AGA Montgomery Chapter CGFM Exam Review

Presented By

Steven H. Emerson, CPA, CGFM, CGAP, CFE, CITP

Exam 2 . Section II . Chapter 3

Government-Wide Financial Reporting

Added a new level of reporting for state and local governments – the government-wide level.

The previous model focused on funds. The government-wide level does not focus on funds – the focus is on the activities of the government – governmental and business-type.

Established an additional reporting requirement – management’s discussion and analysis (MD&A)

GASB Statement 34

The major impact of GASB Statement 34 is the requirement for reporting about the government as an economic entity.

There was no presentation that focused on the government as a whole in the previous reporting model.

The focus was on funds.The total column on the Combined Balance

Sheet titled “Memorandum Only” cautioned users that the numbers may not be useful for financial reporting.

Overview of Government-Wide Financial Reporting (GWFR)

Two reasons for this caution were:The measurement focus and basis of

accounting was not the same for all fund types.There were no interfund eliminations.

Even GAAP operating statements that used the same measurement focus and basis of accounting, had the “Memorandum Only” caption because there were no interfund eliminations.

Overview of Government-Wide Financial Reporting (GWFR) - continued

The central focus of the government-wide statements is the primary government. They are not fund based.

Government-wide statements distinguish between governmental activities and business-type activities.

Governmental ActivitiesActivities primarily associated with governmental funds

Business-Type ActivitiesPrimarily associated with enterprise funds

Internal Service funds are generally included with governmental activities, but with substantial eliminations for interfund activities.

Overview of Government-Wide Financial Reporting (GWFR) - continued

Virtually all interfund transactions are eliminated, thus providing a complete picture of the government as a whole.

Discrete component units are presented separately to complete the financial picture of the reporting entity.

A total for the primary government is required. A total for the reporting entity including the component units is optional.

Fiduciary funds are not presented in the government-wide statements.

Overview of Government-Wide Financial Reporting (GWFR) - continued

As stated earlier, internal service funds are usually reported with governmental activities, however if the primary customers of the internal service funds are enterprise funds, then they would be reported with business-type activities.

The change in net assets for internal service funds is eliminated so that the funds “break even” for the fiscal year.

The two required statements for government-wide reporting are the statement of net assets and the statement of activities.

Overview of Government-Wide Financial Reporting (GWFR) - continued

Presented before the basic financial statements

Required Supplementary Information (RSI)Easily readable analysis of the financial

activities of the governmentDiscuss current year compared with the prior

yearDistinguish between the primary government

and its component unitsPrimary emphasis is the primary government

Management’s Discussion and Analysis (MD&A)

Brief discussion of the basic financial statements, how the government-wide statements are related and how they are different from the fund-level financial statements

Condensed financial information with comparisons to the prior year. The following elements should be included:Capital assets, other assets and total assetsLong-term, other and total liabilitiesTotal net assets, distinguished by its

components

Management’s Discussion and Analysis (MD&A) - continued

Program revenues by major sourceGeneral revenues by major sourceTotal revenuesProgram expenses by functionTotal expensesResults of operation before contribution, special

& extraordinary itemsContributions to capitalSpecial and extraordinary itemsTransfersChange in net assetsEnding net assets

Management’s Discussion and Analysis (MD&A) - continued

Practical Example:

State of AlabamaComprehensive Annual Financial Report

For the Fiscal Year Ended September 30, 2010

Management’s Discussion and Analysis (MD&A) - continued

Government-Wide Financial Statements are prepared using the economic resources measurement focus and the accrual basis of accounting

Business-type activities require no adjustments since enterprise funds use the same MFBA as the business-type activities

Governmental activities require adjustments from the current financial resources measurement focus and modified accrual basis of accounting used by governmental funds to the Government- Wide MFBA (see examples in the text)

Government-Wide Measurement Focus and Basis of Accounting (MFBA)

The first of the two required government-wide statementsAssets – Liabilities = Net Assets

The traditional balance sheet may be used insteadNet Assets instead of Fund Balances or Equity

Assets and Liabilities should be presented in order of their relative liquidty

The classified statement of net assets may be used – i.e. City/County of San Francisco 2006 and 2010 CAFRs

Statement of Net Assets

Net assets should be displayed in three componentsInvested in capital assets, net of related debt

Only debt attributable to the acquisition, construction or improvement of the capital assetsUnspent proceeds should not be included

Restricted net assets (Restricted assets used in the text)Constraints placed on net asset use, either externally

imposed by creditors, grantors, contributors, or laws or regulations of other governments or imposed by law through enabling legislation or constitutions

Unrestricted net assets (Unrestricted assets used in the text)All other net assets

Statement of Net Assets - continued

FormatPrepared using a columnar formatAssets, liabilities and net assets of the primary

government are reported in two columns – governmental activities and business-type activities

A total column for the primary government should be presented

A final column is for discretely presented component units if present

A total column for the reporting entity is optional

Comparative data for the prior year is also optional

Statement of Net Assets - continued

Modified approach for InfrastructureIn lieu of depreciation for infrastructure,

conditional assessments can be made on the ongoing maintenance of the infrastructure assets. Certain requirements need to be met such as keeping and up to date inventory of the infrastructure, condition assessments using a measurement scale and the conditional level at which the infrastructure is to be kept must be disclosed.

Failure by a government to meet the modified approach requirements would require depreciation on the infrastructure to be reported.

Statement of Net Assets - continued

Practical Examples:

State of Alabama 2010 CAFRCity/County of San Francisco, CA 2006 CAFR

City of Cape Canaveral, FL 2010 CAFRTown of Priceville, AL 2010 Audit Report

Statement of Net Assets - continued

Net cost formatTo identify the extent to which a particular

function requires financial support from the taxpayersWhich revenues are program revenuesWhich revenues are general revenues

To determine the operating results for the fiscal year including the economic cost and net cost of services

Governmental activities should be detailed by function at the same level used for the fund financial statements

Statement of Activities

All expenses are to be reported by functionIndirect expenses are not required to be allocated

to the functions If a government allocates the indirect expenses they

may do so in a separate columnThe separate column is necessary to enhance

comparability among governments

Depreciation expenses specifically identified with a function should be included in direct expenses of the function If a separate line is used for shared capital assets, it

should clearly indicate that it excludes direct depreciation of the various functions

Statement of Activities - continued

Interest on long-term liabilities should be considered an indirect expense and reported as a separate lineInterest that can be attributed to a function

should be reported as an expense of that function

Business-type activities are presented for each significant enterprise

Component units are displayed for major component units, with minor component units totaled

Statement of Activities - continued

RevenuesProgram revenues are reported in three categories

Charges for servicesExchange or exchange-like transactions

Licenses and permits Assessments for street cleaning Water and sewer fees Refuse collection fees Recreation fees Fines and forfeitures

Program-specific operating grants and contributionsProgram-specific capital grants and contributions

Entire grant needs to be restricted for capital purposesA grant that allows spending for operating and capital

would be reported as an operating grant

Statement of Activities - continued

Revenues – continuedGeneral revenues

All other revenuesAll taxes are reported as general revenuesUnrestricted grants and earnings from investmentsGain and loss from sale of assets

Special and extraordinary itemsSpecial items – significant transactions or events

within the control of management and are either unusual in nature or infrequent in occurrenceReported separately after general revenues

Sale of a major capital assetSettlement of a major lawsuit

Statement of Activities - continued

Special and extraordinary items – continuedExtraordinary items – transactions that are

both unusual in nature and infrequent in occurrenceReported separately after special items

Damage from a tornado or hurricaneA “near special item” is either unusual in

nature or infrequent in occurrence but not in the control of managementReported separately in the appropriate revenue or

expense category or disclosed in the notes to the financial statements

Statement of Activities - continued

Alternate Reporting FormatsTwo-page approach

Pages 7-208 and 7-209 in GASB Comprehensive Implementation Guide

Displaying functions in columnsPage 7-211 in GASB Comprehensive

Implementation GuideSingle-column format

Page 7-214 in GASB Comprehensive Implementation Guide

Combined fund and government-wide formatPage 7-217 in GASB Comprehensive

Implementation Guide

Statement of Activities - continued

Practical Examples:

State of Alabama 2010 CAFRCity/County of San Francisco, CA 2006 CAFR

City of Cape Canaveral, FL 2010 CAFRTown of Priceville, AL 2010 Audit Report

Statement of Activities - continued

Interfund Receivables and PayablesAll interfund receivables and payables should be

eliminated in the governmental and business-type activities column of the statement of net assetsDue to/froms among governmental fundsDue to/froms among enterprise funds

Only residual amounts of interfund payables/receivables between governmental and business-type activities should be presented as internal balances

Internal balances would be eliminated in the total column for the primary governmentAmounts due to or from fiduciary funds should be included

as a receivable from or payable to an external party

Eliminations and Reclassifications

Charges for ServicesCharges levied for services by governmental

activities or internal service funds to business-type activities should not be eliminated nor should charges by business-type activities to governmental activities

TransfersWould be reported in the same manner as interfund

payables and receivablesTransfers among governmental activities or among

enterprise activities are eliminatedOnly residual transfers between governmental and

business-type activities are reported on the statement of activities to net to zero

Eliminations and Reclassifications - continued

Internal Service FundsDesigned to break even. If net revenue is

positive, the internal service fund overcharged. If negative, the internal service fund undercharged. The overcharge or undercharge should be charged or credited back to the functions that incurred the user charges

Investment income or interest expense should be reclassified as governmental activities

Eliminations and Reclassifications - continued

Blended component units are reported along with other activities of the government either as governmental or business-type activities

Discretely presented component units are reported only at the government-wide level

Major component units can be reported in one of three ways In a separate column of the statement of net assets and

statement of activitiesProviding combining statements in the basic financial

statements after the fund financial statementsPresenting condensed financial statements in the notes

to the financial statements

Component Unit Reporting

State of Alabama 2010 CAFRhttp://comptroller.alabama.gov/pdfs/cafr.2010.pdf

City/County of San Francisco, CA 2006 CAFRhttp://

www.sfcontroller.org/ftp/uploadedfiles/controller/reports/CAFR/06/CAFR_2006.pdf

City of Cape Canaveral, FL 2010 CAFRhttp://www.cityofcapecanaveral.org/vertical/Sites/%7BCEAB0943-1F37-4E48-833E-AFC3D9CA4058%7D/uploads/%

7BA3264716-7E4F-4E59-9460-186AD559BD9D%7D.PDF

Town of Priceville, AL 2010 Audit ReportEmail me at steve@shecpa.com

Reports Used in This Presentation