Bequests in Governmental Accounting: Essentials

Governmental accounting involves the management and reporting of financial resources received from various sources, including bequests. A bequest is a gift of assets, usually in the form of cash, securities, or property, left to a governmental entity by a deceased individual. Bequests can significantly impact a government's financial position and are subject to specific accounting and reporting requirements. In this article, we will explore the essentials of bequests in governmental accounting, including their recognition, measurement, and financial reporting.

To recognize a bequest, certain criteria must be met. According to the Governmental Accounting Standards Board (GASB) Statement No. 33, "Accounting and Financial Reporting for Nonexchange Transactions" 1, a bequest should be recognized as revenue when it is:

Measurable

Probable (i.e., likely to be received)

Free from significant uncertainty regarding its receipt or amount

The measurability criterion is met when the amount of the bequest can be reasonably estimated. The probability criterion is met when it is likely that the bequest will be received. The absence of significant uncertainty regarding the receipt or amount of the bequest is also essential for recognition.

Bequests should be measured at their fair value at the time of receipt. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date 2. The fair value of a bequest can be determined using various methods, including:

Market prices for identical or similar assets

Present value techniques for assets with uncertain cash flows

Appraisals or valuations by independent third parties

Suppose a donor dies, leaving a bequest of _USD_100,000 in cash to a city government. The city's accounting department receives the bequest on January 1, 2023. The bequest is measurable, probable, and free from significant uncertainty. The city should recognize the bequest as revenue on January 1, 2023, at its fair value of _USD_100,000.

In another example, suppose a donor bequeaths a piece of artwork to a state government, with an estimated fair value of _USD_50,000. The state government receives the artwork on June 1, 2023. The state should recognize the bequest as revenue on June 1, 2023, at its fair value of _USD_50,000.

Bequests should be reported in the financial statements of the governmental entity in accordance with GASB Statement No. 34, "Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments" 3. The financial statement presentation for bequests depends on the type of fund in which the bequest is recorded.

Governmental entities are required to disclose certain information about bequests in their financial statements. The disclosure requirements include:

A description of the bequest and its purpose

The amount of the bequest recognized as revenue during the period

Any restrictions or conditions imposed on the bequest

The following is an example of how bequests might be reported in the financial statements of a governmental entity:

"During the year ended December 31, 2023, the city received a bequest of _USD_100,000 from a donor. The bequest is restricted for the purpose of supporting the city's parks and recreation programs. The bequest is reported as revenue in the General Fund."

To manage bequests effectively, governmental entities should establish internal controls to ensure that bequests are properly recorded, managed, and reported. Internal controls may include:

Segregation of duties among personnel responsible for bequest management

Regular review and reconciliation of bequest transactions

Documentation of bequest-related decisions and transactions

Governmental entities should also establish policies and procedures for bequest administration, including:

Procedures for accepting and recording bequests

Guidelines for managing and investing bequest assets

Requirements for reporting bequests in the financial statements

Governmental entities must comply with relevant accounting standards and regulations when managing bequests. This includes compliance with GASB statements and other authoritative guidance.

Bequests can be a significant source of revenue for governmental entities. To ensure that bequests are properly recognized, measured, and reported, governmental entities must comply with relevant accounting standards and regulations. By establishing internal controls, policies, and procedures for bequest management, governmental entities can manage bequests effectively and ensure transparency and accountability in their financial reporting.

Governmental Accounting Standards Board. (1998). GASB Statement No. 33, "Accounting and Financial Reporting for Nonexchange Transactions". Retrieved from https://www.gasb.org/jsp/GASB/Document_C/DocumentPage?cid=1176163529584

Governmental Accounting Standards Board. (2015). GASB Statement No. 72, "Fair Value Measurement and Application". Retrieved from https://www.gasb.org/jsp/GASB/Document_C/DocumentPage?cid=1176164206951

Governmental Accounting Standards Board. (1999). GASB Statement No. 34, "Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments". Retrieved from https://www.gasb.org/jsp/GASB/Document_C/DocumentPage?cid=1176163991765

A: A bequest is a gift of assets, usually in the form of cash, securities, or property, left to a governmental entity by a deceased individual.

A: Bequests are recognized as revenue when they are measurable, probable, and free from significant uncertainty regarding their receipt or amount.

A: Bequests are measured at their fair value at the time of receipt.

A: Governmental entities are required to disclose a description of the bequest and its purpose, the amount of the bequest recognized as revenue during the period, and any restrictions or conditions imposed on the bequest.

A: Bequests should be reported in the financial statements in accordance with GASB Statement No. 34, and the specific financial statement presentation depends on the type of fund in which the bequest is recorded.