Policy References:

GASB Statement No. 33 – Accounting and Financial Reporting for Nonexchange Transactions (GASB Codification Section N50 – Nonexchange Transactions)

GASB Statement No. 65 – Items Previously Reported as Assets and Liabilities

Process and Document Preparation:

INTRODUCTION

Federal grants are generally classified as government-mandated or voluntary nonexchange transactions. A government-mandated nonexchange transaction occurs when the Federal government provides resources to the State and requires the State to use the resources in accordance with specified purposes and/or time requirements. These transactions are characterized by the following traits:

• The provider government (Federal or State) requires the recipient government (State or local) to perform a particular program or promote its performance by another government or by a nongovernmental entity (secondary recipient).
• Certain other requirements (including time requirements), referred to as eligibility requirements, must be satisfied for a transaction to occur.

Voluntary nonexchange transactions are characterized by agreements accepted by two or more parties. The parties to voluntary nonexchange transactions may be governments (Federal as a provider, State and local) or nongovernmental entities. These transactions are identified by the following characteristics:

• They are not imposed on the provider or the recipient; and
• The eligibility requirements must be fulfilled in order for a transaction (except for providing cash or other assets in advance) to occur.

Eligibility requirements for government-mandated and voluntary nonexchange transactions may include one or more of the following:

• The recipient satisfies the characteristics required by the provider (Federal or State government).
• Time requirements, which specify the period or periods when resources are required to be used or when use may begin, have been met.
• Recipients cannot qualify for resources without first incurring allowable costs under the provider’s program.
• Eligibility for resources is contingent upon the occurrence of a specified action by the recipient in accordance with provider-mandated requirements.

ACCOUNTING POLICY

Assets, liabilities, revenues and expenditures are not recognized until all related requirements are satisfied and the resources are available. Resources transmitted in advance of satisfying eligibility requirements, excluding time requirement, should be reported as an asset by the provider government and as a liability by the recipient government. Resources received before time requirements are met, but after all other eligibility requirements have been met, should be reported as a deferred outflow of resources by the provider and a deferred inflow of resources by the recipient government. Government-mandated and voluntary nonexchange transactions must be reported in the financial statements unless the transactions are not measurable (reasonably estimable) or likely to occur (probable). Revenues derived from government-mandated and voluntary nonexchange transactions that are not available for use during the subsequent operating period (fiscal year) must be reported as a deferred inflow of resources until such time as the revenue becomes available (under the modified accrual basis of accounting). Transactions that are not reported in the financial statements because they are not measurable should be disclosed in the notes.

Guide to Financial Operations

REV. 01/01/2017