Elements of a CAFR and Common Mistakes

1. Elements of a
Comprehensive Annual
Financial Report and
Common Mistakes
2013 TASBO Annual
Conference
February 21, 2013

2. About Your Presenters
• Ann Westbrooks, CPA, RTSBA
• Spring Independent School District
– Assistant Superintendent of Finance
• Licensed CPA in the State of Texas
• Seven years of school district accounting
experience
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3. About Your Presenters
• Lupe Garcia, CPA
• Whitley Penn, LLP
– Assurance and Advisory Services | Manager
• Licensed CPA in the State of Texas
• Six years experience performing audits and other
engagements for counties, cities, school districts,
and other special-purpose governments
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4. Generally Accepted Accounting Principles
(GAAP)
• GAAP provides criteria for whether financial
reports are fairly presented
• Minimum standard of acceptable financial
reporting for state and local governments
– Basic financial statements
– Note disclosures
– Certain required supplementary information
(RSI)
• GAAP encourages presentation of a CAFR
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5. Three Basic Sections of a CAFR
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6. Introductory Section
• Designed to provide background and context that
users need to fully profit from information provided
in the financial section
• Not included within the scope of the audit, but…
• What you will find in this section:
– Certificate of Achievement for Excellence in
Financial Reporting (GFOA, ASBO, etc.)
– List of Principal Officials
– Organizational Chart
– Letter of Transmittal
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7. Financial Section
• Provides the following information (in this order):
– Independent Auditor’s Report
– MD&A
– Basic Financial Statements (including the
notes)
– RSI (other than MD&A)
– Combining and individual fund presentation
and supplementary information
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8. Independent Auditor’s Report
• Provides assurance that the financial statements
are reliable
• Opines on opinion units
– Governmental activities, business-type
activities, major governmental funds, major
enterprise funds, all other funds/discretely
presented component units
• In-relation-to Opinions
• No opinion: introductory and statistical sections
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9. Management’s Discussion and Analysis
(MD&A)
• Provide users with a narrative introduction,
overview and analysis of the basic financial
statements
• The concept of MD&A originated in the private
sector, the SEC required MD&A in connection
with the financial reports of publicly traded
companies
• GAAP indentifies specific topics that should be
addressed in MD&A; additional topics not on this
list should not be addressed in MD&A
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10. Contents of MD&A
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11. Basic Financial Statements
• Core of CAFR’s financial section and has three
components:
– Government-wide financial statements
• Presented using the economic resources measurement
focus and accrual basis of accounting
– Fund financial statements
• Presented using the current financial resources
measurement focus and modified accrual basis of
accounting (governmental funds only)
– Notes to the financial statements
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12. Financial Section
• RSI (other than MD&A)
– Budgetary comparisons
– Trend data on infrastructure condition and
maintenance (only if modified approach is used to
account for infrastructure)
– Trend data on the funding of pension and other
postemployment benefits (OPEB)
– Revenue and claims development trend data for
public-entity risk pools
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13. Financial Section
• Combining and individual fund presentation and
other supplementary information
– CAFR should include a combining statement to
support each column in the basic financial
statements that aggregates data from more than
one fund
– Supplementary information not required by GAAP
but needed to comply with the TEA’s reporting
requirements:
• Schedule of Delinquent Taxes Receivable
• Indirect Cost Computation Schedule
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14. Statistical Section
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15. Statistical Section
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16. Common Errors – Introductory Section
• Cover
– Districts should indicate on the cover the state
in which they are located
• Transmittal letter
– Should be dated no earlier than the date of the
report of independent auditors
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17. Common Errors – Introductory Section
• Table of contents
– The titles of the statements and schedules in the
report should agree to those listed in the Table of
Contents
• MD&A
– Amounts discussed should agree to those presented in
the financial statements
– Discussion should explain the underlying reasons for
significant changes rather than focusing solely on the
size of the change
– Careful on use of terminology (i.e. expenses vs.
expenditures; net assets vs. fund balance)
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18. Common Errors – Basic Financial Statements
• All basic financial statements
– Each of the statements should include a reference to the
notes
– Nonmajor governmental funds should be used rather than
other governmental funds
• Statement of activities
– Except for interest and unallocated depreciation, expenses
related to governmental activities should be classified by
function rather than by object of expenditure (ex. Function
81)
– Expenditures associated with the issuance of debt should
not be included
– Capital assets should be disclosed by major asset class (i.e.
capital leases)
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19. Common Errors – Basic Financial Statements
• Statement of net assets
– Unearned revenue should be used and not
deferred revenue
• Governmental balance sheet and statement of
revenues, expenditures, and changes in fund balance
– Governmental funds that report more than 10% of
the total governmental funds assets, liabilities,
revenues, or expenditures and more than 5% of
the combined total of governmental and
enterprise funds for the same element, have to be
reported as a major fund
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20. Common Errors – Basic Financial Statements
• Proprietary fund financial statements
– If the district has no debt related to capital
assets, the district should use the caption: Net
Assets, Invested in Capital Assets
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21. Common Errors – Basic Financial Statements
• Notes to the financial statements
– Narrative explanations of combining and
individual fund statements and schedules
describing the nature and purpose of the funds
should be included
– Additions to long-term debt disclosed in the notes
should agree to the Proceeds from the Issuance of
Debt presented in the fund financial statements
– Depreciation expense charged by function should
agree to current year increases to accumulated
depreciation
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22. Common Errors – Basic Financial Statements
• Notes to the financial statements
– Specify action to establish, modify, or rescind
fund balance commitments; disclose body or
official authorized to assign fund balance
(GASBS No. 54)
– Disclose increases and decreases to
compensated absences rather than the net
change; also, disclose amount due within one
year (even if an estimate must be made)
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23. Common Errors – Other Supplementary Info.
• Schedule of delinquent taxes receivable (Exhibit J-
1)
– Should agree to property tax receivable per
governmental funds balance sheet (Exhibit C-1)
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24. Common Errors – Statistical Section
• Principal taxpayers, principal employers,
demographic and economic information
– If the information for the period nine or ten year
prior to the current period is not available, then
include data from the earliest year from which
information is available and disclose the reason
for the exception
• Property tax levies and collections
– Total tax collections as a percentage of the
annual levy should not exceed 100%
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25. Common Errors – Statistical Section
• Changes in fund balances – governmental funds
– Debt service as a % of noncapital expenditures – use
the amount of capital outlay from the reconciliation
of government-wide financials to fund financials;
also, bond issuance costs and fees should not be
included (principal and interest only)
• Outstanding debt by type
– Should only include long-term debt instruments, not
all long-term liabilities (i.e. compensated absences)
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26. Contact Us!
Ann Westbrooks, CPA,
RTSBA
wwestbro@springisd.org
Lupe Garcia, CPA
lupe.garcia@whitleypenn.
com