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  • Austin-95%, Lubbock 80%, Dallas
  • Carrollton’s 2003 Net Assets increased by $18 million or 15% of total expenses.
  • Dallas County $56 million negative b/c road bonds are included.
  • Some governments have non-major funds equal to 75 to 80% of total.
  • Footnote disclosure on schedule of future payments for some of the larger accruals.


  • 1. The Great Imbalance Understanding GASB 34 Statement of Net Assets & Balance Sheet
  • 2. Two Statements With Different Focuses
    • Statement of Net Assets
      • Entity as a whole
      • Two columns and a total (Primary Government)
      • Full Accrual with elimination of interfund balances
      • Residual balances of ISF allocated to appropriate Column
      • Equity divided by nature of underlying assets
        • Capital, net of related debt
        • Restricted
        • Unrestricted
  • 3. Two Statements With Different Focuses
    • Fund Statements
      • All major funds part of the FS
      • Non major Funds shown in aggregate only
      • Individual Internal Service Funds not part of the major funds (reported by fund type)
      • Individual Fiduciary Funds not part of major funds (reported by fund type)
      • Component Units, if any not part of the FS
      • No interfund eliminations
      • Enterprise Funds still same Basis and Name
  • 4. Users of the Financial Statements
    • Investors and rating agencies – Stat Section
      • Focus on historical sustained revenue growth
      • Strong financial reserves
      • Moderate debt levels and coverage
    • Council
      • Budget – RSI
    • Budget
      • Statement of Activities is the starting point for performance measures
  • 5. Users of the Financial Statements
    • Citizens
      • MD&A and General Fund
    • Auditors
      • Everything
      • Opinion units & materiality
  • 6. Enterprise Funds
    • Enterprise Funds still Statement of Net Assets
    • Prepared on same basis as the entity-wide
    • Should be very few reconciling differences between the entity-wide and fund statements
      • Internal Service Funds
  • 7. Governmental Funds
    • Balance Sheet not Net Assets
    • Major Funds Individually presented
    • Non-major shown in the aggregate
    • Modified Accrual Basis of Accounting
    • Based on Current Funds Flows
    • Fund Balance Reservations reflect liquidity constraints not restrictions to purpose
  • 8. Statement Common Audit Reporting Deficiencies
    • Net Asset Classifications
      • Deferred Charges
      • Unspent Proceeds
      • Negative Unrestricted Net Assets
    • Reserves do not Represent Restricted Net Assets
    • Designations
  • 9. Statement Common Audit Reporting Deficiencies
    • Receivables – Same Amount on Both Statements
    • Allowances More Meaningful
    • Long-Term Liabilities
  • 10. The Dominance of Capital Assets
    • Capital Assets will be the dominant asset category in the governmental activities column for most states, cities and many counties
      • Carrollton TX, 93% of all Net Assets are Capital related.
      • State of Pennsylvania, 94% of all Net Assets are Capital related
      • Orange County, CA, 78% of all Net Assets are Capital related.
  • 11. Uniqueness of Infrastructure
    • Infrastructure will be the dominant asset category for most states, cities and many counties
      • Carrollton TX, CV of Infrastructure is $200 million or 83% of all Fixed Assets.
      • State of Pennsylvania, CV of Infrastructure is $13.6 billion or 81% of all Fixed Assets
      • Orange County, CA, CV of Infrastructure is $833 million or 60% of Fixed Assets
  • 12. Nature of Infrastructure
    • No salvage value
    • No ability to resell
    • Typically generates no direct revenue but requires significant resources to maintain
    • Often replaced a node at a time
    • Size, magnitude and existence of Public Works records make creation and maintenance of detailed accounting records impractical
  • 13. Nature of Infrastructure
    • For majority of governments infrastructure is
      • An estimate
      • Incomplete
        • Pre 1980 assets
        • Capitalize only major systems
        • Four additional years for retroactive restatement of infrastructure
  • 14. Fixed Asset Implications
    • Magnitude of Fixed Assets can create a large Net Asset balance regardless of the financial health of the entity.
    • Relatively small percentage changes in Infrastructure can create a relatively large change in Net Assets.
    • Total Net Assets comparability between even similar governments will be extremely difficult if not downright deceiving.
  • 15. Capital Asset Audit Issues
    • Lack of Comparability
      • Estimated Cost vs. Actual Cost
      • All Infrastructure vs. Post 1989
    • Future Replacement Costs Can Now Be Analyzed
    • Healthy Net Assets vs. Hidden Maintenance Costs
    • County Issues – Negative Unrestricted Net Assets
    • Retirements Not Consistently Recorded
  • 16. Categories of Net Assets
    • Three Categories of Net Assets
      • Invested in Capital Assets-Net of Related Debt
      • Restricted
      • Unrestricted
    • Invested in Capital Assets-Net of Related Debt
      • All capital debt is not in this category if you do not continue to “own” the related asset.
      • Unexpended proceeds on capital debt is in the restricted categories
  • 17. Calculating Net Asset Categories
    • Financial statement categories should be consistent with the Net Asset Categories
    • Detail in Financial Statements should be consistent with the Net Asset calculation
    • Restricted balances for the GA column are not nearly as well defined as for the BTA column.
    • There may be inconsistencies between columns and asset & liabilities vs. Net Asset category.
  • 18. Net Asset Categories
    • Unrestricted Net Assets is a general indicator of financial strength & flexibility.
    • It is not an indicator of liquidity.
    • While negative Unrestricted Net Assets is generally bad, there are exceptions. An analysis of unrestricted could improve understanding.
  • 19. Analyzing Unrestricted Net Assets
    • An entity’s Unrestricted Net Assets are $0.
    • UNA consists of $10 million each of assets and liabilities.
    • Would your opinion of UNA change if:
      • Assets were all cash and investments?
      • Assets were all short term receivables?
      • Assets were mostly long term receivables?
      • Liabilities were all trade payables?
      • Liabilities were all long-term in nature (OPEB, landfill, compensated absences, long term bonds etc)?
  • 20. Net Asset Audit Issues
    • Residual of Transactions
    • Most Common GASB 34 Required Adjustments
    • Fund Balance – Short Term Liquidity vs. Net Assets (Long Term Prospects)
    • Comp. Absences, OPEB, Net Pension Obligation, W/C & Health Internal Service Funds
    • Importance of MD&A
  • 21. Analyzing Financial Health
    • Financial Position vs. Financial Condition
    • Statement of Net Assets and Balance Sheet focus on Financial Position.
    • Even with this narrower focus, understanding the composition of Net Assets and Fund Balance is critical to understanding FP.
    • Remember, the real wealth of a government is not on any balance sheet or Statement of Net Assets-it is our ability to tax and generate revenue and the overall health and direction of our economy (Financial Condition).
  • 22. Financial Health Audit Concerns
    • Pre GASB 34
      • Liquidity and Fund Balance Reserves
      • GFOA Minimum Fund Balance
    • Post GASB 34
      • Full Accrual Effect – OPEB, Risk Funds, NPO, Comp. Absences
      • No GFOA Minimums
      • Unrestricted can be misleading
    • Bottom Line
      • Tax Capacity
      • Debt Capacity
  • 23. Fund Statements
    • Governmental Funds Fund Balances are a key indicator of short term financial position and are most closely tied to the budget.
    • Understanding the flow between funds and the distinction between Reserves and Designations is critical to understanding the funds.
    • Remember the choice of major funds can both illuminate or conceal.
    • Transactions and balances between funds can also illuminate or conceal.
  • 24. Warning Signs in the Fund Statements
    • Large number of inter-fund balances
      • GASB 34 “repaid within a reasonable period” is vague and subject to interpretation
      • No distinction between “due to/from and advances-GASB 34 never uses the terms
    • Large receivables in the General Fund
    • Funds whose only source of money is transfers
    • Small overall cash & investment balances
  • 25. Warning Signs (continued)
    • Short term (cash flow) borrowings
    • Large subsidies between operations
  • 26. Fund Statements Common Audit Concerns
    • Magic of Fund Accounting, Subsidies & Transfers
    • Collectibility of Due To/Due Froms
    • Disclosing Purpose of Significant Nonrecurring Transfers
    • Collapsing Funds into the General Fund
  • 27. For the Future
    • Entity-Wide will include increasingly more accruals that will require future swag predictions
    • Entity-Wide will have increasing volatility as estimates have to be adjusted from year to year.
    • Increasing need for third party experts (actuaries, landfill engineers, infrastructure engineers etc.)
    • Understanding the entity’s underlying cash flows (near term vs. long term) will be critical.
  • 28. For the Future (continued)
    • Upcoming GASB Statement on the effect of enabling legislation on Net Asset categories.
    • Ongoing GASB project on Fund Balance disclosures.