Reporting Requirements for Annual Financial Reports of State Agencies and Universities
Notes & Samples
NOTE 30 – Nonexchange Financial Guarantees
Sample (Illustrative, may not tie to exhibits)
Sample agency and Sample city are separate financial reporting entities in the state. Both governments have the same fiscal year-end of Aug. 31. On Sept. 1, 20X0, Sample city took a four-year, $4 million loan with a local bank and planned to use the funds for Sample city’s economic development purposes. As part of the Sample agency’s mission to assist a local government, on Oct. 1, 20X0 Sample agency extended a non-exchange financial guarantee on the loan issued by the Sample city. The debt service payments are four annual installments at the end of the fiscal year, each for $1 million and interest payment of 3.5 percent on the outstanding principal.
In fiscal 20X2, Sample city experienced financial difficulty because of a significant investment loss and the loss of a major revenue source. As a result, Sample city began to pay operating costs out of the reserve fund. On August 1, 20X2, Sample agency determined that (based on qualitative factors) it is more likely than not that the Sample agency will be required to pay all the remaining principal and interest on the loan it guaranteed. The present value of the expected future cash outflows on the guaranteed loan before the debt service payments at Aug. 31, 20X2 was $3,105,000. On Aug. 31, 20X2, Sample agency paid $1 million principal and $105,000 interest on the guaranteed loan. On Aug. 31, 20X3, Sample agency paid $1 million principal and $70,000 interest on the guaranteed loan for the city.
USAS Entries
The USAS transaction related to non-exchange financial guarantee in fiscal 20X2 and 20X3 for Sample agency are presented below, respectively. In each year, the entries are recorded for governmental fund and long-term liability basis conversion adjustment fund (FT12).
Fiscal 20X2 — Governmental Fund
| Seq No | Batch Type | Doc Type | Eff Date | Fin Agy | TC | AY | PCA | COBJ* | Amount | R | Fund | Input GL |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| To Recognize Grant Expenditure and Liability on the Financial Guarantee | ||||||||||||
| (1) | 5 | U | 0801CY | XXX | 632 | CY | 99999 | 7XXX | $ 1,105,000.00 | XXXX | 1XXX** | |
| To Record the Annual Payment of Principal and Interest on the Financial Guarantee | ||||||||||||
| (2) | 4 | 9 | 0831CY | XXX | 225*** | CY | XXXXX | 7XXX | $ 1,105,000.00 | XXXX | N/A | |
| To Reverse the Grant Expenditure and Liability Recorded in Seq No (1) After the Entry in Seq No (2) | ||||||||||||
| (3) | 5 | U | 0831CY | XXX | 632 | CY | 99999 | 7XXX | $ 1,105,000.00 | R | XXXX | 1XXX** |
* Use COBJ 7611 – Payments/grants to cities. For more information on expenditure COBJs, see Expenditure Codes in the Texas Comptroller Manual of Accounts ** To record a liability for a financial guarantee, contact your financial reporting analyst for the GL code. *** Assume T-code 225 liquidates in the current fiscal year with generated T-code 380. If the payable does not liquidate in the current fiscal year, reclassify GL 1009 in the current fiscal year and reverse the reclassification in the following fiscal year. |
||||||||||||
Accounting effect of above entries:
| Debit | Credit | ||
|---|---|---|---|
| (1) | To Recognize Grant Expenditure and Liability on the Financial Guarantee | ||
| 5600 GAAP Expenditure Offset | $1,105,000.00 | ||
| 1XXX Liability for Financial Guarantee | $1,105,000.00 | ||
| (2) | To Record the Annual Payment of Principal and Interest on the Financial Guarantee | ||
| 5501 Expenditure Control – Accrued | $1,105,000.00 | ||
| 1009 Vouchers Payable | $1,105,000.00 | ||
| (3) | To Reverse the Grant Expenditure and Liability Recorded in Seq No (1) After the Entry in Seq No (2) | ||
| 1XXX Liability for Financial Guarantee | $1,105,000.00 | ||
| 5600 GAAP Expenditure Offset | $1,105,000.00 |
Fiscal 20X2 — LT Liability Basis Conversion Adjustment Fund (FT12)
| Seq No | Batch Type | Doc Type | Eff Date | Fin Agy | TC | AY | PCA | COBJ* | Amount | R | Fund | Input GL** |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| To Recognize Grant Expense and LT Liability on the Financial Guarantee (LT liability is measured at the present value of future cash outflows on the guarantee) | ||||||||||||
| (1) | 5 | U | 0801X2 | XXX | 502 | CY | 99999 | 7XXX | $ 2,000,000.00 | XXXX | 1XXX | |
* Use COBJ 7611 – Payments/grants to cities. For more information on expenditure COBJs, see Expenditure Codes in the Texas Comptroller Manual of Accounts ** To record a liability for a financial guarantee, contact your financial reporting analyst for the GL code. |
||||||||||||
Accounting effect of above entry:
| Debit | Credit | ||
|---|---|---|---|
| (1) | To Recognize Grant Expense and LT Liability | ||
| 5650 BC Expenditure Control | $2,000,000.00 | ||
| 1XXX LT Liability for Financial Guarantee | $2,000,000.00 |
Fiscal 20X3 — Governmental Fund
| Seq No | Batch Type | Doc Type | Eff Date | Fin Agy | TC** | AY | PCA | COBJ* | Amount | R | Fund | Input GL |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| To Record the Annual Payment of Principal and Interest on the Financial Guarantee | ||||||||||||
| (1) | 4 | 9 | 0831X3 | XXX | 225** | CY | XXXXX | 7XXX | $ 1,070,000.00 | XXXX | N/A | |
* Use COBJ 7611 – Payments/grants to cities. For more information on expenditure COBJs, see Expenditure Codes in the Texas Comptroller Manual of Accounts ** Assume T-code 225 liquidates in the current fiscal year with generated T-code 380. If the payable does not liquidate in the current fiscal year, reclassify GL 1009 (see example for 20X2) in the current fiscal year and reverse the reclassification in the following fiscal year. |
||||||||||||
Accounting effect of above entry:
| Debit | Credit | ||
|---|---|---|---|
| (1) | To Record the Annual Payment of Principal and Interest on the Financial Guarantee | ||
| 5501 Expenditure Control – Accrued | $1,070,000.00 | ||
| 1009 Vouchers Payable | $1,070,000.00 |
Fiscal 20X3 — LT Liability Basis Conversion Adjustment Fund (FT12)
| Seq No | Batch Type | Doc Type | Eff Date | Fin Agy | TC | AY | PCA | COBJ* | Amount | R | Fund | Input GL** |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| To Reduce the Present Value of the Financial Guarantee by the Amount of Principal Paid | ||||||||||||
| (1) | 5 | U | 0831X3 | XXX | 503 | CY | 99999 | 7XXX | $ 1,000,000.00 | XXXX | 1XXX | |
* Use COBJ 7611 – Payments/grants to cities. For more information on expenditure COBJs, see Expenditure Codes in the Texas Comptroller Manual of Accounts ** To record a liability for a financial guarantee, contact your financial reporting analyst for the GL code. |
||||||||||||
Accounting effect of above entry:
| Debit | Credit | ||
|---|---|---|---|
| (1) | To Reduce the Present Value of the Financial Guarantee by the Amount of Principal Paid | ||
| 1XXX LT Liability for Financial Guarantee | $1,000,000.00 | ||
| 5650 BC Expenditure Control | $1,000,000.00 |
Note Disclosures
Note disclosures related to the non-exchange financial guarantee of Sample agency for fiscal years 20X1 through 20X3 are presented below.
Sample for Fiscal 20X1
On Oct. 20X0, Sample agency guaranteed a four year, $4 million loan issued by Sample city, a legally separate reporting entity of the state, in accordance with the Clean School Act. The loan is due and payable in annual installments at the end of each fiscal year through Aug. 31, 20X4 with interest rate of 3.5 percent on outstanding principal. In the event that Sample city is unable to make a payment, Sample agency is required to make that payment based on the loan guarantee. There are no requirements for the Sample city to repay the agency if payments are made as a result of the guarantee.
Sample for Fiscal 20X2
On Oct. 20X0, Sample agency guaranteed a four year, $4 million loan issued by Sample city, a legally separate reporting entity of the state, in accordance with the Clean School Act. The loan is due and payable in annual installments at the end of each fiscal year through Aug. 31, 20X4 with interest rate of 3.5 percent on outstanding principal. In the event that Sample city is unable to make a payment, Sample agency is required to make that payment based on the loan guarantee. There are no requirements for the Sample city to repay the Sample agency if payments are made as a result of the guarantee.
As a result of a significant investment loss and the loss of a major revenue source for the Sample city in fiscal 20X2, Sample agency determined on Aug.1, 20X2 that it is more likely than not that the Sample agency will be required to make the remaining debt service payments for the Sample city based on the guarantee. The amount of the liability recognized is the present value of the future cash outflows expected to be incurred resulting from the guarantee. The present value of the expected future cash outflows on the guaranteed loan before the debt service payments at Aug. 31, 20X2 was $3,105,000. Sample agency made the first payment of $1 million in principal and $105,000 in interest on Aug. 31, 20X2.
Sample agency recognizes the changes in liability during fiscal 20X2 and the liability at Aug. 31, 20X2 related to the non-exchange financial guarantee as presented below:
| Balance 9/1/X1 | Adjustments | Increases | Decreases | Balance 8/31/X2 |
|---|---|---|---|---|
| $0.00 | $0.00 | $3,105,000.00 | $1,105,000.00 | $2,000,000.00 |
Sample for Fiscal 20X3
On Oct. 20X0, Sample agency guaranteed a four year, $4 million loan issued by Sample city, a legally separate reporting entity of the state, in accordance with the Clean School Act. The loan is due and payable in annual installments at the end of each fiscal year through Aug. 31, 20X4 with interest rate of 3.5 percent on outstanding principal. In the event that Sample city is unable to make a payment, Sample agency is required to make that payment based on the loan guarantee. There are no requirements for the Sample city to repay the Sample agency if payments are made as a result of the guarantee.
As a result of a significant investment loss and the loss of a major revenue source for the Sample city in fiscal 20X2, Sample agency determined on Aug. 1, 20X2 that it is more likely than not that the Sample agency will be required to make the remaining debt service payments for the Sample city based on the guarantee. The amount of the liability recognized is the present value of the future cash outflows expected to be incurred resulting from the guarantee. Sample agency began making payments on Aug. 31, 20X2. Sample agency has paid $2 million in principal and $175,000.00 in interest through Aug. 31, 20X3.
Sample agency recognizes the changes in liability during fiscal 20X3 and the liability at Aug. 31, 20X3 related to the non-exchange financial guarantee as presented below:
| Balance 9/1/X2 | Adjustments | Increases | Decreases | Balance 8/31/X3 |
|---|---|---|---|---|
| $2,000,000.00 | $0.00 | $0.00 | $1,000,000.00 | $1,000,000.00 |