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    Financial Reporting.doc Financial Reporting.doc Document Transcript

    • Financial Reporting KEY TERMS Blending - The method of reporting a component unit within the financial statements of the primary government. Certificate of Achievement - Awarded by the GFOA for excellence in financial reporting, based on the organization, completeness, and satisfaction of GAAP and legal requirements. Component unit - Legally separate organizations for which the elected officials of the primary government are financially accountable [GASB Statement 14, Appendix B]. Comprehensive annual financial report (CAFR) - A government's annual report, including an introduction, general purpose financial statements, individual and combining financial statements and other schedules and statistical tables. Discrete presentation - The method of reporting financial data of component units in a column(s) separate from the financial data of the primary government [GASB Statement 14, Appendix B]. Financial accountability - The level of accountability that exists if a primary government appoints a voting majority of an organization's governing board and is wither able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government [GASB Statement 14, Appendix B]. Financial benefit - Legal entitlement to, or the ability to otherwise access, the resources of an organization [GASB Statement 14, Appendix B]. Financial burden - An obligation to finance the deficits of, or provide financial support to, an organization; or an obligation in some manner for the debt of an organization [GASB 14, Appendix B]. Financial reporting entity - A primary government or organizations for which the primary government is financially accountable [GASB 14, Appendix B]. General purpose financial statements (GPFS) - The combined financial statements of a government reporting entity that are required by GAAP, usually presented with the auditor's report and notes. Interim reports - Financial statements prepared to reflect the current financial position at the end of a month or quarter, usually prepared for internal use on a budget basis [GASB Codification, Section 2900]. Joint venture - A legal entity or other organization that results from a contractual arrangement and that is owned, operated, or governed by two or more participants as a separate and specific activity subject to point control, in which the participants retain an ongoing financial interest or an ongoing financial responsibility [GASB 14, Appendix B]. Primary government - A state government or general purpose local government. Also, a special-purpose government that has a separately elected governing body, is legally separate, and is fiscally independent of other state or local governments [GASB 14, Appendix B]. Related organization - An organization for which a primary government is not financially accountable, although the primary government appoints a voting majority of the govening board [GASB 14, Appendix B]. Interim reports - Financial statements prepared to reflect the current financial position at the end of a month or quarter, usually prepared for internal use on a budget basis [GASB Codification, Section 2900]. 1
    • Joint venture - A legal entity or other organization that results from a contractual arrangement and that is owned, operated, or governed by two or more participants as a separate and specific activity subject to point control, in which the participants retain an ongoing financial interest or an ongoing financial responsibility [GASB 14, Appendix B]. Primary government - A state government or general purpose local government. Also, a special-purpose government that has a separately elected governing body, is legally separate, and is fiscally independent of other state or local governments [GASB 14, Appendix B]. Related organization - An organization for which a primary government is not financially accountable, although the primary government appoints a voting majority of the govening board [GASB 14, Appendix B]. Evaluating Potential Component Units Example 1: The Building Authority was created by the city and organized as a separate legal entity. The authority is governed by a five-person board appointed by the mayor. The authority uses the proceeds of its tax-exempt bonds to finance the construction or acquisition of general capital assets for the city only. The bonds are secured by the lease agreement with the city and will be retired through lease payments from the city. Conclusions: The authority is a component unit and should be blended. Example 2: A public benefit corporation was created by the city to provide subsidized public housing in accordance with federal legislation. The mayor and city council appoint the five member board, but the members do not serve at the discretion of the council. The public housing authority (PHA) board elects its own chairperson and recruits and employs it management and employees. The PHA has no taxing or assessing powers, but can issue bonds, sign contracts, and is solely responsible for operations. The PHA adopts its own budget, subject to federal approval. The tax-exempt obligations issued by the PHA are not obligations of the city. The city has agreed to provide funding to the extent that program revenue and federal subsidies are insufficient. Conclusion: The PHA is a component unit and should be discretely presented. [The city is not able to impose its will on the PHA, but the PHA does impose a financial burden on the city.] Example 3: The Municipal Electric Utility (MEU) was created as a separate legal entity in accordance with state law to own, manage, and operate and electric utility system in the city. The governing board is self-perpetuating and not appointed by the city. The MEU selects its own executives and employees and is responsible for rate setting and fiscal management. The city is not obligated for MEU's debt and MEU receives no appropriations from the city. The MEU is required to make a payment in lieu of taxes annually to the General Fund of the city. Conclusion: The city is not accountable for the MEU. The MEU is neither a component unit nor a related organization of the city. Example 4: The City Board of Education (BOE) is a separately elected body that administers the public school system in the city. The BOE is not organized as a separate legal entity and does not have the power to levy taxes or issue bonds. Its budget is subject to approval by the city council. Conclusion: The BOE is a part of the city's primary government. [Source: GASB Statement 14, Appendix D.] Exercise 1. Reporting Entity. Jones City has the following relationships with other local governments. Jones City Community Hospital. Hospital board elected by voters. Hospital administrator appointed by governing board. City does not approve the hospital budget and is not responsible for operating deficits. City guarantees some long-term debt of the hospital. Jones City Water Utility. Manager is chosen by the Jones City Council. Utility serves Jones City area. City council approves utility budget and accepts responsibility for operating deficits. City is not responsible for revenue bonds of the utility. 2
    • Jones Independent School District. School Board is elected by voters. School superintendent appointed by the school board. City does not approve ISD budget and is not responsible for operating deficits or long-term debt. City collects property tax for ISD. Jones Building Authority. Governing Board appointed by City Council. Manager appointed by Governing Board with the approval of the City Council. JBA builds low income housing financed by city and state grants. City approves JBA budgets but is not responsible for operating deficits. City guarantees some JBA long-term debt. Which government organizations are part of Jones City or are component units which should be included with Jones City financial statements. What are the financial reporting requirements for each? Exercise 2. Financial reporting. Where would the following information be found in a city's comprehensive annual financial report (from the following list): Introduction Financial Section Combined Financial Statements Notes to Financial Statements Combining and Individual Financial Statements Statistical Tables 1. Organization chart 2. Demographic data 3. Auditor's report 4. General Fund balance sheet 5. Pension plan obligations 6. General revenues by sources last 10 fiscal years 7. General budget policies 8. Principal taxpayers 9. Combining statement of revenues, expenditures, and changes in fund balance--all special revenue funds Multiple Choice 1. The balance sheet(s) of a city's General Purpose Financial Statements would be presented on: a. A consolidated basis after eliminating the effects of of interfund transactions b. For each fund in a separate statement, but never presenting all funds together in the same statement c. A combined basis with a separate column for each fund type with a total column for aggregate balances d. A combined, combining and individual fund basis e. None of the above 2. Which of the following would be included in the Combined Statement of Revenues, Expenditures, and Changes in Fund Balance in the Comprehensive Annual Financial Report of a city? Enterprise Agency Nonexpendable Debt Service Fund Fund Trust Fund Fund a. Yes Yes Yes Yes b. No Yes Yes Yes c. No No No Yes d. Yes No No No 3
    • e. No No No No 3. The introductory section of a Comprehensive Annual Financial Report contains which of the following: a. Statistical tables b. Auditor's opinion c. Transmittal letter d. Notes to financial statements e. All of the above 4. Green City has long-term debt of $800,000 and net assessed value of real property of $920,000,000. Green City is located in Blue County; the county has long-term debt of $500,000 and net assessed value of $1,840,000,000. What is the direct and overlapping debt of Green City? a. $0 b. $800,000 c. $1,050,000 d. $1,300,000 e. Some other amount 5. Ajax City has outstanding debt of $16,000,000 and net assessed value of $300,000,000. The tax limit for Ajax is 7% of net assessed value. What is the debt margin for Ajax? a. $0 b. $1,120,000 c. $5,000,000 d. $21,000,000 e. Some other amount 6. The financial reporting section of a Comprehensive Annual Financial Report contains which of the following? a. Notes to financial statements b. Auditor's opinion c. Combining balance sheets d. Summary of accounting principles e. All of the above 7. Green City has long-term debt of $900,000 and net assessed value of real property of $870,000,000. Green City is located in Blue County; the county has long-term debt of $760,000 and net assessed value of $3,480,000,000. What is the direct and overlapping debt of Green City? a. $ 0 b. $900,000 c. $1,090,000 d. $1,660,000 e. Some other amount 4