Chapter 9 Financial
Reporting of State
and Local
Governments
Dr. Chula King
The University of West Florida
Student Learning Outcomes
Describe the GASBS 34 reporting model.
Explain the key concepts and terms used in
describing the governmental reporting entity.
Apply the GASB criteria used to determine
whether a potential component unit should be
included in the reporting entity, and the manner of
reporting component units.
2
1
Student Learning Outcomes
Identify and describe the contents of a
Comprehensive Annual Financial Report (CAFR).
Identify and explain contemporary financial
reporting issues.
3
Reporting Entity
The reporting entity consists of the primary
government and all component units for which
the primary government is financially
accountable
Most component units are reported by discrete
(separate column) presentation, rather than
“blending” the component unit’s financial
information in the same fund columns of the
primary government.
4
2
Reporting Entity
A primary government is financially
accountable for another organization if it
appoints a voting majority of the
organization’s governing board and it can
either
• impose its will on that organization or
• potentially provide specific financial
benefits to or impose a financial burden on
the other organization.
5
Reporting Entity
Even if it does not appoint a majority of an
organization’s governing board, the primary
government (PG) is financially accountable for
another organization if either:
• The other organization is fiscally dependent on the
PG, or
• It holds economic resources entirely or almost
entirely for the PG, the PG is entitled to or has the
ability to access a majority of the economic resources
being held by the other organization, and the
resources being held are significant to the PG
6
3
Financial Reports
Citizens and others (e.g., creditors and
legislators) have a need for periodic reports on
where the government got its money and how it
was spent
Interim financial reports are needed as well as
annual reports.
7
Comprehensive Annual Financial
Report
Introductory section
Financial section
Statistical section
8
4
Comprehensive Annual Financial
Report
Introductory Section
• Title page
• Contents page
• Letter of transmittal
• Other (as desired by management)
9
Comprehensive Annual Financial
Report
Financial Section
• Auditor’s report
• MD&A
• Basic Financial Statements
• Required Supplementary Information (RSI)
other than MD&A
• Combining and individual fund financial
statements
10
5
Comprehensive Annual Financial
Report
Statistical Section
• Tables and charts showing multiple
- year trends
in financial and socioeconomic information
11
General Purpose External
Financial Reports
Management’s discussion and analysis
Government-wide
financial statements
Fund financial
statements
Notes to the financial statements
Required supplementary information
(other than MD&A)
12
6
GASBS 34 Reporting Model
GOVERNMENT-WIDE
Government-Wide
Financial Statements
Primary Government
Governmental Activities
BusinessType
Activities Total
Discretely
Presented
Component
Units
Statement of Net Assets
Statement of Activities
FUNDS
Governmental Funds
Fund Financial
Statements
General
Fund
Proprietary Funds
Special Debt Capital
Revenue Service Projects Permanent
Fund
Fund
Fund
Funds
Balance Sheet
Statement of Revenues, Expenditures,
and Changes in Fund Balance
Internal
Service
Enterprise
Funds
Funds
Statement of
Net Assets
Statement of
Revenues, Expenses
and Changes in
Fund Net Assets
Statement of
Cash Flows
Fiduciary Funds
Agency
Funds
Trust
Funds
Statement of
Fiduciary
Net Assets
Statement of
Changes in
Fiduciary
Net Assets 13
Basic Financial Statements
Government-wide Financial Statements
•
•
•
•
Statement of Net Assets (Illustrations 1-4 and 9-4)
Statement of Activities (Illustrations 1-5 and 9-5)
Fund Financial Statements (see next slide)
Notes to the Financial Statements
14
7
Fund Financial Statements
Balance Sheet- Governmental Funds (Illustrations -1 6
and 9- 6)
Statement of Revenues, Expenditures, and Changes in
Fund Balances- Governmental Funds (Illustrations -1 7
and 9- 6) with reconciliation (Ill. -1 8)
Statement of Net Assets - Proprietary Funds (Ill.1- 9)
Statement of Revenues, Expenses, and Changes in Fund
Net Assets- Proprietary Funds (Ill. 1- 10)
Statement of Cash Flows- Proprietary Funds (Ill. -1 11)
Statement of Fiduciary Net Assets (Ill. -1 12)
Statement of Changes in Fiduciary Net Assets (Ill. -1 13)
15
GASB 34 Reporting Model
Government-wide financial statements:
• Entity
-
wide perspective
• Long
- term focus on operational accountability
• All governmental and business- type activities of the
government as a whole are reported on the accrual
basis—essentially same as for- profit entities
16
8
GASB 34 Reporting Model
Fund financial statements:
• Short-term focus on fiscal accountability
• Most activities of the government reported on the
modified accrual basis; business-type activities
essentially the same as for-profit entities
17
GASB 34 Reporting Model
Preparation of the government-wide financial
statements at year-end requires:
• Adjusting entries to record annual depreciation and
accrual of interest receivable and payable.
• Entries to close all program and general revenues and
expenses.
• Entries to reclassify, as necessary, Net AssetsUnrestricted to Net Assets- Restricted (various
purposes) and Net Assets- Invested in Capital Assets,
Net of Related Debt
18
9
Current Issues-Service Efforts
and Accomplishments
Focused on measuring and reporting on the
efficient and effective uses of government
resources
Three categories of measures:
• Measures of service efforts (input measures)
• Measures of service accomplishments (output and
outcome measures)
• Measures that relate efforts to accomplishments
(efficiency and effectiveness measures)
19
Current Issues – Popular
Reporting
Many accounting professionals, politicians, and
others believe current governmental financial
statements are excessively complex and not
understandable except to those knowledgeable
about governmental accounting
Some governments have begun to experiment
with simplified, summary reports called “popular
reports”
Graphical presentation is used to a greater extent
than traditional financial statements
20
10
Implementation of GASB 34
Reporting Model
The GASBS 34 reporting model is a result of
NCGA and GASB Standards that have evolved
since the 1930s and reflects the changing needs of
information users.
Until software vendors modify their software to
meet the financial reporting requirements of the
GASBS 34 model, most governments are
expected to continue to use their current fund
accounting software systems, then prepare
reclassification spread sheets at year-end in order
to prepare the full accrual government-wide
financial statements.
21
Concluding Comments
The GASBS 34 reporting model requires each
financial reporting entity to prepare as a
minimum: MD&A; Basic financial statements
(government-wide and fund); Notes to the
financial statements; Required supplementary
information, other than MD&A.
In addition, each reporting entity is recommended
to prepare as its official financial record a
comprehensive annual financial report (CAFR).
As the financial needs of users continues to
change, so will financial reporting standards.
22
11
The Next Step
Chapter 9 City of Smithville simulation. Due no
later than midnight CDT, July 10.
Chapter 9 CARF assignment. Due no later than
midnight, CDT, July 10.
Problems 9-2, 9-3, 9-4, 9-5, and 9-6.
23
12