elements of a cafr and common mistakes

2013 TASBO Annual Conference

February 21, 2013

Elements of a Comprehensive Annual

Financial Report and Common Mistakes

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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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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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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Three Basic Sections of a CAFR

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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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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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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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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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Contents of MD&A

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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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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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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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Statistical Section

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Statistical Section

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Common Errors – Introductory Section

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• 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

Common Errors – Introductory Section

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• 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)

Common Errors – Basic Financial Statements

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• 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)

Common Errors – Basic Financial Statements

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• 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

Common Errors – Basic Financial Statements

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• 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

Common Errors – Basic Financial Statements

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• 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

Common Errors – Basic Financial Statements

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• 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)

Common Errors – Other Supplementary Info.

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• Schedule of delinquent taxes receivable (Exhibit J-1)– Should agree to property tax receivable per

governmental funds balance sheet (Exhibit C-1)

Common Errors – Statistical Section

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• 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%

Common Errors – Statistical Section

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• 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)

Ann Westbrooks, CPA, RTSBAwwestbro@springisd.org

Lupe Garcia, CPAlupe.garcia@whitleypenn.com

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