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ANATOMY OF A CAFR Comprehensive Annual Financial Report

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Title: ANATOMY OF A CAFR Comprehensive Annual Financial Report


1
ANATOMY OF A CAFRComprehensive Annual Financial
Report
  • Karen Tenace CPA, CMA
  • City of Tucson

2
Objectives
  • Learn what is mandated by GAAP versus is what is
    encouraged by GAAP
  • Understand the components of the CAFR and the
    order in which they should be presented
  • Discover additional resources that can help your
    jurisdiction prepare a great CAFR

3
Do we have to do a CAFR?
  • Need 3 things to comply with GAAP
  • Management Discussion and Analysis (MDA)
  • Basic Financial Statements
  • Required Supplementary Information (RSI)
  • GAAP, however, encourages the production of the
    broader presentation in the format of CAFR.

4
CAFRComprehensive Annual Financial Report
  • 3 Major Sections

Introductory Section
Financial Section
Statistical Section
5
Order of Presentation
  • Table of Contents
  • Introductory Section
  • A. Letter of Transmittal
  • B. Organizational Chart
  • C. GFOAs Certificate of Achievement
  • Financial Section
  • A. Auditors Opinion
  • B. Management Discussion and Analysis (MDA)
  • C. Basic Financial Statements
  • D. Notes
  • E. Required Supplementary Information (Other
    than MDA)
  • F. Other Information (Combining Individual
    Statements)
  • Statistical Section
  • Optional Sections

6
Title Page-Specific Requirements
  • Comprehensive Annual Financial Report (not
    Annual Report)
  • Name of primary government
  • State where government is located
  • Fiscal period covered
  • Department responsible for preparing the report

7
Introductory Section-Purpose?
  • Provides background and context of CAFR
  • NOT included in scope of audit

8
Introductory Section-Contents
  • Certificate of Achievement for Excellence in
    Financial Reporting-Prior Year
  • List of Principal Officials
  • Letter of Transmittal
  • Organizational Chart

9
Letter of Transmittal-4 Sections
  • Formal transmittal of the CAFR
  • Profile of the government
  • Economic Condition (Subjective Element)
  • Awards Acknowledgements

10
Letter of Transmittal-Other Details
  • Minimum-Signed by CFO
  • Dated on the date the CAFR is first made
    available to the public (AFTER the auditors
    report)
  • NOT audited
  • Should be on letterhead
  • Should be addressed to the citizens
  • Concise with charts and graphs

11
Financial Section-Purpose?
  • Provides critical information regarding the
    financial condition of the government through the
    presentation of financial statements and
    schedules, note disclosures and narratives (MDA)

12
Finance Section-Contents
  • Independent Auditors Report
  • Management Discussion and Analysis (MDA)
  • Basic Financial Statements
  • Required Supplementary Information (Other than
    MDA)
  • Combining and Individual Fund Presentations
    Supplementary Info

13
Basic Financial Statements
  • A Quick Detour to Review Basic Terminology
    Concepts

14
Review-Unique Characteristics of Governmental
Accounting
  • Use of Fund Accounting
  • Measurement Focus and Basis of Accounting or MFBA
  • Full Accrual AND Modified Accrual

15
Review-Whats a Fund?
  • Fund A self contained accounting entity with its
    own asset, liability, revenue, expenditure or
    expense and fund balance or other equity accounts.

16
Review-Measurement Focus Basis of Accounting
(MFBA)
  • Measurement Focus tells you WHAT to recognize
  • Basis of Accounting tells you WHEN to recognize it

17
Review-Two Types of MFBAs in Governmental
Accounting 1
  • Economic Resources Measurement Focus and Accrual
    Basis of Accounting
  • WHAT Economic resource measurement focus
    considers ALL inflows, outflows and balances
    affecting or reflecting on an entitys net
    assets.

18
Review-Two Types of MFBAs in Governmental
Accounting 1
  • Full Accrual Basis Cont.
  • WHEN Accrual basis of accounting recognizes the
    financial effect of transactions, events, and
    interfund activities when they occur, regardless
    of the timing of related cash flows.

19
Review-Two Types of MFBAs in Governmental
Accounting 2
  • Current Financial Resources Measurement Focus and
    Modified Accrual Basis of Accounting
  • WHAT Current financial resource measurement
    focus only considers SHORT-TERM or CURRENT
    inflows, outflows and balances of expendable
    financial resources.

20
How can you tell MFBA by looking at a financial
statement?
  • Modified
  • Short-term View
  • Expenditures (Capital Outlay and Principal
    Payments)
  • Assets-LiabilitiesFund Balance
  • Only Current Assets and Current Liabilities Shown
  • No Long-term Assets means no Depreciation Expense
  • Full Accrual
  • Long-term View
  • Expenses
  • Assets-LiabilitiesNet Assets
  • Current AND Long-Term Assets and Liabilities
    Shown
  • Depreciation Expense Included in Operating

21
Review-Fund Types
  • GOVERNMENTAL FUNDS
  • (Current Resources/Modified)
  • General Fund
  • Special Revenue Fund
  • Capital Project Fund
  • Debt Service Fund
  • Permanent Fund
  • PROPRIETARY FUNDS
  • (Economic Resources/Full Accrual)
  • Enterprise Funds
  • Internal Service Funds
  • FIDUCIARY FUNDS
  • (Economic Resources/Full Accrual)
  • Agency Funds
  • Pension Funds
  • Investment Trust Funds
  • Private Purpose Trust Funds

22
Review-GASB Statement No. 34The New Model
(2002)
  • PRE-GASB 34
  • General Purpose F/S
  • Emphasis on FUND TYPE
  • Governmental Fund Financial Statements were ONLY
    presented using modified accrual accounting basis
  • POST-GASB 34
  • Basic F/S
  • Emphasis on MAJOR Fund vs. NONMAJOR Fund
  • Governmental Fund Financial Statements presented
    in BOTH modified and full accrual accounting
    basis (Govt-wide Statements)

END OF DETOURBACK TO BASIC FINANCIAL
STATEMENTS.....
23
Basic Financial Statements-Order of Presentation
  • Government-wide Financial Statements
  • Fund Financial Statements
  • Required Supplementary Information
  • Combining and Individual Fund Statements and
    Schedules

24
Government-wide Financial Statements-Major Points
  • Includes all governmental activity and
    business-type activity
  • Includes discretely presented component units
  • Excludes fiduciary activities
  • MFBAEconomic Resources, Full Accrual Accounting
  • Govt Activity Business Type Activity Primary
    Government

25
Government-wide Statements
  • Statement of Net Assets
  • Statement of Activities

All financial statements should refer to Notes!
26
Govt-wide Statement of Net Assets-Major Points
  • Assets Liabilities- present in order of
    liquidity or split between current and noncurrent
    (classified approach)
  • Capital assets being depreciated must be shown
    separately from assets that are not being
    depreciated
  • Assets Liabilities Net Assets

27
Govt-wide Statement of Net Assets-Major Points
Cont.
  • Net Assets is broken into 3 categories
  • Invested in Capital Assets Net of Related Debt
  • Restricted (Narrower than purpose of reporting
    unit)
  • Unrestricted

28
Govt Wide Statement of Activities-Major Points
  • Purpose is to show the extent of how each
    governmental function supports itself, before
    general tax dollars kick in
  • Order of Presentation
  • Expenses
  • Program Revenues
  • Net (Expense) Revenue
  • General Revenues

29
Govt Wide Statement of Activities-Expenses
  • Direct expenses by function
  • Depreciation by function
  • Indirect expenses General Government or
    allocate in separate column
  • Interest Expense not associated with a
    function, separate line

30
Govt Wide Statement of Activities-Program
Revenues
  • Reported by Function Shown in 3 Columns
  • Charges for Services
  • Operating Grants and Contributions
  • Capital Grants and Contributions

31
Govt Wide Statement of Activities-Net Expenses
  • What you would expect, in theory
  • Governmental activities carry net expenses and
    depend on tax revenues
  • Business-type activities either break even or
    carry net revenues

32
Govt Wide Statement of Activities-General
Revenues Other Line Items
  • Tax revenues are reported by type of tax
  • Material gains on sale of capital assets for
    governmental activities
  • Immaterial gains on governmental assets can be an
    adjustment to depreciation
  • Gains on assets in enterprise activities should
    be shown under functional expense
  • Impairments to assets, program expense or
    special/extraordinary item

33
Govt Wide Statement of Activities-General
Revenues Other Line Items
  • Endowment and Permanent Fund Contributions-
    reported after General Revenues
  • Special Items significant, subject to
    managements control, and either unusual OR
    infrequent (Sale of Land)
  • Extraordinary Items significant, unusual AND
    infrequent (Earthquake)
  • Transfers

34
XYZ CITY EXAMPLE STATEMENT OF ACTIVITIES FOR THE
PERIOD ENDING JUNE 30, 2007
35
Fund Financial Statements
  • GOVERNMENTAL FUNDS
  • (Current Resources/Modified)
  • Balance Sheet
  • Statement of Revenues, Expenditures and Changes
    in Fund Balance
  • Reconciliation to Government-wide Statements
  • PROPRIETARY FUNDS
  • (Economic Resources/Full Accrual)
  • Statement of Net Assets
  • Statement of Revenues, Expenses and Changes in
    Fund Net Assets
  • Statement of Cash Flows
  • FIDUCIARY FUNDS
  • (Economic Resources/Full Accrual)
  • Statement of Fiduciary Net Assets
  • Statement of Changes in Fiduciary Net Assets

All financial statements should refer to Notes!
36
Governmental Fund Financial Statements-Major
Points
  • Separates funds Major vs. Nonmajor
  • MFBACurrent Resources, Modified Accrual
    Accounting
  • Includes reconciliation back to governmental
    activities for both financial statements

37
Basic Financial StatementsMajor Fund Test
  • Total assets, liabilities, revenues, or
    expenditures/expenses of that individual
    governmental or enterprise fund constitute 10 of
    the governmental or enterprise activity
  • AND
  • Total assets, liabilities, revenues, or
    expenditures/expenses are 5 of the total
    governmental and enterprise category combined

38
Major Fund Test Example
39
Financial Section - Notes
  • Summary of Significant Accounting Policies
  • Budgetary Information
  • Cash Deposits w/ Financial Institutions
  • Investments
  • Derivatives
  • Contingent Liabilities
  • Encumbrances
  • Subsequent Events
  • Defined benefit pensions and post employment
    benefit plans
  • Capital Assets and Long-term Liabilities
  • Significant Commitments

40
Financial Section Notes Cont.
  • Fund Balances
  • Interfund Activity
  • Component Units
  • Endowments
  • Risk Financing
  • Fiscal Year Inconsistencies
  • Landfill Closure Post closure
  • Property Taxes
  • Segment Information
  • Related Party Transactions
  • Joint Ventures
  • Fund Balances
  • Prior Period Adjustments

41
RSI-Other than MDA
  • Budgetary Comparisons (General Fund Major
    Special Revenue Funds)
  • Infrastructure Condition and Maintenance
    (Modified Approach)
  • Pension/Other Post Employment Benefits
  • Revenue Claims Development Trend Data (Public
    Entity Risk Pools)

42
Combining Statements Individual Schedules-
Detail of Aggregate Data
  • Nonmajor governmental funds
  • Nonmajor enterprise funds
  • Internal Service Funds Fiduciary Funds
  • Nonmajor discretely presented component units

43
The End-Financial Section
  • Whew!

44
Statistical SectionGASB 44 10 Yr Trending
  • Financial Trends
  • Revenue Capacity
  • Debt Capacity
  • Demographics and Economy
  • Operating Information

45
Optional Sections to the CAFRCommon Examples
  • Investment Section (Pension Plans or Investment
    Pools)
  • Actuarial Section (Pension Plans)
  • Single Audit (Federal Awards)

46
Financial Disclosure
  • GFOA has formally recognized that the CAFR format
    meets the SEC Rule 15c2-12 (financial statement
    disclosure to investors)
  • Place on website
  • Checklist is at http//www.gfoa.org/downloads/GEN
    ERALPURPOSECHECKLIST.pdf

47
Questions?
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