Financial Reporting:

The Comprehensive Annual

Financial Report (CAFR) and
the Financial Reporting Entity
Chapter 15

Learning Objectives
Explain the nature and contents of the
three major sections of a CAFR
Understand the relationships between
combining financial statements and the
basic financial statements
Determine the combining statements
that a government needs to present in
the CAFR

2013 Pearson Education, Inc. All rights reserved.

Learning Objectives

(continued)

Explain how to determine if a government

should treat an associated entity as a
component unit (CU)
Understand which CUs should be blended
and which should be discretely presented
Understand the differences between blending
and discrete presentation
Explain the differences between and among
the reporting requirements for related
organizations, jointly governed organizations,
and joint ventures
2013 Pearson Education, Inc. All rights reserved.

CAFR Components
1. Introductory Section
2. Financial Section
3. Statistical Section (addressed by
GASB #44)

2013 Pearson Education, Inc. All rights reserved.

Introductory Section
Table of Contentsguide to the rest of the
report
Transmittal Letter

Legal requirements for the CAFR

Report is managements responsibility
Results of the audit
Should not duplicate information in MD&A, but
may refer to MD&A

Other materials deemed appropriate by

management
Governments participating in GFOA
certificate program must include other items
2013 Pearson Education, Inc. All rights reserved.

Financial Section
Auditors Report
Managements Discussion & Analysis
Basic Financial Statements
Other RSI
Combining and Individual Fund Financial
Statements and Schedules (Other
Information)
Narrative explanations

2013 Pearson Education, Inc. All rights reserved.

Auditors Report
First item in the Financial Section
Scope is usually the Basic Financial
Statements but may be of the CAFR as
a whole
Known as a dual opinion
Would still exclude RSI and Statistical
Section

2013 Pearson Education, Inc. All rights reserved.

Basic Financial Statements and RSI

(also known as the Minimum External Financial Report [MEFR])

MD&A (part of RSI)

Basic Financial Statements
Government-Wide Financial Statements
Fund Financial Statements
Notes to the Financial Statements

Other RSI

2013 Pearson Education, Inc. All rights reserved.

Other Information
Nonmajor combining statements for
Governmental Funds and Enterprise Funds
Combining statements for ISFs
Combining statements for each type of
Fiduciary Fund
Individual Fund Statements, if appropriate
Narrative explanations

2013 Pearson Education, Inc. All rights reserved.

Individual Fund
Financial Statements
Budgetary comparisons not included in the Basic
Financial Statements (BFS) or other RSI
More detailed budgetary comparisons for GF
and major SRFs
Additional information beyond the BFS or
combining financial statements
Prior year comparative data for individual funds

2013 Pearson Education, Inc. All rights reserved.

10

Schedules
Demonstrate finance-related and
contractual compliance
Present more detailed data than
appears in the financial statements
Present other data management
deems necessary, such as cash
receipts and cash disbursement
schedules
2013 Pearson Education, Inc. All rights reserved.

11

Narrative Explanations
Essentially notes for information not in
the BFS or other RSI
Not called notes to avoid confusion
Provide guidance to better understand
data included in other information

2013 Pearson Education, Inc. All rights reserved.

12

Statistical Section

First outlined in NCGA Statement 1

New requirements from GASB #44
Consists of five categories of schedules
Most schedules present 10 years of
information; some present only 2
comparative years

2013 Pearson Education, Inc. All rights reserved.

13

Statistical Section: Five

Classes of Information
Financial Trends
Revenue Capacity
Debt Capacity
Demographic and Economic
information
Operating Information

2013 Pearson Education, Inc. All rights reserved.

14

Financial Trend Information:

Government-wide Financial Statements

Net Position for governmental activities,

business-type activities, and total primary
government
Net Investment in Capital Assets
Restricted Net Position (detail optional)
Unrestricted Net Position

2013 Pearson Education, Inc. All rights reserved.

15

Financial Trend Information:

Government-wide Financial Statements

Changes in Net Position for governmental

activities and business-type activities, with
summary totals for primary government
Expenses by function, program, or
identifiable activity
Program revenues by category
General revenues and other changes in
net position by type
Total change in net position
2013 Pearson Education, Inc. All rights reserved.

16

Financial Trend Information:

Governmental Fund Financial Statements

For General Fund and other

governmental funds in the aggregate,
each of the required fund balance
classifications

2013 Pearson Education, Inc. All rights reserved.

17

Financial Trend Information:

Governmental Fund Financial Statements

For governmental funds in total

Revenues by source
Expenditures by functions
Other financial sources and uses and other changes
in fund balance by type
Total change in fund balances
Ratio of total debt service expenditures (principal
and interest) to noncapital expenditures

2013 Pearson Education, Inc. All rights reserved.

18

Revenue Capacity Information

Revenue base
Direct and overlapping rates
Principal payerscurrent year and
comparison year (9 years earlier)
Levies and collections
Amount levied for period
Amount collected during period and percentage of
total levy
Amount collected in subsequent periods and
percentage of total levy
2013 Pearson Education, Inc. All rights reserved.

19

Debt Capacity Information

Ratios of total outstanding debt by type of
debt, to personal income, and per capita
Ratios of general debt outstanding
Overlapping debttotal amount and
percentages
Legal debt margin calculated for current year
with 10-years of comparative data
Pledged-revenue coverage

2013 Pearson Education, Inc. All rights reserved.

20

Demographic and
Economic Information
Demographic and economic indicators
Total population
Total personal income
Per capita personal income
Unemployment rate
Others, if appropriate

Principal employerscurrent year and

comparison year (9th year prior)

2013 Pearson Education, Inc. All rights reserved.

21

Operating Information
Government employees by function,
program, or identifiable activity
Operating indicatorsdemand or level
of service
Capital asset indicatorsvolume,
usage or nature

2013 Pearson Education, Inc. All rights reserved.

22

More Complex Entity Structures

Component units
Related organizations
Jointly governed organizations
Joint ventures

2013 Pearson Education, Inc. All rights reserved.

23

Foundation of Reporting Entity:

The Primary Government
All States, Counties, and Cities are
primary governments (PGs)
Other governmental entities may be
PGs if it
Has a separately elected governing body;
and
Has separate legal standing; and
Is fiscally independent

2013 Pearson Education, Inc. All rights reserved.

24

An Entity Is Fiscally
Independent If
It does not need another governments
approval to:
Establish its budget; or
Levy taxes or set other rates and
charges; or
Issue bonded debt

2013 Pearson Education, Inc. All rights reserved.

25

When Reporting Component

Units (CUs) Are Required:
PG is financially accountable for other entity
PG holds a majority interest in other entity for
facilitating delivery of government services
Other entity is a tax-exempt organization
whose ongoing financial support of PG
warrants inclusion
Failure to include other entity would cause
PG financial statements to be misleading

2013 Pearson Education, Inc. All rights reserved.

26

Financial Accountability
(See Illustration 15-7, Page 616)

Appointment Authority + Ability to

Impose Will
Appointment Authority + Financial
Benefit or Burden
Fiscal Dependence + Financial Benefit
or Burden

2013 Pearson Education, Inc. All rights reserved.

27

CU Note Disclosures
CUs included in the reporting entity
Rationale for including each CU
Information about whether each CU is
blended, discretely presented, or included in
fiduciary financial statements
Availability of separately issued financial
statements for each CU

2013 Pearson Education, Inc. All rights reserved.

28

Methods to Report CUs

Blendinglooks like any another fund
Discrete presentationreported in
separate column(s) in government-wide
financial statements

2013 Pearson Education, Inc. All rights reserved.

29

Requirements for
Blended Presentation
CUs governing body and PGs governing body
are substantially the same and either (1) there is
a financial benefit/burden relationship, or (2) the
PG management has day-to-day operational
responsibility for CU
CU provides services to, or benefits only, the PG
CUs total debt outstanding is expected to be
repaid entirely or almost entirely by PG

2013 Pearson Education, Inc. All rights reserved.

30

How to Blend a CU
It is as if the PG and the blended CU were a
single entity
CU financial information included in fund
and government-wide financial statements
Some CUs reported as a single fund, others
as multiple funds
General Fund of CU treated as a SRF
CU funds can be major funds

2013 Pearson Education, Inc. All rights reserved.

31

Reporting Discretely
Presented CUs
Found only on government-wide
financial statements
Statement of Net Position
Statement of Activities

Four options for reporting CUs

2013 Pearson Education, Inc. All rights reserved.

32

Options for Reporting CUs

1. Single column (option most often
used)
2. Separate columns for Governmental
CUs and Proprietary CUs (rarely used
in practice)
3. Separate column for each major CU
with aggregate column for other CUs
4. Separate column for each CU
2013 Pearson Education, Inc. All rights reserved.

33

Options for Reporting CUs

(continued)

When options 1 and 2 used, must present

additional information about CUs later in
report
Methods available
Combining statements following major fund
statementsmust have separate column for each
major CU and aggregate column for others
Condensed financial statements in notes to
financial statements
2013 Pearson Education, Inc. All rights reserved.

34

Other relationships
Related organizationappointment criteria met
but PG does not have ability to impose will or
have a financial benefit/burden relationship
Jointly governed organizationsubject to joint
control but PG has neither an ongoing financial
interest or ongoing financial responsibility
Joint venturesimilar to joint venture but PG
has either ongoing financial interest or ongoing
financial responsibility

2013 Pearson Education, Inc. All rights reserved.

35

Bringing It All Together:

The Financial Reporting Pyramid

MD&A
GovernmentWide
Financial Statements
Major Fund & CU
Financial Statements
Notes
Other RSI
Nonmajor Fund Combining Financial
Statements
Individual Fund Financial Statements
& Schedules
Transaction Data
(the accounting system)

CAFR--Comprehensive Annual Financial Report

BFS--Basic Financial Statements
MEFR--Minimum External Financial Reporting
2013 Pearson Education, Inc. All rights reserved.

36