Quiz 2: Overview of Financial Reporting for State and Local Governments

Business

The solution to this and the first exercise of Chapters 1 and 3 through 9 will differ from student to student assuming each has a different CAFR.

Government Entity: An entity which undertakes public welfare activities through a legislative process. Rather than earning profits, sole focus is public welfare of its citizens. a. A Financial Reporting Entity: As per GASB statement 14, a financial reporting is a primary government including any component units (a legally separate organization) for financial accountability purposes. Nature and significance of primary government with component unit is such that any exclusion of component units in financial statements could be misleading. b. A Primary Government: It is either a state government or any local government (county or a special purpose government (school district). c. A Component Unit: A legally separate organization for which elected officials of primary government are financially accountable. For Instance a library with a separate board appointed by city council for which it makes its own budgets and try to make up any deficits. d. As per GASB two financial reporting methods which are blending method or discrete presentation method. Blending reporting involves inclusion of financial information of component units along with primary government. Discrete presentation involves presenting component information in a column and showing primary government's financial information without including it in total figures. It appears separately in government wide statements. In case of more than one component units it would be combined as combining statements and present financial information on each of them. Conclusion- GASB reporting framework is financial reporting of primary government and components units in financial statements either separately as discrete presentation or combining financials statements.

Comprehensive Annual Financial Report (CAFR): A report prepared and published which covers all funds and activities of primary government along with any blended component unit and provides an overview of all or any discrete component unit. a. Three Major Section of CAFR: 1. Introductory section 2. Financial information section and 3. Statistical section. b. Government Wide Financial Statements: It consists of statements of net assets and statement of activities. It uses economic resources as measurement focus and accrual basis of accounting for accounting purposes. c. Governmental Fund Statements: It consists of the balance sheet, statement of revenues and expenditures and statement of changes in fund balance. Presented using current financial resources as measurement focus and modified accrual of accounting as basis of accounting. d. Proprietary Fund Statements: It consists of the balance sheet or statement of net assets, statement of revenues and expenditures, statement of changes in fund balance and statement of cash flows. Presented using economic resources as measurement focus and accrualaccounting as basis of accounting. e. Fiduciary Fund Statements: It consists of statement of fiduciary net assets and statement of changes in fiduciary net assets. Presented using economic resources as measurement focus and accrual accounting as basis of accounting. e. Management's Discussion and Analysis (MD A): A required supplementary information which is included under financial section after the auditor's report and as notes after financial statements in the form of various schedules. Various schedules include schedule of funding process, schedule of employee contributions for pension plans or budgetary schedules or information required for external financial pools Conclusion- Adetailed report which covers all funds and activities of primary government along with any blended component unit and provides an overview of all or any discrete component unit.