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Chapter 11

Chapter 11. Objectives: Reconciliation between governmental fund and government-wide statements What are reporting units What are component units Review the elements of CAFR. Reconcile Balance Sheets. Example on page 48 Start with fund balance in governmental fund statement

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Chapter 11

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  1. Chapter 11 • Objectives: • Reconciliation between governmental fund • and government-wide statements • What are reporting units • What are component units • Review the elements of CAFR

  2. Reconcile Balance Sheets Example on page 48 Start with fund balance in governmental fund statement Eliminate interfund transactions Add capital assets, net of depreciation Add liabilities, premiums and discounts Differences in revenue and expense Consolidate internal service fund Equals net assets in the government activities column

  3. Reconcile Statement of Revenues • Example on Page 50 • State with change in fund balances from governmental fund statement • Add back capital expenditures • Deduct current year depreciation expense • Other differences in accounting for capital assets • Add back expenditure for principal of debt • Differences in reporting current year revenues and expenditures • Eliminate interfund transactions • Differences in pension obligations • Delete other financing sources and uses • Equals Change in net assets of governmental activities

  4. Levels of Gov’t Units • Primary is the state, municipality, city • Special purpose • Legally separate • Separately elected • Fiscally independent • Own budget • Issues own bonds • Levies own taxes and set rates • Component unit • Legally separate, tax exempt • but financially accountable

  5. Component Units • Primary gov’t appoints the voting majority of • entity board • Either must be true • Primary can impose its will • Financial tests must hold • Reported as a discrete column or if relationship • is especially close, blended with governmental • Discrete is the default method of presentation • Also can be blended (on a later slide)

  6. Impose Will • Appoint and remove board members • Modify or approve budget • Approve or modify fees • Veto, overrule decisions • Hire and dismiss managers

  7. Financial Tests • Economic resources are entirely or almost entirely for the direct benefit of the primary government • Primary has ability to access the resources of the entity • Material to the primary government (materiality defined as “it would be misleading not to include”) • Legally obligated for or assumes entity’s obligations

  8. Blending presentation • When two entities are so closely related that they appear to be the same entity • One of two circumstances must be true • Same governing boards • Unit provides service solely to the primary government • Usually shown with special revenue funds

  9. Joint Ventures • If investment from proprietary fund then • the investment is an asset, reported using • the equity method, (FASB rules). • If investment is from a governmental fund, • then the investment listed on schedule of • assets and on government-wide statements

  10. Related Organizations • Satisfies financial accountability • appoints majority of board • Other criteria don’t hold • Primary can’t impose will • No financial benefits/burdens • Disclose organization and relationship

  11. CAFR • Three sections • Introductory Section • Letter of Transmittal • Certificates • Financial Section • Statistical section

  12. Financial Section • Audit report • Management Discussion and Analysis • Financial Statements • Fund Statements • Government-wide statements • Notes • Required Supplemental Information • Includes budgetary comparisons • Infrastructure report • Pension information • Combining statements

  13. Statistical Section • Financial Trends • Revenue Capacity • Debt Capacity • Demographic and economic statistics • Operating information • See Pg. 474-476 • See Chapter 8 Ppt.

  14. Review • Know what appears on the reconciliation statements • Know the different types of reporting units • Know the elements of the CAFR

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