burden relationship, or (2) management (not the elected officials) of the primary government have operational responsibility for the activities of the component unit. In addition, blending will now be required if the resources of the primary government will be used to repay all or a substantial portion of the component unit's outstanding debt.
- GASB Statement 62 simply incorporates into GASB's authoritative literature certain accounting and financial reporting guidance issued either by the Financial Accounting Standards Board (FASB) or the Accounting Principles Board or found within the Accounting Research Bulletins of the AICPA's Committee on Accounting Procedure before November 30, 1989. This furthers GASB's efforts to codify relevant governmental GAAP. As such, it has no practical effect on the accounting or financial reporting guidance contained within. It should be noted, however, that this standard allows entities to continue to apply, as does other accounting literature, post-November 30, 1989, FASB pronouncements that do not conflict with or contradict GASB pronouncements. (Effective for financial statements beginning after December 15, 2011.)
- GASB Statement 63 is required to be implemented for fiscal periods that begin after December 15, 2011. This standard provides financial reporting guidance for "deferred outflows of resources" and "deferred inflows of resources." These terms are defined as a consumption of net assets applicable to a future reporting period and an acquisition of net assets applicable to a future reporting period, respectively. These elements are reported apart from assets and liabilities and, as such, are incorporated into the components of equity. Formerly, such equity was referred to as net assets. The measure will now be referred to as "net position." Although very few transactions are subject to classification as deferred inflows or outflows by this standard, the change in equity terminology will affect all proprietary funds and government-wide activities. Likewise, GASB Statement 65 (described below) significantly affects the use of these classifications.
- GASB Statement 65 is required to be implemented for fiscal periods that begin after December 15, 2012. However, many governments nationwide are opting for early implementation of the standard to ensure reporting comparability. The statement primarily addresses the proper reporting of assets, deferred outflows of resources, liabilities, and deferred inflows of resources. The guidance substantively builds on the framework of deferred outflows of resources and deferred inflows of resources as defined in GASB Statement 63. Specifically, the statement reclassifies as deferred inflows or outflows of resources certain items that were previously reported as assets or liabilities and recognizes as outflows or inflows of resources certain items that were previously reported as assets or liabilities. As such, the standard directly impacts both fund reporting and government-wide reporting.
- GASB Statement 68 is required to be implemented for fiscal periods that begin after June 15, 2014. It is one of two recently issued statements (the other being GASB Statement 67) that update accounting and financial reporting standards for pension plans, as well as for employers that offer such plans. The standard is an update of GASB Statement 27 and will affect all state and local government entities that offer defined benefit pension plans and defined contribution pension plans. Actuarial processes, the allocation of an employer's share of a net pension liability, and various note disclosure modifications will be the main areas of impact of this statement on employer governments. This publication has historically not extensively addressed accounting and financial reporting for pensions; therefore, only the primary reporting implications will be addressed.
In addition, GASB (http://GASB.org) has issued several other statements in the past few years, but they are not expected to have a significant impact on the governmental entities that use this handbook: GASB Statement 58, Accounting and Financial Reporting for Chapter 9 Bankruptcies; GASB Statement 59, Financial Instruments Omnibus; GASB Statement 60, Accounting and Financial Reporting for Service Concession Arrangement; GASB Statement 66, Technical Corrections - 2012—An Amendment of GASB Statements No. 10 and No. 62; GASB Statement 69, Government Combinations and Disposals of Government Operations; and GASB Statement 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees.
Finally, this chapter also addresses E-Rate. E-Rate is a discount available to schools and libraries for telecommunications services such as internet access and wiring for access. Although 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. Descriptions of governmental fund types have been altered, and there are new fund balance codes to agree with the guidance from GASB Statement 54. Intangible asset codes have been added to the balance sheet accounts and object codes. 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 the 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 distinguishes different types of activity funds and provides guidance on how to classify them. 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.