Governmental Auditing Standards Board (GASB) has issued Statement No. 54, which changes the manner in which fund balances are reported by governments.  It is effective for financial statements for periods beginning after June 15, 2010 though, as is usually the case, GASB encourages early implementation.

Fund balance information is one of the most widely used segments in a government’s financial report.  Therefore, GASB’s Statement  No. 54 seeks to improve the fund balance classifications and focuses on the extent to which governments are bound by constraints on resources reported in their governmental funds.

Currently, fund balances are reported as:

• Reserved (for legal restricted funds)
• Unresered, Designated (for self imposed fund limitations)
• Unreserved, Undesignated

Under the standards set by GASB No. 54, fund balances will be reported as:

• Nonspendable
• Restricted
• Committed
• Assigned
• Unassigned

These new classifications are broadly defined as follows:

Nonspendable:  Amounts that cannot be spent due to their form, for example, inventories, prepaids, long-term notes receivables, and property held for resale.

Restricted:  Amounts constrained for a specific purpose by external parties or enabling legislation.  For example, hotel/motel taxes, grant funds, and confiscated assets.  This is the same definition as GASB 34 for restricted net assets.

Committed:  Amounts constrained for a specific purpose by a government using its highest level of decision making authority.  Those committed amounts cannot be used for any other purposes unless the government removes or changes the commitment by taking the same form of action it employed to previously impose the commitment. 

Assigned:  For all governmental funds, other than the general fund, any remaining positive amounts not classified as nonspendable, restricted or committed.

Unassigned:  Is the residual classification for the general fund.  This amount represents balances that have not been assigned to any other classification.

Governments should begin reviewing their fund balances now in order to prepare for these new classifications.  For example, a government may have some currently "designated" fund balances that may not rise to the level of "committed" fund balances under the revised structure. 

As auditors we will need to obtain assurance that the policies relative to fund balances committed and assigned are properly documented, are being followed, and are properly disclosed in the financial statements.