1. Chapter 17 Financial Reporting Issues

2. C172 The New Reporting Model GASB Statement No. 34 Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments June 1999

3. C173 The Comprehensive Annual Financial Report (CAFR) Introduction Financial section –auditor’s report –general purpose financial statements & notes –combining statements Statistical section

4. C174 Management’s discussion and analysis Basic financial statements –government-wide –fund Required supplementary information Statement 34 Primary Features

5. C175 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

6. C176 Financial Reporting Comprehensive annual financial report –simple entity context –complex entity context defining the government reporting entity blending discrete presentation related organizations, joint ventures, and jointly governed organizations

7. C177 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

8. C178 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

9. C179 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

10. C1710 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

11. C1711 CU Reporting: Discrete Default presentation Applies to CUs that do not meet blending criteria Required for most CUs

12. C1712 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

13. C1713 Component Unit Reporting Options Separate columns in the government-wide Separate statements after fund presentations Condensed information in the notes

14. C1714 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

15. C1715 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

16. C1716 Fund-Based Statements Basic Financial Statements, consisting of Governmental fund statements Proprietary fund statements Fiduciary funds and similar component unit financial statements

17. C1717 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

18. C1718 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

19. C1719 Governmental Funds Measurement focus and basis of accounting current financial resources modified accrual

20. C1720 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

21. C1721 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

22. C1722 Proprietary Funds Measurement focus and basis of accounting –economic resources –accrual basis

23. C1723 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

24. C1724 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)

25. C1725 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

26. C1726 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

27. C1727 Fiduciary Fund Statements Statement of fiduciary net assets Statement of changes in fiduciary net assets

28. C1728 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

29. C1729 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

30. Statement of Net Assets

31. C1731 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

32. C1732 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

33. C1733 Government-Wide Statement of Activities Net cost format Expenses by functions/programs Revenues by –charges for services –operating grants and contributions –capital grants and contributions –general Special, extraordinary items, and transfers

34. Statement of Activities

35. C1735 Changes to Note Disclosures Summary of significant accounting policies Changes in capital assets and long-term liabilities Segment reporting

36. C1736 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

37. C1737 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

38. C1738 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

39. C1739 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

40. C1740 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

41. C1741 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

42. C1742 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

43. C1743 Other Financial Reporting Issues Service efforts and accomplishments Affiliated organizations Post employment benefits other than pensions