Ch09_LN_517.pptx

Financial Reporting of State and Local Governments Chapter 9  Conceptual Framework for Financial Reporting Objectives: Provide information to assess a government’s accountability Assist users in making economic, social, and political decisions Operational Ac...

Financial Reporting of State and Local Governments Chapter 9  Conceptual Framework for Financial Reporting Objectives: Provide information to assess a government’s accountability Assist users in making economic, social, and political decisions Operational Accountability: Whether the government has used its resources efficiently and effectively in meeting operating objectives. Fiscal Accountability: Ensuring the government is complying with rules and regulations related to the use of  Conceptual Framework for Financial Reporting Primary Users: Those external to government; principally, citizens, legislative and oversight bodies, and creditors Usefulness in Reports: Understandable Reliable Relevant Timely Consistent Comparable  Most Useful Information Presentation Communicating information in a manner that is helpful to the user is an important part of making information useful. GASB Concepts Statement 3: Recognition & Disclosure Recognition in the financial statements, An item of information that meets the definition of an element and is measurable with sufficient reliability should be recognized in the financial statements. Disclosure in the notes to the financial statements, A note should be used if it can help support an item recognized in a financial statement or provide information that is essential to the user’s understanding of the item.  Most Useful Information Presentation Communicating information in a manner that is helpful to the user is an important part of making information useful. GASB Concepts Statement 3: Supplementary Information Required supplementary information: Used to provide information that is essential: Without this information, the financial statements and related notes cannot be placed in the correct context. Examples: MD&A, budget to actual schedules, etc. (Other) supplementary information Other supplementary information is useful but not essential in understanding the financial statements and related notes. Statistical section of CAFR.  Financial Reporting Entity Governmental financial reporting should report on all governments and organizations for which elected officials are accountable. A financial reporting entity is the primary government and organizations for which the primary government is financially accountable. Primary Government: A state government or general purpose local government. A special government is possible: Separately elected governing body & legally separate. Fiscally independent: Authority to (1) determine the budget, (2) levy taxes/charges, and (3) issue bonded debt.  Financial Reporting Entity A financial reporting entity is the primary government and organizations for which the primary government is financially accountable. Financially Accountable: (1) The primary government appoints the voting majority of the organizations voting board, AND Is able to impose its will on the organization OR There is potential for the organization to provide specific financial benefits or burdens. (2) The primary government DOES NOT appoint the voting majority, BUT The organization is fiscally dependent AND There is potential for the organization to provide specific financial benefits or burdens.  Component Units A component unit is defined as a legally separate organization for which the elected officials of the primary government are financially accountable. Component units are included as a part of the reporting entity. Examples of component units include not-for-profit organizations, for-profit firms or a nonprimary government. An organization who’s exclusion from the financial reports would result in misleading financial statements would also be considered a component unit.  Presentation of Component Units Blended Presentation: the component unit’s financial data for its funds and activities are reported with the same fund types and activities of the primary government, and presented in both the fund and government-wide statements. Discrete Presentation: the component unit’s financial data are reported in one or more columns, separate from the financial data of the primary government, and only reported in the government-wide statements.  Considerations for Blended Presentation of Component Units Is the governing body of the CU substantially the same as the primary government? Is there a clear financial benefit/burden between the CU and the primary government or does the primary government have operational responsibility for the CU? Does the CU exist to primarily serve the primary government? Is the CUs debt expected to be paid almost entirely by the primary government?  Governmental Financial Reporting It is useful for financial reports to be prepared and distributed at intervals throughout a fiscal period as well as at period-end. Reports prepared at times other than year-end are called interim reports. Interim financial reports are useful for both government administrators and the legislative branch, especially those serving on the finance committee.  Suggested Interim Reports Schedule of actual and budgeted revenue (for the General Fund and special revenue funds and other funds for which budgets have been legally adopted) Schedule of actual and budgeted expenditures (for the General Fund and special revenue funds and other funds for which budgets have been legally adopted) Comparative schedule of revenue and expense (for each enterprise and internal service fund) Combined schedule of cash receipts, disbursements, and balances—all funds Annual Financial Reports Users of Annual Financi al Report s  Comprehensive Annual Financial Report (CAFR) A CAFR is the government’s official annual report prepared and published as a matter of public record. A CAFR includes the minimum requirements of general purpose external financial reporting: Management’s discussion and analysis (MD&A), Basic government-wide and fund financial statements and related notes, and Other required supplementary information (RSI)  Comprehensive Annual Financial Report (CAFR) In addition, a CAFR includes Auditors’ report (if contained) Individual fund and combining financial statements, A statistical section, Schedules, Narrative explanations, Other material management deems relevant.  Sections of a CAFR Introductory Section Financial Section Statistical Section  Introductory Section Since the introductory section is generally not covered by the auditor’s report, it may present information of a more subjective nature, including prospective information such as forecasts or expectations. This section includes: Table of contents Letter of transmittal Other material deemed appropriate by management  Financial Section The minimum content for the financial section of a CAFR Auditor’s report MD&A Basic financial statements Government-wide financial statements Fund financial statements Notes to the financial statements Required supplementary information other than MD&A, including, but not limited to, the budgetary comparison schedule. Combining statements and individual fund statements and schedules.  Basic Financial Statements Government-wide financial statements Statement of net position Statement of activities Fund financial statements Governmental funds Balance sheet Statement of revenues, expenditures, and changes in fund balances Proprietary funds Statement of net position Statement of revenues, expenses, and changes in fund net position Statement of cash flows Fiduciary funds (including component units that are fiduciary in nature) Statement of fiduciary net position Statement of changes in fiduciary net position  Statistical Sections There are five categories defined by the GASB that should be included in the statistical section. The most recent 10 years of data should be presented for each. Financial trends information Revenue capacity information Debt capacity information Demographic and economic information Operating information Financial Trends Information Shows how a government’s financial position has changed over time Focus is on showing the trend in fund balances and net position categories Prepared at both the fund level and government-wide level Revenue Capacity Information Shows the government’s ability to generate revenues Information on the revenue base Information on revenue rates Principal revenue payers Property tax levy and collection information Debt Capacity Information Shows existing debt burden and ability to issue debt Ratios of outstanding debt to total personal income of residents Information about direct and overlapping debt Legal debt limitations and margins Information about pledged revenues Demographic and Economic Information Shows socioeconomic environment in which the government operates Personal income Unemployment rates Employers Operating Information Provides a context in which the government’s operations and resources can be better understood Number of government employees Indicators of demand or level of service Capital asset information Preparing the Financial Statements All necessary adjusting entries, including depreciation, should be prepared and posted. A pre-closing trial balance is prepared to provide all information needed for the Governmental Activities column of the government-wide financial statements. All temporary accounts should be closed. Reclassification entries are prepared and posted for each of the three net position accounts.  Fund Financial Statements Fund financial statements are prepared for all governmental funds and proprietary funds. Governmental fund financial statements include Balance sheet – governmental funds Statement of revenues, expenditures, and changes in fund balances— governmental funds Fund balances must be classified according to constraints on their use: nonspendable, restricted, committed, assigned and unassigned.  Required Reconciliations Capital outlays that are reported as expenditures in governmental funds but as capital assets at the government-wide level. Disposition of capital assets that are reported as other financing sources in governmental funds but as reductions of capital assets and gains/losses at the government-wide level. Depreciation on capital assets that is not reported in governmental funds. Issuance of long-term debt that is reported as other financing sources in governmental funds but as general long-term liabilities at the government-wide level.  Required Reconciliations Retirement of long-term debt that is reported as an expenditure in governmental funds but as a reduction of general long-term liabilities at the government-wide level. Some revenues that do not provide current financial resources are not recognized in governmental funds. Reporting expenses on an accrual basis at the government-wide level. Interfund transfers between governmental funds, which are not reported at the government-wide level. Adjusting for internal service funds’ assets, Questions?