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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 1 – Summary of Significant Accounting Policies
Sample (Illustrative, may not tie to exhibits)

Entity

Sample Agency is an agency of the state of Texas and its financial records comply with state statutes and regulations. This includes compliance with the Texas Comptroller of Public Accounts’ Reporting Requirements for Annual Financial Reports of State Agencies and Universities.

Sample Agency serves the state by (description of functions provided by the agency).

Sample Agency includes within this report all components as determined by an analysis of their relationship to Sample Agency as listed below (if any).

Due to the statewide requirements embedded in GASB Statement No. 34, Basic Financial Statements — and Management’s Discussion and Analysis — for State and Local Governments, the Comptroller of Public Accounts does not require the accompanying annual financial report to comply with all the requirements in this statement. The financial report is considered for audit by the state auditor as part of the audit of the state’s Comprehensive Annual Financial Report (CAFR); therefore, an opinion has not been expressed on the financial statements and related information contained in this report.

Note: The above paragraph is different for those agencies with audited reports.

Blended Component Units

Sample Agency does not have any blended component units.

Discretely Presented Component Units

Sample Agency has one discrete component unit. Information on the component unit can be found in Note 19.

Or click on the headings below to open a topic individually.

Fund Structure [+]

The accompanying financial statements are presented on the basis of funds, each of which is considered a separate accounting entity.

Note: Please describe ALL funds applicable to the agency.

Governmental Fund Types and Government-wide Adjustment Fund Types

General Revenue Funds

The general revenue fund (appropriated fund 0001) is used to account for all financial resources of the state except those required to be accounted for in another fund.

The state parks fund (appropriated fund XXXX) is used to receive and account for revenue from grants or operation of concessions in state parks, fishing publications on state parks, state historic sites or state scientific areas and from other sources provided by law.

The (name of fund) local fund (appropriated fund 9999) is used to record the financial activity of the conference account that is maintained by the International Association of Workforce Professionals – Texas Chapter. The conference is co-hosted with the agency.

The (name of fund) local fund (appropriated fund 9999) is used to account for the agency’s operations and derives its financing from license fees, penalty fees and interest revenues.

Special Revenue Funds

The state highway fund is a main operating fund and is reported in the following accounts/sub-funds:

  • The state highway fund accounts (appropriated fund XXXX) contain the activity related to public road construction, maintenance and monitoring of the state’s highway system. The significant ongoing revenue sources are constitutionally restricted and dedicated to the highway fund and include:
    • federal revenues
    • motor fuels taxes
    • other oil and gas taxes
  • The state infrastructure bank fund (appropriated fund XXXX) operates as a revolving loan program that makes loans to public and private entities to encourage the development of transportation projects and facilities.

For GAAP reporting purposes, these accounts/sub-funds are consolidated into the state highway fund.

Debt Service Funds

The Texas Water Development Board bond fund (appropriated fund XXXX) receives proceeds to pay debt service on the bonds issued for the purpose of providing financial assistance for the construction of water and wastewater related projects, water supply and sewer services.

Capital Project Funds

The capital projects fund (appropriated fund XXXX) receives proceeds from the sale of bonds (except accrued interest) and investment earnings. Sample Agency uses these proceeds to pay the cost of issuance and project costs for which the bonds were issued.

Permanent Funds

The Texas permanent school fund (appropriated fund XXXX) was created with a $2 million appropriation by the Legislature of 1854 expressly to fund public education for present and future generations.

Capital Assets Adjustment Fund Type

The capital assets adjustment fund (appropriated fund XXXX) is used to convert governmental fund types’ capital assets from modified accrual to full accrual basis.

Long-Term Liabilities Adjustment Fund Type

The long-term liabilities adjustment fund (appropriated fund XXXX) is used to convert governmental fund types’ debt from modified accrual to full accrual basis.

Other Adjustment Fund Type

The other adjustment fund type (appropriated fund XXXX) is used to convert all other governmental fund type activity from modified accrual to full accrual basis. Sample agency uses this column to convert FHWA deferred inflows of resources (that are earned but not available within 60 days of fiscal year-end) under modified accrual basis to revenue under full accrual basis.

Proprietary Fund Types

Enterprise Funds

Sample Agency accounts for its proprietary activities in two separate funds, as discussed below.

The lottery fund (appropriated fund XXXX) is used to record all transactions related to the operation of the state lottery.

The lotto prize trust fund (appropriated fund XXXX) is used to account for investments purchased by Sample Agency to meet future installment obligations to prize winners.

Internal Service Funds

The employees life, accident, and health insurance and benefits (appropriated fund XXXX) accounts for the services provided to agencies and institutions of higher education that participate in the Texas employees group benefits program established by Texas Insurance Code, Chapter 1551.

Fiduciary Fund Types

Pension Trust Funds

The Employees Retirement System fund (appropriated fund XXXX) was established by Texas Government Code, Title 8, Subtitle B, and is used to account for the accumulation of resources for pension benefit payments to qualified state employees or beneficiaries.

The law enforcement and custodial officer supplemental retirement fund (appropriated fund XXXX) was established by Texas Government Code, Title 8, Subtitle B, and is used to account for the payments of benefits as provided by the Commissioned Law Enforcement and Custodial Officer Supplemental Retirement Benefit Act.

External Investment Trust Funds

The Texas local government investment pool trust (appropriated fund XXXX) is a local government investment pool. The investor base consists of cities, counties, school districts, institutions of higher education, special districts and other public entities of Texas.

Agency Funds

The student trust fund (appropriated fund XXXX) is funded by gifts to benefit of the blind and visually impaired.

The unappropriated receipts (appropriated fund XXXX) accounts for member contributions received from the judicial retirement system plan one fund.

The Texa$aver 401(k) trust (appropriated fund XXXX) accounts for tax-deferred portions of salaries of state employees in accordance with the provisions of IRC, Section 401(k).

Private-Purpose Trust Fund

The tobacco settlement permanent trust (appropriated fund XXXX) holds the portion of the tobacco settlement money designated for the exclusive benefit of political subdivisions.

The catastrophe reserve trust (appropriated fund XXXX) is a state fund created to provide relief to insurance companies within the state in the event of certain catastrophic losses. Certain property insurers authorized to transact property insurance in Texas make payments to the fund.

Component Units

The funds of the individual discrete component units are available from the component units’ separately issued financial statements. Additional information about component units can be found in Note 19.

Basis of Accounting

The basis of accounting determines when revenues and expenditures or expenses are recognized in the accounts reported in the financial statements. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus.

Governmental fund types are accounted for using the modified accrual basis of accounting. Under the modified accrual basis, revenues are recognized in the period that they become both measurable and available to finance operations of the fiscal year or liquidate liabilities existing at fiscal year-end.

The state of Texas considers receivables collected within 60 days after fiscal year-end to be available and recognizes them as revenues of the current year for fund financial statements prepared on the modified accrual basis. Expenditures and other uses of financial resources are recognized when the related liability is incurred.

Basis conversion adjustment fund types convert modified accrued basis to full accrued basis of accounting. The following activities are recognized in these fund types:

  • Capital assets
  • Accumulated depreciation
  • Unpaid employee compensable leave
  • The outstanding debt service principal on long-term liabilities
  • Capital leases
  • Long-term claims and judgments
  • Full accrual revenues and expenses
  • Pension amounts in governmental activities

Proprietary fund types (enterprise funds and internal service fund) and fiduciary fund types (pension and other employee benefit trust funds, external investment trust funds and private-purpose trust funds) except agency funds are accounted for on the full accrual basis of accounting. Under the full accrual basis of accounting, revenues are recognized when earned and expenses are recognized at the time liabilities are incurred.

Proprietary funds distinguish operating from non-operating items. Operating revenues and expenses result from providing services or producing and delivering goods in connection with the proprietary funds' principal ongoing operations. Operating expenses for the enterprise and internal services funds include the cost of sales and services, administrative expenses and depreciation on capital assets.

Budget and Budgetary Accounting

The budget is prepared biennially and represents appropriations authorized by the Legislature and approved by the governor (the General Appropriations Act).

Unencumbered appropriations are generally subject to lapse 60 days after fiscal year-end for which they were appropriated.

Assets, Liabilities and Fund Balances/Net Position [+]

Assets

Cash and Cash Equivalents

Short-term highly liquid investments with an original maturity of three months or less are considered cash equivalents.

Securities Lending Collateral

Investments are generally stated at fair value with certain exceptions in accordance with GASB Statement No. 72 Fair Value Measurement and Application.

Invested security lending collaterals are measured at fair value.

Securities lent are reported as assets on the balance sheet. The costs of securities lending transactions are reported as expenditures or expenses on the operating statement. These costs are reported at gross.

Restricted Assets

Restricted assets include monies or other resources restricted by legal or contractual requirements. These assets include proceeds of enterprise fund general obligation and revenue bonds and revenues set aside for statutory or contractual requirements.

Inventories and Prepaid Items

Inventories include both merchandise inventories on hand for sale and consumable inventories. Inventories are valued at cost, generally using the last-in, first-out method. The consumption method of accounting is used to account for inventories and prepaid items that appear in the governmental and proprietary fund types. The cost of these items is expensed when the items are used or consumed.

Capital Assets

Assets that meet the reporting threshold and useful life are capitalized. The capitalization threshold and the estimated useful life vary depending on the asset type. These assets are capitalized at cost or, if purchased, at appraised fair value as of the date of acquisition. Purchases of assets by governmental funds are reported as expenditures. Depreciation is reported on all “exhaustible” assets. “Inexhaustible” assets (such as works of art and historical treasures) are not depreciated. Road and highway infrastructure is depreciated over the estimate of average useful live of a grouping of assets using composite method. Other depreciable assets are depreciated over the estimated useful life of the asset using the straight-line method.

All capital assets acquired by proprietary funds or trust funds are reported at cost or estimated historical cost if actual historical cost is not available. Donated capital assets are reported at acquisition value. Depreciation is charged to operations over the estimated useful life of each asset using the straight-line method.

Other Receivables – Current and Noncurrent

The disaggregation of other receivables as reported in the financial statements is disclosed in Note 24.

Liabilities

Accounts Payable

Accounts payable represents the liability for the value of assets or services received at the balance sheet date for which payment is pending.

Other Payables – Current and Noncurrent

The disaggregation of other payables as reported in the financial statements is disclosed in Note 24.

Employees’ Compensable Leave Balances

Employees’ compensable leave balances represent the liability that becomes “due” upon the occurrence of relevant events such as resignations, retirements and uses of leave balances by covered employees. Liabilities are reported separately as either current or noncurrent in the statement of net position. These obligations are normally paid from the same funding source from which each employee’s salary or wage compensation was paid.

Capital Lease Obligations

Capital lease obligations represent the liability for future lease payments under capital lease contracts contingent upon the appropriation of funding by the Legislature. Liabilities are reported separately as either current or noncurrent in the statement of net position.

Bonds Payable – General Obligation Bonds

General obligation bonds are accounted for in the long-term liabilities adjustment column for governmental activities and in proprietary funds for business-type activities. These payables are reported as current portion (amounts due within one year) and non-current portion (amounts due thereafter) of long-term liabilities in the statement of net position. The bonds are reported at par, net of unamortized premiums, discounts and gains/(losses) on bond refunding activities.

For governmental activities, bond proceeds are accounted for when received as an “other financing source” in the governmental fund receiving the proceeds. Payment of principal and interest is an expenditure recorded in the debt service fund. All bond transactions and balances for business-type activities are reported in proprietary funds.

Note: If the agency issues deep discount bonds the following disclosure is needed:

Deep discount bonds (zero coupon, capital appreciation or compound interest bonds) do not pay interest until the maturity of related principal. Bonds are initially reported at the “discounted” value. Accretion (the difference between the discounted value and the par [maturity] value of the bonds payable) is amortized over the life of the bond issue so that, at maturity, accretion is fully amortized and the discounted bond value equals par value. Annual accretion amortized is recognized as an addition to bonds payable.

Bonds Payable – Revenue Bonds

Revenue bonds are accounted for in proprietary funds for business-type activities and in the long-term liabilities adjustment column for governmental activities. These payables are reported as current portion (amounts due within one year) and non-current portion (amounts due thereafter) of long-term liabilities in the statement of net position. The bonds are reported at par, net of unamortized premiums, discounts and gains/(losses) on bond refunding activities.

For governmental activities, bond proceeds are accounted for when received as an “other financing source” in the governmental fund receiving the proceeds. Payment of principal and interest is an expenditure recorded in the debt service fund. All bond transactions and balances for business-type activities are reported in proprietary funds.

Note: If the agency issues deep discount bonds, the disclosure cited for general obligation bonds is needed.

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.

Sample Agency uses resources in the following order:

  • When both restricted and unrestricted resources are available, use:
    1. restricted resources
    2. unrestricted resources (as they are needed)
  • When only unrestricted resources are available for use in governmental funds, use:
    1. committed resources
    2. assigned resources
    3. unassigned resources

Fund Balance Components

Fund balances for governmental funds are classified as nonspendable, restricted, committed, assigned or unassigned in the fund financial statements.

  • Nonspendable fund balance includes amounts not available to be spent because they are either:
    • Not in spendable form
    • 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
    • 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 restricted, committed or assigned to specific purposes within the general fund.

Net Investment In Capital Assets

Net investment in capital assets, consists of capital assets, net of accumulated depreciation and reduced by outstanding balances for bond, notes and other debt that are attributed to the acquisition, construction or improvement of those assets.

Restricted Net Position

Restricted net position results when constraints placed on net resources are either externally imposed by creditors, grantors, contributors and the like or imposed by law through constitutional provisions or enabling legislation.

Unrestricted Net Position

Unrestricted net position consists of net resources that do not meet the definition of the two preceding categories. Unrestricted net position often has constraints on resources that are imposed by management but can be removed or modified.

Interfund Activities and Transactions [+]

The agency has the following types of transactions between funds:

  1. Transfers – Legally required transfers that are reported when incurred as “transfers in” by the recipient fund and as “transfers out” by the disbursing fund.
  2. Reimbursements – Reimbursements are repayments from funds responsible for expenditures or expenses to funds that made the actual payment. Reimbursements of expenditures made by one fund for another that are recorded as expenditures in the reimbursing fund and as a reduction of expenditures in the reimbursed fund. Reimbursements are not displayed in the financial statements.
  3. Interfund receivables and payables – Interfund loans are reported as interfund receivables and payables. If repayment is due during the current year or soon thereafter, the balance is classified as “current.” Balances for repayment due in two (or more) years are classified as “noncurrent.”
  4. Interfund Sales and Purchases – Charges or collections for services rendered by one fund to another that are recorded as revenues of the recipient fund (interfund services provided) and expenditures or expenses of the disbursing fund (interfund services used).

    The composition of the agency’s interfund activities and transactions are presented in Note 12.

Glenn Hegar
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.texas.gov
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