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Financial Reporting Pyramid

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Chapter 17 Financial Reporting Issues The New Reporting Model GASB Statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for ... – PowerPoint PPT presentation

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Title: Financial Reporting Pyramid


1
Chapter 17
Financial Reporting Issues
2
The New Reporting Model
  • GASB Statement No. 34
  • Basic Financial Statements
  • and Managements Discussion and Analysis
  • for State and Local Governments
  • June 1999

3
The Comprehensive Annual Financial Report (CAFR)
  • Introduction
  • Financial section
  • auditors report
  • general purpose financial statements notes
  • combining statements
  • Statistical section

4
Statement 34 Primary Features
  • Managements discussion and analysis
  • Basic financial statements
  • government-wide
  • fund
  • Required supplementary information

5
GASBs Financial Reporting Pyramid
  • Top highly aggregated, consolidated financial
    statements
  • Bottom highly detailed, voluminous reports
  • Dual reporting approach
  • CAFR and GPFS
  • combined and combining statements
  • individual fund and account group statements

6
Financial Reporting
  • Comprehensive annual financial report
  • simple entity context
  • complex entity context
  • defining the government reporting entity
  • blending
  • discrete presentation
  • related organizations, joint ventures, and
    jointly governed organizations

7
Complex Entities
  • Reporting entity definition
  • primary government (PG) legal entity plus
  • component units (CU) that either
  • are financially accountable to PG
  • are majority-owned for-profits that directly
    facilitate public service
  • must be included to avoid being misleading

8
CU Reporting Presence of Financial
Accountability
  • PG has financial accountability for CU if
  • the CU is fiscally dependent on PG or
  • the CU is one for which PG either appoints voting
    majority of governing board or majority of board
    is composed of primary government officials and
    the CU is one over which
  • the PG has the ability to impose its will or
  • with which PG has a financial benefit/burden
    relationship

9
CU ReportingBlending
  • Permitted only if CU meets one of three
    conditions
  • substantively same governing body as PG
  • provides service only to PG
  • benefits only PG

10
CU ReportingBlending, continued
  • PG legal entity and blended CUs reported as if
    single entity
  • CU funds blended with same type funds of PG
  • exception CU general fund blended into the PGs
    special revenue fund

11
CU ReportingDiscrete
  • Default presentation
  • Applies to CUs that do not meet blending criteria
  • Required for most CUs

12
CU ReportingDiscrete, continued
  • GPFS requirements
  • one or more CU columns in the GPFS -- clearly
    distinguished from PG data
  • condensed financial statement data for major CUs
    and combining discretely presented CU financial
    statements or separate column for each major
    discretely presented CU
  • aggregate data for non-major CUs
  • other CAFR requirements -- combining CU financial
    statements

13
Component Unit Reporting Options
  • Separate columns in the government-wide
  • Separate statements after fund presentations
  • Condensed information in the notes

14
Managements Discussion and Analysis - MDA
  • Brief description of basic statements
  • Condensed comparative financial information
    derived from government-wide financial statements
  • Analysis of financial position and results of
    operations (significant variances)
  • Analysis of budgetary changes and results

15
MDA, continued
  • Description of changes in capital asset and
    long-term debt activity
  • Description of currently known facts, decisions,
    or conditions that are expected to have a
    material effect on the entity.
  • Governments are encouraged not to duplicate MDA
    information in the letter of transmittal

16
Fund-Based Statements
  • Basic Financial Statements, consisting of
  • Governmental fund statements
  • Proprietary fund statements
  • Fiduciary funds and similar component unit
    financial statements

17
Required Fund Presentations
  • Major funds
  • Nonmajor funds presented in a single column by
    category
  • Concept does not apply to fiduciary activities or
    internal service funds

18
Major Fund Definition
  • General fund is always major
  • Other major funds
  • comprise at least 10 of assets, liabilities,
    revenues, or expenditures/expenses (excluding
    extraordinary items) of the relevant fund
    category or fund type and
  • at least 5 of same elements of the total
    governmental and proprietary funds combined
  • other funds that government considers major

19
Governmental Funds
  • Measurement focus and basis of accounting
  • current financial resources
  • modified accrual

20
Governmental Fund Statements
  • Balance sheet
  • Statement of revenues, expenditures, and changes
    in fund balances
  • Reconciliation to government-wide numbers
    required for both statements, either at bottom of
    each statement or in separate schedules
  • Accounts groups no longer reported

21
Required Reconciliations
  • Reconciling items include
  • addition of capital assets and noncurrent
    liability activities, deletion of other financing
    sources and uses
  • reporting internal service funds as proprietary
    in fund statements and as governmental in
    government-wide statements
  • revenue and expense recognition versus revenue
    and expenditures

22
Proprietary Funds
  • Measurement focus and basis of accounting
  • economic resources
  • accrual basis

23
Proprietary Funds, continued
  • When are enterprise funds required?
  • debt\user charge-based
  • debt secured solely by pledge of net revenues
    from fees or charges
  • laws or regulations require recovery of cost
  • pricing policy designed to recover cost
  • Enterprise funds can also be used if management
    wants to capture net income information

24
Proprietary Fund Statements
  • Balance sheet
  • Statement of revenues, expenses, and changes in
    fund net assets
  • Statement of cash flows-direct method
  • Reconciliation required for financial position
    and operating statements (if necessary)

25
Proprietary Fund Balance Sheet
  • Classified
  • Restricted assets should be reported
  • Equity (net assets) of fund classified into three
    components
  • invested in capital assets, net of related debt
  • restricted
  • unrestricted

26
Fiduciary Funds
  • Redefined cannot be used to support the
    governments own programs
  • expendable Special Revenue Funds
  • non-expendable Private Purpose Trusts
  • Measurement focus and basis of accounting
  • economic resources
  • accrual accounting

27
Fiduciary Fund Statements
  • Statement of fiduciary net assets
  • Statement of changes in fiduciary net assets

28
Government-wide Statements
  • Basic Financial Statements
  • Statement of net assets
  • Statement of activities
  • cost of services approach
  • Measurement focus and basis of accounting
  • Economic resources
  • Accrual basis

29
Government-Wide Statement of Net Assets
  • All assets (including infrastructure) and
    liabilities
  • Net assets or balance sheet format
  • Net assets
  • invested in capital assets, net of related debt
  • restricted
  • unrestricted

30
Statement of Net Assets
31
Infrastructure Assets
  • Required to be reported for the first time
  • Prospective reporting begins when GASB 34 is
    adopted
  • Retroactive reporting begins after phased in
    period (requires last 25 years of data)
  • Reporting alternatives
  • historical cost-based depreciation
  • modified approach

32
Infrastructure Assets Modified Approach
  • Permitted if the government demonstrates that it
    is maintaining qualifying infrastructure assets
    approximately at or above the condition level
    that it established
  • No depreciation is required all costs to
    maintain assets are expensed
  • Condition assessments should be performed at
    least every three years

33
Government-Wide Statement of Activities
  • Net cost format
  • Expenses by functions/programs
  • Revenues by
  • charges for services
  • operating grants and contributions
  • capital grants and contributions
  • general
  • Special, extraordinary items, and transfers

34
Statement of Activities
35
Changes to Note Disclosures
  • Summary of significant accounting policies
  • Changes in capital assets and long-term
    liabilities
  • Segment reporting

36
Required Supplementary Information (RSI)
  • RSI is not part of the financial statements and
    is not subject to high levels of audit scrutiny
  • Budgetary comparisons for general and major
    special revenue funds
  • original and final budget
  • actual on budgetary basis
  • Infrastructure-modified approach
  • three most recent condition assessments
  • estimated amount to maintain and preserve versus
    actual amount for last five years

37
Special Purpose Governments
  • Most are engaged in governmental activities,
    business-type activities, or both
  • Single program governmental activity--government-w
    ide and fund statements may be combined

38
Special Purpose Governments, continued
  • All other governmental activities must present
    both government-wide and fund financial
    statements
  • Business-type activities--government-wide
    statements not required

39
Statement 34 Implementation
  • Periods beginning after
  • June 15, 2001 for governments with revenues of
    100 million or more (phase I)
  • June 15, 2002 for governments with revenues of
    10 million or more, but less than 100 million
    (phase II)
  • June 15, 2003 for governments with revenues of
    less than 10 million (phase III)
  • Early application encouraged

40
Retroactive Infrastructure Reporting
Phase I governments periods beginning after June
15, 2005 Phase II governments--periods beginning
after June 15, 2006 Phase III governments--encoura
ged, but not required
41
Audits of State and Local Governments
  • Financial audits
  • Performance audits
  • Government Auditing Standards
  • U.S. General Accounting Office Yellow Book
  • AICPA Auditing Standards
  • incorporates the Yellow Book standards

42
Audits of State and Local Governments, continued
  • Single Audit Act (1984, revised 1996)
  • U.S. Office of Management and Budgets OMB
    Circular A-133
  • Audit of financial statements
  • Audit of federal financial awards

43
Other Financial Reporting Issues
  • Service efforts and accomplishments
  • Affiliated organizations
  • Post employment benefits other than pensions
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