Hello and welcome to the next episode of Just a Tad. I'm Susanna Filipovic. Timely accounting discussions are mini classes of 10 minutes or less on a specialized accounting subject.
This Tad is about a nuance of Gatsby Statement 100 which is accounting changes and error corrections. This may be a little surprising to some folks and spooky to others. Ghost columns as you'll hear me refer to them today, are a product of GASB 100 that we're going to be focused on.
In this episode, we're going to accomplish a few things. We're going to work on an abbreviated refresher of what is in GASB 100, focusing on changes to and within the financial reporting entity. We'll go through an example of how this guidance impacts fund financial statements and then end with discussion on the note disclosure requirements.
and implications in the combining schedules. GASB 100 was approved almost two years ago, in June of 2022, and we are rapidly closing in on the first effective date for governments. So governments with June 30, 2024 fiscal year ends are required to implement this guidance. We're following that with September 30, 2024, December 31, 2024, and then the following March 31st, 2025. GASB 100 aims to reduce confusion and increase consistency for governments reporting accounting changes and error corrections.
Now these concepts aren't necessarily new to governments working in financial statements, but now we have clear definitions and clear guidance on how to present those changes. So changes to or within the financial reporting entity is what we're gonna be talking about on this just a tad. And again, while this concept is not new, We have seen variety in practice and this standard is going to provide an explicit definition and explicit guidance to how this gets reported.
For each type of these changes within GASB 100, GASB gives us clear guidance on the recognition and display requirements, what it needs to look like on the face of the financial statements, and information on how to present the note disclosures, what should be presented in the required supplementary information, and supplementary information in your financial statements. That ghost column concept that I'm talking about is specific to changes to and within the financial reporting entity. Let's dig in deeper to how GASB defines changes to and within the financial reporting entity. So changes to the financial reporting entity encompass component unit transactions.
So these could result from changes in the level of financial accountability a primary government has with a legally separate entity and would include component unit classification, being reclassified between blended component unit presentation and discreetly presented component unit presentation. Changes within the financial reporting entity are likely going to be more common for many governments, and these are going to include fund classifications for governments with the movement of continuing operations, so potentially governmental funds operations being removed and being reported as an enterprise fund. What this also includes, changes within the financial reporting entity, includes classification changes between major and non-major due to the quantitative threshold or qualitative decisions by management and the government. This encompasses both governmental major and non-major fund classification and enterprise fund major and non-major fund classifications. Let's look at the guidance in paragraph 22 of GASB 100. Changes to or within the financial entity need to be reported by adjusting the current period's beginning net position, fund balance, or fund net position as applicable for the effect of the change as if it occurred as of the beginning of the financial reporting period.
What does this mean to us? This means that governments are going to be required to display the beginning position balance on the face of the financials separately from the impact of an adjustment due to changes within the financial reporting entity and then concluding. on those beginning balances as adjusted.
It's time to walk through some examples. Presented here is the statement of revenues, expenditures, and changes in fund balance for governmental funds of a city government. We are going to walk through a change within the financial reporting entity resulting from a governmental fund classification changing from non-major to major for the current year. Notice we have illustrated in red text the impact of the display requirements for various types of changes.
Governments do not need to show this disaggregated display of changes to the financial reporting entity and the error corrections. GASB says we could show one row for these changes in the aggregate and then that would be accompanied with the note disclosure required summary table. We have chosen to detail out these row descriptions to clearly walk through this example. For our scenario here we have a fund, the private grant fund, that was reported as a non-major fund in the prior year.
Thus, there was no fund balance for the private grants fund presented as a major fund in the prior year's statement of changes for governmental funds because it was properly reported in the non-major governmental funds column. This row here needs to articulate with the prior year's financial statements. Then governments will need to display this adjustment to that beginning fund balance. This adjustment is the result of a change within the financial reporting entity and clearly indicates that the fund balance is moving out of the non-major governmental fund column and into a major fund column for that private grant fund. Then we will show the fund balance as adjusted or restated.
This row is a display requirement under GAAP reporting. We are sticking with the Statement of Revenues, Expenditures, and Changes to Fund Balance. Now if the change to a financial reporting entity goes in the other direction, a fund that was major in last year's financial statements becomes non-major, we see here the introduction of the ghost column. Watch what needs to be presented here in order to fulfill the display requirements.
We have a column that looks like it's a major fund displayed separately as a separate column but which is not a major fund and we've added a heading here in red text. to really emphasize here that this fund was formerly a major fund. This heading is for illustrative purposes to bring your eyes to the part of the financial statements we're talking about.
The ghost column is needed to report on the face of the financial statements the fund balances as previously reported. Again, this row needs to agree to the prior year financial statements. Then the adjustment row introduces here the movement of that fund balance between the major column to the non-major column.
That column, this ghost column, shows no activity for the year, but the fund balance reclassification between major fund and non-major fund. It does not report the revenues and expenditure activity for the private grant fund in this example. In addition to our statement of changes for governmental funds, we of course have a balance sheet, and balance sheets present our data, our financial data, for a point in time, specifically our financial year end. We do not present any beginning fund balance presentation on our balance sheet, so no ghost funds would be reported in the balance sheet. And that does present an articulation conflict between our statement of changes and our balance sheet as the number of funds presented may not be consistent.
As I mentioned earlier, GASB 100 gives us explicit requirements for note disclosure requirements as well. Specifically, this tabular format shown on the screen needs to reconcile our position balances as previously presented in the prior year financial statements to our adjusted and restated beginning position balances. Again, we're reconciling in the note disclosures the beginning position balances as previously reported on the government's prior year financial statements to the adjusted and restated position balances reported as of the beginning of our period. This tabular format is a requirement whether you're showing disaggregation or aggregation on your face of the financial statements. Paragraph 35 of GASB 100 gives us guidance to say that both the required supplementary information, which includes our management's discussion and analysis, and supplementary information, which includes are combining financial statements for non-major funds should be reported consistently with that in the fine in the basic financial statements so in this illustration here we have ghost columns presented to report beginning fund balances impacted by changes within the financial entity to highlight a fund that was previously a blended component unit presented as a non-major special revenue fund in the prior year has now moved to discrete presentation due to changes in financial accountability.
That's the first change. The second change is a special revenue fund that based on a quantitative threshold was non-major in the prior year and will be major in the current year. These two ghost columns are needed in the combining statement for non-major governmental funds so that the total column here articulates properly with the total non-major governmental funds column reported in the basic financial statements.
That's it for this TAD. Thanks for watching, and if you have any suggestions for future episodes of Just a TAD, please email us at tads at gfoa.org.