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CITY OF SANTA ANA, CALIFORNIA <br />AIR QUALITY IMPROVEMENT SPECIAL REVENUE FUND <br />NOTES TO FINANCIAL STATEMENTS <br />JUNE 30, 2023 <br />NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) <br />C. Budgetary Accounting (Continued) <br />The City legally adopts annual budgets for the Special Revenue Funds including the Air <br />Quality Improvement Special Revenue Fund. The budgetary control for the Special <br />Revenue Funds is under the department in charge. The Air Quality Improvement Special <br />Revenue Fund is managed by the Public Works Agency. Monthly budgetary reports are <br />prepared to effect control through fiscal management. The City Council approved <br />supplemental appropriations during the year, but they were not considered material. <br />Budgets are prepared on a modified accrual basis. Encumbrances (e.g., purchase <br />orders, contracts) outstanding at year-end are reported as restrictions of fund balances <br />since they do not constitute expenditures or liabilities. All other annual appropriations <br />lapse at fiscal year-end to the extent that they have not been expended or lawfully <br />encumbered. During the fiscal year, the total Fund's expenditures were within the legal <br />prescribed limits as approved by the City Council. <br />D. Deferred Inflows of Resources <br />In addition to liabilities, the balance sheet will sometimes report a separate section for <br />deferred inflows of resources. This separate financial statement element, deferred <br />inflows of resources, represents an acquisition of fund balance that applies to a future <br />period and will not be recognized as an inflow of resources (revenue) until that time. The <br />AQMD fund has one item that qualifies for reporting in this category, which is unavailable <br />revenues from intergovernmental revenues and interest receivable. These amounts are <br />deferred and recognized as an inflow of resources in the period that the amounts <br />become available. <br />E. Fund Balance <br />AQMD's fund balance is reported based on the extent to which the City is bound to <br />observe constraints on the use of the AQMD's resources. AQMD's fund balance is <br />classified under restricted, which include amounts which are constrained for specific <br />purposes that are 1) externally imposed by creditors, grantors, contributors, or laws or <br />regulations of other governments or 2) imposed by law through enabling legislation. <br />AQMD's fund balance is restricted for programs initiated for the purpose of implementing <br />the California Clean Air Act. Information regarding the fund balance reporting policy <br />adopted by the City is described in Note 1 to the City of Santa Ana's Annual <br />Comprehensive Financial Report. <br />F. Estimates <br />The preparation of financial statements in accordance with accounting principles <br />generally accepted in the United States of America requires management to make <br />estimates and assumptions that effect certain reported amounts and disclosures. <br />Accordingly, actual results could differ from those estimates. <br />Z <br />