Statement No. 11
Measurement Focus and Basis of Accounting—Governmental Fund Operating Statements
This Statement is fundamental to the Board's overall reexamination of governmental accounting and financial reporting. It establishes measurement focus and basis of accounting standards for governmental and expendable trust fund operating statements. This Statement establishes basic principles that are needed to develop the guidance in other projects, especially certain expenditure recognition and measurement standards that will be implemented at the same time as this Statement; it also provides specific guidance for many governmental fund transactions, primarily revenues. This Statement provides guidance for balance sheet reporting of general long-term capital debt-liabilities resulting from capital asset acquisitions or debt financing of certain nonrecurring projects or activities that have long-term economic benefit. This Statement does not, however, provide guidance for balance sheet reporting of debt issued to finance operations or deficits (operating debt) or the long-term liabilities arising from the accrual of governmental fund expenditures. That guidance will be provided in a subsequent Statement on financial reporting, which also will be implemented at the same time as this Statement.
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Measurement focus refers to what is expressed in reporting an entity's financial performance and position. A particular measurement focus is accomplished by considering which resources are measured and when the effects of transactions and events involving those resources are recognized. When effects are recognized is referred to as the basis of accounting.
The measurement focus for governmental fund operating statements should be the flow of financial resources measurement focus. The operating results expressed using this measurement focus show the extent to which financial resources obtained during a period are sufficient to cover claims incurred during that period against financial resources. This measurement focus considers financial resources only and uses an accrual basis of accounting.
The flow of financial resources measurement focus for governmental fund operating statements is responsive to the governmental environment and the needs of users of governmental financial reports. This measurement focus is based on the concept of accountability, which includes measuring interperiod equity-whether current-year revenues were sufficient to pay for current-year services. It also considers the performance goals and measures of governmental-type activities, the intent and effect of budgets and other financial controls, and the use of fund accounting to achieve and demonstrate legal compliance and to enhance financial administration.
The flow of financial resources measurement focus requires governmental fund operating statements to recognize the effects of transactions or events on financial resources when they take place, regardless of when cash is received or paid. Financial resources are cash, claims to cash (for example, debt securities of another entity and accounts and taxes receivable), claims to goods or services (for example, prepaid items), consumable goods (for example, supplies inventories), and equity securities of another entity obtained or controlled as a result of past transactions or events.
Revenues, operating expenditures, and interfund operating and residual equity transfers are the result of transactions or events that affect financial resources. Also, the acquisition, disposition, and long-term financing of capital assets and the long-term financing of certain nonrecurring projects or activities that have long-term economic benefit are transactions that affect financial resources. The flow of financial resources measurement focus does not, however, report an operating statement effect for the issuance and repayment of operating debt.
Governmental fund revenues can result from taxation and from other nonexchange transactions and events, or they can result from exchange transactions. Tax revenue should be recognized if the underlying transaction or event has taken place and the government has demanded the taxes, regardless of when cash is received. For example, for revenue from income taxes, the underlying event is the earning of income by the taxpayer and the demand is the requirement for taxpayer remittance of taxes through withholdings, estimated payments, and final settlement during the fiscal year or within two months thereafter. Revenue would be accrued to the extent that required tax payments are delinquent.
Revenue from other nonexchange transactions, such as from fines, fees for licenses and permits, and donations, should be recognized when the underlying event takes place and the government has an enforceable legal claim to the amounts, regardless of when received. Governmental fund revenues from exchange transactions, such as charges for services and investment income, should be recognized when earned, that is, when the entity has done what it must do to complete its side of the transaction.
If the taxpayer-assessed taxes and other nonexchange revenues of one government are administered or collected by another, and the reporting government cannot obtain the accrual information it needs, this Statement provides certain revenue recognition alternatives.
Governmental fund expenditures include operating, capital, and debt service expenditures. Governmental fund operating expenditures that arise from exchange transactions generally should be recognized when the transactions that result in a claim against financial resources take place, regardless of when cash is paid. This includes recognizing expenditures for prepaid items and supplies using the consumption method.
Compensated absences for other than sick leave should be recognized as expenditures when the benefits are earned by the employees. An expenditure accrual for earned sick leave should be made only if a vesting benefit is expected to result in a termination payment; otherwise, expenditures for sick leave benefits should be recognized as expenditures when the leave is taken.
This Statement establishes basic definitions of general long-term capital debt and operating debt. General long-term capital debt is the long-term financing incurred to acquire capital assets or to provide financial resources for certain nonrecurring projects or activities that have long-term economic benefit. Operating debt is debt that provides financial resources to and is expected to be repaid from the financial resources of governmental funds but does not meet the definition of general long-term capital debt. Operating debt includes debt issued to finance operations. The issuance and repayment of general long-term capital debt has an operating statement effect in a flow of financial resources measurement focus. The issuance and repayment of operating debt does not.
This Statement is effective for financial statements for periods beginning after June 15, 1994.
Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including public benefit corporations and authorities, public employee retirement systems, and governmental utilities, hospitals, colleges, and universities. Paragraph 32 discusses the applicability of this Statement.