What procedures will be necessary for preparing the basic financial statements in accordance with Statement No. 34?

Because county governments use different accounting software packages, and software vendors will make different changes to these software packages in order to comply with Statement No.

34, as well as other factors, the following step procedures are provided for general guidance only and should not be relied upon to encompass everything that will be necessary for financial statement preparation.

Some county governments may even consider using a spreadsheet approach for preparing their government-wide financial statements. The financial data in individual funds could be

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downloaded or imported into an analytical spreadsheet, such as Lotus, Excel, or Quattro Pro, and the necessary adjustments to produce the government-wide financial statements would then be made within a government-wide reporting template created within the spreadsheet.

The step procedures outlined below assume that the fund financial statements will be prepared before the government-wide financial statements are prepared.

1. Separate fund financial statements are required for the governmental funds, proprietary funds, and fiduciary funds, and therefore each individual fund of a county government will need to be properly classified as either a governmental, proprietary, or fiduciary fund. Fiduciary fund financial statements can be prepared generally any time after the close of the fiscal year because little or no adjustments to these funds are necessary.

2. Because county governments have always kept their records on a cash basis in prior years, no prior year accruals for receivables and payables are recorded within each of the governmental funds and proprietary funds as of October 1, the

beginning of the fiscal year. Therefore, beginning of year accruals must be recorded as direct adjustments to the fund balance of each governmental fund and the net assets of each proprietary fund. These beginning of year accruals most likely can be obtained from the prior auditor. An example of a typical beginning of year accrual is a claims payable adjustment to the general fund. The journal entry to record the beginning of year claims payable is a debit to fund balance and a credit to claims payable for the same amount.

3. All beginning of year balances of capital assets (original cost less accumulated depreciation) and all beginning of year long-term debt obligations should be recorded within the proprietary funds only. These necessary adjustments can also be obtained from the prior auditor.

4. After the beginning of year receivable/payable accruals are recorded, these same receivables/payables will have to be reversed (that is, eliminated) through the current year operations of each fund. For example, the journal entry to reverse a beginning of year claims payable amount recorded previously within the general fund is a debit to claims payable and various credits to the fund’s functional or department expenditures, thus reducing current year operations for accrual expenditures recognized in the prior reporting period.

5. Year end accrual adjusting entries will also have to be made within each of the governmental funds and proprietary funds before the governmental fund financial statements and proprietary fund financial statements can be prepared. For

example, the journal entry to record the end of year claims payable amount within the general fund is a debit to the various functional or department expenditures of

the fund and a credit to claims payable for the total amount of the department expenditure debits.

6. Governmental and proprietary fund financial statements focus on major funds, therefore each major fund must be identified and reported in a separate column in the governmental fund financial statements and proprietary fund financial

statements. It is important to remember that end of year receivable and payable accruals must be made to all governmental funds and enterprise funds before major funds can be accurately identified for reporting purposes.

7. Adjustments necessary to generate the government-wide financial statements can now be prepared, but government-wide adjustments should never be made within the individual governmental and proprietary funds themselves. The adjustments for government-wide reporting can be made in a separate and distinct financial reporting module or area of the software or in an analytical spreadsheet used for importing financial data of the individual funds. Most adjustments for

government-wide reporting will involve differences in how capital asset activity and long-term debt activity are recorded within governmental funds and how such activity will be reported in the government-wide financial statements. Also, certain internal activity eliminations will have to be made involving transfers between funds and reciprocal receivable and payable balances existing at year end between funds.

8. When an internal service fund is used by a county government, the reporting of the balances and activity of the internal service fund in the government-wide financial statements will requires two special adjustments. An adjustment will be necessary to include the assets and liabilities of the internal service fund as part of governmental activities for the government-wide statement of net assets, and an adjustment will be necessary to eliminate the “doubling up” effect of internal service fund activity for reporting in the government-wide statement of activities.

9. Financial information to determine net assets at the beginning of the year (October 1) for governmental activities will have to be captured and reported.

Beginning net assets will consist mainly of the beginning balance of capital assets, net of accumulated depreciation, and the beginning balance of long-term debt obligations. Because of the same MFBA, beginning net assets for business-type activities reported in the statement activities should generally be the same as beginning net assets reported for enterprise funds in the proprietary statement of revenues, expenses, and changes in fund net assets.

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10. After the basic financial statements have been prepared, reconciliations between the fund financial statements and the government-wide financial statements will need to be provided. For governmental funds, total fund balances in the

governmental fund balance sheet is reconciled to the net assets of governmental activities in the statement of net assets. In addition, the total change in fund balances in the statement of revenues, expenditures, and changes in fund balances is reconciled to the change in net assets of governmental activities in the statement of activities.

APPENDIX A

Illustrated Financial Statements and Other Schedules / Worksheets

Exhibit 1 Capital assets, net (Note 1)

12,170,691 Invested in capital assets, net of related debt

Restricted for:

Internal balances is the net interfund receivable/payable that exists between the general fund included in the governmental activities column and the solid waste fund included in the

business-type activities column.

The intergovernmental payables of $145,728 include the following amounts due the county's agency funds at year end:

5,168 Co-lin maintenance

1,043 Co-lin improvement

Pearl River Basin Development District 577

6,788 Total