Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 1 – Summary of Significant Accounting Policies
Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Fund Balances/Net Position

The Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Fund Balances/Net Position section of Note 1 describes accounting treatment for major account balances or transactions. Disclosures must reflect the nature, characteristics and level of aggregation appropriate for financial reporting in accordance with current GASB standards.

Assets 

• Cash and cash equivalents — Disclose the policy used to define cash equivalents, including the types of investments considered cash equivalents and the time to maturity.
• Investments — Disclose the accounting and valuation policies for investments, including:
  • Measurement at fair value
  • Amortized cost (if applicable)
    –AND–
  • Any exceptions permitted under GASB standards
• Inventories and prepaid items

  Note: Agencies are required to use the consumption method to report inventories and prepaid items in governmental funds. The consumption method requires reporting inventories and prepaid items as assets and deferring the recognition of expenditures until the period in which inventories and prepaid items are used or consumed.

• Current Receivables

  Note: Balances of receivables reported as accounts receivable – other revenues (GL 0238) or current other receivables (GL 0270) on the balance sheet/statement of net position may be aggregations of different components (such as balances due from vendors or customers). Provide details of significant components or different liquidity characteristics obscured by aggregation. Make the disclosure in Note 24 and include a reference to that disclosure in this note.

• Non-current Receivables

  Note: Disclose significant receivable balances not expected to be collected within one year of fiscal year-end as non-current receivables. For balances in other non-current receivables (GL 0467), provide details of the significant components obscured by aggregation. Make the disclosure in Note 24 and include a reference to that disclosure in this note.

• Restricted Assets — Describe the use of restricted assets (such as cash, investments and receivables) for proprietary fund types. Agencies must disclose the nature of the restrictions and the authority imposing those restrictions.
• Capital Assets — When reporting capital assets, the general policy for capitalizing assets and for estimating the useful lives of depreciable assets are disclosed here. Present reported infrastructure assets as a separate line item. Do not include land with infrastructure assets — instead, report it as a separate line item. Include Intangible Right-to-Use (IRTU) assets for leases and subscription-based information technology arrangements (SBITAs). Make the disclosure in Note 2 and include a reference to that disclosure in this note.

Liabilities

• Long-Term Liabilities

  Note: Do not treat rebatable arbitrage as a reduction of revenues in governmental funds — instead, treat rebatable arbitrage in the same way as any other claim or judgment. That is, there is no recognition in the governmental fund financial statements until rebatable amounts are actually due and payable to the federal government. If amounts are not reported in governmental funds, basis conversion entries are required for rebatable arbitrage.

• Current Payables

  Note: Balances of payables reported as current other liabilities (GL 1150) on the balance sheet/statement of net position may be aggregations of different components (such as balances due to vendors or customers). For balances in GL 1150, provide details of significant components obscured by aggregation. Make the disclosure in Note 24 and include a reference to that disclosure in this note.

• Non-current Payables

  Note: Disclose significant payable balances not expected to be paid within one year of fiscal year-end as non-current payables. For balances in non-current other liabilities (GL 1450), provide details of significant components obscured by aggregation. Make the disclosure in Note 24 and include a reference to that disclosure in this note.

• Employees’ Compensable Leave Balances — Agencies must apply consistent measurement and recognition policies and disclose the following policies (as applicable):
  • Annual leave
  • Overtime and compensatory leave subject to the Fair Labor Standards Act (FLSA)
  • Employee sick leave
  • Other forms of leave that meet recognition criteria under GASB 101
• Lease Obligations — Make the disclosure in Note 8 and include a reference to that disclosure in this note.
• SBITA Obligations — Make the disclosure in Note 8 and include a reference to that disclosure in this note.
• Conduit Debt Obligations — Revenue bonds issued by the agency to provide financing for a third party that is not part of the agency. The agency has no obligation for such debt beyond the resources provided by the related agreements.

  Note: Agencies must disclose:

  • A general description of the conduit debt transactions
  • Types of commitments and the aggregate outstanding principal amount of all conduit obligations that share the same type of commitments at the end of the reporting period
    –AND–
  • A clear indication that the issuer has no obligation for the debt beyond the resources provided by the related bonds.

  Make the disclosure in Note 6 and include a reference to that disclosure in this note.

Deferred Outflows and Inflows of Resources

• Deferred outflows of resources — The consumption of net position applicable to a future reporting period. Agencies must disclose the nature and source of significant deferred outflows, including those related to:
  • Pensions
  • OPEB
  • Debt refundings
  • Leases, SBITAs
  • Other applicable transactions
• Deferred inflows of resources — The acquisition of net position applicable to a future reporting period. Agencies must disclose the nature and source of significant deferred inflows, including those related to:
  • Pensions
  • OPEB, leases
  • SBITAs
  • Other applicable transactions

  Make the disclosure in Note 28 and include a reference to that disclosure in this note.

Interfund Activity and Transaction Transfers 

• Interfund activity refers to financial interaction between funds (including blended component units) and is related to internal events. 
• External transactions involve legally separate entities, including discretely presented component units and other governments.
• Reciprocal interfund (internal) activity is similar to exchange and exchange-like transactions and includes:  
  • Loans (including activity previously termed advances) – Report loans as interfund receivables and payables on the balance sheet.
  • Interfund services provided and used (interfund sales and purchases) – Report interfund sales and purchases as interfund services provided (revenues) and interfund services used (expenditures or expenses) on the operating statement.
• Nonreciprocal interfund (internal) activity is similar to non-exchange transactions or other events and includes:

  • Transfers represent a flows of assets without equivalent flows in return or a requirement for repayment. In accordance with GASB 103, a transfer is considered a subsidy when resources are provided from one fund to another without receiving goods or services in return and are intended to keep the recipient fund’s current or future fees and charges lower than they would otherwise be or to recover costs through future pricing.

    When transfers meet the definition of a subsidy:

    • In proprietary funds, they must be reported separately as subsidy revenues or subsidy expenses rather than as non-operating revenues or expenses.
    • In governmental funds, they continue to be reported as other financing sources or uses, with additional disclosure as necessary.

    Agencies must continue to report transfers that do not meet the definition of a subsidy as other financing sources or uses in governmental funds and after non-operating revenues and expenses in proprietary funds.

  • Interfund reimbursements are repayments from funds responsible for expenditures or expenses to funds that made the actual payment. Reimbursements are not displayed in the financial statements.

  Make the disclosure in Note 12 and include a reference to that disclosure in this note.

Risk

Risk Financing – Liabilities are reported when it is probable a loss occurred, and the amount of the loss can be reasonably estimated. These liabilities include an amount for claims that were incurred but not reported. In accordance with GASB 102, agencies must also evaluate and disclose risks related to concentrations or constraints that may affect the availability of resources or the ability to continue to provide services. Additional information is provided in Note 17.

Fund Balance & Net Position

• Fund Balance/Net Position – Fund balance is the difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources on the governmental fund statements. Net position is the difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources on the government-wide, proprietary and fiduciary fund statements.
• Fund Balance Components – The fund balance amounts for governmental funds were reclassified in accordance with GASB 54. For more information on GASB 54 fund balance classifications, see the Fund Balance/Net Position section of Governmental Funds under General Accounting.
  • Nonspendable fund balance includes amounts not available to be spent because they are either not in a spendable form or they are legally or contractually required to be maintained intact.
  • Restricted fund balance includes those resources that have constraints placed on their use through external parties such as creditors, grantors, contributors, laws or regulations of other governments or by law through constitutional provisions or enabling legislation.
  • Committed fund balance can be used only for specific purposes pursuant to constraints imposed through legislation passed into law by a formal action of the Texas Legislature, the state’s highest level of decision-making authority.
  • Assigned fund balance includes amounts constrained by the state’s intent to be used for specific purposes, but the constraints do not meet the requirements to be reported as restricted or committed. Intent is expressed by either the Texas Legislature or a body (for example, a budget or finance committee) or official to which the governing body has delegated the authority to assign amounts to be used for specific purposes.
  • Unassigned fund balance is the residual classification for the general fund. This classification represents fund balance that was not assigned to other funds and was not restricted, committed or assigned to specific purposes within the general fund. The general fund is the only fund that can report a positive unassigned fund balance.

Other Disclosures 

Unusual or Infrequent Items – In accordance with GASB 103, agencies must evaluate transactions and events to determine if they are unusual in nature or infrequent in occurrence. Agencies must present such items separately in the financial statements to enhance transparency and comparability. Agencies must also disclose the nature and financial effects of these items when applicable.