Financial Reporting: The Comprehensive Annual Financial Report and the Financial Reporting Entity

Financial Reporting:The Comprehensive Annual Financial Report (CAFR) and the Financial Reporting EntityChapter 15Learning ObjectivesExplain the nature and contents of the three major sections of a CAFRUnderstand the relationships between combining financial statements and the basic financial statementsDetermine the combining statements that a government needs to present in the CAFR 2013 Pearson Education, Inc. All rights reserved.2Learning Objectives (continued)Explain how to determine if a government should treat an associated entity as a component unit (CU)Understand which CUs should be blended and which should be discretely presentedUnderstand the differences between blending and discrete presentationExplain the differences between and among the reporting requirements for related organizations, jointly governed organizations, and joint ventures3 2013 Pearson Education, Inc. All rights reserved.CAFR ComponentsIntroductory SectionFinancial SectionStatistical Section (addressed by GASB #44)4 2013 Pearson Education, Inc. All rights reserved.Introductory SectionTable of Contentsguide to the rest of the reportTransmittal LetterLegal requirements for the CAFRReport is managements responsibilityResults of the auditShould not duplicate information in MD&A, but may refer to MD&AOther materials deemed appropriate by managementGovernments participating in GFOA certificate program must include other items5 2013 Pearson Education, Inc. All rights reserved.Financial SectionAuditors ReportManagements Discussion & AnalysisBasic Financial StatementsOther RSICombining and Individual Fund Financial Statements and Schedules (Other Information)Narrative explanations6 2013 Pearson Education, Inc. All rights reserved.Auditors ReportFirst item in the Financial SectionScope is usually the Basic Financial Statements but may be of the CAFR as a wholeKnown as a dual opinionWould still exclude RSI and Statistical Section7 2013 Pearson Education, Inc. All rights reserved.Basic Financial Statements and RSI(also known as the Minimum External Financial Report [MEFR])MD&A (part of RSI)Basic Financial StatementsGovernment-Wide Financial StatementsFund Financial StatementsNotes to the Financial StatementsOther RSI8 2013 Pearson Education, Inc. All rights reserved.Other InformationNonmajor combining statements for Governmental Funds and Enterprise FundsCombining statements for ISFsCombining statements for each type of Fiduciary FundIndividual Fund Statements, if appropriateNarrative explanations9 2013 Pearson Education, Inc. All rights reserved.Individual Fund Financial StatementsBudgetary comparisons not included in the Basic Financial Statements (BFS) or other RSIMore detailed budgetary comparisons for GF and major SRFsAdditional information beyond the BFS or combining financial statementsPrior year comparative data for individual funds

10 2013 Pearson Education, Inc. All rights reserved.SchedulesDemonstrate finance-related and contractual compliancePresent more detailed data than appears in the financial statementsPresent other data management deems necessary, such as cash receipts and cash disbursement schedules11 2013 Pearson Education, Inc. All rights reserved.Narrative ExplanationsEssentially notes for information not in the BFS or other RSINot called notes to avoid confusionProvide guidance to better understand data included in other information12 2013 Pearson Education, Inc. All rights reserved.Statistical SectionFirst outlined in NCGA Statement 1New requirements from GASB #44Consists of five categories of schedulesMost schedules present 10 years of information; some present only 2 comparative years13 2013 Pearson Education, Inc. All rights reserved.Statistical Section: Five Classes of InformationFinancial TrendsRevenue CapacityDebt CapacityDemographic and Economic informationOperating Information14 2013 Pearson Education, Inc. All rights reserved.Financial Trend Information:Government-wide Financial StatementsNet Position for governmental activities, business-type activities, and total primary governmentNet Investment in Capital AssetsRestricted Net Position (detail optional)Unrestricted Net Position15 2013 Pearson Education, Inc. All rights reserved.15Financial Trend Information:Government-wide Financial StatementsChanges in Net Position for governmental activities and business-type activities, with summary totals for primary governmentExpenses by function, program, or identifiable activityProgram revenues by categoryGeneral revenues and other changes in net position by typeTotal change in net position16 2013 Pearson Education, Inc. All rights reserved.16Financial Trend Information:Governmental Fund Financial StatementsFor General Fund and other governmental funds in the aggregate, each of the required fund balance classifications17 2013 Pearson Education, Inc. All rights reserved.17Financial Trend Information:Governmental Fund Financial StatementsFor governmental funds in totalRevenues by sourceExpenditures by functionsOther financial sources and uses and other changes in fund balance by typeTotal change in fund balancesRatio of total debt service expenditures (principal and interest) to noncapital expenditures18 2013 Pearson Education, Inc. All rights reserved.18Revenue Capacity InformationRevenue baseDirect and overlapping ratesPrincipal payerscurrent year and comparison year (9 years earlier)Levies and collectionsAmount levied for periodAmount collected during period and percentage of total levyAmount collected in subsequent periods and percentage of total levy19 2013 Pearson Education, Inc. All rights reserved.19Debt Capacity InformationRatios of total outstanding debt by type of debt, to personal income, and per capitaRatios of general debt outstanding Overlapping debttotal amount and percentagesLegal debt margin calculated for current year with 10-years of comparative dataPledged-revenue coverage20 2013 Pearson Education, Inc. All rights reserved.Demographic and Economic InformationDemographic and economic indicators Total populationTotal personal incomePer capita personal incomeUnemployment rateOthers, if appropriatePrincipal employerscurrent year and comparison year (9th year prior)21 2013 Pearson Education, Inc. All rights reserved.21Operating InformationGovernment employees by function, program, or identifiable activityOperating indicatorsdemand or level of serviceCapital asset indicatorsvolume, usage or nature22 2013 Pearson Education, Inc. All rights reserved.22More Complex Entity StructuresComponent unitsRelated organizationsJointly governed organizationsJoint ventures23 2013 Pearson Education, Inc. All rights reserved.Foundation of Reporting Entity: The Primary GovernmentAll States, Counties, and Cities are primary governments (PGs)Other governmental entities may be PGs if itHas a separately elected governing body; andHas separate legal standing; andIs fiscally independent24 2013 Pearson Education, Inc. All rights reserved.An Entity Is Fiscally Independent IfIt does not need another governments approval to:Establish its budget; orLevy taxes or set other rates and charges; orIssue bonded debt25 2013 Pearson Education, Inc. All rights reserved.When Reporting Component Units (CUs) Are Required:PG is financially accountable for other entityPG holds a majority interest in other entity for facilitating delivery of government servicesOther entity is a tax-exempt organization whose ongoing financial support of PG warrants inclusionFailure to include other entity would cause PG financial statements to be misleading26 2013 Pearson Education, Inc. All rights reserved.Financial Accountability(See Illustration 15-7, Page 616)Appointment Authority + Ability to Impose WillAppointment Authority + Financial Benefit or BurdenFiscal Dependence + Financial Benefit or Burden27 2013 Pearson Education, Inc. All rights reserved.CU Note DisclosuresCUs included in the reporting entityRationale for including each CUInformation about whether each CU is blended, discretely presented, or included in fiduciary financial statementsAvailability of separately issued financial statements for each CU28 2013 Pearson Education, Inc. All rights reserved.Methods to Report CUsBlendinglooks like any another fundDiscrete presentationreported in separate column(s) in government-wide financial statements29 2013 Pearson Education, Inc. All rights reserved.Requirements for Blended PresentationCUs governing body and PGs governing body are substantially the same and either (1) there is a financial benefit/burden relationship, or (2) the PG management has day-to-day operational responsibility for CUCU provides services to, or benefits only, the PGCUs total debt outstanding is expected to be repaid entirely or almost entirely by PG30 2013 Pearson Education, Inc. All rights reserved.How to Blend a CUIt is as if the PG and the blended CU were a single entityCU financial information included in fund and government-wide financial statementsSome CUs reported as a single fund, others as multiple fundsGeneral Fund of CU treated as a SRFCU funds can be major funds31 2013 Pearson Education, Inc. All rights reserved.Reporting Discretely Presented CUsFound only on government-wide financial statementsStatement of Net PositionStatement of ActivitiesFour options for reporting CUs32 2013 Pearson Education, Inc. All rights reserved.Options for Reporting CUsSingle column (option most often used)Separate columns for Governmental CUs and Proprietary CUs (rarely used in practice)Separate column for each major CU with aggregate column for other CUsSeparate column for each CU33 2013 Pearson Education, Inc. All rights reserved.Options for Reporting CUs(continued)When options 1 and 2 used, must present additional information about CUs later in reportMethods availableCombining statements following major fund statementsmust have separate column for each major CU and aggregate column for othersCondensed financial statements in notes to financial statements34 2013 Pearson Education, Inc. All rights reserved.Other relationshipsRelated organizationappointment criteria met but PG does not have ability to impose will or have a financial benefit/burden relationshipJointly governed organizationsubject to joint control but PG has neither an ongoing financial interest or ongoing financial responsibilityJoint venturesimilar to joint venture but PG has either ongoing financial interest or ongoing financial responsibility35 2013 Pearson Education, Inc. All rights reserved.Bringing It All Together:The Financial Reporting Pyramid

36 2013 Pearson Education, Inc. All rights reserved.