Kế toán, kiểm toán - Chapter 9: Financial reporting of state and local governments

Chapter9Financial Reporting of State and Local Governments`Learning ObjectivesAfter studying Chapter 9, you should be able to:Describe the concepts related to the financial reporting requirements of the GASB reporting modelExplain the key concepts and terms used in describing the governmental reporting entityApply the GASB criteria used to determine whether a potential component unit should be included in the reporting entity and, when included, manner of reporting component units`Learning Objectives (Cont’d)Identify and describe the contents of a comprehensive annual financial report (CAFR)Understand how to reconcile governmental fund financial statements to governmental activity in the government-wide financial statementsIdentify and explain financial reporting issues and topicsConcepts of Financial ReportingTwo primary objectives of government financial reportsTo provide information that can be used to assess accountabilityTo assist users in making economic, social, and political decisionsCharacteristics of useful information are understandability, reliability, relevance, timeliness, consistency, and comparabilityConcepts of Financial Reporting (Cont’d)Effective communication improves the usefulness of government financial reportsThe information appearing in government financial reports must meet the definition of one of the elements defined by GASBAssets  LiabilitiesDeferred outflows of resources  Outflows of resourcesDeferred inflows of resources  Inflows of resourcesNet position The reporting entity consists of the primary government and all component units for which the primary government is financially accountableComponent units are reported by discrete (separate column) presentation, or by blending the component unit’s financial information with the appropriate fund columns of the primary governmentReporting EntityReporting Entity (Cont’d)A primary government is financially accountable for another organization if it appoints a voting majority of the organization’s governing board and it can either:Impose its will on that organization or Potentially provide specific financial benefits to or impose a financial burden on the other organizationEven if it does not appoint a majority of an organization’s governing board, the primary government (PG) is financially accountable for another organization if:The other organization is fiscally dependent on the PG, and The other organization can provide specific financial benefits or impose specific financial burdens on the PGReporting Entity (Cont’d)Reporting Entity (Cont’d)A financial benefit or financial burden exists if the PG:Is entitled to the organization’s resourcesIs legally obligated to finance the organization’s deficits, or provide financial support to the organization, orIs obligated in some other manner for the organization’s debtCitizens and others (e.g., creditors and legislators) have a need for periodic reports on the sources of the government’s resources and how the resources were usedInterim financial reports are needed as well as annual reports for sound internal management and legislative oversight Financial ReportsThe major sections of a comprehensive annual financial report (CAFR) are the Introductory section Financial section Statistical section Financial Reporting—Comprehensive Annual Financial ReportIntroductory SectionTitle page Contents page Letter of transmittalOther (as desired by management) CAFR (Cont’d) Financial SectionAuditor’s report MD&ABasic financial statementsRequired supplementary information (RSI) other than MD&A, including the budgetary comparison scheduleCombining and individual fund financial statements CAFR (Cont’d)Statistical SectionFinancial trends informationRevenue capacity informationDebt capacity informationDemographic and economic informationOperating informationCAFR (Cont’d)General Purpose External Financial ReportsManagement’s discussion and analysis Government-wide Fund financialfinancial statements statementsNotes to the financial statementsRequired supplementary information (other than MD&A)Government-wide financial statementsStatement of net position (Ill. A2-1 and 9-3)Statement of activities (Ill. A2-2 and 9-4)Fund financial statements (see next 3 slides)Notes to the financial statements Basic Financial StatementsFund Financial Statements—Governmental FundsBalance sheet—governmental funds (Ill. A2-3 and 9-5) with reconciliation (Ill. A2-4 and 9-7)Statement of revenues, expenditures, and changes in fund balances—governmental funds (Ill. A2-5 and 9-6) with reconciliation (Ill. A2-6 and 9-8)Fund Financial Statements— Proprietary FundsStatement of net position—proprietary funds (Ill. A2-7)Statement of revenues, expenses, and changes in fund net position—proprietary funds (Ill. A2-8)Statement of cash flows—proprietary funds (Ill. A2-9)Fund Financial Statements—Fiduciary FundsStatement of fiduciary net position (Ill. A2-10)Statement of changes in fiduciary net position (Ill. A2-11)Financial Reporting ModelGovernment-wide financial statements: Entity-wide perspectiveLong-term focus on operational accountabilityAll governmental and business-type activities of the government as a whole are reported on the accrual basis—essentially the same as for-profit entitiesFinancial Reporting Model (Cont’d)Preparation of the government-wide financial statements at year-end requires:Adjusting entries to record items such as annual depreciation and accrual of interest receivable and payableEntries to close all program and general revenues and expensesEntries to reclassify, as necessary, Net Position—Unrestricted to Net Position—Restricted (various purposes) and Net Position—Net Investment in Capital Assets Financial Reporting Model (Cont’d)Fund financial statements:Short-term focus on fiscal accountabilityMost activities of the government are reported on the modified accrual basis; however, proprietary funds and fiduciary funds are reported essentially the same as for-profit entitiesFinancial Reporting Model (Cont’d)Preparation of the fund financial statements at year-end requires appropriate classification of fund balances asNonspendableSpendable – restricted, committed, assigned or unassignedQ: How are the various fund balance classifications defined?Financial Reporting Model (Cont’d)Preparation of the fund financial statements at year-end also requires that information on the governmental fund financial statements be reconciled to information reported in the Governmental Activities column on the government-wide statementsReporting Issues & TopicsGASB’s Recognition and Measurement Attributes Project Potentially a new concept statement Examines changing from “modified accrual” measurement focus for governmental funds The focus is on a “near term” measurement focusReporting Issues & Topics (Cont’d)Popular ReportingMany accounting professionals, politicians, and others believe current governmental financial statements are excessively complex and not understandable except to those knowledgeable about governmental accountingSome governments provide simplified, summary reports called “popular reports”Graphical presentation is used to a greater extent than traditional financial statementsReporting Issues & Topics (Cont’d)Other comprehensive basis of accounting (OCBOA)Not all governments maintain internal records on a GAAP basis, many use OCBOATypes of OCBOA most commonly used by governments include—cash basis, modified cash basis, and regulatory basisMany reasons are provided for using OCBOA, including cost and ease of useUse of OCBOA does not preclude the need to present information similar to that reported under GAAPReporting Issues & Topics (Cont’d)International Accounting StandardsAs with FASB, GASB has an international counterpartInternational Public Sector Accounting Standards (IPSAS) are issued by the International Public Sector Accounting Standards Board (IPSASB)IPSASB are used by many countriesConcluding Comments The financial reporting model requires each financial reporting entity to prepare at a minimum: MD&A; basic financial statements (government-wide and fund); notes to the financial statements; and required supplementary information, other than MD&AIt is recommended that each reporting entity prepare as its official financial record a comprehensive annual financial report (CAFR) As the financial needs of users continue to change, so will financial reporting standardsEND