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Issued January 2011
Revised June 2022
The information presented below is from the updated Accounting and Financial Reporting Regulation Manual. This manual was to be implemented in 2022, however on March 28th the State Board of Accounts has postponed the implementation of the "Enhanced Regulatory" Manual. There is not currently a date set for implementation of the Enhanced Regulatory Manual. Regulatory audits will be conducted under the previously issued version of the regulatory manual. You can view the previous version of the regulatory manual at this link.
- Table of Contents
Part I: Introduction
Part II: Objectives of Financial Reporting and Fund Accounting
- Financial Reporting
- Fund Accounting
Part III: Financial Reporting Requirements - Local Governmental Units
- Financial Statements and Notes to Financial Statements
- Schedule of Expenditures of Federal Awards and Notes to
Schedule of Expenditures of Federal Awards
- Supplementary Information
- Alternate Basis of Presentation
Part IV: Internal Control
Glossary:
Commonly Used Accounting and Auditing Terms
Appendix:
A – Financial Statements Example - Local Governmental Units
B – Notes to Financial Statements Example - Local Governmental Units
C – Schedule of Expenditures of Federal Awards Example -
Local Governmental Units
D – Notes to Schedule of Expenditures of Federal Awards Example -
Local Governmental Units
E – Combining Schedules Example - Local Governmental Units
F – Schedule of Capital Assets Example
G – Schedule of Leases and Debt Example – Schools
H – Schedule of Payables and Receivables Example – Schools
- Introduction
The Indiana State Board of Accounts has outlined the regulation related to reporting of financial information for all local governmental units and quasi agencies3 of the State in this manual. Local governmental units for purposes of this manual include Counties, Cities, Towns, Townships, Libraries, Schools, Utilities, and Special Districts. The purpose of this regulation is to establish a consistent basis of accounting for the local governmental units identified and for quasi agencies of the State. The Indiana State Board of Accounts' authority for establishing this regulation is Indiana Code 5-11-1-2, 5-11-1-4, and 5-11-1-6.
Indiana Code 5-11-1-2 states:
"The state board of accounts shall formulate, prescribe, and install a system of accounting and reporting in conformity with this chapter, which must comply with the following:
- Be uniform for every public office and every public account of the same class and contain written standards that an entity that is subject to audit must observe.
- Exhibit true accounts and detailed statements of funds collected, received, obligated, and expended for or on account of the public for any and every purpose whatever, and by all public officers, employees, or other individuals.
- Show the receipt, use, and disposition of all public property and the income, if any, derived from the property.
- Show all sources of public income and the amounts due and received from each source.
- Show all receipts, vouchers, contracts, obligations, and other documents kept, or that may be required to be kept, to prove the validity of every transaction.
The state board of accounts shall formulate or approve all statements and reports necessary for the internal administration of the office to which the statements and reports pertain. The state board of accounts shall approve all reports that are published or that are required to be filed in the office of state examiner. The state board of accounts shall from time to time make and enforce changes in the system and forms of accounting and reporting as necessary to conform to law."
Indiana Code 5-11-1-4 (a) states:
"The state examiner shall require from every municipality and every state or local governmental unit, entity, or instrumentality financial reports covering the full period of each fiscal year. These reports shall be prepared, verified, and filed with the state examiner not later than sixty (60) days after the close of each fiscal year. The reports must be in the form and content prescribed by the state examiner and filed electronically in the manner prescribed by the state examiner and filed electronically in the manner prescribed under IC 5-14-3.8-7."
Indiana Code 5-11-1-6 states:
"The state board of accounts shall formulate, prescribe, and approve the forms for reports required to be made by this chapter.”
This manual sets out the requirements for reporting using a regulatory basis of accounting. A regulatory basis is defined as a basis of accounting that the reporting entity uses to comply with the requirements or financial reporting provisions of a governmental regulatory agency to whose jurisdiction the entity is subject. For purposes of this manual, the governmental regulatory agency is the State Board of Accounts and the reporting entity is the local unit of government or quasi agency of the State complying with this regulation.
- Objectives of Financial Reporting and Fund Accounting
A. Financial Reporting
Governmental financial reporting is designed to demonstrate the accountability of each organization over the resources in their care. Additionally, state and local governments can use financial reporting in making economic, social, and political decisions and assess accountability primarily by:
- Comparing actual financial results with the legally adopted budget
- Assessing the entity's financial condition and results of its operations
- Assisting in determining compliance with finance-related laws, rules, and regulations
- Assisting in evaluating efficiency and effectiveness of services provided
B. Fund Accounting
Fund accounting enables governmental entities to easily monitor and report compliance with spending purposes (fund restrictions), spending limits (budget), and other fiscal accounting objectives. Fund accounting is an accounting system organized on the basis of funds. Each fund is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self- balancing accounts that are comprised of receipts, disbursements, and its investment and cash balance. Resources are allocated to and accounted for in individual funds based upon purpose for which they are to be spent and the means by which spending activities are controlled.
The purpose of the funds maintained by a governmental entity is established from various sources and depends on the individual fund. Some funds are established and governed by state statute. The sources and uses of these funds are limited to what is authorized per the statute. Other funds are established and governed by the governmental entity itself. These funds are established by a resolution or ordinance which indicates what the authorized sources and uses of the fund are. Some funds are established to account for money held by the governmental entity for another organization. The money in these funds, while reported in the financial statements, is not truly money of the governmental unit. An example of this type of fund would be a payroll withholding fund. Money would be collected in this fund as it is withheld from employee paychecks and would be held in this fund until it is remitted to the proper taxing authority. While the governmental entity would maintain control of this money and would have a fiduciary responsibility to account for it properly, the money would not be available for use at the discretion of the governmental entity.
- Financial Reporting Requirements - Local Governmental Units
A. Financial Statements and Notes to Financial Statements
Each reporting entity, other than schools (see school requirements below), shall be required to report financial information on a financial statement. All financial information of the entity shall be included on the financial statement even if the activity has not been included in the financial records of the entity. The financial statement shall be presented on a fund basis format. The financial statement shall be referred to as the Statement of Receipts, Disbursements, and Cash and Investment Balances - Regulatory Basis. This statement shall present each fund separately. However, if the reporting entity chooses to do so, similar types of funds, such as payroll clearing funds and tax distribution funds, can be combined and presented as one fund on the statement. Funds that are established by statute or local ordinance/resolution and funds that account for grant activity may not be combined and presented in one fund. The statement shall present the beginning balance, total receipts, total disbursements, and ending balance for each fund. The receipts presented should be categorized into the following areas: taxes, licenses and permits, intergovernmental, charges for services, fines and forfeits, utility fees, and other receipts. The disbursements presented should be categorized into the following areas: personal services, supplies, other services and charges, debt service - principal and interest, capital outlay, utility operating expenses, and other disbursements. An example of the required format for the financial statement is documented in Appendix A. All activity related to a certain fund should be accounted for in that fund. For example, property tax receipts designated for the General Fund should be included in the General Fund. All funds of the reporting entity shall be presented on the statement with no distinction of the type of fund. The statement will include the funds of the reporting entity only (including its departments). No funds from outside organizations associated with the entity shall be included.
Certain disclosures will require information to be reported separately between the general activities of the government and the enterprise activities. These include long-term debt, leases, and the schedule for capital assets. An enterprise activity is one for which a fee is charged to external users for goods or services. Examples of enterprises include utilities, public transportation, convention centers, parking garages, airports, and internet services. This distinction is only for certain notes or schedules and does not apply to the information presented on the financial statement.
Note for Counties: Funds that account for the receipts and disbursements of County offices that are eventually accounted for in the County's general ledger should not be reported on the financial statement. Additionally, funds used to account for the County Police Retirement Plan and County Police Benefit Plan should not be included in the financial statement.
Each reporting entity, other than schools (see school requirements below), shall be required to include notes to the financial statement to support the financial statement prepared. The first required disclosure will be for the Summary of Significant Accounting Policies. This note shall include the following:
- Reporting entity note. This note will explain what type of government the reporting entity is, how it operates, and what services it provides. This note will also explain that the report represents transactions of the reporting entity only.
- Basis of accounting note. This note shall explain that the financial statements are reported on the regulatory basis of accounting and a brief definition of what the regulatory basis of accounting is. It should also disclose the difference between the regulatory basis of accounting and accounting principles generally accepted in the United States.
- Cash and investments note. This note shall disclose how investments are valued.
- Receipts note. This note should explain how receipts are presented and should indicate the types of receipts that are included in the financial statements.
- Disbursements note. This note should explain how disbursements are presented and should indicate the types of disbursements that are included in the financial statements.
- Interfund transfers note. This note should explain how transfers are reported on the financial statements and should indicate the purpose for which transfers are made.
- Fund accounting note. This note should explain the use of fund accounting by the reporting entity. It should also disclose that restrictions may be placed on some funds of the entity due to statutes or the fact that all money held may not actually belong to the entity.
- Capital Assets Note. This note should explain the types of capital assets owned by the reporting entity and how those assets are valued (such as historical cost). It should also dis- close the capital asset threshold, which is the dollar value above which asset acquisitions are added to the capital asset accounts.
The second required disclosure is related to budgets. This note should disclose the process followed by the reporting entity during the budget approval process. This note will not be included if the entity is not required to have an approved budget.
The third required disclosure is related to property taxes and should disclose the process and time- line for the assessment and collection of these taxes. This not will not be included if the entity does not receive property taxes.
The fourth required disclosure is related to deposits and investments. This note should disclose the statutory authority the reporting entity has related to depositing and investing of its funds.
The fifth required disclosure is related to risk management of the reporting entity. This note should disclose the risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; job related illnesses or injuries to employees; medical benefits to employees, retirees, and dependents; and natural disasters that the entity could be exposed to and the possible ways in which the entity can mitigate those risks.
The sixth required note disclosure is related to long-term debt of the reporting entity. This first part of this note should disclose all outstanding long-term (more than one year) debt at the beginning and end of the fiscal period. The note should also include any activity during the fiscal period, such as additional borrowings or retirements of debt. The second part of this note should disclose the debt service requirements to maturity. Debt service requirements should disclose the principal and interest payments for the five subsequent years, followed by five year increments until the debt matures. An example of the required format for the note disclosure can be found in Appendix B.
The seventh required note disclosure is related to leases. This note should include all outstanding leases at the end of the fiscal period. Additionally, for each lease, it should include a description of the lease purpose, the lease term beginning and ending dates, and the schedule of payments (i.e. annually, semi-annually, quarterly, etc.). The note should include a schedule that shows the principal and interest payments for the five subsequent years, followed by five year increments until the lease terminates. An example of the required format can be found in Appendix B.
The eighth required disclosure is related to pension plans of the entity. This note should disclose the pension plans that the entity participates in. For each of those pension plans, the notes should disclose the plan type, plan description, funding policy, actuarial assumptions of the plan, and the pension liability. This note will not be included if the entity does not offer a pension plan of any kind.
The ninth required disclosure pertains only to Counties and is related to the omission of certain funds that are eventually accounted for in the General Fund. This note should disclose that these funds were included in the prior year financial statement but are not included in the current year financial statement.
The tenth required disclosure (interfund activity). Any transfers that do not occur on a routine basis or are inconsistent with the activities of the fund making the transfer should be described in the notes with the dollar amount of the transfer.
In addition to the disclosures required above, the following disclosures are required, if applicable.
- If any funds reported on the financial statements contain receipts or disbursements which appear as negative, a note should be added to give an explanation for why this occurred.
- If any funds reported on the financial statements contain an ending balance which appears as negative.
- If any funds reported on the financial statements have a beginning balance in the current period which differs from the ending balance reported on the prior financial statements, a note should be added to indicate that changes have been made to the beginning balance. The note should include a schedule to show the fund involved, the balance as stated in the prior financial statements, the adjustment made and reason for it, and the restated balance.
- If any leases exist between the reporting entity and a holding corporation, a note should be added to disclose that fact. The note should indicate if the holding corporation is for profit or not for profit, if the holding corporation is a related party of the reporting entity, and the total lease payments made to the holding corporation during the audit period.
- If any events occurred subsequent to the end of the audit period that could have an impact on the future financial activity of the reporting entity, a note should be included to describe those events, the date those events occurred, and the estimated cost of those events. Dis- closure is only required for events that would be significant to future financial activity. Examples of these situations that might be disclosed include but are not limited to contingent liabilities, new debt issues, and increases in rates of the entity's utility.
- If postemployment benefits other than pension benefits are offered to retirees by the report- ing entity, a note should be added to indicate the plan type, plan description, what benefits are offered, the reporting entity’s contributions for the year, that the benefits pose a liability to the reporting entity, and that information regarding the benefits can be obtained by contacting the reporting entity.
- If certain funds are reported separately in the current financial statement, but were combined for reporting in the prior financial statement, a note should be included to explain this. Likewise, if funds were combined for reporting in the current financial statement, but were reported separately in the prior financial statement, a note should be included to explain this.
- If the financial state of the entity is such that substantial doubt exists about the ability of the entity to continue operations for a reasonable period of time, a note shall be included with the following information.
- information on the condition of the entity and events that created the financial state;
- the possible effects of the condition and events;
- management's evaluation of the significance of the conditions and events and any mitigating factors;
- possible discontinuance of operations;
- management's plans;
- information about future financial information.
- If investments are held by the reporting entity that cannot be adequately reported using the cash basis, such as stock, a note should be included to explain this. The note should include the type of investment held, how the investment was acquired, the amount of the income received during the period, and a statement that, with the exception of the income received in cash, the activity of the investment is not included in the financial statement. The reporting entity may add additional information if it is felt to be relevant to the investment. If the reporting entity has entered into any significant commitments, such as construction, a note should be included to describe the commitment and disclose the dollar amount of the commitment. If the reporting entity is aware of any significant contingent liabilities, a note should disclose the nature of the event and disclose the possible loss or range of loss. If an estimate cannot be made, the note should disclose the fact.
Any disclosures other than those indicated above that the reporting entity feels are necessary to adequately describe their financial situation should be included in the notes to the financial statements.
An example of the required format for the notes to the financial statement is documented in Appendix B.
For Schools:
Each school shall be required to report financial information on a financial statement. The financial statement shall be presented on a fund basis format. All financial information of the entity shall be included on the financial statement even if the activity has not been included in the financial records of the entity. The financial statement shall be referred to as the Statement of Receipts, Disbursements, Other Financing Sources (Uses), and Cash and Investment Balances - Regulatory Basis. This statement shall present each fund separately. However, if the school chooses to do so, similar types of funds, such as payroll clearing funds and tax distribution funds, can be combined and presented as one fund on the statement. Funds that are established by statute or local resolution and funds that account for grant activity may not be combined and presented in one fund. The statement shall present the beginning balance, total receipts, total disbursements, total other financing sources and uses, and ending balance for each fund. All activity related to a certain fund should be accounted for in that fund. All funds of the reporting entity shall be presented on the statement with no distinction of the type of fund. The statement will include the funds of the reporting entity only. No funds from outside organizations associated with the entity shall be included. The financial information for both years of the audit period shall be included on one statement. The orientation of this statement should be set to landscape. An example of the required format for the financial statement is documented in Appendix A.
Each school shall be required to include notes to the financial statement to support the financial statement prepared. The first required disclosure will be for the Summary of Significant Accounting Policies. This note shall include the following:
- Reporting entity note. This note will explain what type of government the reporting entity is, how it operates, and what services it provides. This note will also explain that the report represents transactions of the reporting entity only.
- Basis of accounting note. This note shall explain that the financial statements are reported on the regulatory basis of accounting and a brief definition of what the regulatory basis of accounting is. It should also disclose the difference between the regulatory basis of accounting and accounting principles generally accepted in the United States.
- Cash and investments note. This note shall disclose how investments are valued.
- Receipts note. This note should explain how receipts are presented and should indicate the types of receipts included in the financial statement.
- Disbursements note. This note should explain how disbursements are presented and should indicate the types of disbursements included in the financial statement.
- Other financing sources and uses note. This note should explain how other financing sources and uses are presented and should indicate the activities included in other financing sources and uses on the financial statement.
- Fund accounting note. This note should explain the use of fund accounting by the reporting entity. It should also disclose that restrictions may be placed on some funds of the entity due to statutes or the fact that all money held may not actually belong to the entity.
The second required disclosure is related to budgets. This note should disclose the process followed by the reporting entity during the budget approval process.
The third required disclosure is related to property taxes and should disclose the process and timeline for the assessment and collection of these taxes. This note will not be included if the entity does not receive property taxes.
The fourth required disclosure is related to deposits and investments. This note should disclose the statutory authority the reporting entity has related to depositing and investing of its funds.
The fifth required disclosure is related to risk management of the reporting entity. This note should disclose the risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; job related illnesses or injuries to employees; medical benefits to employees, retirees, and dependents; and natural disasters that the entity could be exposed to and the possible ways in which the entity can mitigate those risks.
The sixth required disclosure is related to pension plans of the entity. This note should disclose the pension plans that the entity participates in. For each of those pension plans, the notes should disclose the plan type, plan description, and funding policy. This note will not be included if the entity does not offer a pension plan of any kind.
In addition to the disclosures required above, the following disclosures are required, if applicable:
- If any funds reported on the financial statement contain receipts or disbursements which appear as negative, a note should be added to give an explanation for why this occurred.
- If any funds reported on the financial statement contain an ending balance which appears as negative, a note should be added to give an explanation for why this occurred.
- If any funds reported on the financial statement have a beginning balance in the current period which differs from the ending balance reported on the prior financial statement, a note should be added to indicate that changes have been made to the beginning balance. The note should include a schedule to show the fund involved, the balance as stated in the prior financial statement, the adjustment made and reason for it, and the restated balance.
- If any leases exist between the reporting entity and a holding corporation, a note should be added to disclose that fact. The note should indicate if the holding corporation is for profit or not for profit, if the holding corporation is a related party of the reporting entity, and the total lease payments made to the holding corporation during the audit period.
- If any events occurred subsequent to the end of the audit period that could have an impact on the future financial activity of the reporting entity, a note should be included to disclose those events. Disclosure is only required for events that would be significant to future financial activity. Examples of these situations that might be disclosed include but are not limited to contingent liabilities, new debt issues, and increases in rates of the entity's utility.
- If postemployment benefits other than pension benefits are offered to retirees by the reporting entity, a note should be added to indicate what benefits are offered, that the benefits pose a liability to the reporting entity, and that information regarding the benefits can be obtained by contacting the reporting entity.
- If certain funds are reported separately in the current financial statement, but were combined for reporting in the prior financial statement, a note should be included to explain this. Likewise, if funds were combined for reporting in the current financial statement, but were reported separately in the prior financial statement, a note should be included to explain this.
- If the financial state of the entity is such that substantial doubt exists about the ability of the entity to continue operations for a reasonable period of time, a note shall be included with the following information:
- information on the condition of the entity and events that created the financial state;
- the possible effects of the condition and events;
- management's evaluation of the significance of the conditions and events and any mitigating factors;
- possible discontinuance of operations;
- management's plans;
- information about future financial information.
9. If investments are held by the reporting entity that cannot be adequately reported using the cash basis, such as stock, a note should be included to explain this. The note should include the type of investment held, how the investment was acquired, the amount of the income received during the period, and a statement that, with the exception of the income received in cash, the activity of the investment is not included in the financial statement. The reporting entity may add additional information if it is felt to be relevant to the investment.
Any disclosures other than those indicated above that the reporting entity feels are necessary to adequately describe their financial situation should be included in the notes to the financial statements.
An example of the required format for the notes to the financial statement is documented in Appendix B.
- Schedule of Expenditures of Federal Awards and Notes to Schedule of Expenditures of Federal Awards
Each reporting entity shall be required to report information related to activity involving federal awards on this schedule. This schedule shall present each federal program separately. This schedule shall present on the same basis of accounting as the financial statements. For reimbursement grants, the schedule should report reimbursements in the period in which the reimbursement is received. For advancement grants, the schedule should report disbursement of federal funds in the period in which the disbursement is made. The schedule shall report Federal agencies in ascending order according to the number of the agency. This number is the first two digits of the CFDA number.
An example format for the Schedule of Expenditures of Federal Awards is documented in Appendix C.
Each reporting entity shall be required to include notes to the Schedule of Expenditures of Federal Awards to support the Schedule of Expenditures of Federal Awards. These notes should include the following:
- Basis of presentation note. This note should disclose the basis of presentation of the schedule.
- Summary of significant accounting policies note. This note should disclose the basis of accounting used. It should also disclose when and how amounts are recognized on the schedule.
- Loans outstanding note. This note should disclose the amount of any loans outstanding when there are continuing compliance requirements associated with the loan.
An example of the required format for the Notes to the Schedule of Expenditures of Federal Awards is documented in Appendix D.
- Supplementary Information
In addition to the requirements related to the financial statements and notes to financial statements mentioned in Part I, this manual outlines the reporting requirements for supplementary information. There is one schedule addressed in this section of the regulation, the Schedule of Capital Assets.
Schedule of Capital Assets
This schedule should include all capital assets owned by the reporting entity at the beginning and end of the fiscal period. The schedule should also include any activity during the fiscal period, such as purchases or sales of capital assets. The capital assets should be reported in the following categories: land; infrastructure; buildings; improvements other than buildings; machinery; equipment and vehicles; construction in progress; and books and other. The actual cost of the assets should be used for this schedule. If the actual cost is not known, a reasonable estimate of the cost should be determined and used for reporting purposes. An example of the required format for the Schedule of Capital Assets is documented in Appendix F.
For Schools:
Schedule of Capital Assets
Each reporting entity shall be permitted to report capital assets owned by the reporting entity on this schedule. If presented, this schedule should include all capital assets owned at the end of the fiscal period. The capital assets should be reported in the following categories: land; infrastructure; buildings; improvements other than buildings; machinery; equipment and vehicles; construction in progress; and books and other. The actual cost of the assets should be used for this schedule. If the actual cost is not known, a reasonable estimate of the cost should be determined and used for reporting purposes. An example of the required format for the Schedule of Capital Assets is documented in Appendix F.
Schedule of Leases and Debt
Each reporting entity shall be permitted to report lease and debt information on this supplementary schedule. If presented, the schedule should include all outstanding lease and debt at the end of the fiscal year. An example of the required format of the Schedule of Lease and Debt is documented in Appendix G.
Schedule of Payables and Receivables
Each reporting entity shall be permitted to report payables and receivables of the entity on this schedule. If presented, the schedule should include amounts payable and receivable at the end of the fiscal period. An example of the required format for the Schedule of Payables and Receivables is documented in Appendix H.
- Alternate Basis of Presentation
The reporting entity may complete their financial reporting on a basis of accounting other than the regulatory basis set out in this manual. The reporting entity must prepare the financial statements, notes to the financial statements, and all other schedules required for the basis of accounting used. The State Board of Accounts will perform an audit or examination on the financial statements, notes, and schedules presented. All the required information must be available at the beginning of the scheduled audit or examination. The State Board of Accounts will provide no technical assistance in the preparation of the financial reporting if prepared on a basis of accounting other than the regulatory basis.
- Internal Control
Detailed information on internal controls can be found in the Accounting and Uniform Compliance Guidelines Manual for Indiana Political Subdivisions.
- Glossary and Appendix
A glossary of commonly used accounting and auditing terms can be found on the SBOA website: https://www.in.gov/sboa/about-us/sboa-glossary-of-accounting-and-audit-terms/
The following items in the appendix can be viewed at this link.
A – Financial Statements Example - Local Governmental Units
B – Notes to the Financial Statements Example - Local Governmental Units
C – Schedule of Expenditures of Federal Awards Example - Local Governmental Units
D – Notes to the Schedule of Expenditures of Federal Awards Example - Local Governmental Units
E – Combining Schedules Example - Schools
F – Schedule of Capital Assets Example - Local Governmental Units
G – Schedule of Leases and Debt Example – Schools
H – Schedule of Payables and Receivables Example – Schools