Transcript Compare Financial Reports

The Financial Reporting Model
presented at the
2012 School of Governmental Finance Beginner
Boot Camp
Jacqueline L. Reck, PhD, CPA
Interim Associate Dean College of Business
November 13, 2012
Plan of Action
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Content of a government annual report
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Look at illustrations from a complete annual report
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Go through the different financial statements
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Questions during or at the end of the presentation
GASB – Annual Report (CAFR)
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Introductory section
Financial section
 Auditor’s report
 MD&A
 Basic financial statements and related notes
 Required supplementary information
 Supplementary information (such as combining
statements)
Statistical section
MD&A
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Required supplementary material (not boilerplate)
GASB specifically defines what must be included
 Discussion of basic financial statements
 Condensed financial information comparing current
and prior year
 Analysis of overall financial position and results of
operations
 Analysis of balances and transactions
 Description of significant capital asset and debt
activity
 Description of currently known facts, decisions or
conditions that affect position or operations
Compare Financial Reports
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Look at the basic financial statements from KForce
prepared under FASB
Look at the basic financial statements from the City of
Jacksonville
What are some immediate differences that you see?
Required Basic Financial Statements
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Governmental Fund Statements
 Balance Sheet
 Statement of Revenues, Expenditures and Changes
in Fund Balance
Note: a major fund is a general fund, and any
governmental fund or enterprise fund with 10% or more
of total assets/liabilities/revenues/expenses
(expenditures) of all governmental (enterprise) funds
and 5% or more of the corresponding element when
governmental and enterprise funds are combined.
Comparing Governmental Fund
Statements to KForce
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Take time to compare the City of Jacksonville Balance
Sheet-Governmental Funds to the Kforce Balance
Sheet
Identify differences
Balance Sheet – Fund Balances
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Reporting model format
Assets(current) = Liabilities(current) + Fund Balances
(2 categories)
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Fund Balance Categories
 Nonspendable - not expected to be converted to
cash or cannot be converted
 Spendable (4 types)
Balance Sheet – Fund Balances
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Spendable
 Restricted - externally imposed or imposed by law or
enabling legislation
 Committed - use of funds is constrained by formal
action of highest level with decision-making authority
 Assigned - government intent to use for a specific
purpose
 Unassigned - everything else, note only the General
Fund can have a positive unassigned fund balance.
Since a negative restricted, committed or assigned
balance is not allowed, other funds may report a
negative unassigned balance.
Comparing Operating Statements
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Compare the City of Jacksonville Statement of
Revenue, Expenditures and Changes in Fund BalanceGovernmental Funds to the Kforce Income Statement
Identify differences
Statement of Revenues, Expenditures
and Changes in Fund Balance
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Reporting model format
Revenue
- Expenditures
= Excess of Revenues Over (Under) Expenditures
+ Other Financing Sources (Uses)
= Excess of Revenues & Other Sources Over (Under)
Expenditures & Other Uses
+ Special Items/Extraordinary Items/Capital Contributions
+ Change in Fund Balances
+ Beginning Fund Balances
= Ending Fund Balances
Statement of Revenues, Expenditures
and Changes in Fund Balance
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Revenues are reported by source
Expenditures are reported by function/program
Extraordinary items involve transactions that are both
unusual and infrequent in nature (same as for-profit
definition)
Special items are either unusual or infrequent in nature
and under management control
Required Basic Financial Statements
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Proprietary Fund Statements
 Statement of Net Position
 Statement of Revenues, Expenses and Changes in
Fund Net Position
 Statement of Cash Flows
Examples are provided for the City of Jacksonville
Statement of Revenues, Expenses and
Changes in Net Position
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GASB requires division into operating and nonoperating
sections
 Operating revenue/expenses are to be tied to the
fund’s main purpose
 Management call on some items, such as grants
 Used in statement of cash flow
Statement of Cash Flows
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Direct approach is required by GASB
Instead of three primary components of cash flow there
are four
 Operating
 Non-capital financing
 Capital and related financing
 Investing
Statement of Cash Flows
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Operating activities - effect of transactions used to
determine operating income
 Cash from sale of goods and services
 Cash from quasi-external operating transactions
 All other cash transactions that don’t fit into another
component area
 Cash payments are the obverse of the above
Statement of Cash Flows
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Direct method categories used for operating
activities
 cash receipts from customers
 cash receipts from quasi-external transactions
 other operating cash receipts
 cash to employees for services
 cash payments to other suppliers of goods and
services
 cash payments for quasi-external transactions
 other operating cash payments
Statement of Cash Flows
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Non-capital financing activities
 Borrowing money to acquire, construct or improve
non-capital assets
 Repaying principal and interest related to non-capital
borrowing
 Look to transactions affecting the nonoperating
section of the statement of revenues, expenses and
changes in net assets
Statement of Cash Flows
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Examples of non-capital financing
 cash received or paid relative to non-capital
grants or subsidies
 cash received from or paid to other funds, such
as transfers
 cash received from taxes
 proceeds and repayments related to non-capital
debt issues and borrowings
 payment of interest on non-capital debt
Statement of Cash Flows
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Capital and related financing activities
 Acquiring and disposing of capital assets
 Any borrowing and repayments related to capital
assets (including interest)
 Capital financing activities are similar to non-capital,
but involve capital assets
NOTE: debt that is not clearly related to capital
construction, acquisition or improvement should be
considered non-capital debt
Statement of Cash Flows
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Investing activities
 Making and collecting on non-program loans
 Acquiring and disposing of debt and equity
investments (including interest and dividends)
 Includes deposits or withdrawals from investment
pools that an entity is not using as demand accounts
Statement of Cash Flows
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Reconciliation of net cash flow from operating activities
to cash is required
Noncash transactions should be shown in a schedule
on the face of the financial statements or in the notes
Required Basic Financial Statements
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Fiduciary Funds
 Statement of Fiduciary Net Position
 Statement of Changes in Fiduciary Net Position
 Examples for Jacksonville are included
 Each trust fund type must have its own column
(agency, special-purpose, investment, pension)
 Only funds held for those external to the government
are reported on the fiduciary financial statements
Required Basic Financial Statements
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Government-wide Financial Statements – include ONLY
governmental and proprietary information (NOT
fiduciary)
 Statement of Net Position (reporting model same as
in corporate accounting)
 Statement of Activities (backward model)
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Take some time to look at the Jacksonville statements –
how are they different from the fund statements?
Statement of Net Position
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Primary government columns include
 Governmental activities
 Includes governmental fund activity and
generally internal service fund activity
 Transactions between governmental funds are
not reported (eliminated)
 Business-type activities – enterprise fund activity
 Total column – note internal receivables and
payables between the two columns are netted
Component unit columns as appropriate
Statement of Net Position
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Reporting model format
Assets – Liabilities = Net Position
Net Position is reported in 3 categories
 Net Investment in Capital Assets – net fixed assets
less any related debt
 Restricted – limits the availability of the assets
 Restriction caused by external party or law
 Separate into expendable and nonexpendable
 Unrestricted – available net position
Statement of Net Position (cont’d)
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Investments
 Reported at fair value
 Realized and unrealized gains/losses netted
 Extensive note disclosures
 Methods and assumptions for fair valuing if other
than quoted market
 Investment type
 Risk disclosures – credit, custodial,
concentration, interest rate
Statement of Net Position (cont’d)
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Capital assets
 Reconciliation required in the notes
 Intangible assets – considered capital assets by
GASB
Statement of Net Position (cont’d)
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Capital assets (cont’d)
 Impairment – Events that may lead to impairment
 Decline in the market value of the asset
 Significant change in the way the asset is used
 Significant adverse change in the legal or
business climate which could affect asset value
 Costs significantly in excess of the amount
originally expected to acquire or construct an
asset
Statement of Net Position (cont’d)
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Capital assets (cont’d)
 Impairment - Apply recoverability test to determine if
impairment has actually occurred
 Estimate future net cash flows and the disposal
amount
 If the estimate is less than the carrying value an
impairment has occurred
Statement of Net Position (cont’d)
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Compensated absences (vacation and sick leave)
 Becoming a huge problem for governments
 Accrue as employees earn the rights to the vacation
benefits
 Right to receive compensation is related to services
already rendered
 Probable the employer will compensate with time or
other means
 Due not accrue if benefit can lapse
 Accrue sick leave only if there is a termination payment
Statement of Activities
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Reporting model format
Expenses – Program Revenues = Net Expenses
+ General Revenues
+ Transfers/Special Items
Extraordinary Items
= Change in Net Position
+ Beginning
= Ending Net Position
Statement of Activities
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Both governmental and business-type activities are
included
Component units are not included in primary
government totals
Expenses are reported by function/program
Statement of Activities
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Program revenues are to be identified in 3 categories
 Charges for services (includes licenses, permits,
fines and forfeits)
 Operating grants and contributions
 Capital grants and contributions
General revenues are
 All tax revenues
 Other revenues not specifically identified with a
function/program
 Should be identified by source
Reconciliations
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GASB requires reconciliation of the fund financial
statements to the government-wide financial statements
 Balance Sheet to Statement of Net Position
 Statement of Revenues, Expenditures and Changes
in Fund Balance to Statement of Activities
 See examples from Jacksonville
Required Supplementary Material
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Budget and Actual Statement/Schedule (similar to a
variance report)
Uses Statement of Revenues, Expenditures and
Changes in Fund Balance format
Required to be prepared on the budgetary basis
Requires original and final budget
Requires actual revenues and
expenditures/encumbrances
Statistical Section
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Financial trends information – schedules are provided at
the fund and government-wide levels
Revenue capacity information – schedules should focus on
the government’s most significant own source revenues
Debt capacity information – schedules are provided to
assist in assessing existing debt burden and ability to
issue new debt
Demographic and economic information – assists in
assessing the socioeconomic situation
Operating information – provides context for government
operations
Resources
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GASB Codification, issued annually
GASB Comprehensive Implementation Guide, issued
annually
AICPA Audit and Accounting Guide – State and Local
Governments
GFOA Blue Book
Conclusion
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We have scratched the surface on financial reporting
Numerous note disclosures that are required
Financial reporting is much more complex than the
reporting for entities under FASB
Questions!