Governmental Fund Financial Statements
GASB Statement No. 34 requires two financial statements of governmental funds: (1) a balance sheet (See Exhibit 4) and (2) a statement of revenues, expenditures, and changes in fund balances (See Exhibit 5).

The measurement focus of governmental funds is on current financial resources and the basis of accounting is modified accrual. (Note: Some changes to the modified accrual basis of accounting are included in GASB Statement No. 33, which deals with nonexchange transactions and is beyond the scope of this article.)

Neither general capital assets nor general long-term liabilities should be reported on fund statements prepared on the modified accrual basis of accounting.

The listing of all funds no longer is required. The traditional model required a column for each fund, even if it contained only a few dollars.

New Concept of Major Funds
The focus of the balance sheet is on major funds. A column is required for each major fund, with a column that combines all nonmajor funds, which should be reported in the aggregate. Major funds are those that meet one of the following criteria:

• Total assets, liabilities, revenues, or expenditures/expenses are at least 10 percent of the corresponding amounts for all funds of that category or type (i.e., total governmental or total enterprise).

• Total assets, liabilities, revenues, or expenditures/expenses are at least five percent of the corresponding total for all governmental and enterprise funds combined.

Features
At the bottom of the balance sheet is a reconciliation of the governmental funds to total net assets (of the Statement of Net Assets).

Note that a significant change is the elimination of Account Groups. No longer are governmental units required to maintain a General Fixed Asset Account Group (GFAAG) or a General Long-Term Debt Account Group (GLTDAG). A government may use whatever means it desires to maintain control over fixed assets and long-term debt; however, account groups are gone from financial reporting.

Typical reconciling items relate to the following:

• capital assets
• long-term obligations
• deferred revenues (for amounts that did not satisfy the "available" criterion)
• internal service fund net assets

New Definition of Enterprise Funds
Enterprise funds are used to account for any activity for which a fee is charged to external users if it meets one of the following criteria:

• The activity is financed with revenue debt.

• Laws and regulations require that the activity's costs of providing services, including capital costs, be recovered with fees and charges.

• The pricing policies of the activity establish fees and charges designed to recover its costs, including capital costs.

• Balance sheet (See Exhibit 6)
• Statement of revenues, expenses and changes in fund net assets (See Exhibit 7)
• Statement of cash flows (See Exhibit 8)

Key elements of the fund financial statements:

• Each major fund should be reported in a separate column; the combined totals for all internal service funds should also be reported in a separate column.

• Restricted assets should be identified.

• Governments should distinguish operating revenues and expenses from capital contributions and additions to permanent and term endowments.

• The statement of cash flows should be presented in direct format. Note that the Financial Accounting Standards Board (FASB) encourages businesses to use the direct format; however, an overwhelming percentage of corporations report using the indirect format. Governments are required to use the direct format.

The required financial statements are (1) the statement of fiduciary net assets and (2) the statement of changes in fiduciary net assets. The measurement focus is on economic resources, which means that the full accrual basis of accounting is used. The statement does not report actuarial (pension) information. It is strictly the reporting of stewardship activities. See Exhibit 9 for an example.

The agency fund is accounted for in the traditional manner. Note that in agency funds, assets should equal total liabilities. They are an accountant's dream! They present assets and liabilities, nothing more. If only all government accounting was so simple!