Governmental Accounting: Part 4 (#277)
/In this podcast episode, we discuss the comprehensive annual report in governmental accounting. Key points made are noted below.
Comprehensive Annual Financial Report
The comprehensive annual financial report is a government’s official annual report. It starts with a management’s discussion and analysis section, which introduces the financial statements and provides a summary-level analytical overview of the government’s financial activities. This part is sort of like what you’d find in a public company’s annual financial statements. It covers things like an analysis of the transactions associated with individual funds, budget variances, debt activity, and any conditions that might have an impact on the government’s financial results.
Basic Financial Statements
And then there’s the basic financial statements, which may not seem so basic, once you figure out that they could run for a couple of dozen pages. It contains financials for the government as a whole, as well as for individual government funds, proprietary funds, and fiduciary funds. The types of statements presented are different from a normal set of financials. I’m not going to cover everything, but there’s the statement of net position, which is somewhat similar to a balance sheet, though it doesn’t have an equity section. There’s also the statement of activities, which approximates an income statement, though there’s no profit, just a change in net position. Another one is the statement of cash flows, though it only applies to certain types of funds – and some of the cash flow categories in the report are different. I’m only drawing rough parallels here, to link some of these reports to classic financial statements.
Combined and Individual Fund Statements
And then there are the combining and individual fund statements. A combining statement by fund type is presented when a government has several internal service funds, fiduciary funds, or other types of funds. Or, an individual fund statement might be presented when the government has just one non-major fund of a particular fund type.
It also contains required supplementary information, as well as schedules that contain things like revenue sources, taxes receivable and long-term debt. This part can be pretty long.
Disclosures
And there’s lots and lots of disclosures, some of which are quite a bit different from the disclosures you normally see, such as disposals of government operations, landfill closures, special revenue funds, net position restricted by enabling legislation, and service concession arrangements.
Budgetary Comparison Section
There’s also a budgetary comparison section, where the government shows how well it’s been able to match its actual performance to both its original and final budgets. The final budget is the original budget, adjusted for all subsequent reserves, transfers, allocations, supplemental appropriations, and so forth.
Statistical Section
And finally, there’s the statistical section. This can be massive. It presents comparative information for multiple time periods, sometimes covering a decade or more. It can contain a lot of non-financial information, too, such as assessed valuations, population data, and tax rates. The statistical section is broken up into five categories, which are financial trends, revenue capacity, debt capacity, demographic and economic information, and operating information.
To focus on a couple of key points, the revenue capacity information shows the different types of taxable property, such as residential, commercial, and industry property, and the applicable tax rates, which could cover things like property taxes and sales taxes. The intent is to provide users with a feel for the government’s ability to raise cash through its property base and tax rates. Another key area is the debt capacity information, which is targeted at the government’s debt obligations and the extent to which it can issue additional debt.
The analysis also itemizes the principal property taxpayers in descending order. This part can be critical, since you can skim down the list and make your own determinations about whether a business might leave the jurisdiction, which impacts its ability to generate tax revenue in the future. And the analysis goes further, to state the principal employers in the jurisdiction, again so that you can decide whether they might not be around in the future.
The analysis also shows the headcount employed by the government on a trend line, and broken down into general categories, such as community services, finance and administration, and planning and development. This can be useful for understanding the number of personnel needed to run operations, and how it might change in the future.
They also report on capital asset statistics, which covers things like acres of developed parks and open space parks, miles of streets, the number of fleet vehicles, and even the number of street lights.
Summary
In short, the amount of information jammed into the comprehensive annual financial report is incredible. It actually exceeds the amount of reporting required for a public company’s annual financial report. And when you consider the amount of work required to produce something like this, you might have a bit more respect for the accounting staff at your local city hall.