Transcript Document 7175011

Chapter 17
Financial Reporting Issues
The New Reporting Model
GASB Statement No. 34
Basic Financial Statements
– and Management’s Discussion and Analysis –
for State and Local Governments
June 1999
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The Comprehensive Annual
Financial Report (CAFR)
• Introduction
• Financial section
– auditor’s report
– general purpose financial statements & notes
– combining statements
• Statistical section
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Statement 34 Primary Features
• Management’s discussion and analysis
• Basic financial statements
– government-wide
– fund
• Required supplementary information
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GASB’s Financial Reporting
Pyramid
• Top: highly aggregated, consolidated
financial statements
• Bottom: highly detailed, voluminous reports
• Dual reporting approach
– CAFR and GPFS
– combined and combining statements
– individual fund and account group statements
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Financial Reporting
• Comprehensive annual financial report
– simple entity context
– complex entity context
•
•
•
•
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defining the government reporting entity
blending
discrete presentation
related organizations, joint ventures, and jointly
governed organizations
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Complex Entities
• Reporting entity definition
– primary government (PG) legal entity plus
– component units (CU) that either
• are financially accountable to PG
• are majority-owned for-profits that directly facilitate
public service
• must be included to avoid being misleading
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CU Reporting:
Presence of Financial Accountability
• PG has financial accountability for CU if:
– the CU is fiscally dependent on PG or
– the CU is one for which PG either appoints voting
majority of governing board or majority of board is
composed of primary government officials and the
CU is one over which
• the PG has the ability to impose its will or
• with which PG has a financial
benefit/burden relationship
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CU Reporting:
Blending
• Permitted only if CU meets one of three
conditions:
– substantively same governing body as PG
– provides service only to PG
– benefits only PG
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CU Reporting:
Blending, continued
• PG legal entity and blended CUs reported as if
single entity
• CU funds blended with same type funds of PG
– exception: CU general fund blended into the
PG’s special revenue fund
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CU Reporting:
Discrete
• Default presentation
• Applies to CUs that do not meet blending
criteria
• Required for most CUs
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CU Reporting:
Discrete, continued
• GPFS requirements:
– one or more CU columns in the GPFS -- clearly
distinguished from PG data
– condensed financial statement data for major
CUs and combining discretely presented CU
financial statements or separate column for each
major discretely presented CU
– aggregate data for non-major CUs
– other CAFR requirements -- combining CU
financial statements
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Component Unit Reporting
Options
• Separate columns in the government-wide
• Separate statements after fund presentations
• Condensed information in the notes
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Management’s Discussion and
Analysis - MD&A
• Brief description of basic statements
• Condensed comparative financial
information derived from government-wide
financial statements
• Analysis of financial position and results of
operations (significant variances)
• Analysis of budgetary changes and results
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MD&A, continued
• Description of changes in capital asset and
long-term debt activity
• Description of currently known facts,
decisions, or conditions that are expected to
have a material effect on the entity.
• Governments are encouraged not to
duplicate MD&A information in the letter
of transmittal
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Fund-Based Statements
Basic Financial Statements, consisting of
• Governmental fund statements
• Proprietary fund statements
• Fiduciary funds and similar component unit
financial statements
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Required Fund Presentations
• Major funds
• Nonmajor funds presented in a single
column by category
• Concept does not apply to fiduciary
activities or internal service funds
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Major Fund Definition
• General fund is always major
• Other major funds:
– comprise at least 10% of assets, liabilities,
revenues, or expenditures/expenses (excluding
extraordinary items) of the relevant fund category
or fund type and
– at least 5% of same elements of the total
governmental and proprietary funds combined
– other funds that government considers major
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Governmental Funds
Measurement focus and basis of accounting
• current financial resources
• modified accrual
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Governmental Fund Statements
• Balance sheet
• Statement of revenues, expenditures,
and changes in fund balances
• Reconciliation to government-wide
numbers required for both statements, either
at bottom of each statement or in separate
schedules
• Accounts groups no longer reported
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Required Reconciliations
• Reconciling items include:
– addition of capital assets and noncurrent
liability activities, deletion of other
financing sources and uses
– reporting internal service funds as
proprietary in fund statements and as
governmental in government-wide
statements
– revenue and expense recognition versus
revenue and expenditures
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Proprietary Funds
• Measurement focus and basis of accounting
– economic resources
– accrual basis
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Proprietary Funds, continued
• When are enterprise funds required?
– debt\user charge-based
– debt secured solely by pledge of net revenues from fees
or charges
– laws or regulations require recovery of cost
– pricing policy designed to recover cost
• Enterprise funds can also be used if management
wants to capture net income information
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Proprietary Fund Statements
• Balance sheet
• Statement of revenues, expenses,
and changes in fund net assets
• Statement of cash flows-direct
method
• Reconciliation required for financial
position and operating statements (if
necessary)
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Proprietary Fund Balance Sheet
• Classified
• Restricted assets should be reported
• Equity (net assets) of fund classified into three
components:
– invested in capital assets, net of related debt
– restricted
– unrestricted
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Fiduciary Funds
• Redefined: cannot be used to support the
government’s own programs
– expendable: Special Revenue Funds
– non-expendable: Private Purpose Trusts
• Measurement focus and basis of accounting
– economic resources
– accrual accounting
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Fiduciary Fund Statements
• Statement of fiduciary net assets
• Statement of changes in fiduciary net
assets
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Government-wide Statements
Basic Financial Statements
• Statement of net assets
• Statement of activities
– cost of services approach
Measurement focus and basis of accounting
• Economic resources
• Accrual basis
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Government-Wide
Statement of Net Assets
• All assets (including infrastructure) and
liabilities
• Net assets or balance sheet format
• Net assets
• invested in capital assets, net of related debt
• restricted
• unrestricted
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Statement of Net Assets
Infrastructure Assets
• Required to be reported for the first time
• Prospective reporting begins when
GASB 34 is adopted
• Retroactive reporting begins after phased
in period (requires last 25 years of data)
• Reporting alternatives
• historical cost-based depreciation
• modified approach
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Infrastructure Assets
Modified Approach
• Permitted if the government demonstrates that
it is maintaining qualifying infrastructure
assets approximately at or above the condition
level that it established
• No depreciation is required; all costs to
maintain assets are expensed
• Condition assessments should be performed at
least every three years
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Government-Wide
Statement of Activities
• Net cost format
• Expenses by functions/programs
• Revenues by
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–
–
–
charges for services
operating grants and contributions
capital grants and contributions
general
• Special, extraordinary items, and transfers
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Statement of Activities
Changes to Note Disclosures
• Summary of significant accounting policies
• Changes in capital assets and long-term
liabilities
• Segment reporting
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Required Supplementary Information
(RSI)
RSI is not part of the financial statements and
is not subject to high levels of audit scrutiny
• Budgetary comparisons for general and major
special revenue funds
– original and final budget
– actual on budgetary basis
• Infrastructure-modified approach
– three most recent condition assessments
– estimated amount to maintain and preserve versus
actual amount for last five years
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Special Purpose Governments
• Most are engaged in governmental activities,
business-type activities, or both
• Single program governmental activity-government-wide and fund statements may be
combined
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Special Purpose Governments,
continued
• All other governmental activities must present
both government-wide and fund financial
statements
• Business-type activities--government-wide
statements not required
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Statement 34 Implementation
• Periods beginning after
– June 15, 2001 for governments with revenues of
$100 million or more (phase I)
– June 15, 2002 for governments with revenues of
$10 million or more, but less than $100 million
(phase II)
– June 15, 2003 for governments with revenues of
less than $10 million (phase III)
• Early application encouraged
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Retroactive Infrastructure
Reporting
Phase I governments periods beginning after
June 15, 2005
Phase II governments--periods beginning
after June 15, 2006
Phase III governments--encouraged, but not
required
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Audits of State and Local
Governments
• Financial audits
• Performance audits
• Government Auditing Standards
– U.S. General Accounting Office “Yellow Book”
• AICPA Auditing Standards
– incorporates the Yellow Book standards
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Audits of State and Local
Governments, continued
• Single Audit Act (1984, revised 1996)
– U.S. Office of Management and Budgets –
OMB Circular A-133
– Audit of financial statements
– Audit of federal financial awards
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Other Financial Reporting Issues
• Service efforts and accomplishments
• Affiliated organizations
• Post employment benefits other than
pensions
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