ANATOMY OF A CAFR Comprehensive Annual Financial Report Karen Tenace CPA, CMA City of Tucson Objectives Learn what is mandated by GAAP versus is what is encouraged by GAAP Understand the components of the CAFR and the order in which they should be presented Discover additional resources that can help your jurisdiction prepare a great CAFR Do we have to do a CAFR? Need 3 things to comply with GAAP: 1. Management Discussion and Analysis (MD&A) 2. Basic Financial Statements 3. Required Supplementary Information (RSI) GAAP, however, encourages the production of the broader presentation in the format of CAFR. CAFR Comprehensive Annual Financial Report 3 Major Sections Introductory Section Financial Section Statistical Section Order of Presentation I. II. III. IV. V. Table of Contents Introductory Section A. Letter of Transmittal B. Organizational Chart C. GFOA’s Certificate of Achievement Financial Section A. Auditor’s Opinion B. Management Discussion and Analysis (MD&A) C. Basic Financial Statements D. Notes E. Required Supplementary Information (Other than MD&A) F. Other Information (Combining & Individual Statements) Statistical Section Optional Sections Title Page-Specific Requirements Comprehensive Annual Financial Report (not “Annual Report”) Name of primary government State where government is located Fiscal period covered Department responsible for preparing the report Introductory Section-Purpose? Provides background and context of CAFR NOT included in scope of audit Introductory Section-Contents 1. 2. 3. 4. Certificate of Achievement for Excellence in Financial ReportingPrior Year List of Principal Officials Letter of Transmittal Organizational Chart Letter of Transmittal-4 Sections 1. 2. 3. 4. Formal transmittal of the CAFR Profile of the government Economic Condition (Subjective Element) Awards & Acknowledgements Letter of Transmittal-Other Details Minimum-Signed by CFO Dated on the date the CAFR is first made available to the public (AFTER the auditor’s report) NOT audited Should be on letterhead Should be addressed to the citizens Concise with charts and graphs Financial Section-Purpose? Provides critical information regarding the financial condition of the government through the presentation of financial statements and schedules, note disclosures and narratives (MD&A) Finance Section-Contents 1. 2. 3. 4. 5. Independent Auditor’s Report Management Discussion and Analysis (MD&A) Basic Financial Statements Required Supplementary Information (Other than MD&A) Combining and Individual Fund Presentations & Supplementary Info Basic Financial Statements A Quick Detour to Review Basic Terminology & Concepts… Review-Unique Characteristics of Governmental Accounting 1. Use of Fund Accounting 2. Measurement Focus and Basis of Accounting or MFBA Full Accrual AND Modified Accrual Review-What’s a Fund? Fund: A self contained accounting entity with its own asset, liability, revenue, expenditure or expense and fund balance or other equity accounts. Review-Measurement Focus & Basis of Accounting (MFBA) Measurement Focus tells you WHAT to recognize Basis of Accounting tells you WHEN to recognize it Review-Two Types of MFBA’s in Governmental Accounting #1 Economic Resources Measurement Focus and Accrual Basis of Accounting WHAT: Economic resource measurement focus considers ALL inflows, outflows and balances affecting or reflecting on an entity’s net assets. Review-Two Types of MFBA’s in Governmental Accounting #1 Full Accrual Basis Cont. WHEN: Accrual basis of accounting recognizes the financial effect of transactions, events, and interfund activities when they occur, regardless of the timing of related cash flows. Review-Two Types of MFBA’s in Governmental Accounting #2 Current Financial Resources Measurement Focus and Modified Accrual Basis of Accounting WHAT: Current financial resource measurement focus only considers SHORT-TERM or CURRENT inflows, outflows and balances of expendable financial resources. How can you tell MFBA by looking at a financial statement? Modified Short-term View Expenditures (Capital Outlay and Principal Payments) Assets-Liabilities=Fund Balance Only Current Assets and Current Liabilities Shown No Long-term Assets means no Depreciation Expense Full Accrual Long-term View Expenses Assets-Liabilities=Net Assets Current AND Long-Term Assets and Liabilities Shown Depreciation Expense Included in Operating Review-Fund Types GOVERNMENTAL FUNDS PROPRIETARY FUNDS (Current Resources/Modified) (Economic Resources/Full Accrual) 1. 2. 3. 4. 5. General Fund Special Revenue Fund Capital Project Fund Debt Service Fund Permanent Fund 1. 2. Enterprise Funds Internal Service Funds FIDUCIARY FUNDS (Economic Resources/Full Accrual) 1. 2. 3. 4. Agency Funds Pension Funds Investment Trust Funds Private Purpose Trust Funds Review-GASB Statement No. 34 The “New” Model (2002) PRE-GASB 34: General Purpose F/S Emphasis on FUND TYPE Governmental Fund Financial Statements were ONLY presented using modified accrual accounting basis POST-GASB 34: Basic F/S Emphasis on MAJOR Fund vs. NONMAJOR Fund Governmental Fund Financial Statements presented in BOTH modified and full accrual accounting basis (Gov’t-wide Statements) END OF DETOUR…BACK TO BASIC FINANCIAL STATEMENTS..... Basic Financial StatementsOrder of Presentation 1. 2. 3. 4. Government-wide Financial Statements Fund Financial Statements Required Supplementary Information Combining and Individual Fund Statements and Schedules Government-wide Financial Statements-Major Points Includes all governmental activity and business-type activity Includes discretely presented component units Excludes fiduciary activities MFBA=Economic Resources, Full Accrual Accounting Gov’t Activity + Business Type Activity = Primary Government Government-wide Statements 1. 2. Statement of Net Assets Statement of Activities All financial statements should refer to Notes! Gov’t-wide Statement of Net Assets-Major Points Assets & Liabilities- present in order of liquidity or split between current and noncurrent (classified approach) Capital assets being depreciated must be shown separately from assets that are not being depreciated Assets – Liabilities = Net Assets Gov’t-wide Statement of Net Assets-Major Points Cont. Net Assets is broken into 3 categories: 1. 2. 3. Invested in Capital Assets Net of Related Debt Restricted (Narrower than purpose of reporting unit) Unrestricted Gov’t Wide Statement of Activities-Major Points Purpose is to show the extent of how each governmental function supports itself, before general tax dollars kick in Order of Presentation: 1. Expenses 2. Program Revenues 3. Net (Expense) Revenue 4. General Revenues Gov’t Wide Statement of Activities-Expenses Direct expenses – by function Depreciation – by function Indirect expenses – General Government or allocate in separate column Interest Expense – not associated with a function, separate line Gov’t Wide Statement of Activities-Program Revenues Reported by Function & Shown in 3 Columns: 1. 2. 3. Charges for Services Operating Grants and Contributions Capital Grants and Contributions Gov’t Wide Statement of Activities-Net Expenses What you would expect, in theory… Governmental activities carry net expenses and depend on tax revenues Business-type activities either break even or carry net revenues Gov’t Wide Statement of ActivitiesGeneral Revenues & Other Line Items Tax revenues are reported by type of tax Material gains on sale of capital assets for governmental activities Immaterial gains on governmental assets can be an adjustment to depreciation Gains on assets in enterprise activities should be shown under functional expense Impairments to assets, program expense or special/extraordinary item Gov’t Wide Statement of ActivitiesGeneral Revenues & Other Line Items Endowment and Permanent Fund Contributions- reported after General Revenues Special Items – significant, subject to management’s control, and either unusual OR infrequent (Sale of Land) Extraordinary Items – significant, unusual AND infrequent (Earthquake) Transfers XYZ CITY EXAMPLE STATEMENT OF ACTIVITIES FOR THE PERIOD ENDING JUNE 30, 2007 PRIMARY GOVERNMENT Governmental Activities: General Government Public Safety Highways & Streets Health & Sanitation Other Interest & Fiscal Agent Fees Total Governmental Activities Expenses $ 86,900 $ 467,000 $ 377,700 $ 53,400 $ 21,600 $ 108,600 $ 1,115,200 Business Type Activities: Golf $ TOTAL PRIMARY GOVERNMENT COMPONENT UNITS $ Program Revenues Charges for Operating Capital Services Grants Grants $ 38,000 $ 120,000 $ 2,066,000 $ 89,000 $ 127,000 565,000 $ 700,000 400,000 $ 350,000 $ 120,000 $ 200,000 $ 2,066,000 $ - General Revenues: Taxes Unrestricted Grants Investment Income Gain on Sale of Capital Assets Other Revenues Transfers Total General Revenues & Transfers Change in Net Assets Net Assets Beginning Net Assets Ending Net (Expense) Revenues Business Governmental Type Activities Activities Total $ $ $ $ $ $ $ (86,900) (309,000) 1,688,300 35,600 (21,600) (108,600) 1,197,800 $ $ $ $ $ $ $ $ $ 1,197,800 $ 135,000 $ 135,000 $ 135,000 $ 1,332,800 $ $ $ $ $ $ $ $ $ $ $ $ $ - 980,800 105,000 52,500 10,000 2,000 18,000 1,168,300 2,366,100 905,514 3,271,614 $ $ $ $ $ $ $ $ $ $ - Component Units - (18,000) (18,000) 117,000 765,000 882,000 $ (86,900) $ (309,000) $ 1,688,300 $ 35,600 $ (21,600) $ (108,600) $ 1,197,800 $ $ $ $ $ $ $ $ $ $ - 980,800 105,000 52,500 10,000 2,000 1,150,300 2,483,100 1,670,514 4,153,614 $ $ $ $ $ $ $ - $ 150,000 $ $ $ $ $ $ $ $ $ $ 150,000 300,000 450,000 Fund Financial Statements GOVERNMENTAL FUNDS (Current Resources/Modified) PROPRIETARY FUNDS (Economic Resources/Full Accrual) 1. 1. 2. 3. Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance Reconciliation to Government-wide Statements 2. 3. Statement of Net Assets Statement of Revenues, Expenses and Changes in Fund Net Assets Statement of Cash Flows FIDUCIARY FUNDS (Economic Resources/Full Accrual) 1. 2. Statement of Fiduciary Net Assets Statement of Changes in Fiduciary Net Assets All financial statements should refer to Notes! Governmental Fund Financial Statements-Major Points Separates funds – Major vs. Nonmajor MFBA=Current Resources, Modified Accrual Accounting Includes reconciliation back to governmental activities for both financial statements Basic Financial Statements Major Fund Test Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise fund constitute 10% of the governmental or enterprise activity AND Total assets, liabilities, revenues, or expenditures/expenses are 5% of the total governmental and enterprise category combined Major Fund Test Example Example - Major Fund Test Assets %G/E Pass 10%? Governmental Funds: General Fund Library Public Safety Fund Subtotal Governmental Funds 200,000 10,000 35,000 245,000 82% * 4% No 14% Yes 100% 67% * 3% No 12% Yes Yes No Yes 42,000 10,000 52,000 81% Yes 19% Yes 100% 14% Yes 3% No Yes No Enterprise Funds: Golf Zoo Subtotal Enterprise Funds Total Gov't and Enterprise Funds 297,000 * Irrelevant - General Fund is ALWAYS a Major Fund %T 100% Pass 5% Major Fund? Financial Section - Notes Summary of Significant Accounting Policies Budgetary Information Cash Deposits w/ Financial Institutions Investments Derivatives Contingent Liabilities Encumbrances Subsequent Events Defined benefit pensions and post employment benefit plans Capital Assets and Long-term Liabilities Significant Commitments Financial Section – Notes Cont. Fund Balances Interfund Activity Component Units Endowments Risk Financing Fiscal Year Inconsistencies Landfill Closure & Post closure Property Taxes Segment Information Related Party Transactions Joint Ventures Fund Balances Prior Period Adjustments RSI-Other than MD&A 1. 2. 3. 4. Budgetary Comparisons (General Fund & Major Special Revenue Funds) Infrastructure Condition and Maintenance (Modified Approach) Pension/Other Post Employment Benefits Revenue & Claims Development Trend Data (Public Entity Risk Pools) Combining Statements & Individual Schedules- Detail of Aggregate Data 1. 2. 3. 4. Nonmajor governmental funds Nonmajor enterprise funds Internal Service Funds & Fiduciary Funds Nonmajor discretely presented component units The End-Financial Section Whew! Statistical Section GASB 44 – 10 Yr Trending 1. 2. 3. 4. 5. Financial Trends Revenue Capacity Debt Capacity Demographics and Economy Operating Information Optional Sections to the CAFR Common Examples 1. 2. 3. Investment Section (Pension Plans or Investment Pools) Actuarial Section (Pension Plans) Single Audit (Federal Awards) Financial Disclosure GFOA has formally recognized that the CAFR format meets the SEC Rule 15c2-12 (financial statement disclosure to investors) Place on website Checklist is at: http://www.gfoa.org/downloads/GENE RALPURPOSECHECKLIST.pdf Questions?