©2012 CliftonLarsonAllen LLP
Basic Overview of the CAFR
By Andrew Laflin, CPA
CliftonLarsonAllen LLP
2012 School of Government Finance
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Time to Dissect the CAFR!!!
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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
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What is a CAFR?
• An annual financial report that is more
“comprehensive” than financial statements required
by GAAP.
• CAFR = Comprehensive Annual Financial Report
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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
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CAFR COMPONENTS
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Comprehensive Annual Financial Report
Introductory
Section
Financial
Section
Statistical
Section
Other
Reports*
* Added for Single Audit, if necessary.
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Introductory Section
1. 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
2. Title Page
–
8
Include same information as presented on the CAFR
cover as well as the name of the department responsible
for preparing the report
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Introductory Section, cont.
3. 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
4. Certificate of Achievement for Excellence in
Financial Reporting (for prior year)
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Introductory Section, cont.
5. List of Principal Officials
6. 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
7. Organizational Chart
–
–
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May be combined w/list of principals
Reflect various functions within the local government
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Financial Section
• Consists of the following sections:
–
–
–
–
–
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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
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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
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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
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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
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MD&A, continued
• Description of Significant Capital Asset and Longterm 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
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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
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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
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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
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Government-wide Statements
Key Differences Resulting from the Measurement Focus of
Accounting
Item
Fund Balance
Governmental Funds
Net Assets
Proprietary Funds
Capital asset acquisition
Decrease
No effect
Depreciation
No effect
Decrease
Issuance of long-term debt
Increase
No effect
Payment of long-term debt
Decrease
No effect
American Institute of Certified Public Accountants, Inc. Foundations in Governmental
Accounting. Durham, North Carolina: 2012. Print
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Reconciliation Process
Fund Statements
• Balance Sheet –
Governmental Funds
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Government-wide Statements
• Statement of Net Assets
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Terminology Differences
Fund Statements
• Fund Balance
1) Nonspendable
2) Restricted
3) Committed
4) Assigned
5) Unassigned
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Government-wide Statements
• Net Assets
1) Invested in Capital
Assets, Net of Related Debt
2) Restricted
3) Unrestricted
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Invested in Capital Assets, Net of Related Debt
Capital Assets, not depreciated
$
Capital Assets, being depreciated – net
xx,xxx,xxx
Less: Unamortized bond premium
(xx,xxx)
Less: Notes payable
(xx,xxx)
Less: Bonds payable
(xxx,xxx)
Plus: Deferred charges
xxx,xxx
Plus: Unamortized bond issue costs
xxx,xxx
Sub-total
xx,xxx,xxx
Add: Unspent bond proceeds
Total
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x,xxx,xxx
xxx,xxx
$
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xx,xxx,xxx
Reconciliation Process
Agree the Balance Sheet – Governmental Funds to the
Statement of Net Assets – Governmental Activities.
OPEB
What are common reconciling items?
Internal Service
Funds
Accrued Interest
Pension Asset / Liability
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Reconciliation Process (continued)
Item
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Fund Balance
Governmental Funds
Net Assets
Government-wide
Capital assets
No effect
Increase
Pension asset
No effect
Increase
Accrued interest
No effect
Decrease
Internal service funds
No effect
Increase
Consolidation of ISF
No effect
Decrease
©2012 CliftonLarsonAllen LLP
Reconciliation Process (continued)
Certain liabilities are not due and payable in the current period and, therefore,
are not reported in the funds.
Bonds and Notes Payable
$
Less: Deferred Charges on Refunding (to
be Amortized over the Life of Debt)
Less: Deferred Charges on Issuance Cost
(to be Amortized over the Life of Debt)
Including: Issuance Premium (to be
Amortized as a Decrease in Interest
Expense)
Accrued Other Postemployment Benefits
Accrued Compensated Absences
Pension Obligation
Net Adjustment to Reduce Fund Balance Total Governmental Funds to Arrive at
Net Assets - Governmental Activities
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(xx,xxx,xxx)
xxx,xxx
xxx,xxx
(xxx,xxx)
(x,xxx,xxx)
(x,xxx,xxx)
(xxx,xxx)
(xx,xxx,xxx)
Reconciliation Process (continued)
Fund Statements
• Statement of Revenues,
Expenditures and Changes
in Fund Balance –
Governmental Funds
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Government-wide Statements
• Statement of Activities
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Reconciliation Process (continued)
Item
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Net Change in FB
Governmental Funds
Change Net Assets
Government-wide
Capital asset additions
Decrease
No effect
Depreciation
No effect
Decrease
Sale of capital assets
Increase
Increase / Decrease
©2012 CliftonLarsonAllen LLP
Reconciliation Process (continued)
Item
Net Change in FB
Governmental Funds
Change Net Assets
Government-wide
Principal repayments
Decrease
No effect
Cost of defeasance*
No effect
Increase
Bond premium
No effect
Decrease
Bond discount
No effect
Increase
* Assume bond refunding occurred before year end.
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Reconciliation Process (continued)
• Report the change in the following liabilities:
1) OPEB
2) Compensated Absences
3) Interest Payable
4) Pension Expense
• Internal Service Funds
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Internal Service Funds (Example)
Operating Activities
Sales and Charges for Service
Cost of Services Provided
Operating Income
$ 74,800
68,000
6,800
Nonoperating Revenues (Expenses)
Interest Expense
Change in Net Assets
(250)
$
6,550
“How to Prepare Government-wide Financial Statement.” PowerPoint presentation from the Government Finance Officers
Association (GFOA). June 28, 2000.
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Internal Service Funds (Example)
Step 1: Identify External Customer Revenues
Operating Revenues
Internal Customers
External Customers
Total Revenues
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$ 55,000
19,800
$ 74,800
Internal Service Funds (Example)
Step 2: Identify Expenses Related to External Customers
Operating Activities
Revenues From Customers
Cost of Services Provided
Operating Income
Profit Margin
Revenues
Expenses
$ 74,800
$ 68,000
External Revenues $ 19,800
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$74,800
68,000
$ 6,800
=
110%
divide by
110%
=
©2012 CliftonLarsonAllen LLP
$18,000
Internal Service Funds (Example)
Step 3: Calculate Internal Profit / Loss
Operating Revenues:
Total
Internal
$55,000
External
19,800
$74,800
Internal
$ 55,000
$ 55,000
External
19,800
$19,800
Operating Expenses:
Internal
External
$50,000
18,000
$68,000
$ 50,000
$ 50,000
18,000
$18,000
Operating Income:
Internal
External
Total
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$ 5,000
1,800
$ 6,800
$
$
5,000
5,000
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1,800
$ 1,800
Internal Service Funds (Example)
Step 4: Allocate Internal Profit / Loss
Fuction
Function A (governmental)
Function B (governmental)
Function C (governmental)
Function D (governmental)
Function E (business-type)
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% of
Participation
65%
25%
5%
3%
2%
100%
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Profit Allocation
$ 5,000
$ 3,250
5,000
1,250
5,000
250
5,000
150
5,000
100
$ 5,000
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
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Internal Service Fund (Example)
Internal Service Fund Activity
Report in
Gov't Activities
Reflect as
Reduction of
Functional
Expenses
Eliminate from
Gov't Activities
Operating Revenues
Internal Customers
$ 55,000
External Customers
Total
19,800
$
$
55,000
$
(50,000)
$
5,000
19,800
$ 74,800
Operating Expenses
Internal Customers
External
Customers
Total
Operating profit (loss)
$(50,000)
(18,000)
$
(18,000)
$(68,000)
$
6,800
$
1,800
$
(250)
$
(250)
Nonoperating
Interest Expense
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$
5,000
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
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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
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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
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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
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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
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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
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Notes to the Financial Statements
• More significant notes include:
–
–
–
–
–
–
–
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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
©2012 CliftonLarsonAllen LLP
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
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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?
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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)
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Budgetary Comparison Schedule
Budgetary
Basis
Accrual adjustments
Unbudgeted
revenues and
expenditures
Interfund
transfers
Interfund
reimbursements
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GAAP Basis
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
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Combining Individual Fund Statements & Schedules
•
Provide detail listing of nonmajor governmental funds
–
–
•
Provide detail listing of nonmajor enterprise funds
and internal service funds
–
–
–
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Individual fund balance sheets
Individual fund statements of revenues, expenditures,
and changes in fund balances
Statements of net assets
Statements of revenues, expenses, & chgs in net assets
Statements of cash flows
©2012 CliftonLarsonAllen LLP
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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Statistical Section
• Purpose: provide the reader with supplementary
data and trends over an extended period, usually 10
years or more; however, some data relates only to a
single year
• Also presents nonfinancial information, such as
social, economic, and demographic data
• Auditor responsibility: review and cross-reference to
introductory and financial sections of CAFR
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Statistical Section – Required Categories
1. Financial Trends
–
Info about net assets, changes in net assets,
governmental fund balances, and changes in
governmental fund balances
2. Revenue Capacity
–
–
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Identify most significant revenue source (likely property
tax revenues)
Include revenue base, revenue rates, principal revenue
payers
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Statistical Section – Required Categories, cont.
3. Debt Capacity
–
Ratio of outstanding debt, direct and overlapping debt,
debt limitations, pledged-revenue coverage
4. Demographic and Economic Information
–
–
Information about principal employers
Information about demographic and economic indicators
(e.g. population, total personal income, per capita
personal income, and unemployment rate)
5. Operating Information
–
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Include info about government employees, operating
indicators, and capital assets
©2012 CliftonLarsonAllen LLP
Other Reports
• Report on Internal Control over Financial Reporting
and on Compliance and Other Matters Based on an
Audit of Financial Statements Performed in
Accordance With Government Auditing Standards
• Independent Auditor’s Report on Compliance with
Requirements Applicable to Each Major Federal
Program and State Project and on Internal Control
over Compliance in Accordance with OMB Circular A133 and Chapter 10.550, Rules of the Auditor
General
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Other Reports, continued
• Schedule of Federal Awards and State Financial
Assistance
• Notes to Schedule of Federal Awards and State
Financial Assistance
• Schedule of Findings and Questioned Costs
• Management Letter
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Questions??
Andrew Laflin
CliftonLarsonAllen LLP
(813) 384-2711
andrew.laflin@cliftonlarsonallen.com
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Thank You!!
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