The New CAFR

UnderGASB Statement No. 34

Laura E. Cowburn, PRSBA

Business Manager/Board Secretary

Columbia Borough School District

PASBO Clinic Table – March 2003

Major Changes Associated with the “New Financial

Reporting Model”

• Management’s Discussion and Analysis• Government-wide statements• Fund Financial Statements

Management’s Discussion and Analysis

• An brief, objective, easily readable analysis of the school district’s financial activities.

• Located before the basic financial statements.

• Information contained in the MD & A is based on currently known facts, decisions, and conditions as of the date of the auditor’s report

MD&A Requirements:•The MD&A should precede the basic financial statements

•The MD&A is presented as Required Supplemental Information (RSI)

•The MD&A must be presented separately from and without duplication of the CAFR Letter of Transmittal

Audit Responsibilities•The MD&A is considered part of the Financial Section of the Report as RSI

•Audited, but at a reasonable cost – listed information to be addressed to limit information thereby limiting extensive audit procedures

SAS52 provides guidance for auditor responsibility:

•Inquire of management about the methods used to prepare the information

•Compare information with the audited financial statements and other information obtained during the audit

•Consider whether the RSI should be covered in the management letter of representation

•Apply additional procedures prescribed for specific types of RSI

•Make additional inquiries if the foregoing procedures dictate

•MD&A requirements established by GASB 34 are discussed in Paragraph 11, Items a - h, in general rather than specific terms to encourage financial managers to effectively report only the most relevant information and to avoid “boiler-plate” discussion.

•The information presented should be confined to the topics discussed in a through h, as follows:

GASB 34, Paragraph 11, Items a - h:

(a) A brief discussion of the basic financial statements, including the relationships of the statements to each other, and the significant differences in the information they provide. (This discussion should include analyses that assist readers in understanding why measurements and results reported in fund financial statements either reinforce information in government-wide statements or provide additional information.)

(b) Condensed financial information derived from government-wide financial statements comparing the current year to the prior year. (Exception in first year of implementation).

Governments should present the information needed to support the analysis of financial position and results of operations required in c, below, including the following elements, if relevant:

GASB 34, Paragraph 11, Items a-h: (continued)

(1) Total assets, distinguishing between capital and other assets(2) Total liabilities, distinguishing between long-term liabilities and other liabilities(3) Total net assets, distinguishing among amounts invested in capital assets, net of related debt; restricted amounts; and unrestricted amounts(4) Program revenues, by major source(5) General revenues, by major source(6) Total revenues(7) Program expenses, at a minimum by function(8) Total expenses(9) Excess (deficiency) before contributions to term and permanent endowments or permanent fund principal, special and extraordinary items, and transfers(10) Contributions(11) Special and extraordinary items(12) Transfers(13) Change in net assets(14) Ending net assets

GASB 34, Paragraph 11, Items a-h: (continued)

b) continued

( c ) An analysis of the government overall financial position and results of operations to assist users in assessing whether financial position has improved or deteriorated as a result of the year’s operations.

The analysis should address both governmental and business-type activities as reported in the government-wide financial statements and should include reasons for significant changes from the prior year, not simply the amounts or percentages of change. In addition, important economic factors, such as changes in the tax or employment bases, that significantly affected operating results for the year should be discussed.

GASB 34, Paragraph 11, Items a-h: (continued)

(d) An analysis of balances and transactions of individual funds. The analysis should address the reasons for significant changes in fund balances or fund net assets and whether restrictions, commitments, or other limitations significantly affect the availability of fund resources for future use.

GASB 34, Paragraph 11, Items a-h: (continued)

(e) An analysis of significant variations between original and final budget amounts and between final budget amounts and actual budget results for the general fund (or its equivalent).

The analysis should include any currently known reasons for those variations that are expected to have a significant effect on future services or liquidity.

GASB 34, Paragraph 11, Items a-h: (continued)

(f) A description of capital asset and long-term debt activity during the year, including a discussion of material commitments for capital expenditures, any changes in credit ratings, and whether debt limitations may affect the financing of planning facilities or services.

GASB 34, Paragraph 11, Items a-h: (continued)

(g) A discussion by governments that use the modified approach* to report some or all of their infrastructure assets including:

(1) Significant changes in the assessed condition of eligible infrastructure assets from previous condition assessments

(2) How the current assessed condition compares with the condition level the government has established

(3) Any significant differences from the estimated annual amount to maintain / preserve eligible infrastructure assets compared with the actual amounts spent during the current period.

*Modified approach is discussed in paragraphs 23-25 of GASB 34

GASB 34, Paragraph 11, Items a-h: (continued)

(h) A description of currently known facts, decisions, or conditions that are expected to have a material effect on financial position (net assets) or results of operations (revenues, expenses, and other changes in net assets).

GASB 34, Paragraph 11, Items a-h: (continued)

•Governments can provide additional details about the required topics in (a) through (h). Information that does not relate to the required topics should not be included in MD&A, but may be provided elsewhere, such as in the Letter of Transmittal or in other forms of supplementary information.

GASB 34, Paragraph 11, Items a-h: (continued)

Charts and Graphs: Welcome additional information to aid the reader in understanding the results.

Exception: 11 (b) data should be presented in the form of condensed financial statements, and then graphs may be added.

0

10

20

30

40

50

60

70

80

90

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

East

West

North

Avoid duplication of information.

Notes to the financial statements may disclose “currently known facts” as subsequent events or contingencies.

The MD&A should highlight but not repeat the information required to be disclosed in the notes.

MD&A

Notes to the Financial Statements

Government-wide financial statements

• Consists of two statements:– Statement of Net Assets– Statement of Activities

• Measurement Focus and Basis of Accounting– Economic resources reported

• Includes capital assets

– Full accrual• Includes depreciation and long-term assets and

liabilities

Introduction to changes in fund level accounting and

reporting • Changes in financial reporting

requirements.– Focus on “major funds”.– Elimination of some reporting.– Segregation of Governmental,

Proprietary and Fiduciary Fund Statements.

• Changes in some fund structures and definitions of funds.

Listing of FundsGovernmental Fund Type

Prior to Statement 34

Implementation

Statement 34 Implementation

General Fund General Fund

Special RevenueFunds

Special RevenueFunds

Capital Projects Fund Capital Projects Fund

Debt Service Fund Debt Service Fund

Permanent Fund

Listing of FundsProprietary Funds

Prior to Statement 34

Implementation

Statement 34 Implementation

Enterprise Funds Enterprise Funds

Internal Service Funds Internal Service Funds

Listing of FundsFiduciary Funds

Prior to Statement 34

Implementation

Statement 34 Implementation

Expendable Trust Funds

Pension Trust Funds

Nonexpendable Trust Funds

Investment Trust Fund

Agency Funds Agency Funds

Private-purpose Trust Funds

Listing of FundsAccount Groups

Prior to Statement 34

Implementation

Statement 34 Implementation

Long-term Debt ---

General Fixed Assets ---

Changes to the Fiduciary Fund Accounting

Statement 34

Fiduciary funds should be used to report assets held in a trustee or agency capacity for others and therefore cannot be used to support the school district’s own programs.

Current Language

Fiduciary funds are used to account for assets when a school district is functioning either as a trustee or as an agent for another party.

Pension Trust Funds

Used to report resources that are required to be held in trust for the

members and beneficiaries of defined benefit pension plans,

defined contribution plans, other postemployment benefit plans, or

other employee benefit plans.

Investment Trust funds

Used to report the external portion of investment pools reported by the

sponsoring school district

Private Purpose Trust Funds

Used to report escheat property, should be used to report all other trust arrangements under

which principal and income benefit individuals, private organizations, or other governments

Agency Funds

Used to report resources held by the reporting school district in a purely custodial capacity.

Agency funds typically involve only the receipt, temporary investment, and remittance

of fiduciary resources to individuals, private organizations, or other governments.

Proprietary Funds

Focuses on the determination of operating income, changes in net assets, financial

position, and cash flows.

Enterprise Funds

Activities are required to be reported as enterprise funds if any one of the following criteria is met. School Districts should apply each of these criteria in the context of the activity’s

principal revenue sources.• The activity is financed with debt that is secured by a pledge

of the net revenues from fees and charges of the activity.• Laws or regulations require that the activity’s costs of

providing services, including capital costs be recovered with fees and charges, rather than with taxes or similar revenues.

• The pricing policies of the activities establish fees and charges designed to recover its costs, including capital costs.

Internal Service Funds

Used to report any activity that provides goods or services to other funds, departments, or

agencies of the primary government and its component units, or other governments, on a cost-reimbursement basis. Internal service

funds should only if the reporting government is the predominant participant in the activity.

Permanent Funds

Used to report resources that are legally restricted to the extent that only earnings, and not principal,

may be used for the purposes that support the reporting school district’s programs-that is, for the

benefit of the government or its citizenry.

Fund Level Financial Reporting

• Measurement focus and the basis of accounting remains the same.

• Focus of the financial statements will be on major funds.

• Financial statements are less aggregated than in the past.

Measurement focus and the basis of accounting remains the

same.

• Governmental funds will use the current financial resource measurement focus and the modified accrual basis of accounting.

• Proprietary funds will use the economic resource measurement focus and the full accrual basis of accounting.

• Fiduciary funds will use the economic resource measurement focus and the full accrual basis of accounting.

Focus on Major Funds• General Fund is always reported as a major fund.• Other funds should be reported in separate

columns as major funds based on these criteria:– Total assets, liabilities, revenues, or

expenditures/expenses of that individual governmental or enterprise fund are at least 10 percent of the corresponding total for all funds of that category or type, and

– Total assets, liabilities, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5 percent of the corresponding total for all governmental and enterprise funds combined.

– Also, any other fund that the school district’s officials believe is particularly important to financial statement users.

Financial statements are less aggregated than in the past.

Prior to Statement 34 Implementation

Statement 34 Implementation

Highly Aggregated. Fund Type statements are segregated.

Budgetary comparisonrequired part of basic financial statements.

Budgetary comparison required supplemental information.

Account Groups reported in financial

statement.

Account groups only reported at the

Government Level statements.