ࡱ> ^a] Y8bjbj *brr30%rrrrr8,|0ff"ccc]0_0_0_0_0_0_0$14L0r/cc//0rr0E)E)E)/rr]0E)/]0E)E)5./0}, FQ/"I0000s/"4!z4D/4r/cE)M>ccc00&ccc0////4ccccccccc 8: Chapter 2 Overview of Financial Reporting for State and Local Governments Governmental Reporting Entity Primary government is the governmental unit for which CAFRs are prepared, e.g., a state or general purpose local government like a city, county or township. Characteristics of a primary government are that 1) the governing body is separately elected, 2) it has a separate legal identity, and 3) it is fiscally independent. Fiscal independence means that the government has the authority to determine its own budget, levy taxes and set rates, and issue bonds. Component unit are separate organizations for which the elected officials of the primary government are financially accountable, e.g., arts organizations, public universities, or housing authorities. Financial accountability may also be indicated by fiscal dependency, e.g., if the unit is unable to set its own budget, levy taxes and set rates, and issue bonds without the approval of the primary government. The most important characteristics identifying a component unit are if the majority of its governing board is appointed by the primary government or is composed of primary government officials. Addition factors to consider are if either: 1) the primary government can impose its will on the organization or 2) if the organization provides specific financial benefits to the primary government or can impose specific financial burdens on it. CAFRs should provide an overview of the primary government, yet allow users to distinguish between it and component units. As a result, component unit information is usually shown as a separate column(s) apart from the financial data of the primary government (discrete presentation). In government-wide statements, those units to be presented discretely are to be reported to the right of the totals columns of the primary government. These component units normally are combined into one column. Where the governing body of the component unit is essentially the same as that of the primary government, then its data is included with that of the primary government (blending). Blending is appropriate only when the relationship between the primary government and the component unit is so close that the two governments, while separate, are substantively the same. Regardless of the method of reporting component units, the notes of the primary government should identify the major component units and the criteria used to include them in the F/Ss. Related organization are those organizations for which the primary government are not financially accountably, i.e., it appoints a voting majority of the governing board, but neither of the other two criteria are met, i.e., cannot impose its will or provide specific benefits/burdens to the primary government. Related organizations dont qualify as component units and so are not reported in the basic financial statements of the primary government. However, the names of related organizations and the nature of relationships with them with should be disclosed in the notes. Overview of Comprehensive Annual Financial Report The introductory section (Ill. 2-2) includes: The letter of transmittal Organizational chart List of principal officials The financial section (Ill 2-1) includes: The auditors report Managements discussion and analysis (MD&A) Basic financial statements Government-wide financial statements Statement of Net Position Statement of Activities Fund financial statements: Governmental funds Balance sheet Statement of revenues, expenditures and changes in fund balances Reconciliations (2) to govt wide F/Ss Proprietary funds State of fund net position Statement of revenues, expenses, and changes in fund net position Statement of cash flows Fiduciary funds Statement of fiduciary net position Statement of changes in fiduciary net position Notes to the Financial Statements Required supplementary information other than MD&A Schedule of funding progress of pension plans Schedule of employer contributions of pension plans Budgetary comparison for the general and special revenue funds Information about infrastructure assets reported using the modified approach (if applicable) Other supplemental information Combining statements, individual statements and schedules The statistical tables Government-wide Financial Statements The basic financial statements under GASB 34 are of two types, i.e., government-wide and fund. There are only two government- wide statements: 1) the statement of net position (balance sheet), and 2) the statement of activities (statement of revenues and expenses). Statement of Net Position (Government-wide), Ill. 2-5 Would have separate columns for governmental and business-type activities, and show component units separately after the totals column The difference between Assets and Liabilities is call Net Position rather than Fund Equity, and is broken up between those invested in capital assets, net of related debt, and restricted and unrestricted amounts. Major restricted categories should be shown. Statement of Activities (Government-wide), Ill. 2-6 Broken down by Primary Government, i.e., governmental activities and business-type activities, and component units. There is a comparison of expenses and program revenues, with the net revenue (expense) shown for each primary government activities and component units, and the net increase or decrease in Net Position. Both governmental and business-type activities would use the economic resources measurement focus and full accrual basis of accounting, requiring the same types of accruals and amortizations, e.g., depreciation, as for proprietary funds. Fund Accounting Under GASB 34, there are seven required funds statements, divided into three categories. Governmental funds use the spending (also called current financial resources) focus and modified accrual basis of accounting. Proprietary funds and fiduciary funds use capital maintenance focus and full accrual accounting. The statements for the governmental and proprietary funds focus only on major funds, rather than being prepared by fund type. Major funds must meet two conditions: (1) total assets, liabilities, revenues, or expenditures/expenses of that individual governmental fund constitute 10% of the governmental activities, and (2) total assets, liabilities, revenues, or expenditures/expenses are 5% of the governmental and enterprise category. Any fund may be called major by the government if it feels that reporting it would be useful. Nonmajor funds are aggregated into a single column. The concept of major funds does not apply to fiduciary funds, which instead should present all fiduciary funds aggregated into a separate column for each fund type: pension, investment trust, private purpose trusts, and agency trusts. Also Internal Service funds are just shown in a single column. Governmental Funds: Balance SheetGovernmental Funds (Ill. 2-7) Provides an overview of combined balance sheet accts of govt unit by including the individual fund amounts in one place. Reconciliation in Il. 2-7 is required. The funds shown in Il. 2-7b are all major funds. No non-major funds are shown. Broken up between Assets, Liabilities, and Fund Balance. Note that only current assets and liabilities are included, and that Fund Balance is broken up into 5 categories, i.e., nonspendable, restricted, committed, assigned and unassigned. Supporting details of the combined F/Ss shown in the funds statements are shown in the combining F/Ss of the individual funds. Combining statements are used to support and supplement the basic statements and are included after the fund financial statements. Governments may elect to provide detailed information about component units in the form of combining statements. The combining statements also provide the details of the nonmajor funds, e.g., Special Revenue Funds, Debt Service Funds, Capital Projects Funds and Permanent Funds, with one column for each of the funds, with the total tying into the nonmajor funds column of the fund statement. Combining statements showing the details of Internal Service funds can also be presented. Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds (Ill. 2-8b) Includes revenues and expenditures of governmental fund types. Still has a spending focus and uses a modified accrual method of accounting. A separate column is used for each major fund type, with all nonmajor funds aggregated in a single column. (Note that the statement for the actual to budget comparison has been relegated to required supplementary information.) Reconciliation of Statement of Revenue, Expenditures, and Changes in Fund Balances to the Statement of Activities is required (Ill. 2-8a). Proprietary Funds: Statement of Net Position---Proprietary Funds (Ill.2-9) Uses a classified balance sheet indicating current and noncurrent assets and liabilities, with the difference resulting in Net Position. The Net Position section indicates the investment in capital assets and the amounts of restricted and unrestricted assets. Major funds have their own column, and nonmajor funds are aggregated into a single column. Statement of Revenues, Expenses, and Changes in Fund Net Position -- Proprietary Funds (Ill. 2-10) For those funds using the full accrual basis of accounting, e.g. Enterprise & Internal Service Split between Enterprise and Internal Service funds activities. For Enterprise Funds, only major funds have their own column and nonmajor funds are aggregated in one column. All Internal Service funds are shown in one column. Statement of Cash Flows Proprietary Funds (Ill. 2-11) GAAP requires a cash flows statement for proprietary funds since they are business oriented and use full accrual accounting. Provides information on operating, financing, and investing activities Direct method is required. Four categories rather than 3 used by FASB. Requires reconciliation from operating income to cash flow from operations. Fiduciary Funds: Statement of Fiduciary Net Position (Ill. 2-12) Focus is only on assets held in trust with parties outside the government, e.g., individuals and other governments. It would have a separate column and show assets, liabilities, and net position for each category of fiduciary funds, i.e., pension, investment trust, private purpose funds, and agency trusts. 2. Statement of Changes in Fiduciary Net Position (Ill. 2-13) This statement would show addition, deduction, and changes in net position for each category of fiduciary funds, i.e., pension, investment trust, private purpose funds, and agency funds. Combining statements providing additional detail would be in the supplementary information section for both the balance sheet and operating statement. Notes to F/Ss (Ill. 2-14) Are a required part of CAFR and considered essential in providing additional information to use in understanding and analyzing the F/Ss. The notes must include the schedules of capital assets and long- term liabilities, which include reconciliation of beginning to ending balances and the allocations of depreciation to the main functions of the government. Supplemental Information The Combining Financial Statements of the individuals funds are normally presented to provide additional, supporting information. As part of the information, should include actual-to- budget comparisons (Il. 2-16). Normally a separate section is included in the CAFR for the general fund, special revenue fund, debt service fund, capital projects fund, enterprise funds, internal service funds, and trust and agency funds. Under GASB 34, the account group information (General Fixed Asset Account Group and General Long Term Debt Account Group) is no longer a required disclosure. Statistical Section The final section of F/Ss includes statistics on governmental unit to provide useful information in assessing their financial condition. 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