ANATOMY OF A CAFRComprehensive 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.

CAFRComprehensive Annual Financial Report

3 Major Sections

Introductory Section

Financial Section

Statistical Section

Order of Presentation

I. Table of ContentsII. Introductory Section

A. Letter of TransmittalB. Organizational ChartC. GFOA’s Certificate of Achievement

III. Financial SectionA. Auditor’s OpinionB. Management Discussion and Analysis (MD&A)C. Basic Financial StatementsD. NotesE. Required Supplementary Information (Other than MD&A)F. Other Information (Combining & Individual Statements)

IV. Statistical SectionV. 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. Certificate of Achievement for Excellence in Financial Reporting-Prior Year

2. List of Principal Officials

3. Letter of Transmittal

4. Organizational Chart

Letter of Transmittal-4 Sections

1. Formal transmittal of the CAFR

2. Profile of the government

3. Economic Condition (Subjective Element)

4. 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. Independent Auditor’s Report

2. Management Discussion and Analysis (MD&A)

3. Basic Financial Statements

4. Required Supplementary Information (Other than MD&A)

5. 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.

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 #1

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.

Review-Two Types of MFBA’s in Governmental Accounting #2

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(Current Resources/Modified)

1. General Fund2. Special Revenue Fund3. Capital Project Fund4. Debt Service Fund5. Permanent Fund

PROPRIETARY FUNDS(Economic Resources/Full Accrual)

1. Enterprise Funds2. Internal Service Funds

FIDUCIARY FUNDS(Economic Resources/Full Accrual)

1. Agency Funds2. Pension Funds3. Investment Trust Funds4. Private Purpose Trust Funds

Review-GASB Statement No. 34The “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 Statements-Order of Presentation

1. Government-wide Financial Statements

2. Fund Financial Statements

3. Required Supplementary Information

4. 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. Statement of Net Assets

2. 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. Invested in Capital Assets Net of Related Debt

2. Restricted (Narrower than purpose of reporting unit)

3. Unrestricted

Gov’t Wide Statement of Activities-Major PointsPurpose 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. Charges for Services

2. Operating Grants and Contributions

3. 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 Activities-General 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 Activities-General 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

Charges Business

for Operating Capital Governmental Type Component

PRIMARY GOVERNMENT Expenses Services Grants Grants Activities Activities Total Units

Governmental Activities:General Government 86,900$ (86,900)$ -$ (86,900)$ -$ Public Safety 467,000$ 38,000$ 120,000$ (309,000)$ -$ (309,000)$ -$ Highways & Streets 377,700$ 2,066,000$ 1,688,300$ -$ 1,688,300$ -$ Health & Sanitation 53,400$ 89,000$ 35,600$ -$ 35,600$ -$ Other 21,600$ (21,600)$ -$ (21,600)$ -$ Interest & Fiscal Agent Fees 108,600$ (108,600)$ -$ (108,600)$ -$

Total Governmental Activities 1,115,200$ 127,000$ 120,000$ 2,066,000$ 1,197,800$ -$ 1,197,800$ -$

Business Type Activities:Golf 565,000$ 700,000$ -$ 135,000$ 135,000$

TOTAL PRIMARY GOVERNMENT 1,197,800$ 135,000$ 1,332,800$

COMPONENT UNITS 400,000$ 350,000$ 200,000$ -$ -$ -$ -$ 150,000$

General Revenues: Taxes 980,800$ -$ 980,800$ -$ Unrestricted Grants 105,000$ -$ 105,000$ -$ Investment Income 52,500$ -$ 52,500$ -$ Gain on Sale of Capital Assets 10,000$ -$ 10,000$ -$ Other Revenues 2,000$ -$ 2,000$ -$ Transfers 18,000$ (18,000)$ -$ -$ Total General Revenues & Transfers 1,168,300$ (18,000)$ 1,150,300$ -$ Change in Net Assets 2,366,100$ 117,000$ 2,483,100$ 150,000$ Net Assets Beginning 905,514$ 765,000$ 1,670,514$ 300,000$ Net Assets Ending 3,271,614$ 882,000$ 4,153,614$ 450,000$

Program Revenues Net (Expense) Revenues

XYZ CITY EXAMPLE

STATEMENT OF ACTIVITIES

FOR THE PERIOD ENDING JUNE 30, 2007

Fund Financial Statements

GOVERNMENTAL FUNDS(Current Resources/Modified)

1. Balance Sheet2. Statement of Revenues,

Expenditures and Changes in Fund Balance

3. Reconciliation to Government-wide Statements

PROPRIETARY FUNDS(Economic Resources/Full Accrual)

1. Statement of Net Assets2. Statement of Revenues,

Expenses and Changes in Fund Net Assets

3. Statement of Cash Flows

FIDUCIARY FUNDS(Economic Resources/Full Accrual)

1. Statement of Fiduciary Net Assets

2. 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 StatementsMajor 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 ExampleExample - Major Fund Test Assets %G/E Pass 10%? % T Pass 5% Major Fund?

Governmental Funds:General Fund 200,000 82% * 67% * YesLibrary 10,000 4% No 3% No NoPublic Safety Fund 35,000 14% Yes 12% Yes Yes

Subtotal Governmental Funds 245,000 100%

Enterprise Funds:Golf 42,000 81% Yes 14% Yes YesZoo 10,000 19% Yes 3% No No

Subtotal Enterprise Funds 52,000 100%

Total Gov't and Enterprise Funds 297,000 100%

* Irrelevant - General Fund is ALWAYS a 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. Budgetary Comparisons (General Fund & Major Special Revenue Funds)

2. Infrastructure Condition and Maintenance (Modified Approach)

3. Pension/Other Post Employment Benefits

4. Revenue & Claims Development Trend Data (Public Entity Risk Pools)

Combining Statements & Individual Schedules- Detail of Aggregate Data

1. Nonmajor governmental funds

2. Nonmajor enterprise funds

3. Internal Service Funds & Fiduciary Funds

4. Nonmajor discretely presented component units

The End-Financial Section

Whew!

Statistical SectionGASB 44 – 10 Yr Trending

1. Financial Trends

2. Revenue Capacity

3. Debt Capacity

4. Demographics and Economy

5. Operating Information

Optional Sections to the CAFRCommon Examples

1. Investment Section (Pension Plans or Investment Pools)

2. Actuarial Section (Pension Plans)

3. 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/GENERALPURPOSECHECKLIST.pdf

Questions?