SUBSECTION 2.1.2.2
SIGNIFICANT ACCOUNTING POLICIES
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SUBSECTION 2.1.2.2 |
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2.1.2.2.1 |
Significant Accounting Policies |
Effective Date: |
Sept. 1, 1998 |
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The significant accounting policies of the state of Washington are in conformance with generally accepted accounting principles (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB). For proprietary fund accounting and reporting, the state applies applicable pronouncements of the Financial Accounting Standards Board issued on or before November 30, 1989, unless those pronouncements conflict with or contradict the pronouncements of the GASB. |
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2.1.2.2.1.a |
Reporting Entity-- In defining the State of Washington for financial reporting purposes, management considers: all organizations, institutions, agencies, departments, and offices that are legally part of the state (the primary government); organizations for which the state is financially accountable; and other organization for which the nature and significance of their relationship with the state are such that exclusion would cause the state's financial statements to be incomplete. The primary government of the state includes its agencies, colleges and universities, and retirement systems. The state discretely presents certain organizations which were created by and operate within laws established by the state legislature where the state appoints a voting majority of the organizations’ governing boards and the state has the ability to impose its will on the organizations. |
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2.1.2.2.1.b |
Fund/Account Structure-- The state administratively combines all accounts with activity and/or balances into roll-up funds and account groups for reporting purposes. Fund and, for Washington, account accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain government functions or activities. A roll-up fund is a reporting entity. It is comprised of the various accounts which generally fall within the generic activity/nature of the roll-up fund’s title. An account, on the other hand, is a separate accounting entity with a self-balancing set of accounts used by agencies to record transactions. An account group is a financial reporting device designed to provide accountability for certain assets and liabilities that are not recorded in an account because they do not directly affect net expendable available financial resources. There are three roll-up fund categories. Each category, in turn, is divided into separate "fund types." Four fund types are used to account for the "governmental type" activities of the state and these are categorized as governmental funds. Two of fund types are used to account for the state’s "business type" activities and these are categorized as proprietary funds. The remaining category is for the state’s fiduciary activities and it includes expendable trust, non-expendable trust, pension and investment trust and agency funds. |
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2.1.2.2.1.c |
Measurement Focus and Basis of Accounting-- The accounting and financial reporting treatment applied to an account is determined by its measurement focus. All governmental and expendable trust fund type accounts are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. Operating statements for these accounts present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. All proprietary, non-expendable trust, and pension and investment trust fund type accounts are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and liabilities associated with the operations of these accounts are included on the balance sheet. Operating statements present increases (i.e., revenues) and decreases (i.e., expenses) in equity (i.e., net total assets). Equity in proprietary fund type accounts is segregated into contributed capital and retained earnings components. Equity for non-expendable trust, investment trust and pension trust fund type accounts is accounted for as reserved for non-expendable trust corpus, reserved for investment pool participants and reserved for retirement systems, respectively. The modified accrual basis of accounting is used by all governmental, expendable trust and agency fund type accounts. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means the amount of the transaction can be determined. "Available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Primary revenues that are determined to be susceptible to accrual include sales and business and occupation taxes, federal grants-in-aid, and charges for services. Revenues from property taxes are determined to be available if collectible within 60 days. Excise taxes, motor fuel taxes, and unemployment compensation contributions are considered measurable when the return is received. Sales taxes are accrued if collectible within one year. Revenue for timber cutting contracts is accrued when the timber is harvested. Revenues from licenses, permits, and fees are recognized when received in cash. Revenues related to expenditure driven grant agreements are recognized when the qualifying expenditures are made. All other accrued revenue sources are determined to be available if collectible within 12 months. Property taxes are levied in December for the following calendar year. The first half year collections are due April 30 and the second half year collections are due October 31. Since the state is on a fiscal year ending June 30, the first half year collections are recognized as revenue, if collectible within 60 days of the fiscal year end. The second half year collections are recognized as receivables offset by deferred revenue. The lien date on property taxes is January 1 of the tax levy year. Under modified accrual accounting, expenditures are recognized when the related liability is incurred. Exceptions to the general modified accrual expenditure recognition criteria include unmatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with expendable available financial resources. All proprietary, non-expendable trust, and pension and investment trust fund type accounts are accounted for using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when they are earned and expenses are recognized when incurred. The state defers recognition of revenue under certain conditions. Deferred revenues arise when a potential revenue does not meet both the "measurable" and the "available" criteria for revenue recognition in the current period. Deferred revenues also arise when resources are received by the state before it has a legal claim to them, as when grant monies are received prior to incurring qualifying expenditures/expenses. |
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2.1.2.2.1.d |
General Budgetary Policies-- Governmental fund type accounts are budgeted materially in conformity with GAAP. However, the budget process omits certain items including resources collected and distributed to other governments, federal surplus food commodities, food stamps, capital leases, note proceeds, and others as designated by the Legislature. The differences between budgetary reporting and GAAP reporting are reconciled and disclosed in the notes to the state’s financial statements. Refer to Section 2.2.1. |
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2.1.2.2.1.e |
Cash Equivalents and Investments—Investments of surplus or pooled cash balances, considered cash equivalents per GASB Statement 9, are classified by the state as "cash and pooled investments." The Office of State Treasurer invests state treasury cash surpluses where funds can be disbursed at any time without prior notice or penalty. The method of reporting investments varies depending upon the nature of the investment. Short-term money market investments and participating interest-earning investment contracts are reported at amortized cost. Certificates of deposits and other non-participating interest-earning investments are reported at cost. All other non-current investments are valued for reporting purposes at fair value. Fair value is determined using closing market prices for marketable securities and other reasonable methods for investments where market values are not readily available. Refer to Sections 2.2.4.1 and 2.2.4.2. |
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2.1.2.2.1.f |
Receivables-- Receivables in the state's governmental and fiduciary fund type accounts consist primarily of tax and federal revenues. Receivables in all other accounts arise in the ordinary course of business. When either the asset or revenue recognition criteria has been met, the receivables are recorded. Refer to Section 2.2.4.3. |
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2.1.2.2.1.g |
Inventories-- Consumable inventories, consisting of expendable materials and supplies held for consumption, are valued and reported for financial statement purposes if their annual balance on hand is estimated to exceed $25,000 in value. Consumable inventories are generally valued using the weighted average method. All merchandise inventories are valued and considered reportable for financial statement purposes. Merchandise inventories are generally valued using the first-in, first-out method. Donated consumable inventories are recorded at fair market value. Food stamp inventories are recorded at face value. Inventories of governmental and expendable trust fund type accounts are valued at cost and are recorded using the consumption method. Inventory balances are also recorded as a reservation of fund balance indicating that they do not constitute "available spendable resources" except for food stamps and federally donated consumable inventories which are offset by deferred revenue because they do not constitute an "available" resource until consumed. Proprietary fund type account inventories are valued at the lower of cost or market and are expensed when used or sold. Refer to Section 2.2.4.4. |
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2.1.2.2.1.h |
Fixed Assets-- Except as noted below, all fixed assets with a unit cost of $5,000 or greater are capitalized. Fixed assets acquired by capital leases with a net present value or fair market value, whichever is less, of $10,000 or more are also capitalized. Purchased fixed assets are valued at cost where historical records are available and at estimated historical cost where no historical records exist. Fixed asset costs include the purchase price plus those costs necessary to place the asset in its intended location and condition for use. Normal maintenance and repair costs that do not materially add to the value or extend the life of the asset are not capitalized. Donated fixed assets are valued at their estimated fair market value, plus all appropriate ancillary costs, on the date of donation. When the fair market value is not practically determinable due to lack of sufficient records, estimated cost is used. Where necessary, estimates of original cost and fair market value are derived by factoring price levels from the current period to the time of acquisition. The value of assets constructed by agencies for their own use includes all direct construction costs and indirect costs that are related to the construction. In proprietary and similar trust fund type accounts, interest costs (if material) incurred during the period of construction are capitalized. Public domain (infrastructure) fixed assets that are immovable and of value only to the state (including roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, lighting systems, and similar assets and all land and improvements within the operating right-of-way on the state’s transportation system) are not capitalized. Streets, sidewalks, lighting systems and similar assets located on college and university campuses, which predominately benefit college and university activities, are capitalized. Fixed assets in governmental and expendable trust fund type accounts are not capitalized in the accounts that acquire or construct them. Instead, capital acquisition and construction are reflected as expenditures in governmental fund type accounts, and related assets (including construction projects not completed at the end of the accounting period) with the following characteristics are reported in the General Fixed Assets Account Group: |
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Depreciation expense of general fixed assets is not recorded in governmental and expendable trust fund type accounts. Accumulated depreciation is recorded in the General Fixed Assets Account Group. Depreciation is calculated using the straight-line method with estimated useful lives of fifty years for buildings, and five to fifty years for furnishings and equipment, other improvements, and miscellaneous fixed assets. General fixed assets are removed from the General Fixed Assets Account Group at the time of disposal. Fixed assets used in proprietary and similar trust fund type accounts are accounted for in the account in which they are utilized. Depreciation is computed using the straight-line method. Buildings are depreciated using estimated useful lives extending to fifty years. Furnishings and equipment, other improvements, and miscellaneous fixed assets are depreciated using estimated useful lives of five to fifty years. The cost and related accumulated depreciation of fixed assets retired from service, or disposed of, are removed from the accounting records. Refer to Section 2.2.4.6. |
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2.1.2.2.1.i |
Short-Term Liabilities-- These are liabilities that arise from present obligations to transfer assets or provide services to other entities in the future as a result of past transactions or events. Refer to Section 2.2.5.1. |
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2.1.2.2.1.j |
Compensated Absences |
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2.1.2.2.1.K |
Long-Term Obligations-- Long-term obligations expected to be financed from proprietary and similar trust fund type accounts are accounted for in those accounts. Long-term obligations expected to be financed from resources received in the future by governmental and expendable trust fund type accounts are reported in the General Long-Term Obligations Account Group. Refer to Section 2.2.5.2. |
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2.1.2.2.1.l |
Fund Equity-- Fund equity represents the difference between the assets and liabilities of each account. In governmental and fiduciary fund type accounts, fund equity is called "fund balance." Reserved fund balance represents the portion of fund balance that is: (1) not available for appropriation or expenditure, and/or (2) that is legally segregated for a specific future use. Unreserved, designated fund balance indicates tentative plans for future use of financial resources. Unreserved, undesignated fund balance represents the amount available for appropriation. For proprietary fund type accounts, equity attributable to accumulated earnings is referred to as "retained earnings." Equity provided by contributions from other accounts and capital grants is classified as "contributed capital." Refer to Section 2.2.5.4. |
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2.1.2.2.1.m |
Insurance Activities-- In instances where the state has retained the risk of loss related to insurance type activities, claims and judgment liabilities are reported when it becomes probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an actuarially determined amount for claims that have been incurred but not reported. Because actual claims liabilities depend on such complex factors as inflation, changes in legal doctrine, claims adjudication, and judgments, the process used in estimating claims liabilities does not necessarily result in an exact calculation. Claims liabilities are re-evaluated periodically to take into consideration recent settlements, claim frequency, and other economic, legal or social factors. Adjustments to claims liabilities are charged or credited to expense in the periods in which they are made. |
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2.1.2.2.1.n |
Interfund Activities-- Quasi-external transactions are accounted for as revenues and expenditures/expenses. Transactions that constitute reimbursements to an account for expenditures/expenses initially made from it that are properly applicable to another account are recorded as expenditures/expenses in the reimbursing account and as reductions of expenditures/expenses in the account that is reimbursed. All interfund transactions, except quasi-external transactions or reimbursements, are reported as transfers. Non-recurring or non-routine permanent transfers of equity are reported as residual equity transfers. All other interfund transfers are reported as operating transfers. Refer to Section 2.2.6. |
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