PowerPoint Notes - Chapter 9


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PowerPoint Notes - Chapter 9

  1. 1. Chapter 9 Financial Reporting
  2. 2. Overview of Financial Reporting <ul><li>Financial reporting entity </li></ul><ul><ul><li>Governmental entities </li></ul></ul><ul><ul><ul><li>defining the entity </li></ul></ul></ul><ul><ul><ul><li>determining the method of presentation </li></ul></ul></ul><ul><li>Comprehensive Annual Financial Report (CAFR) </li></ul><ul><ul><li>sections of the CAFR </li></ul></ul><ul><ul><li>required financial statements </li></ul></ul><ul><ul><li>reconciliation of government-wide statements and governmental fund statements </li></ul></ul><ul><li>Service Efforts and Accomplishments (SEA) </li></ul>
  3. 3. Financial reporting entity <ul><li>Complex entity structure: related entities’ financial data is included with the primary governmental entity’s data </li></ul><ul><ul><li>agencies, boards, commissions, special districts, housing authorities, etc. </li></ul></ul><ul><li>Terms: </li></ul><ul><ul><li>Oversight Unit - primary unit (usually a state or general purpose local government) </li></ul></ul><ul><ul><li>Component Unit - legally separate entities which have some degree of dependence on the oversight unit </li></ul></ul>
  4. 4. Financial reporting entity, cont’d <ul><li>Potential component units: </li></ul><ul><ul><li>legally separate governmental units whose activities are: </li></ul></ul><ul><ul><ul><li>closely related to the primary unit or </li></ul></ul></ul><ul><ul><ul><li>directly or indirectly controlled by the primary unit </li></ul></ul></ul>
  5. 5. Financial reporting entity, cont’d <ul><li>An entity is a component unit if there is: </li></ul><ul><ul><li>fiscal dependency </li></ul></ul><ul><ul><ul><li>entity must have authorization from the primary unit to: </li></ul></ul></ul><ul><ul><ul><ul><li>adopt a budget, </li></ul></ul></ul></ul><ul><ul><ul><ul><li>levy taxes , </li></ul></ul></ul></ul><ul><ul><ul><ul><li>set rates, </li></ul></ul></ul></ul><ul><ul><ul><ul><li>issue debt, etc. </li></ul></ul></ul></ul>
  6. 6. Financial reporting entity, cont’d <ul><li>financial accountability </li></ul><ul><ul><li>primary government appoints a voting majority of the unit’s governing body or can unilaterally abolish the unit and either </li></ul></ul><ul><ul><li> the primary government can impose its will on the unit or </li></ul></ul><ul><ul><li> can receive specific financial benefits from or be subject to specific financial burdens of the unit </li></ul></ul>OR there is:
  7. 7. Financial reporting entity, cont’d <ul><li>exclusion of the entity from the statements of the primary government would be misleading </li></ul>OR
  8. 8. Financial reporting entity, cont’d <ul><li>Presentation of information in the statements: </li></ul><ul><ul><li>Blending : use if the component unit is in substance a part of the primary government </li></ul></ul><ul><ul><ul><li>usually provides services only to primary government </li></ul></ul></ul><ul><ul><ul><li>benefits the primary government exclusively </li></ul></ul></ul><ul><ul><li>Add balances of component unit funds to similar funds in the primary government </li></ul></ul><ul><ul><ul><li>Component Unit Capital Projects Funds are added to Oversight Unit Capital Projects Funds, etc. </li></ul></ul></ul><ul><ul><ul><li>Exception: Component Unit General Fund is considered a Special Revenue Fund in the Oversight Unit </li></ul></ul></ul>
  9. 9. Financial reporting entity, cont’d <ul><li>Presentation of information in the statements: </li></ul><ul><ul><li>Discrete presentation : separate columnar presentation in the statements </li></ul></ul><ul><ul><ul><li>use for all component units if blending is not allowed </li></ul></ul></ul><ul><ul><li>Columns are clearly labeled to indicate that they are not part of the primary government </li></ul></ul><ul><ul><li>May create a single, aggregated column if there are several component units </li></ul></ul>
  10. 10. Comprehensive Annual Financial Report (CAFR) <ul><li>Required sections: </li></ul><ul><ul><li>Introductory Section </li></ul></ul><ul><ul><ul><li>transmittal letter, often from the head elected official, </li></ul></ul></ul><ul><ul><ul><li>description of entity and organization chart </li></ul></ul></ul><ul><ul><ul><li>summary of significant financial and general information </li></ul></ul></ul><ul><ul><li>Financial Section </li></ul></ul><ul><ul><ul><li>audit report </li></ul></ul></ul><ul><ul><ul><li>Management Discussion & Analysis (MD&A) </li></ul></ul></ul><ul><ul><ul><li>basic financial statements (including notes) and notes </li></ul></ul></ul><ul><ul><ul><li>Required Supplementary Information (RSI) </li></ul></ul></ul><ul><ul><ul><li>combining statements & individual statements as necessary </li></ul></ul></ul><ul><ul><li>Statistical Section </li></ul></ul><ul><ul><ul><li>historical and projected data concerning principal sources of revenue and uses of expenditures, demographics, etc. </li></ul></ul></ul>
  11. 11. Comprehensive Annual Financial Report (CAFR) <ul><li>Basic Financial Statements (also know the individual statements included in each category) </li></ul><ul><ul><li>Government-wide Statements </li></ul></ul><ul><ul><li>Governmental Fund Statements (including reconciliation to the governmental activities column) </li></ul></ul><ul><ul><li>Proprietary Fund Statements </li></ul></ul><ul><ul><li>Fiduciary Fund Statements </li></ul></ul><ul><ul><li>Notes to the financial statements </li></ul></ul><ul><li>General Purpose Financial Statements </li></ul><ul><ul><li>the minimum amount of information that can be separately released </li></ul></ul><ul><ul><ul><li>Management’s Discussion & Analysis (MD&A) </li></ul></ul></ul><ul><ul><ul><li>Basic financial statements </li></ul></ul></ul><ul><ul><ul><li>Required Supplementary Information (RSI) </li></ul></ul></ul>
  12. 12. <ul><li>Other statements found in the Financial Section: </li></ul><ul><ul><li>Combining Statements </li></ul></ul><ul><ul><ul><li>provide detailed information for all funds within a specific fund type </li></ul></ul></ul><ul><ul><ul><li>only required when there is more than one fund in the fund type </li></ul></ul></ul><ul><li>Statements and schedules presented in Required Supplementary Information </li></ul><ul><ul><li>Budgetary comparison schedules (unless included in the basic financial statements) </li></ul></ul><ul><ul><ul><li>required for all major funds with an annual budget </li></ul></ul></ul><ul><ul><ul><li>show Original Budget, Final Budget, Actual Amounts & Variance </li></ul></ul></ul><ul><ul><ul><li>must be prepared on budgetary basis </li></ul></ul></ul><ul><ul><ul><ul><li>if different from GAAP basis, a reconciliation to GAAP is also required </li></ul></ul></ul></ul>Comprehensive Annual Financial Report (CAFR)
  13. 13. Required Supplementary Information, cont’d <ul><ul><li>Pension plan information - information is presented for a six year period and includes actuarial values </li></ul></ul><ul><ul><ul><li>Schedule of Funding Progress </li></ul></ul></ul><ul><ul><ul><ul><li>Actuarial value of assets </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Actuarial accrued liability </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Unfunded/overfunded actuarial liabilitiy </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Funded ratio (actuarial value of assets/actuarial accrued liability) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Covered payroll </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Unfunded liability as a percentage of covered payroll </li></ul></ul></ul></ul><ul><ul><ul><li>Schedule of Employer Contributions </li></ul></ul></ul><ul><ul><ul><ul><li>Annual required contribution - actuarially determined amount necessary to ensure full actuarial funding of the plan </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Percentage of required amount actually contributed </li></ul></ul></ul></ul><ul><ul><ul><li>actuarial methods and assumptions must be disclosed </li></ul></ul></ul>
  14. 14. Required Supplementary Information, cont’d <ul><li>Information regarding infrastructure assets, if using the modified approach to measure depreciation expense </li></ul><ul><ul><li>current inventory of infrastructure assets </li></ul></ul><ul><ul><li>condition assessment of all infrastructure assets performed every three years </li></ul></ul><ul><ul><ul><li>method of assessing condition of assets (measurement scale) must be presented </li></ul></ul></ul><ul><ul><li>estimate of annual amount required to maintain assets at their condition when initially evaluated </li></ul></ul><ul><ul><li>evidence that the assets are being maintained at the level prescribed at costs consistent with the estimates </li></ul></ul>
  15. 15. Program Revenues <ul><li>The Government-wide Statement of Activities differentiates Program Revenues from General Revenues. </li></ul><ul><li>Program revenues derive directly from the program itself or are restricted to the program by external entities: </li></ul><ul><ul><li>Charges for services </li></ul></ul><ul><ul><li>Operating grants and contributions </li></ul></ul><ul><ul><li>Capital grants and contributions </li></ul></ul><ul><ul><li>Endowment and Permanent Fund investment income externally restricted to a specific program </li></ul></ul><ul><li>Program revenues are shown separately and deducted from the expenses for each program </li></ul>
  16. 16. General Revenues <ul><li>Any revenues that are not program revenues are general revenues </li></ul><ul><ul><li>reported below the functions/programs section of the statement </li></ul></ul><ul><li>Common line items: </li></ul><ul><ul><li>Taxes </li></ul></ul><ul><ul><ul><li>ALL taxes are considered general revenues regardless of whether they are specified for specific purposes </li></ul></ul></ul><ul><ul><li>Grants and contributions not restricted to specific programs </li></ul></ul><ul><ul><li>Unrestricted investment earnings </li></ul></ul><ul><ul><li>Transfers - net amount of transfers between Governmental Activities and Business-Type Activities </li></ul></ul><ul><ul><ul><li>will net to zero in the Total column </li></ul></ul></ul><ul><ul><li>Contributions to term and permanent endowments </li></ul></ul>
  17. 17. Government-wide statement adjustments <ul><li>Balance sheet adjustments </li></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>Eliminate all interfund payables/receivables except those to/from Enterprise funds </li></ul></ul><ul><ul><ul><li>net payable/receivable balance to/from Enterprise funds is labeled &quot;internal balances &quot; </li></ul></ul></ul>
  18. 18. Government-wide statement adjustments <ul><li>Balance sheet adjustments, cont’d </li></ul><ul><ul><li>Add net general government fixed assets </li></ul></ul><ul><ul><ul><li>accumulated depreciation must be deducted from the assets </li></ul></ul></ul><ul><ul><li>Add net general government long-term debt </li></ul></ul><ul><ul><ul><li>reported using the effective interest rate method instead of par value </li></ul></ul></ul><ul><ul><li>Bring accruals and deferrals up-to-date according to the economic resources measurement focus (full accrual basis): </li></ul></ul><ul><ul><li>Report Net Assets instead of Fund Balances </li></ul></ul>
  19. 19. Government-wide statement adjustments <ul><li>Statement of Activities adjustments </li></ul><ul><ul><li>Add all net revenue(expense) related to Internal Service Funds: </li></ul></ul><ul><ul><li>Eliminate capital outlay expenditures and debt principal expenditures, </li></ul></ul><ul><ul><ul><li>increase the governmental funds’ total Fund Balance for these items </li></ul></ul></ul><ul><ul><li>Eliminate proceeds from issuance of GLTD and proceeds from fixed asset sales </li></ul></ul><ul><ul><ul><li>decrease the governmental funds’ total Fund Balance for these items </li></ul></ul></ul>
  20. 20. Government-wide statement adjustments <ul><li>Statement of Activities adjustments, cont’d </li></ul><ul><ul><li>Adjust governmental fund interest expenditures to interest expense under the effective interest method </li></ul></ul><ul><ul><ul><li>includes amortization of premiums, discounts, and bond issue costs </li></ul></ul></ul><ul><ul><ul><li>depending on where you are in the amortization process, this could cause the governmental funds’ total Fund Balance to increase OR decrease </li></ul></ul></ul><ul><ul><li>Record gains/losses on sale of fixed assets. </li></ul></ul><ul><ul><ul><li>increase or decrease the governmental funds’ total Fund Balance for these items, as appropriate </li></ul></ul></ul>
  21. 21. Government-wide statement adjustments <ul><li>Statement of Activities adjustments, cont’d </li></ul><ul><ul><li>Record depreciation expense on GFA </li></ul></ul><ul><ul><ul><li>decrease the governmental funds’ total Fund Balance for this item </li></ul></ul></ul><ul><ul><li>Adjust revenues from modified accrual to accrual amounts </li></ul></ul><ul><ul><ul><li>increase or decrease the governmental funds’ total Fund Balance for these items, as appropriate </li></ul></ul></ul><ul><ul><li>Convert expenditures to expenses and adjust for differences between the modified accrual and accrual bases. </li></ul></ul><ul><ul><ul><li>increase or decrease the governmental funds’ total Fund Balance for these items, as appropriate </li></ul></ul></ul>
  22. 22. Service Efforts and Accomplishments (SEA) <ul><li>SEA attempts to measure governmental performance using nonfinancial measures </li></ul><ul><ul><li>typical service areas include elementary and secondary education, fire departments, police departments, transportation, public health, sanitation </li></ul></ul><ul><li>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) </li></ul><ul><ul><li>Input measures - typically money, materials </li></ul></ul><ul><ul><li>Output measures - quantitative evaluation of results </li></ul></ul><ul><ul><li>Outcome measures - qualitative evaluation of results </li></ul></ul><ul><ul><li>Efficiency measures - relate quantity/cost of inputs to outputs </li></ul></ul><ul><ul><ul><li>can also be related to outcomes to evaluate effectiveness </li></ul></ul></ul>
  23. 23. The End
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