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Multi – GAAP Reporting for Public Sector

Managing GASB 34 Compliance in SAP Business ByDesign

By: Teresa Blackwell, Director, SAP Business ByDesign Practice & Jay M. Winchester, Proposal Writer

With tax time rapidly approaching, we’ve been discussing how SAP’s Business ByDesign helps simplify an organization’s tax reporting burden. Today’s topic? Multi-GAAP reporting for Public Sector.

Entities that report under the Governmental Accounting Standards Board (GASB) rules must present financial statements according to two different bases of Generally Accepted Accounting Principles (GAAP) reporting: Full Accrual og Modified Accrual. This reporting requirement is based on GASB Statement 34, Basic Financial Statements – and Management’s Discussion and Analysis for State and Local Governments.

  • Full Accrual accounting takes the long view. Financial events are recognized when they occur regardless of whether funds are available or received.
  • Modified Accrual is focused on the short term and tracks closely to the budget. Funds are recognized when they are measurable og available.

The table below summarizes the key differences between these two versions of GAAP.

 Modified AccrualFull Accrual  
Accounts Payable  In the absence of an applicable modification, accounts payable are recognized in the fiscal year in which the agency incurs the liability.    Recognize a payable in the fiscal year in which the agency incurs the liability.    
Prepaid Items  Prepaid items may be recognized using the purchases method (expensed when purchased) or the consumption method (held in inventory when purchased, expensed when consumed).Consumption method: Recognize an asset when an item is purchased and an expense when an item is used or consumed.    
Long-Term Liabilities – Current Portion  Recognize the liability as it matures or to the extent the liability is expected to be liquidated with expendable available financial resources.Recognize the liability in the fiscal year in which the agency incurs the liability.    
Long-Term Liabilities – NoncurrentThe portion that does not meet the criteria for recognition as a current liability is a noncurrent long-term liability.Recognize the liability in the fiscal year in which the agency incurs the liability.
  RevenuesGovernmental funds recognize revenues as cash is received during or soon after the end of the year and when it is earned and both measurable and available (within 60 days).Recognize the revenue in the fiscal year in which the agency earns the revenue and it is measurable. Availability is not a factor.
ExpendituresIn the absence of an applicable modification, expenditures are recognized in the fiscal year in which they are expended or when they are subject to accrual. Accruals are recorded when they are expected to use expendable financial resources.Fund expenditures are recognized in the fiscal year in which the agency incurs a liability. Adjustments may be needed to ensure the matching principle is followed.
Capital Asset Acquisitions  Recognize the expenditure at the acquisition date.    Recognize the cost of the asset and depreciate the value over the expected useful life of the asset.
Inventories  Inventory may be recognized using the purchases method (expensed when purchased) or the consumption method (held in inventory when purchased, expensed when consumed).    Consumption method: Recognize an asset when inventory is purchased and an expense when inventory is used or consumed.    
Compensated AbsencesRecognize a liability as payments come due each fiscal year on the occurrence of resignations or retirements.Recognize the liability and the expense in the fiscal year in which the agency incurs the liability.    
Claims & Judgments    Recognize a liability to the extent they are normally expected to be liquidated with expendable available financial resources.Recognize the liability in the fiscal year in which the agency incurs the liability.    

Clearly, there are differences between the two bases of accounting. Many government entities and agencies take a two-step approach to this process. In Step 1, they maintain the general ledger throughout the year on the modified accrual basis. In Step 2, they then reconcile that view at year end or quarterly to the full accrual basis of accounting. There are tools available to assist with this reconciliation.

There are limitations to this process:

  • It’s a manual process requiring time and effort from key accounting staff.
  • Reporting is limited. The full accrual reports can only be prepared after the reconciliation has been completed.
  • Pro-active, long term decision making may be impeded. The modified accrual basis is short term by nature. If decision makers only see modified accrual basis reports, they may ignore the longer time horizons supported by reports based on the full accrual method.

Fortunately, SAP Business ByDesign comes with a solution built in. The account structure in ByDesign permits entities to set up multiple sets of books with different rules and features. These include:

  • Different accounting rules – Modified or Full Accrual
  • Different charts of accounts – some entities may report on one chart of accounts locally but report to a regulatory agency under a different chart of accounts. Examples might include utilities reporting to the Federal Energy Regulatory Commission (FERC), or a school district reporting to a state education agency.
  • Different fiscal years – a city may have a trust or pension fund with a different fiscal year than the city.

Setting up this structure in ByDesign is easily accomplished during implementation.  The result is that ByDesign’s financial users view reports based on any set of books. The rules for each set of books are defined at set up and each transaction is posted based on the rules.  While the transaction is seamless to end users, it is viewable in the general ledger detail at any time.

Find out more about how SAP’s Business ByDesign helps drive the effectiveness and efficiency of your organization by getting in touch with Phoenix Consulting today.

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