The comprehensive annual financial report (CAFR) is prepared by governments—state, city, county, or municipalities—that allows the citizenry the opportunity to review the performance of fiscal responsibilities with all funds and activities of the primary government. Although CAFR is not mandated, it is encouraged, with adherence and publication for prepared statements and disclosures in accordance with generally accepted accounting principles (GAAP).
Additionally, the government accounting standards board (GASB) codification §2200 requires CAFR to include an “introductory section, management’s discussion and analysis (MD&A), basic financial statements, required supplementary information other than MD&A, combining and individual fund statements, schedules, narrative explanations, and statistical section” (Copley & Engstrom, 2011, p. 20).
Also there are variant differences between governmental financial statements—funding constituent services—and for-profit entities with a responsibility to increase stockholder equity. The relative differences will be reviewed for the City of Topeka’s (herein referred to as City or COT) CAFR for year ending December 31st, 2010.
Differences in governmental accounting and for-profit financial accounting auditor opinions are required for both governmental accounting and for-profit entity accounting. Additionally, MD&A is presented at the beginning of CAFR as opposed to for-profit entities annotating MD&A after the presentation of their financial statements; income statement, balance sheet, and statement of cash flows. Furthermore, capital assets and long-term debt do not appear on the balance sheet as they would on a for-profit entity balance sheet. For governmental financial statements, the statement of cash flows is only reported for proprietary funds, whereas, for-profit entities are required to present a statement of cash flows from operations, investing, and financing. Additionally, GASB requires proprietary fund statement of cash flow to include operating activities, non-capital related financing, capital and related financing, and investing activities. More important, governmental reporting highlights the statement of net assets versus income statement, followed by government-wide statement of activities; governmental funds balance sheet, statement of revenues, expenditures, and changes in fund balances; proprietary funds annotating statement of net assets, revenues, expenses, and changes in fund net assets followed by statement of cash flows; fiduciary statement of net assets, changes in net assets, and finally notes to financial statements.
The market price reflected in a transaction between two independent parties provides objective evidence of the cost of assets acquired or the market value of assets sold. It is useful for accountants to rely on objective evidence of economic value other than a long-ago actual market transaction. In the past, accountants have chosen to rely on actual market transactions. This reliance tended to ...
An understanding of the government reporting and reporting entity in accordance with GASB statement 14, The Financial Reporting Entity, the primary government is the financial reporting entity “together with its component units” (Copley & Engstrom, 2011, p. 22).
As such, the primary government can be either the state, general-purpose local—city or county—or special purpose—school district. This particular brief focused general-purpose local—Topeka as the primary government financially accountable to the state of Kansas, and resident citizens of the City. In fact, the City reports net asset changes as there occur “regardless of the timing of related cash flows” (COT, p.7).
Furthermore, the COT is supported by taxation and governmental activities (intergovernmental activities) wherein a significant portion of costs are attributed through business-type activities (fees and charges).
In fact, “the [COTs] governmental activities include general government, public safety, public works, parks and recreation, public housing, social services and interest” (COT, p. 7).
Funds flow statement shows the changes in the financial position between two balance sheet dates. It represents the movement of funds and the movement can be inward called as income or receipts. In case of outward movement, it is represented by expenditure or payments. The term, “funds” has different meanings. In the context of funds flow statement “funds” means the net ...
These activities are funded via property taxes, sales taxes, franchise fees, motor fuel taxes, and transient guest taxes. Also the COT has three types of significant funds; 1) governmental, 2) proprietary, and 3) fiduciary wherein separate accounting approaches are used.
oGovernmental funds use the modified accrual basis of accounting allowing for a short-term presentation of the City’s operations and basic services provided. Additionally, the City maintained twenty-six separate governmental funds wherein six are considered to be factors of their major funds; 1) general, 2) parks and recreation, 3) special street repairs, sales tax street repairs, debt service, and capital projects. These particular funds were separately presented in the governmental funds balance sheet, and governmental funds statement of revenues, expenditures, and changes in fund balance for general fund. Also special revenue funds and capital project funds were presented as an aggregate wherein the proceeds were targeted for specific purposes highlight by legal restrictions for spending.
oProprietary funding for the City consisted of enterprise and internal service funds. Enterprise funding for the major fund consisted of a combination of the storm-water utility, and water pollution control fund. Additionally, there are two non-major funds identified as an aggregate; 1) public golf course, and 2) public parking facilities that are addressed in the fund financial statements section.
oFiduciary funding for the City identified “resources held for the benefit of parties outside the government” (COT, p. 8).
The COT had assets that exceeded liabilities by $489,102,413; however, 75.5% of the net assets were a direct reflection of investments in capital assets. Because capital assets are used to provide services, they cannot be liquidated nor used as a basis for future spending. Furthermore, the COT reported their government-wide financial statements to incorporate “the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements” (COT, p. 33).
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are two of the most important bodies of the Accounting/Finance field today. Though both boards work together to develop and enforce financial reporting standards for publicly held organizations, the FASB concentrates on the accounting standards in the United States while the IASB sets its focus ...
An assessment of the Management Discussion & Analysis reporting unit The MD&A report provides an overview of the governmental reporting unit an opportunity to explain the data as presented within the required sections of the CAFR.
Therefore, in accordance with GASB statement 37 there are eight required elements that must be completed. For example, the COT provided a brief discussion of the financial statements as they were presented in the CAFR. Also current year government-wide financial statements were compared to the previous year, 2009. The COT also provided an analysis of the city’s overall financial position and results from operations, and an analysis of all applicable transactions and balances for particular funds were addressed. It was further noted that MD&A highlighted any significant variations between final budget and original amount as anticipated between actual calculations from the general fund and final budget amounts. In addition, all long-term debt and significant capital assets were identified with brief details.
Although there are various differences between governmental accounting and for-profit accounting, the financial statements of both require an independent auditor opinion. The City of Topeka’s comprehensive annual financial report (CAFR) was audited by an independent certified public accounting firm, and subsequently made available to the public as of January 27, 2012. Although CAFR was not mandated, COT prepared all financial statements and disclosure according to GAAP.
Furthermore, the COT presented fiscal year financial data as mandated by GASB codification §2200. It was noted that governmental reporting focuses more on the statement of net assets and liabilities versus for-profit income statement. Also governmental accounting is concerned with government-wide statement of activities, proprietary funds, and fiduciary statement of net assets, as opposed to for-profit entities statement of cash flows from operations. Finally, the MD&A section identified with commentary the financial data as presented in the governmental financial statements relative the governmental overview of fiduciary responsibility.
The article “GM to Take Charge of $20. 8-Billion” here reproduced from The Globe and Mail (February 2, 1993) describes the potential impact of SFAS 106, “Accounting for Postretirement Benefits Other Than Pensions,” on General Motors and Ford. For example, it appears that General Motors will be required to record a liability of $20. 8 billion, reducing its shareholders’ equity from $27. 8 billion ...
City of Topeka (COT) Annual Financial Report (CAFR), http://www.topeka.org/administrative/ComprehensiveAnnualFinancialReport.shtml, http://www.topeka.org/pdfs/AnnualFinancialReportversusCAFR.pdf, retrieved 27Jul12. Copley, P. A., & Engstrom, J. H. (2011).
Essentials of accounting for governmental and not-for-profit organizations (10th ed.).
New York, NY: McGraw-Hill.McConnell, C., & Brue, S. (2005).
Economics: principles, problems and policies (16th ed.).
New York: McGraw-Hill. Generally Accepted Accounting Principles, Statement 14, The Financial Reporting Entity Generally Accounting Standards Board Statement 37, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments: Omnibus—an amendment of GASB Statements No. 21 and No. 34 Government Accounting Standards Board, Codification §2200