Kế toán, kiểm toán - Chapter 2: Learning objectives

Essentials of Accounting for Governmental and Not-for-Profit OrganizationsChapter 2Overview of State and Local Government Financial ReportingCopyright © 2015 McGraw-Hill Education. All rights reserved.Chapter 2 – Learning objectivesObtain an overview of the contents of a governmental financial reportDefine the governmental reporting entityIllustrate the basic financial statements for a state or local governmentOverview of Chapter 2Chapter 2 provides illustrations of state and local government financial reports introduced in Chapter 1The slides that follow will emphasize points you should notice in the various statements.Ideally each student will obtain a full set of financial statements to review. CAFR vs. Minimum ReportingThe complete Comprehensive Annual Financial Report (CAFR) is recommended Some smaller governments may report less information, but that should include:Management’s discussion and analysisBasic Financial Statements (Government-wide, Fund Basis, and Footnotes)Required supplementary information (other than MD&A)Main differences —Less statistical informationCombining statements are omitted Parts of the CAFRThe primary report is called the CAFRComprehensive Annual Financial Report3 main sections1. Introductory 2. Financial section3. Statistical section1. Introductory SectionUnauditedIncludesTitle pageTable of contentsLetter of transmittalMiscellaneous items such as organizational chart or names of chief government officers2. Financial SectionManagement discussion and analysis (MD&A) Paragraph format summary of most important issues during the year. Reviewed by auditor.Auditor’s report (when audited)Financial Statements and Notes (audited)Required Supplementary Information (RSI)(reviewed by auditor) Combining statements — more details of main statements if needed 3. Statistical SectionNot audited Information is often not financial in natureGenerally presents 10 years of information3. Statistical SectionGASB Statement No. 44 indicates five categories of information:Financial TrendsRevenue CapacityDebt CapacityDemographic and EconomicOperatingGovernment Reporting EntityIn business, parent companies generally include subsidiaries as part of consolidated statements in order to see the whole picture Likewise, if a primary government is financially accountable for another entity the “component unit” must be included as part of the primary government’s reportThis requirement prevents governments from creating separate units that hide part of the government debt or resources A component unit is included in the financial report of a primary government if:First, the relationship with the related entity must have one of the following characteristics: (1) the primary government controls a voting major of the other organization’s governing board or otherwise may impose its will on the organization; or(2) the other organization is fiscally dependent upon the primary government. An entity is fiscally dependent on a primary government if that government approves or modifies its budget, sets charges for its services, or if the government’s approval is required to issue debt. Second, the related organization must represent a financial benefit or burden to the primary government. A financial burden exists, for example, if the primary government is responsible for liabilities of the other organization.In contrast, a financial benefit exists if the government is entitled to or may access the other organization’s resources.Charlottesville, VAExample: Financial Burden or BenefitSchool Board “ operates the public education system in the City for grades kindergarten through twelve. The City appoints a majority of the board members, approves the budgetary request of the School Board and provides a significant amount of funding.”Baton Rouge, LAExample of Fiscal DependenceParish Fire District “The Council appoints a majority of the board members of each fire protection district. The Council has the right to approve the fire protection districts’ tax rates and charges. Each district is legally responsible for the debt it incurs.”Aggregation Issues in ReportsAssume the City Library Authority meets the requirements for inclusion as a component unit. How should the library information be shown in the overall CAFR?In most cases it will appear as a separate column the technical term for this is “discrete presentation”In some cases, the library information will be blended, which means intermingled with the regular governmental fund columns. This approach is used if the library has very strict oversight from the city with no genuine separate financial existence.Required Content of State and Local Government Financial ReportsFinancial Reporting Process:Two levels of reporting: - Government-wide - Fund basisGovernment-Wide StatementsStatement of Net Position (measures assets and liabilities using the economic resource measurement focus, similar to business balance sheets)Statement of Activities (measures revenues and expenses using the accrual basis, similar to business income statements)Government-Wide Statements, con’tMay show prior year data in comparison to current year resultsUnlike commercial reports, no Statement of Cash Flows is requiredgovernment-wide statements do not include fiduciary fund resources or activities, as these resources belong to othersGovernment-Wide Statement of Net PositionAssets listed in order of liquidityClassifying assets and liabilities into current and noncurrent categories is optionalNET POSITION is reported in three categories1. Net Investment in capital assets 2. Restricted 3. UnrestrictedGovernment-Wide Statement of Net Position - Cont’dThe primary government results must show a separate column for Governmental Activities and for Business ActivitiesThe numbers in these columns are derive from the totals in the individual governmental and business type fund statements. The governmental activities must first be adjusted to the accrual basis.Component Units will have one or more additional columns or be shown in notesGovernment-Wide Statements – Component Units, con’tIf the government has multiple component units:Can have two or more columns to show their component information separate from primary governmentMay need to prepare a COMBINING statement to accumulate the multiple component units before putting only one column in main statementsMay show condensed financial statements of the component units in the notesGovernment-Wide Statement of ActivitiesThis statement shows the net ‘cost’ of activities after deducting the revenues that can be directly attributed to each functionGeneral revenues, such as property taxes, are then added at the bottom to get the “Change in net position”By adding the change in net position to the beginning balance of net position, this reconciles the Statement of Activity back to the Statement of Net PositionFund Basis StatementsGovernmental Funds haveBalance SheetStatement of Revenues, Expenditures and Changes in Fund BalanceRequired supplementary Budgetary Comparison (optional)Proprietary Funds haveStatement of Net PositionStatement of Revenues, Expenses and Changes in Fund Net PositionStatement of Cash FlowsFiduciary Funds have Statements of Net Position Statement of Changes in Fund Net PositionFund Basis StatementsGovernmental Funds - Balance SheetMajor funds conceptMust show column for General FundSeparate column for other MAJOR funds Fund has 10% of the total assets, liabilities, revenues, or expenditures in the GOVT category, and 5% of total the total assets, liabilities, revenues, or expenditures of GOVT + ENTERPRISE amountsRemaining funds are added together and shown in one columnUse total columnFund Basis StatementsGovernment Funds Statement of Revenues & Expenditures Format:RevenuesLess Expenditures + or - Other Financing Sources or Uses and Special Items = Change in Fund Balance+ Beginning Fund Balance = Ending Fund BalanceFund Basis StatementsGovernment Funds Statement of Revenues & ExpendituresExpenditures are classified by “character” Current (by function)Debt ServiceCapital Outlay‘Character’ relates to ‘time’ or interperiod equity issues: current outlays, past spending (paying off debts of previous generation), or buildings that will benefit the futureReconciliation Schedule This schedule reconciles the changes in net position shown on in the governmental column of the government-wide statements with the and the fund-level statements of the governmental fundsReconciliation is necessary because the government-wide statements are on the accrual basis, and government fund statements are on the modified accrual basisLater chapters will give more background on understanding modified accrual basisFund Basis StatementsProprietary FundsStatement of Net PositionShow all major enterprise funds - 10% and 5% approachShow additional column for any nonmajor enterprise fundsShow total enterprise fundsShow a separate column with the totals for all internal service fundsFund Basis StatementsProprietary Funds Statement of Net Position, con’tClassify assets and liabilities as current and noncurrentNet position is displayed in 3 categories: capital assets net of related debt, restricted, unrestrictedDon’t need reconciliation to government-wide since both are on the accrual basisFund Basis Statements - Proprietary FundsStatement of Revenue, Expenses and Changes in Fund Net PositionFormat is similar to commercial income statementsNonoperating items include interest expense or revenue and gains or losses on sales of assetsFund Basis StatementsProprietary Funds Statement Cash FlowsFour categories instead of the three used in business cash flow statements1. Operating2. Noncapital (operations) related financing3. Capital (fixed asset) related financing4. Investing (Investment related)Comparison: Cash Flow StatementsCommercial StatementsMay use Direct or Indirect Methods for Cash Flows from Operating ActivitiesInterest and dividends received are reported in operating sectionInterest payments are reported in operating sectionPurchases or sales of long-term assets are reported in investingThe reconciliation of income and cash flows from operations starts with Net Income Proprietary Fund StatementsDirect Method is required for Cash Flows from Operating ActivitiesInterest and dividend revenue is reported in investing sectionInterest Payments are reported in capital or noncapital related financing sectionFixed asset transactions are reported in capital related financingThe reconciliation of income and cash flows from operations starts with Operating IncomeFund Basis Statements – Fiduciary FundsStatement of Fiduciary Net PositionFor most fiduciary funds the accounting equation is Assets - Liabilities = Net PositionException for Agency funds, accounting equation is Assets = LiabilitiesFund Basis Statements – Fiduciary FundsStatement of Changes in Fiduciary Net PositionExplains changes in fund resourcesEvents are measured using the economic resource measurement focus and accrual basis Excess of additions over deductions is not called net income, - Change in net positionFORMAT:Additions - Deductions = Change in net positionChange in net position + Beginning net position = Ending net positionNotes to the Financial StatementsNotes are considered an essential part of the financial statements. Not GAAP without them.The first note is called SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESExplains which funds use accrual and which use modified accrual basisGives the choice made whenever more than one approach is allowedExplains what is included in the financial statementsRequired Supplementary Information (RSI)Major RSI items:Budgetary Comparison ScheduleInformation about infrastructure assets if modified approach is used (Chapter 6)Information about defined benefit pension plansSchedules for external risk poolsBudgetary Comparison ScheduleShows the original budget and the final revised budget after revisions during the year. Variance column is useful, but optional.The ‘actual’ figures may not be the same as those shown on the Statement of Revenues and Expenditures. The Actual column should reflect the basis of accounting assumed in the budget. Need to show a reconciliation when budget basis is not the same as that on fund statements.Combining and Individual Fund InformationA complete CAFR will provide additional details beyond the main statementsAny column, such as nonmajor funds, which is a total of more than one fund needs to have a combining statement to show the individual amounts that were added to get the totalSome individual funds may be broken down into more detail than on combining statements. For example, the government may wish to show more details of revenues or expenditures for some critical fundsSpecial Purpose GovernmentsSome governments have only business-type or only government-type activities. So, the general approach is modified .For a government with only business-type or only government-type activities, the fund and government-wide statements would be repetitive. Therefore, do not need bothWhile some public colleges will report as government and business, and others as government only, most have the characteristics of business only activities