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Basic Overview of the CAFR

Basic Overview of the CAFR. By Andrew Laflin, CPA CliftonLarsonAllen LLP 2012 School of Government Finance. Time to Dissect the CAFR!!!. Learning Objectives . Learn about what a CAFR is and what entities prepare a CAFR and why

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Basic Overview of the CAFR

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  1. Basic Overview of the CAFR By Andrew Laflin, CPA CliftonLarsonAllen LLP 2012 School of Government Finance

  2. Time to Dissect the CAFR!!!

  3. Learning Objectives • Learn about what a CAFR is and what entities prepare a CAFR and why • Identify the components of the Comprehensive Annual Financial Report (CAFR). • Gain a deeper understanding of what information is presented within each CAFR component

  4. What is a CAFR? • An annual financial report that is more “comprehensive” than financial statements required by GAAP. • CAFR = Comprehensive Annual Financial Report

  5. Must Local Governments Prepare a CAFR? • Only basic financial statements are required for a GAAP presentation • Many government finance officers prepare a CAFR as a result of their desire to participate in the GFOA's program, the Certificate of Achievement for Excellence in Financial Reporting • Among other requirements, CAFR must be postmarked or emailed no later than six months after the end of the government's fiscal year to be eligible to participate in the program • GFOA checklist: http://www.gfoa.org/downloads/GENERALPURPOSECHECKLIST2011.pdf

  6. CAFR Components

  7. Comprehensive Annual Financial Report Introductory Section Financial Section Statistical Section Other Reports* * Added for Single Audit, if necessary.

  8. Introductory Section • CAFR Cover • Contain the title “Comprehensive Annual Financial Report” • Show the name of the government and the state in which it is located • Show the fiscal period covered by the report • Title Page • Include same information as presented on the CAFR cover as well as the name of the department responsible for preparing the report

  9. Introductory Section, cont. • Table of Contents • Be clearly divided into at least three sections—the introductory, financial, and statistical sections • Clearly distinguish the contents of the financial section between (i) the basic financial statements and notes, (ii) RSI, and (iii) other contents of that section • Identify each financial statement by its full title and provide a page reference for all contents • Certificate of Achievement for Excellence in Financial Reporting (for prior year)

  10. Introductory Section, cont. • List of Principal Officials • Letter of Transmittal • Formal transmittal of the CAFR • Profile of the government • Information useful in assessing the government's financial condition (don’t replicate MD&A) • Awards and acknowledgements • Organizational Chart • May be combined w/list of principals • Reflect various functions within the local government

  11. Financial Section • Consists of the following sections: • Independent Auditor’s Report (IAR) • Management’s Discussion & Analysis (MD&A) • Basic Financial Statements (includes notes to the f/s) • Required Supplementary Information (other than MD&A) • Combining statements and individual fund statements and schedules

  12. Independent Auditor’s Report • Presents the independent auditor's opinion on whether the opinion units in the basic financial statements are presented fairly in conformity with GAAP • Auditor is required to give an opinion on the basic financial statements at a minimum • Opinion can either be unqualified, qualified, disclaimer, or adverse

  13. Management’s Discussion & Analysis • Brief Discussion of the Basic Financial Statements: include brief discussion of how the gov’t wide and fund financial statements relate to each other and differ in the information they provide • Condensed Comparative Financial Information: info derived from, but not identical to, the information presented in the gov’t-wide f/s • Analysis of the Govt’s Overall Financial Position and Results of Operations: assess whether the government's financial position has improved or deteriorated over the past year

  14. MD&A, continued • Analysis of Balances and Transactions of Individual Funds: intended to help users understand significant changes in individual fund balances, including their effect on future transactions • Analysis of Significant General Fund Budgetary Variations: focuses on variances between original and final general fund budget amounts and variances between final budget and actual results

  15. MD&A, continued • Description of Significant Capital Asset and Long-term Debt Activity: includes additions to and sales of capital assets, new debt issuances and retirements, and changes in debt ratings and available credit that have occurred during the year • Discussion of Currently Known Facts, Decisions, or Conditions: intended to help users assess future operations of the government

  16. MD&A, continued • Common errors: • Not updating figures presented in drafted MD&As for final financial statement figures • Discussing reasons for increases or decreases in government-wide net assets using current financial resource flows information • Including something in MD&A that is not also discussed in the notes • Not providing three years' worth of data and analysis in MD&A when accompanying financial statements are comparative

  17. Basic Financial Statements & Notes • Government-wide statement of net assets and the statement of activities should display information about the reporting government as a whole (see GASBS 14, The Financial Reporting Entity) • Include primary government and component units; exclude fiduciary funds • Separately report governmental and business-type activities

  18. Government-wide Statements • Report capital assets (include depreciation expense) • Report general long term liabilities • Report revenues and expenses on accrual basis • Eliminate interfund balances and activities • Convert most internal service funds to governmental activities • Reclassify expenses by function

  19. Government-wide Statements Key Differences Resulting from the Measurement Focus of Accounting American Institute of Certified Public Accountants, Inc. Foundations in Governmental Accounting. Durham, North Carolina: 2012. Print

  20. Reconciliation Process Fund Statements Government-wide Statements Statement of Net Assets • Balance Sheet – Governmental Funds

  21. Terminology Differences Fund Statements Government-wide Statements Net Assets 1) Invested in Capital Assets, Net of Related Debt 2) Restricted 3) Unrestricted • Fund Balance 1) Nonspendable 2) Restricted 3) Committed 4) Assigned 5) Unassigned

  22. Invested in Capital Assets, Net of Related Debt

  23. Reconciliation Process Agree the Balance Sheet – Governmental Funds to the Statement of Net Assets – Governmental Activities. What are common reconciling items? OPEB Compensated Absences Internal Service Funds Accrued Interest Long-term Debt Capital Assets Pension Asset / Liability

  24. Reconciliation Process (continued)

  25. Reconciliation Process (continued)

  26. Reconciliation Process (continued) Fund Statements Government-wide Statements Statement of Activities • Statement of Revenues, Expenditures and Changes in Fund Balance – Governmental Funds

  27. Reconciliation Process (continued)

  28. Reconciliation Process (continued) * Assume bond refunding occurred before year end.

  29. Reconciliation Process (continued) • Report the change in the following liabilities: 1) OPEB 2) Compensated Absences 3) Interest Payable 4) Pension Expense • Internal Service Funds

  30. Internal Service Funds (Example) “How to Prepare Government-wide Financial Statement.” PowerPoint presentation from the Government Finance Officers Association (GFOA). June 28, 2000.

  31. Internal Service Funds (Example) Step 1: Identify External Customer Revenues

  32. Internal Service Funds (Example) Step 2: Identify Expenses Related to External Customers

  33. Internal Service Funds (Example) Step 3: Calculate Internal Profit / Loss

  34. Internal Service Funds (Example) Step 4: Allocate Internal Profit / Loss

  35. Internal Service Fund (Example) Step 5: Apply Allocations • Treat as an adjustment of expenses in governmental and business-type activities • Adjust receivables / payables for business type activities - Report $100 receivable for interfund activities in business-type activities - Report $100 payable for interfund activities in governmental activities

  36. Internal Service Fund (Example)

  37. Governmental Fund Financial Statements • Required statements include balance sheet and statement of revenues, expenditures, and changes in fund balances • Each statement should include a separate column for each major governmental fund and another column for nonmajor governmental funds in the aggregate

  38. Governmental Fund F/S, continued • Current financial resource flows measurement focus and modified accrual basis of accounting are required • Reconciliation at the bottom of the statements (or in a separate schedule) is required to summarize the differences between total governmental fund balances/change in total fund balances and net assets/change in net assets of governmental activities

  39. Proprietary Fund Financial Statements • Required statements are a statement of net assets/equity, a statement of revenues, expenses, and changes in fund net assets, and a statement of cash flows • Each statement should include separate columns for major enterprise funds and a single aggregated column for internal service funds

  40. Proprietary Fund F/S, continued • The economic resources flows measurement focus and accrual basis of accounting are required • Reconciliation at the bottom of the statements (or in a separate schedule) is required to summarize the differences, if any, between total enterprise fund net assets/change in net assets and the same balances for business-type activities in the government-wide financial statements

  41. Fiduciary Fund Financial Statements • Used to report assets held in a trustee or agency capacity for others and therefore cannot be used to support the government's own programs • Basic financial statements for fiduciary funds include a statement of fiduciary net assets and a statement of changes in fiduciary net assets

  42. Fiduciary Fund F/S, continued • Typical examples include pension trust funds and agency funds • GASBS No. 63, which is effective for financial statements for periods beginning after December 15, 2011, will require fiduciary funds to report net position, not net assets

  43. Notes to the Financial Statements • More significant notes include: • Summary of significant accounting policies • Deposits and investments • Capital assets • Long-term liabilities • Interfund balances and transfers • Pension & OPEB • Disclosures about fund balances & net assets

  44. Required Supplementary Information (RSI) • What is RSI? Supporting information that Government Accounting Standards Board (GASB) has concluded is essential for placing basic financial statements and notes to the basic financial statements in an appropriate operational, economic, or historic context (paragraph 2.47) American Institute of Certified Public Accountants, Inc. Audit and Accounting Guide: State and Local Governments. NewYork: March 2010. Print

  45. Required Supplementary Information (RSI) • Management’s Discussion and Analysis (MD&A) • Budgetary Comparisons Schedules for the general fund and each major special revenue fund with a legally adopted budget. Should it be RSI or part of the basic financial statements?

  46. Required Supplementary Information (RSI) • Schedule of Funding Progress and Schedule of Employer Contributions (GASB No. 25 & 45) • Modified Approach for Infrastructure Assets (GASB No. 34, as amended) • Employers Postemployment Benefits Other Than Pension Schedule of Funding Progress (GASB No. 45)

  47. Budgetary Comparison Schedule GAAP Basis Budgetary Basis Accrual adjustments Unbudgeted revenues and expenditures Interfund transfers Interfund reimbursements

  48. Budgetary Comparison Schedule • If the budgetary comparison schedule is presented as part of RSI, budget-related notes should accompany RSI, not remain in notes • Budgetary schedules should be confined to those that are for the legally adopted budgets of the general fund and major special revenue funds

  49. Combining Individual Fund Statements & Schedules • Provide detail listing of nonmajor governmental funds • Individual fund balance sheets • Individual fund statements of revenues, expenditures, and changes in fund balances • Provide detail listing of nonmajor enterprise funds and internal service funds • Statements of net assets • Statements of revenues, expenses, & chgs in net assets • Statements of cash flows

  50. Combining Stmts and Individual Fund Stmts • Include individual fund financial statements for fiduciary funds • Present budgetary comparison schedules for nonmajor governmental funds of the primary government (including nonmajor special revenue funds, debt service and capital projects funds, and funds of blended component units) for which there are legally adopted budgets

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