Gasb #54 Review Paper

GASB #54 was issued in February of 2009. It will officially go into effect for periods beginning after June 15, 2010. The main objective of this statement is to help governmental financial statement readers better understand governmental fund balance information. It also more clearly defines the constraints placed on a government’s fund balances, as well as expands the categories in which to classify this information. GASB #54 also gives more precise definitions for the existing governmental fund types to help financial statement users understand why governments choose to account for certain items in the different fund types.

The first of these new categories is nonspendable fund balance. This balance includes amounts that are (a) not in spendable form or (b) legally or contractually required to be maintained intact, and therefore cannot be spent. Items that are not expected to be converted into cash are considered “not in spendable form.” The “legally or contractually required to be maintained intact” criterion can be illustrated with the corpus of a permanent fund. In this case the earnings from the principal may be used, but the principal must stay intact. When presenting the two components of nonspendable fund balance on the financial statements, the government can elect to present each one separately, or can present them in the aggregate.

The second classification in the hierarchy is restricted fund balance. This fund balance category should be used when the use of resources is inhibited by external creditors, grantors, contributors, or laws or regulations of other governments, or are constrained by the imposition of law though enabling legislation or constitutional provisions. Restricted fund balance includes a requirement that the resources must be used for the specific purpose that is stated in the legislation and that this purpose is legally enforceable. The restricted fund balance can be shown on the balance sheet separated by the major...