Quiz 15: Financial Reportingthe Comprehensive Annual Financial Report and the Financial Reporting Entity
1. The school district is not a component unit of the city. Since the school board is separately elected, that rules out establishing component unit status using either (1) the appointment authority and ability to impose will or (2) appointment authority and financial benefit or burden. Since the school district requires the city's approval of its budget, the school board is fiscally dependent on the city. However, since no benefit or burden relationship exists, fiscally dependency is not enough to establish component unit status. 2. Since the city appoints all members of the governing board and can remove them at will, that is sufficient to make the city financially accountable for the utility. That relationship alone makes the utility a component unit of the city. Also, since the city must approve the utility's budget and regularly receives the utility's operating surpluses, that combination would also establish financial accountability. Moreover, there is financial accountability between the city and the utility because of the appointment power and the benefit relationship. The gas utility should be discretely presented. The only pertinent criterion for blending is substantively the same governing body criterion. Even though the utility board is appointed by the council and can be removed at will, this criterion is not met. No council member serves ex officio as a board member of the utility. 3. The library commission is a component unit of the city because the city has substantive approval authority over the commission's budget. This means that the commission is fiscally dependent on the city. Also, since the city must repay any long-term debt issued by the commission, a benefit/burden relationship exists. Taken together, these two criteria establish that the commission is financially accountable to the city. The commission will be a blended component unit, since the commission's long-term debt is expected to be repaid by the city.
1. Discretely presented component units are presented in the government-wide financial statements separately from the primary government. They are not included in the fund financial statements. Governments must report certain information about each major discretely presented component unit. Governments may meet this requirement by reporting each of the five component units in separate columns of the government-wide financial statements. More likely, the government will meet this requirement by either disclosing condensed financial statements for each of the five component units in the notes to the financial statements or by providing a combining component unit financial statement. 2. Blending means that a component unit is being reported in substantially the same manner it would be if the component unit was actually a part of the primary government legal entity. Each fund of a component unit is reported as an additional fund of the same fund type of the primary government. The major exception is that the General Fund of a component unit is reported as a primary government Special Revenue Fund. Blending is required under the following circumstances: • The component unit's governing body is substantively the same as the governing body of the primary government and (1) there is a financial benefit or burden relationship between the primary government and the component unit, or (2) management of the primary government has operational responsibility for the component unit. • The component unit provides services entirely, or almost entirely, to the primary government or otherwise exclusively, or almost exclusively, benefits the primary government even though it does not provide services directly to it. • The component unit's total debt outstanding, including leases, is expected to be repaid entirely or almost entirely with resources of the primary government.
1. Major sections of the CAFR. a. Introductory: B, C, H, N, b. Financial: D, E, F, G, I, J, K, L, M, O, P, R, S c. Statistical: A, Q 2. Identify the major subsection of the CAFR in which each element of the financial section is found. a. Basic Financial Statements 1. Government-wide financial statements: D, R 2. Fund financial statements: F, I, K, M, O 3. Notes to the financial statements: G, J b. Required Supplementary Information (RSI): E, L c. Other Supplementary Information (OSI): P Note: The Auditor's Report (item S) is in the Financial Section but stands alone-it is not part of any subsection. 3. List each element in the proper order that they are found in the CAFR. C, H, B, N, S, L, D, R, I, K, F, O, M, G, J, E, P, Q, A