Transcript Preparing a Top

Preparing a Top-Notch
MD&A
Tom Duensing, Deputy Financial Services Manager
City of Tempe
January 11, 2008
Overview
• Relationship of the MD&A to the CAFR
• Reasons Behind the MD&A
– What is its purpose?
– How did the MD&A evolve?
– Why is the MD&A Required Supplementary
Information (RSI)?
• Components of the MD&A
• Challenges of the MD&A
• Summary/Questions
CAFR vs. Basic Financial Statements
General information on the government’s structure, services,
and environment
Introducto
ry section
+
Management’s Discussion and Analysis
Government-wide Financial Statements
Government Fund Financial Statements
Proprietary Fund Financial Statements
Mandatory
reporting
(GAAP)
Fiduciary Fund Financial Statements
Financial
section
Notes to the Financial Statements
Additional Required Supplementary Information
Information on individual funds and discretely presented component units
and other supplementary information not required by GAAP
+
Trend data and non-financial data
Statistical
section
CAFR
Basic Financial Statements & RSI
Management’s
discussion
and analysis
RSI
+
Government-wide
financial statements
Fund financial statements
Governmental funds
Proprietary
funds
Fiduciary
funds
Notes to the financial statements
Audited
basic
financial
statements
+
Other required
supplementary information (4 Types)
RSI
Mandatory
reporting
Reasons Behind the MD&A
Overall MD&A
• Introduces the Basic Financial Statements
• Provides and Analytical Overview of Basic
Financial Statements
• The MD&A Should…
– Be Objective,
– Be Easily Readable, and
– Provide and Assess the Year-Over-Year
Financial Position (Better Off or Worse Off)
Why an MD&A?
• MD&A part of GASB Statement No. 34
Established New Financial Reporting
Requirements
– Retained Short-Term/Fund Information
– Incorporated a Long-Term Focus
• There is an Assumption That Management
Understands
– Transactions, Events & Conditions Reflected in
the Financial Report
– Discuss Fiscal Policies that Govern Operations
What is GASB Trying to Accomplish?
• Improved Financial Reporting
– Greater Government Accountability (Principal
Objective)
– Providing More Useful Information
– To a Wider Range of Users
• Objectives in Concept Statement 1
(Established Financial Reporting
Objectives) are the Foundation of GASB
34/MD&A
• GASB 37 – “Confine” Topics to Those
Listed in GASB 34
What is GASB Trying to Accomplish?
(Con’t)
• Wanted Financial Information to be
Relevant to Users and Reliable
• Information Should be Understandable to
Knowledgeable Users
• User Needs Vary – Legal Compliance,
Financing, Gov’t Effectiveness – That’s
why both short-term & long-term focus is
presented in the Basic Financial
Statements
Background
• Reporting Model Project Began in 1984
• Common Theme of the Project –
“Government-as-a-Whole” Financial
Reporting (e.g. Entity Wide Perspective)
• The Long-Term Effects of Current-Period
Transactions & Events
• ED Issued in January 1997
• Statement Issued in June 1999
Background (con’t)
•
•
The MD&A Requirement was Highly
Supported by ED Respondents
Generally, Preparers & Attestors Raised
Concerns
– RSI Status & Lack of Objectivity
•
Why RSI?
1. Ensure MD&A is Presented
2. Ensure Auditors Apply Limited Procedures on
MD&A
Components of the MD&A
Components of the MD&A
 There are 8 Sections to an MD&A
a. Brief Discussion of the Basic Financial
Statements
b. Condensed Comparative Financial
Information
c. Analysis of Overall Financial Position and
Results of Operations
d. Individual Fund Analysis
Components of the MD&A (con’t)
e. B to A Analysis for the General Fund
f. Capital Asset & Long-Term Debt Activity
g. Capital Asset Modified Approach
Discussion (if applicable) - Infrastructure
h. Facts, Decisions or Conditions that Will
have a Significant Financial Impact.
a. Brief Discussion of the BFS
• Gov’t Financial Reporting is Unique
• Discuss both Government-Wide and Fund
Financial Statements
– Describe the two types and discuss the
differences between the two
– Discuss how the Fund Financial Statements
either 1) reinforce or 2) provide add’l
information about the Gov’t-Wide Financials
b. Condensed Comparative Financial
Information
• Government-Wide Data
• Current & Prior Fiscal Year
• Both Governmental and Business-type
Activities
• A Minimum Level of Detail is Required
c. Analysis of Overall Financial Position
and Results of Operations
• Reasons for the change should be
discussed (not just the size)
• Governmental & Business-Type Activities
Discussed Separately
• Economic Factors Should be Discussed
• Current Fiscal Period Should be
Emphasized
d. Individual Fund Analysis
• Major Gov’t and Proprietary Funds
Discussed
• Discuss Significant Balances and
Operations – Focus on the “why”
significant changes occurred.
• Fund Balance/Net Assets – Discuss
Restrictions, Commitments or Other
Restrictions
• “Can” Discuss Non-Major Funds
e. B to A Analysis General Fund
•
Should Discuss Differences Between
1. Original Budget & Final Amended Budget
2. Final Amended Budget & Actuals
•
Causes of Budget Variances – Use a
“Reasonable Level of Specificity” (i.e.
explain it in enough detail)
f. Capital Asset & Long-Term Debt
Activity
• CA & LTD Information Should be
Summarized – Refer readers to the notes
and don’t repeat as much as possible
• Significant Changes Should be Described
• Debt Items Discussed
– Future Commitments for Capital Exp’s
– Credit rating changes
– Debt limitations that affect future financings
• Special Assessment Debt - If
Governmental Commitment, then Discuss
g. Capital Asset Modified Approach
Discussion (if applicable)
• Modified Approach = If Gov’t Preserves the
Infrastructure, Assets Should Not be
Depreciated – Items to Discuss…..
– Change in the Condition Levels
– Discuss How Current Levels Compare with
Target Condition Levels
– Amount Necessary to Preserve Condition
Level vs. Actual Expense Incurred
h. Facts, Decisions or Conditions that
Will have a Significant Financial Impact
• What is “currently known”? – Date of the
Independent Auditor’s Report
• Event Actually Happened vs. It “Might”
Happen
Facts, Decisions or Conditions that Will
have a Significant Financial Impact
(con’t)
• Major Grant Award
• Lawsuit Adjudicated
• Taxable Property
Reassessed
• Major Development
Agreement
• Change in Tax Rate
• Change in Fee
Structure
• Significant Impairment
of Assets
• Renegotiated Labor
Contract
Challenges of the MD&A
Challenges of the MD&A
• Financial Information is Highly Aggregated
in the MD&A – Can cause difficulty in
providing an adequate explanation.
• How can the preparer provide brief, yet
effective information that is written in “Plain
English”?
• Highly Aggregated vs. Sufficiently Descr.
MD&A Resources
• www.gasb.org
– GASB 34
– GASB 37
– GASB Comprehensive Implementation Guide
• www.gfoaz.org
– Membership Information Exchange
• www.gfoa.org
– Governmental Accounting, Auditing, and
Financial Reporting (GAAFR)
• Other Governments’ CAFR’s
In Summary…..
• Designed to Introduce the Basic Financial
Statements
• Although MD&A is a Written Analytical, It is
Fairly Structured
• Should be 1) Objective, 2) Easily
Readable & 3) Assess Year-Over-Year
• Excellent Chance for Preparers to Provide
a FULL UNDERSTANDING of the Basic
Financial Statements
Questions?
Thank You!