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What Story Does Your Financial Statements Tell?

What Story Does Your Financial Statements Tell?. Dr. Jesse Hughes, CPA, CIA, CGFM Meena Katwal , Graduate Student Old Dominion University. Overview of Governmental Accounting. Three major categories of a state or local government: Governmental Activities Business Type Enterprises

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What Story Does Your Financial Statements Tell?

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  1. What Story Does Your Financial Statements Tell? Dr. Jesse Hughes, CPA, CIA, CGFM MeenaKatwal, Graduate Student Old Dominion University

  2. Overview of Governmental Accounting Three major categories of a state or local government: • Governmental Activities • Business Type Enterprises • Component Units

  3. Liquidity The immediate ability of a Government to pay its current debts as they come due. • Current ratio: Current Assets Current Liabilities • A current ratio of 2:1 or better are benchmarks that are typically used in the private sector.

  4. Governmental Activities Average3.35

  5. Governmental Activities Liquidity: • Current ratio ranged from 1.9 to 6.2 with an average of 3.35. • Thus, governments tend to be very conservative in the amount of current assets (especially Hampton) that they hold for payment of current liabilities.

  6. Business Type Enterprises average 4.94

  7. Business Type Enterprises Liquidity: • Current ratio ranged from 1.3 to 9.6 with an average of 4.94. • In many cases, surplus cash was transferred from Business-Type Enterprises to Government Activities.

  8. Component Units average 2.11

  9. Component Units Liquidity: • Current ratio ranged from 1.3 to 3.1 with an average of 2.11. • Current ratio is close to the 2.0 benchmark.

  10. Whole of Government Average 3.08 Average 3.08

  11. Solvency • A determinant of Government’s ability to meet its service delivery and financial commitments both now and in the future • Debt Ratio: Liabilities Net Assets • A ratio of 1:1 or less would generally be desired.

  12. Governmental Activities Average1.64

  13. Governmental Activities Solvency: • The Liabilities/Net Assets ratio ranged from 0.5 to 3.5 with an average of 1.64. • Newport News and Portsmouth tend to be more liberal in their debt policies than the other cities in the sample.

  14. Business Type Enterprises average 1.01

  15. Business Type Enterprises Solvency: • The Liabilities/Net Assets ratio ranged from 0.2 to 1.9 with an average of 1.01. • The business enterprises appeared to carry excess liabilities in two of the cities (Hampton and Norfolk) where the ratio exceeded 1.0.

  16. Component Units average 0.71

  17. Component Units Solvency: • The Liabilities/Net Assets ratio ranged from 0.3 to 1.4 with an average of 0.71. • Most component units (except Newport News) in the sample tend to be conservative in their debt policies.

  18. Whole of Government Average 1.13 Average 1.13

  19. Conclusion • In the solvency ratios, it would be beneficial to include the Unfunded Accrual Actuarial Liability with the total liabilities. • However, this is currently not required by GASB. • If these UAAL had been included, the solvency ratios would have been much higher.

  20. Questions?

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