Fund balance reporting has always been a complex and confusing task. It becomes even more so when funds are classified in a number of ways. Monies in the fund balance can be temporarily restricted, permanently restricted, or unrestricted. Determining which category to slot them in is the tricky part.
Thanks to a Statement issued by the Governmental Accounting Standards Board, the guidelines and definitions for each category have become easier to interpret. The Statement spells out the new definitions and groups the funds based on their spending restrictions. It also calls for new disclosure about how the amounts are classified.
GASB project manager Ken Schermann spoke of the change saying “The standards that governed the fund balance in the old model were subject to inconsistent application and different interpretation of terminology, so what readers thought they were seeing in fund balance classifications may not have been the case, depending on different application or interpretation or definition of the terms in those classification categories”.
Four previously vague definitions have been clarified. “Restricted” amounts include those set by external parties, constitution, or legislation. “Committed” amounts include those determined by a formal action of the government’s highest level of decision-making authority. “Assigned” amounts are set aside for specific governmental purposes, but do not fit the criteria of restricted or committed. “Unassigned” amounts include all spendable amounts not contained in the other classifications.
These new classifications should enhance the consistency between information reported in the government-wide statements and information in the governmental fund financial statements. The new definitions will increase confidence and reduce uncertainty related to fund type classifications.
The Statement goes into effect June 16, 2010. Governmental entities with questions should contact their local CPA or Auditor to begin the implementation process.
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Yes, it is true that fund balance reporting has always been a daunting task. There is a need to interpret every category of funds and determine which amounts should be labeled as needed by the organization. Hence, the Statement issued by the Governmental Accounting Standards Board is a huge help for accountants.
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