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PowerPoint Notes - Chapter 9

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  • 1. Chapter 9 Financial Reporting
  • 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)
  • 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
  • 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
  • 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.
  • 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:
  • 7. Financial reporting entity, cont’d
    • exclusion of the entity from the statements of the primary government would be misleading
    OR
  • 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. 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
  • 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.
  • 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)
  • 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)
  • 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
  • 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
  • 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
  • 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
  • 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 "
  • 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
  • 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
  • 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
  • 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
  • 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
  • 23. The End