Examination of Governmental Activities Essay

Examination of Governmental Activities Essay

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Examination of Governmental Activities Essay

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Discussion N0.1

Comment this post (ET)

I believe that business-type activities should be accounted for differently in governmental activities. Governmental activities do not resemble commercial activity compare to business type-activities (Zuca, 2006). The government activities concentrate primarily on services that typically financed from tax revenue such as education, public safety, judicial systems, social services, and administration.

However, business-type activities funded through operations consider as secondary services like utilities, public transportation, parking facilities, and recreational facilities. Additionally, business type operations’ objective is to earn a profit or recover from a certain level of operating costs from fees that charge the public for their use (Zuca, 2006).

On the other hand, governmental and business-type activities combined to represent the total primary government (GASB, 2007). In addition to that, both legally separate entities in which the central government financially accountable, presenting in the government-wide statement but do not belong to the primary government. The government-wide report showed separately from financial statements of business-type activities.

Comment # 2 (FG)

In the world of risk investments, investors lose perspective of when we are buying an asset and when we are buying a business. Recently, one of our office clients purchased a group of fixed assets that collectively stored and managed databases. It is what is called a DataCenter.

In order to register the acquisition, we had doubts if a Goodwill should be registered. Finally, the assets were recorded at market value and a Goodwill account was not included considering the acquisition as a purchase of financial assets.

This update ASU No. 2017-1 has an interesting focus because it offers us a guide to be able to decide when a set of assets is a business. “The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.”

(FASB, 2017) Continuing with the example I mentioned earlier, the new standard requires that “when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business.” (FASB, 2017) Therefore, we could affirm that our decision was not wrong. Conversely, a set of assets will be a business if it has at least one ‘input’ and a well-defined process that contributes to creating an output.

These types of transactions in government institutions have other nuances that must be taken into account. For example, according to (GASB, 2013)”the accounting and financial reporting guidance that currently addresses disposals of components for nongovernmental entities conflicts with the financial statement presentation requirements for proprietary funds.” For more information about this conflict, I invite you to refer to paragraphs 100 and 101 of GASB Statement No. 34.

Discussion N0. 3 (ET)

In the world of risk investments, investors lose perspective of when we are buying an asset and when we are buying a business. Recently, one of our office clients purchased a group of fixed assets that collectively stored and managed databases. It is what is called a Data Center. In order to register the acquisition, we had doubts if a Goodwill should be registered. Finally, the assets were recorded at market value and a Goodwill account was not included considering the acquisition as a purchase of financial assets.

This update ASU No. 2017-1 has an interesting focus because it offers us a guide to be able to decide when a set of assets is a business. “The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.”

(FASB, 2017) Continuing with the example I mentioned earlier, the new standard requires that “when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business.” (FASB, 2017) Therefore, we could affirm that our decision was not wrong. Conversely, a set of assets will be a business if it has at least one ‘input’ and a well-defined process that contributes to creating an output.

These types of transactions in government institutions have other nuances that must be taken into account. For example, according to (GASB, 2013)”the accounting and financial reporting guidance that currently addresses disposals of components for nongovernmental entities conflicts with the financial statement presentation requirements for proprietary funds.” For more information about this conflict, I invite you to refer to paragraphs 100 and 101 of GASB Statement No. 34.

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Discussion N0.4

I gratefully Dr. Gray for putting this topic on the table. For some time, I have been curious to know how pension systems really work for employees in the US. After reading some articles I have better understood the matter. So-called defined benefit pension plans are losing the battle over defined contribution plans.

Traditional defined benefit plans guarantee a specific benefit for each participating employee once they retire. The amounts paid are based on the number of years of service and the salary received. For their part, defined contribution plans require the employee to make their contributions directly and assume the risk of investing those funds.

I think the key element here is the risk. According to (PWC, 2014) “there is renewed determination to take action to address the risks that legacy DB (” defined benefit “) obligations pose.” In this sense, employers are passing the risk on to employees. Why?

According to (Berger, 2012) the reason is related to certain perceived disadvantages such as: “administrative burdens attributable to complexity of applicable law and regulations, volatility and unpredictability of cash contributions and accounting expenses, responsibility for uncertain obligations.”

According to some analysts, one of the triggers for the 2008 financial crisis was deregulation and excessive speculation by the administrators of major pension funds. Many employees suffered loss of benefits as a result of the crisis and some employers lost prestige by not being able to answer for it. I’m not saying this is the main factor but it may have had some influence.

Examination of Governmental Activities Essay

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