9-1 Chapter 9 Financial Reporting

9-2 Overview of Financial Reporting Financial reporting entity Governmental entities defining the entity determining the method of presentation Comprehensive Annual Financial Report (CAFR) sections of the CAFR required financial statements reconciliation of government-wide statements and governmental fund statements Service Efforts and Accomplishments (SEA)

9-3 Financial reporting entity Complex entity structure: related entities’ financial data is included with the primary governmental entity’s data agencies, boards, commissions, special districts, housing authorities, etc. Terms: Oversight Unit - primary unit (usually a state or general purpose local government) Component Unit - legally separate entities which have some degree of dependence on the oversight unit

9-4 Financial reporting entity, cont’d Potential component units: legally separate governmental units whose activities are: closely related to the primary unit or directly or indirectly controlled by the primary unit

9-5 Financial reporting entity, cont’d An entity is a component unit if there is: fiscal dependency entity must have authorization from the primary unit to: adopt a budget, levy taxes, set rates, issue debt, etc.

9-6 Financial reporting entity, cont’d financial accountability primary government appoints a voting majority of the unit’s governing body or can unilaterally abolish the unit and either the primary government can impose its will on the unit or can receive specific financial benefits from or be subject to specific financial burdens of the unit OR there is:

9-7 Financial reporting entity, cont’d exclusion of the entity from the statements of the primary government would be misleading OR

9-8 Financial reporting entity, cont’d Presentation of information in the statements: Blending: use if the component unit is in substance a part of the primary government usually provides services only to primary government benefits the primary government exclusively Add balances of component unit funds to similar funds in the primary government Component Unit Capital Projects Funds are added to Oversight Unit Capital Projects Funds, etc. Exception: Component Unit General Fund is considered a Special Revenue Fund in the Oversight Unit

9-9 Financial reporting entity, cont’d Presentation of information in the statements: Discrete presentation: separate columnar presentation in the statements use for all component units if blending is not allowed Columns are clearly labeled to indicate that they are not part of the primary government May create a single, aggregated column if there are several component units

9-10 Comprehensive Annual Financial Report (CAFR) Required sections: Introductory Section transmittal letter, often from the head elected official, description of entity and organization chart summary of significant financial and general information Financial Section audit report Management Discussion & Analysis (MD&A) basic financial statements (including notes) and notes Required Supplementary Information (RSI) combining statements & individual statements as necessary Statistical Section historical and projected data concerning principal sources of revenue and uses of expenditures, demographics, etc.

9-11 Comprehensive Annual Financial Report (CAFR) Basic Financial Statements (also know the individual statements included in each category) Government-wide Statements Governmental Fund Statements (including reconciliation to the governmental activities column) Proprietary Fund Statements Fiduciary Fund Statements Notes to the financial statements General Purpose Financial Statements the minimum amount of information that can be separately released Management’s Discussion & Analysis (MD&A) Basic financial statements Required Supplementary Information (RSI)

9-12 Other statements found in the Financial Section: Combining Statements provide detailed information for all funds within a specific fund type only required when there is more than one fund in the fund type Statements and schedules presented in Required Supplementary Information Budgetary comparison schedules (unless included in the basic financial statements) required for all major funds with an annual budget show Original Budget, Final Budget, Actual Amounts & Variance must be prepared on budgetary basis if different from GAAP basis, a reconciliation to GAAP is also required Comprehensive Annual Financial Report (CAFR)

9-13 Required Supplementary Information, cont’d Pension plan information - information is presented for a six year period and includes actuarial values Schedule of Funding Progress Actuarial value of assets Actuarial accrued liability Unfunded/overfunded actuarial liabilitiy Funded ratio (actuarial value of assets/actuarial accrued liability) Covered payroll Unfunded liability as a percentage of covered payroll Schedule of Employer Contributions Annual required contribution - actuarially determined amount necessary to ensure full actuarial funding of the plan Percentage of required amount actually contributed actuarial methods and assumptions must be disclosed

9-14 Required Supplementary Information, cont’d Information regarding infrastructure assets, if using the modified approach to measure depreciation expense current inventory of infrastructure assets condition assessment of all infrastructure assets performed every three years method of assessing condition of assets (measurement scale) must be presented estimate of annual amount required to maintain assets at their condition when initially evaluated evidence that the assets are being maintained at the level prescribed at costs consistent with the estimates

9-15 Program Revenues The Government-wide Statement of Activities differentiates Program Revenues from General Revenues. Program revenues derive directly from the program itself or are restricted to the program by external entities: Charges for services Operating grants and contributions Capital grants and contributions Endowment and Permanent Fund investment income externally restricted to a specific program Program revenues are shown separately and deducted from the expenses for each program

9-16 General Revenues Any revenues that are not program revenues are general revenues reported below the functions/programs section of the statement Common line items: Taxes ALL taxes are considered general revenues regardless of whether they are specified for specific purposes Grants and contributions not restricted to specific programs Unrestricted investment earnings Transfers - net amount of transfers between Governmental Activities and Business-Type Activities will net to zero in the Total column Contributions to term and permanent endowments

9-17 Government-wide statement adjustments Balance sheet adjustments Add all Internal Service Fund assets and liabilities to the governmental activities balance sheet; the Internal Service Fund Net Assets are added to the governmental funds’ Fund Balance. Eliminate all interfund payables/receivables except those to/from Enterprise funds net payable/receivable balance to/from Enterprise funds is labeled "internal balances"

9-18 Government-wide statement adjustments Balance sheet adjustments, cont’d Add net general government fixed assets accumulated depreciation must be deducted from the assets Add net general government long-term debt reported using the effective interest rate method instead of par value Bring accruals and deferrals up-to-date according to the economic resources measurement focus (full accrual basis): Report Net Assets instead of Fund Balances

9-19 Government-wide statement adjustments Statement of Activities adjustments Add all net revenue(expense) related to Internal Service Funds: Eliminate capital outlay expenditures and debt principal expenditures, increase the governmental funds’ total Fund Balance for these items Eliminate proceeds from issuance of GLTD and proceeds from fixed asset sales decrease the governmental funds’ total Fund Balance for these items

9-20 Government-wide statement adjustments Statement of Activities adjustments, cont’d Adjust governmental fund interest expenditures to interest expense under the effective interest method includes amortization of premiums, discounts, and bond issue costs depending on where you are in the amortization process, this could cause the governmental funds’ total Fund Balance to increase OR decrease Record gains/losses on sale of fixed assets. increase or decrease the governmental funds’ total Fund Balance for these items, as appropriate

9-21 Government-wide statement adjustments Statement of Activities adjustments, cont’d Record depreciation expense on GFA decrease the governmental funds’ total Fund Balance for this item Adjust revenues from modified accrual to accrual amounts increase or decrease the governmental funds’ total Fund Balance for these items, as appropriate Convert expenditures to expenses and adjust for differences between the modified accrual and accrual bases. increase or decrease the governmental funds’ total Fund Balance for these items, as appropriate

9-22 Service Efforts and Accomplishments (SEA) SEA attempts to measure governmental performance using nonfinancial measures typical service areas include elementary and secondary education, fire departments, police departments, transportation, public health, sanitation Measurement tools attempt to relate efforts to accomplishments in such a way as to allow assessment of effectiveness (are the objectives achieved) and efficiency (cost of providing services) Input measures - typically money, materials Output measures - quantitative evaluation of results Outcome measures - qualitative evaluation of results Efficiency measures - relate quantity/cost of inputs to outputs can also be related to outcomes to evaluate effectiveness

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