Exam 11: Issues of Reporting, Disclosure, and Financial Analysis

It is unacceptable for a special-purpose government that is a component unit of a general-purpose government to issue its own "stand-alone" financial report.

The comprehensive annual financial report (CAFR) is divided into three main sections: the table of contents section, the auditors' report section, and the financial section.

Required notes are an essential element of the basic financial statements.

A government's financial condition

The city created a legally separate port authority. Members of the board of the port authority are elected in general city elections. The port authority receives no tax dollars; it is supported entirely by user fees. The port authority determines its budget, sets user fees, and has the power to issue bonded debt. In what manner would the port authority be included in the city's basic financial statements?

Which of the following statements is not a required part of the basic financial statements of Carlton City?

Which of the following would NOT be classified as required supplementary information (RSI)?

Gonzalo City has prepared all of the elements of its CAFR. REQUIRED: Numbering from one to ten, indicate the order in which each of these elements should appear in the city's CAFR. ____ Auditor's report ____ Letter of transmittal ____ Required supplementary information other than MD&A ____ Government-wide financial statements ____ Notes to financial statements ____ Combining statements for nonmajor funds ____ Combining statements for major discretely presented component units ____ Management's Discussion and Analysis (MD&A) ____ Statistical tables ____ Governmental fund statements

What are four types of information that must be presented in Management's Discussion and Analysis (MD&A)? From which financial statement, if any, is each type of information derived?

A primary government can impose its will on a potential component unit if it has the authority to modify or approve the unit's budget.

The financial reporting entity is composed of

Which of the following is NOT a primary government?

The city created a legally separate entity to operate a county hospital. The city council appoints a voting majority of the board of the hospital. The city cannot impose its will on the hospital and there is no potential for a financial benefit or financial burden to the city. In what manner would the hospital be included in the city's basic financial statements?

The introductory section of a CAFR includes which of the following?

A special-purpose government that engages in more than one program or in both governmental-type and business-type programs

The state established the State Housing Authority to finance construction of low-income housing. The authority, a state corporation, is governed by an independent board of directors, the members of which are appointed by the governor. They can be removed only for cause. The board of directors has complete control over the authority's operations. The director is hired by the board and reports to the board; the director cannot be removed by the governor. Although the state constitution limits the state to $2 million of bonds outstanding, the authority issued $970 million in bonds to finance construction projects. In earlier years, the authority issued debt that was backed by the taxing power of the state (moral obligation debt). The newer bonds are revenue bonds only. The authority uses the proceeds of the debt it issues to make loans to finance housing construction. Debt is serviced from monies received in repayment of loans made by the authority. Do you believe the state should include the authority in its reporting entity? If so, how? Justify your answer using the GASB Financial Reporting Entity criteria.

There are only two government-wide statements: the statement of net position and the statement of activities.

GASB reporting standards require that legally separate component units be included on the face of the financial statements of the primary government. Small City created a legally separate City Utility Service. The Small City council appoints the utility board members, authorizes the bonds of the utility, and approves its budget. Small City's general fund revenues are $58 million; the revenues of the utility are $100 million (the utility owns a generating plant and sells its excess power to other communities). Discuss the appropriate reporting for the City Utility Service. Do you think that this presentation is meaningful? Why or why not?

In its CAFR, a government should report upon individual internal service funds in combining financial statements.

When a government's Unassigned fund balance/Total operating revenues ratio is high