GASB Statement No. 54

What is GASB 54?
Fund balance is about to get a makeover! With the passage of the Governmental Accounting Standard Board’s (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions in March 2009, the way in which fund balances are reported on the governmental funds balance sheet will soon be changing.

Why the change?
GASB has found through feedback from financial statement users that the current fund balance categories have led to misunderstandings about what the categories really mean.

What has changed?
The classifications have changed. Instead of reserved, designated, or unreserved, financial statement preparers will now use five basic categories:

• Nonspendable – any amounts that are not in spendable form (inventory, prepaids) or are legally or contractually required to remain intact (principal of an endowment fund)

• Restricted – amounts subject to outside restrictions such as enabling legistlation or grant providers (Child Safety funds)

• Committed – amounts restricted by a government’s highest level of authority (City Council, Board of Directors). The classification of such amounts can only be changed by the same authority.

• Assigned – Made up of amounts intended for a particular use by the government. This amount can never exceed total fund balance less the nonspendable, restricted, and committed amounts. Assigned amounts require less formality than committed amounts.

• Unassigned – Any remaining fund balance not included in the other categories and are available for any use. All positive unassigned fund balances must be shown in the general fund. Only deficit unassigned balances may be shown in other governmental funds.

Any new disclosures?
Governments must disclose in which order amounts will be spent if funds from more than one classification are available for an expenditure. For example, restricted, then committed, then unassigned. Governments must also disclose their procedures for committing or assigning amounts.

Rainy day and contingency funds
Many governments set up these funds, also know as a stabilization arrangement, as a cushion against emergencies or other unexpected expenses. GASB 54 allows these amounts to be reported as restricted or committed, assuming the requirements for these categories are met. If not, these amounts must be reported as unassigned. The statement prohibits classifying stabilization arrangements as assigned.

When does this take effect?
These new standards must be implemented in the first fiscal year that ends on or after June 30, 2011, though early implementation is encouraged. Once implemented, fund balances for any prior years presented in the financial statements should be restated in order to retroactively apply the new classifications. Retroactive application in the statistical section is not required, but encouraged.