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Item # 5_1. <br />Gtv o=.` <br />~L.-~...r-_ <br />~V~,~' <br />TO: Mayor and City Council <br />MEMORANDUM <br />FROM: Tim Simon, Finance Director <br />DATE: November 8, 2010 <br />SUBJECT: GASB 54 Accounting Changes <br />Fund balance refers to the difference between assets and liabilities in the governmental fund <br />balance sheet. This information is one of the most widely used elements of local <br />government financial statements. <br />The Governmental Accounting Standards Board (GASB) has found that the existing <br />standards guiding fund balance reporting has frequently led to misunderstandings and <br />inconsistent reporting of fund balance information among governments in practice. <br />Consequently, financial statement users were unable to readily interpret reported fund <br />balance information to identify available resources and assess liquidity and financial <br />flexibility. The GASB issued Statement No. 54, Fund Balance Keporting and Governmental Fund <br />Type Definitions, to address issues related to how fund balance was being reported. <br />This Statement is designed to improve financial reporting by establishing fund balance <br />classifications that are easier to understand and apply. Fund balance will be displayed in the <br />following classifications depicting the relative strength of the spending constraints that <br />control how specific amounts can be spent: <br />Nonspendable fund balance -amounts that are not in a spendable form (such as <br />inventory) or are required to be maintained intact (such as the principal of an <br />endowment fund). <br />• Restricted fund balance -amounts that can be spent only for the specific purposes by <br />their providers (such as grantors, bondholders, and higher levels of government), <br />through constitutional provisions, or by enabling legislation. <br />• Committed fund balance -amounts that can be used only for the specific purposes <br />determined by a formal action of the government's highest level of decision-making <br />authority. Commitments may be changed or removed only by the government taking <br />the same formal action that imposed the constraint originally. <br />