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ANATOMY OF A CAFR Comprehensive Annual Financial Report

ANATOMY OF A CAFR Comprehensive Annual Financial Report. Karen Tenace CPA, CMA City of Tucson. Objectives. Learn what is mandated by GAAP versus is what is encouraged by GAAP Understand the components of the CAFR and the order in which they should be presented

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ANATOMY OF A CAFR Comprehensive Annual Financial Report

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  1. ANATOMY OF A CAFRComprehensive Annual Financial Report Karen Tenace CPA, CMA City of Tucson

  2. Objectives • Learn what is mandated by GAAP versus is what is encouraged by GAAP • Understand the components of the CAFR and the order in which they should be presented • Discover additional resources that can help your jurisdiction prepare a great CAFR

  3. Need 3 things to comply with GAAP: Management Discussion and Analysis (MD&A) Basic Financial Statements Required Supplementary Information (RSI) GAAP, however, encourages the production of the broader presentation in the format of CAFR. Do we have to do a CAFR?

  4. CAFRComprehensive Annual Financial Report 3 Major Sections Introductory Section Financial Section Statistical Section

  5. Order of Presentation • Table of Contents • Introductory Section A. Letter of Transmittal B. Organizational Chart C. GFOA’s Certificate of Achievement • Financial Section A. Auditor’s Opinion B. Management Discussion and Analysis (MD&A) C. Basic Financial Statements D. Notes E. Required Supplementary Information (Other than MD&A) F. Other Information (Combining & Individual Statements) • Statistical Section • Optional Sections

  6. Title Page-Specific Requirements • Comprehensive Annual Financial Report (not “Annual Report”) • Name of primary government • State where government is located • Fiscal period covered • Department responsible for preparing the report

  7. Introductory Section-Purpose? Provides background and context of CAFR NOT included in scope of audit

  8. Introductory Section-Contents • Certificate of Achievement for Excellence in Financial Reporting-Prior Year • List of Principal Officials • Letter of Transmittal • Organizational Chart

  9. Letter of Transmittal-4 Sections • Formal transmittal of the CAFR • Profile of the government • Economic Condition (Subjective Element) • Awards & Acknowledgements

  10. Letter of Transmittal-Other Details • Minimum-Signed by CFO • Dated on the date the CAFR is first made available to the public (AFTER the auditor’s report) • NOT audited • Should be on letterhead • Should be addressed to the citizens • Concise with charts and graphs

  11. Financial Section-Purpose? Provides critical information regarding the financial condition of the government through the presentation of financial statements and schedules, note disclosures and narratives (MD&A)

  12. Finance Section-Contents • Independent Auditor’s Report • Management Discussion and Analysis (MD&A) • Basic Financial Statements • Required Supplementary Information (Other than MD&A) • Combining and Individual Fund Presentations & Supplementary Info

  13. Basic Financial Statements A Quick Detour to Review Basic Terminology & Concepts…

  14. Review-Unique Characteristics of Governmental Accounting • Use of Fund Accounting • Measurement Focus and Basis of Accounting or MFBA Full Accrual AND Modified Accrual

  15. Review-What’s a Fund? Fund: A self contained accounting entity with its own asset, liability, revenue, expenditure or expense and fund balance or other equity accounts.

  16. Review-Measurement Focus & Basis of Accounting (MFBA) • Measurement Focus tells you WHAT to recognize • Basis of Accounting tells you WHEN to recognize it

  17. Review-Two Types of MFBA’s in Governmental Accounting #1 Economic Resources Measurement Focus and Accrual Basis of Accounting WHAT: Economic resource measurement focus considers ALL inflows, outflows and balances affecting or reflecting on an entity’s net assets.

  18. Review-Two Types of MFBA’s in Governmental Accounting #1 Full Accrual Basis Cont. WHEN: Accrual basis of accounting recognizes the financial effect of transactions, events, and interfund activities when they occur, regardless of the timing of related cash flows.

  19. Review-Two Types of MFBA’s in Governmental Accounting #2 Current Financial Resources Measurement Focus and Modified Accrual Basis of Accounting WHAT: Current financial resource measurement focus only considers SHORT-TERM or CURRENT inflows, outflows and balances of expendable financial resources.

  20. Modified Short-term View Expenditures (Capital Outlay and Principal Payments) Assets-Liabilities=Fund Balance Only Current Assets and Current Liabilities Shown No Long-term Assets means no Depreciation Expense Full Accrual Long-term View Expenses Assets-Liabilities=Net Assets Current AND Long-Term Assets and Liabilities Shown Depreciation Expense Included in Operating How can you tell MFBA by looking at a financial statement?

  21. GOVERNMENTAL FUNDS (Current Resources/Modified) General Fund Special Revenue Fund Capital Project Fund Debt Service Fund Permanent Fund PROPRIETARY FUNDS (Economic Resources/Full Accrual) Enterprise Funds Internal Service Funds FIDUCIARY FUNDS (Economic Resources/Full Accrual) Agency Funds Pension Funds Investment Trust Funds Private Purpose Trust Funds Review-Fund Types

  22. PRE-GASB 34: General Purpose F/S Emphasis on FUND TYPE Governmental Fund Financial Statements were ONLY presented using modified accrual accounting basis POST-GASB 34: Basic F/S Emphasis on MAJOR Fund vs. NONMAJOR Fund Governmental Fund Financial Statements presented in BOTH modified and full accrual accounting basis (Gov’t-wide Statements) Review-GASB Statement No. 34The “New” Model (2002) END OF DETOUR…BACK TO BASIC FINANCIAL STATEMENTS.....

  23. Basic Financial Statements-Order of Presentation • Government-wide Financial Statements • Fund Financial Statements • Required Supplementary Information • Combining and Individual Fund Statements and Schedules

  24. Government-wide Financial Statements-Major Points • Includes all governmental activity and business-type activity • Includes discretely presented component units • Excludes fiduciary activities • MFBA=Economic Resources, Full Accrual Accounting • Gov’t Activity + Business Type Activity = Primary Government

  25. Government-wide Statements • Statement of Net Assets • Statement of Activities All financial statements should refer to Notes!

  26. Gov’t-wide Statement of Net Assets-Major Points • Assets & Liabilities- present in order of liquidity or split between current and noncurrent (classified approach) • Capital assets being depreciated must be shown separately from assets that are not being depreciated • Assets – Liabilities = Net Assets

  27. Gov’t-wide Statement of Net Assets-Major Points Cont. Net Assets is broken into 3 categories: • Invested in Capital Assets Net of Related Debt • Restricted (Narrower than purpose of reporting unit) • Unrestricted

  28. Gov’t Wide Statement of Activities-Major Points Purpose is to show the extent of how each governmental function supports itself, before general tax dollars kick in Order of Presentation: • Expenses • Program Revenues • Net (Expense) Revenue • General Revenues

  29. Gov’t Wide Statement of Activities-Expenses • Direct expenses – by function • Depreciation – by function • Indirect expenses – General Government or allocate in separate column • Interest Expense – not associated with a function, separate line

  30. Gov’t Wide Statement of Activities-Program Revenues Reported by Function & Shown in 3 Columns: • Charges for Services • Operating Grants and Contributions • Capital Grants and Contributions

  31. Gov’t Wide Statement of Activities-Net Expenses What you would expect, in theory… • Governmental activities carry net expenses and depend on tax revenues • Business-type activities either break even or carry net revenues

  32. Gov’t Wide Statement of Activities-General Revenues & Other Line Items • Tax revenues are reported by type of tax • Material gains on sale of capital assets for governmental activities • Immaterial gains on governmental assets can be an adjustment to depreciation • Gains on assets in enterprise activities should be shown under functional expense • Impairments to assets, program expense or special/extraordinary item

  33. Gov’t Wide Statement of Activities-General Revenues & Other Line Items • Endowment and Permanent Fund Contributions- reported after General Revenues • Special Items – significant, subject to management’s control, and either unusual OR infrequent (Sale of Land) • Extraordinary Items – significant, unusual AND infrequent (Earthquake) • Transfers

  34. XYZ CITY EXAMPLE STATEMENT OF ACTIVITIES FOR THE PERIOD ENDING JUNE 30, 2007

  35. GOVERNMENTAL FUNDS (Current Resources/Modified) Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance Reconciliation to Government-wide Statements PROPRIETARY FUNDS (Economic Resources/Full Accrual) Statement of Net Assets Statement of Revenues, Expenses and Changes in Fund Net Assets Statement of Cash Flows FIDUCIARY FUNDS (Economic Resources/Full Accrual) Statement of Fiduciary Net Assets Statement of Changes in Fiduciary Net Assets Fund Financial Statements All financial statements should refer to Notes!

  36. Governmental Fund Financial Statements-Major Points • Separates funds – Major vs. Nonmajor • MFBA=Current Resources, Modified Accrual Accounting • Includes reconciliation back to governmental activities for both financial statements

  37. Basic Financial StatementsMajor Fund Test • Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise fund constitute 10% of the governmental or enterprise activity AND • Total assets, liabilities, revenues, or expenditures/expenses are 5% of the total governmental and enterprise category combined

  38. Major Fund Test Example

  39. Summary of Significant Accounting Policies Budgetary Information Cash Deposits w/ Financial Institutions Investments Derivatives Contingent Liabilities Encumbrances Subsequent Events Defined benefit pensions and post employment benefit plans Capital Assets and Long-term Liabilities Significant Commitments Financial Section - Notes

  40. Fund Balances Interfund Activity Component Units Endowments Risk Financing Fiscal Year Inconsistencies Landfill Closure & Post closure Property Taxes Segment Information Related Party Transactions Joint Ventures Fund Balances Prior Period Adjustments Financial Section – Notes Cont.

  41. RSI-Other than MD&A • Budgetary Comparisons (General Fund & Major Special Revenue Funds) • Infrastructure Condition and Maintenance (Modified Approach) • Pension/Other Post Employment Benefits • Revenue & Claims Development Trend Data (Public Entity Risk Pools)

  42. Combining Statements & Individual Schedules- Detail of Aggregate Data • Nonmajor governmental funds • Nonmajor enterprise funds • Internal Service Funds & Fiduciary Funds • Nonmajor discretely presented component units

  43. The End-Financial Section Whew!

  44. Statistical SectionGASB 44 – 10 Yr Trending Financial Trends Revenue Capacity Debt Capacity Demographics and Economy Operating Information

  45. Optional Sections to the CAFRCommon Examples • Investment Section (Pension Plans or Investment Pools) • Actuarial Section (Pension Plans) • Single Audit (Federal Awards)

  46. Financial Disclosure • GFOA has formally recognized that the CAFR format meets the SEC Rule 15c2-12 (financial statement disclosure to investors) • Place on website • Checklist is at: http://www.gfoa.org/downloads/GENERALPURPOSECHECKLIST.pdf

  47. Questions?

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