CSMFO
2012 Annual Conference
Common Financial Reporting
Problems and How to Avoid Them
Presented by
Gregory S. Allison, CPA
UNC School of Government

Letter of Transmittal and
Independent Auditor’s Report
• Date of the letter of transmittal should be no earlier that the date of the independent auditor’s report
• Auditor’s opinion should opine on budgetary comparison information when presented as part of basic financial statements

• Scope of analysis should be comprehensive
(and an actual analysis)
– Governmental and business-type activities
– General fund and other major funds
– Budgetary variances (original, final, and actual)
• 3 years of condensed financial data if comparatives are presented
• Include appropriate discussions of capital asset and long-term debt activity

• Avoid blending component units that should be discretely presented and vice versa
• Component unit data should be complete and consistent

• Calculate the net pension /OPEB obligation correctly (e.g., include all contributions)
• Pension or OPEB liabilities are long-term, not current
• Debt should be reported net of related premiums or discounts

• Invested in capital assets, net of related debt should be calculated correctly
– Unexpended bond proceeds (restricted)
– Bond issuance costs (not part of calculation)
– Internal borrowings (not part of calculation)
– Intangible capital assets (part of calculation)
– Refunding bonds (part of calculation, assuming they are replacing capital related debt)

• Levied taxes versus “shared” taxes
• Significant revenues should be reported separately
• Refrain from using the term “capital outlay” in accrual-based statements

• Intergovernmental expenses should be reported within the appropriate functional category
• Only significant amounts should be reported as special items
– It is possible for special items to be reported at one level of reporting and not another (i.e., government-wide versus fund level)

• All major funds should be reported properly
• Reconciliations to the government-wide statement of activities should focus only on changes during the reporting period

• Certain accrued liabilities should only be reported in governmental funds “to the extent that the liabilities mature each period”
– Claims and judgments
– Compensated absences
– Termination benefits
– Landfill closure and postclosure care costs
– Pollution remediation obligations
– Operating leases with scheduled rent increases

• New debt issuances (including refundings)
– Face value of debt as other financing source
– Premium reported as other financing source
– Discount reported as other financing use
– Bond issuance costs reported as expenditures
(note - potential that this will change with future guidance)

• Other financing sources/uses
– Face value of long-term debt at issuance
– Original issue premiums and discounts
– Payments to escrow from proceeds of refunding bonds
– Sales of capital asset and insurance recoveries (if not a special item)
– Transfers
– Debt service on demand bonds classified as fund liabilities
– Reclassification of demand bonds as fund liabilities

• Balance sheet/statement of net assets must be reported in a classified format (contrast with option at government-wide level)
• Provide detail on major categories of restricted net assets
• Capital contributions should be reported consistently (between government-wide and fund financials)
• New CIG guidance on asset transfers between funds

• “Cash flows from operating activities” is the residual category of the statement of cash flows
• Noncash events should be separately reported
– Capital asset contributions
– Changes in FMV of investments
– Inception of a capital lease agreement

• Pension plans and OPEB plans need to be reported as separate funds
• Provide sufficient detail on investments for pension and OPEB plans
• Employers must report on-behalf payments made directly to a pension or OPEB plan

• Adequately describe criteria used for identifying component units
• Disclose investment policies
• Disclose adopted fund balance policies
• Report changes in long-term liabilities at gross rather than net amounts