Chapter 09 – Financial Reporting of State and Local Governments
9-1
CHAPTER 9: FINANCIAL REPORTING OF STATE AND LOCAL
GOVERNMENTS
OUTLINE
Number
Topic
Type/Task
Status
(re: 16/e)
Questions:
9-1
Communicating financial information
Identify
New
9-2
Primary governments
Identify
New
9-3
Interim reports
Explain
Same
9-4
Financial reporting entity
Define
Same
9-5
Component units
Explain
New
9-6
CAFR and general purpose reports
Identify
Same
9-7
Required financial statements
List
Same
9-8
Reconciliation of financial statements
Identify
Same
9-9
Popular Reporting
Explain
New
9-10
OCBOA
Explain
New
Cases:
9-11
Identification of component units
Analyze
9-1
9-12
MD&A and statistical tables
Analyze
New
9-13
Classification of fund balances
Apply
New
9-14
Popular reports
Evaluate
New
Exercises/Problems:
9-15
Examine the CAFR
Evaluate
9-1, revised
9-16
Various
Multiple Choice
9-2, revised
9-17
Primary governments
Matching
New
9-18
Comprehensive set of transactions
Journal entries
9-4
9-19
Reconciliation of financial statements
Report preparation
New
9-20
Adjusting net position balances
Matching
9-6, revised
9-21
Change in net position
Calculation
9-7, revised
9-22
Governmental fund financial statements
Error identification
9-8
9-23
Government-wide financial statements
Report preparation
9-9
9-24
Modified accrual to accrual accounting
Adjustments, JEs
9-10
Chapter 09 – Financial Reporting of State and Local Governments
9-2
CHAPTER 9: FINANCIAL REPORTING OF STATE AND LOCAL
GOVERNMENTAL UNITS
Answers to Questions
9-1. GASB Concepts Statement 3 indicates that it is preferable to recognize an item on the
face of the financial statements if the item meets the definition of an element and can be
measured with sufficient reliability to allow it to be recorded. Note disclosures should
General Problem Information: Communicating financial information
Learning Objective: 9-1
Topic: Providing Useful Financial Reports
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Reporting
Level of Difficulty: Easy
9-2. A special purpose government can be considered a primary government if it has a
separately elected governing body, is legally separate from other entities, and is fiscally
General Problem Information: Primary governments
Learning Objective: 9-2
Topic: The Governmental Reporting Entity
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry
Level of Difficulty: Easy
9-3. Disagree. Administrators need periodic reports in order to make day-to-day operating
General Problem Information: Interim reports
Learning Objective: 9-6
Chapter 09 – Financial Reporting of State and Local Governments
9-3
Topic: The Governmental Reporting Entity
Chapter 09 – Financial Reporting of State and Local Governments
9-4
Ch. 9, Answers, 9–3 (Cont’d)
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry
Level of Difficulty: Medium
9-4. According to the GASB a financial reporting entity is a primary government,
organizations for which the primary government is financially accountable, and other
General Problem Information: Financial reporting entity
Learning Objective: 9-2
Topic: The Governmental Reporting Entity
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry
Level of Difficulty: Easy
9-5. Component units for which the primary government is financially accountable are
reported in one of two ways–through blended or discrete presentation. A blended
component unit is one that is an integral part of the primary government, which can be
Chapter 09 – Financial Reporting of State and Local Governments
9-5
Ch. 9, Answers, 9–5 (Cont’d)
General Problem Information: Component units
Learning Objective: 9-3
Topic: The Governmental Reporting Entity
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry
Level of Difficulty: Medium
9-6. General purpose external financial reports include management’s discussion and analysis,
basic financial statements and related notes, and required supplementary information. A
General Problem Information: CAFR and general purpose reports
Learning Objective: 9-4
Topic: Governmental Financial Reports
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Reporting
Level of Difficulty: Easy
9-7. The nine required statements are:
• The two government-wide financial statements—statement of net position and
statement of activities.
Chapter 09 – Financial Reporting of State and Local Governments
9-6
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Ch. 9, Answers, 9–7 (Cont’d)
General Problem Information: Required financial statements
Learning Objective: 9-4
Topic: Governmental Financial Reports
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Reporting
Level of Difficulty: Easy
9-8. Chapter 9 provides a list of the items requiring reconciliation when going from the
modified accrual to accrual basis of accounting. Students should be able to provide
examples related to each of the nine items identified in Chapter 9. The use of a state or
9-9. Popular reporting is a highly condensed version of the CAFR, usually short in length. It
might be considered a “plain English” version of the CAFR. As such, the information
contained is simplified and summarized, and often contains graphs to illustrate the
9-10. OCBOA stands for other comprehensive basis of accounting. These bases are non-
GAAP, and for governments generally include cash, modified cash, or regulatory basis of
accounting. There is no direct relationship between OCBOA and GAAP. However,
Chapter 09 – Financial Reporting of State and Local Governments
9-7
Ch. 9, Answers, 9–10 (Cont’d)
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Reporting
Level of Difficulty: Medium
Solutions to Cases
9-11. a. Tesser Municipal Hospital is a component unit of the City of Tesser. Tesser is
financially accountable for the hospital since the mayor appoints the governing
board and the city is able to impose its will on the hospital through final approval
of the budget.
b. The Atkins Convention and Visitor’s Bureau is a component unit of the City of
Atkins. Since the city has the right to approve the rate of the tax (i.e., the city sets
the tax) it has the ability to impose its will on the Convention and Visitor’s
General Problem Information: Identification of component units
Chapter 09 – Financial Reporting of State and Local Governments
9-8
Ch. 9, Solutions (Cont’d)
9-12. a. The three largest revenue sources for the City and County of Denver are sales
taxes (33.3% of the 2013 total revenues), property taxes (20.5% of the 2013 total
revenues), and charges for services (13.9% of the 2013 total revenues).
Interestingly, 2013 was the first year in the 10-year trend that charges for services
31%. Another area of discretionary spending is autos. Since 2009, sales taxes
from autos has grown over 47%. If we look at building materials and farm tools
2014.
c. The three largest sources of expenditures in 2013 are public safety (34.8%),
general government (16.3%), and public works (10.7%). With the impact of the
2013. In its MD&A Denver indicates that it has instituted cost cutting measures to
bring down expenditures/expenses. Costs were cut in 2009 and 2010, but then
Chapter 09 – Financial Reporting of State and Local Governments
9-9
Ch. 9, Solutions, Case 9-12 (Cont’d)
General Problem Information: MD&A and statistical tables
Learning Objective: 9-4
Topic: Governmental Financial Reports
Bloom’s Taxonomy: Analyze
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Critical
Thinking
Level of Difficulty: Hard
9-13. a. Nonspendable means the assets cannot be spent, either (1) because they are not in
a spendable form such as cash or financial assets that can be converted to cash, or
(2) because contractual requirements indicate the assets must remain intact. For
an advance, which is a type of receivable, to be considered nonspendable there
Learning Objective: 9-5
Topic: Preparation of Basic Financial Statements
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Reporting
Chapter 09 – Financial Reporting of State and Local Governments
9-10
Ch. 9, Solutions (Cont’d)
9-14. a. The GFOA identifies the following four eligibility criteria for being eligible to
1. The PAFR must clearly advise readers of the availability of the CAFR.
• In the Deputy Mayor and Chief Financial Officers’ letter to the citizens
2. If the PAFR contains information from only selected funds, or if the PAFR
does not include all component units, that fact must be disclosed.
3. The financial information contained in the PAFR must be derived from the
actual GAAP data in the CAFR.
4. Some form of appropriate narrative or graphic analysis must be provided to
explain items of potentially significant interest or concern.
• Graphic analysis is provided for revenue sources and amounts, with a
chart for three years of revenue data. This same type of analysis is
Chapter 09 – Financial Reporting of State and Local Governments
9-11
Ch. 9, Solutions, Case 9-14 (Cont’d)
Although the capital asset and debt information may be relevant there is very little
detail making it difficult for the user to determine whether the information reflects
General Problem Information: Popular reports
Learning Objective: 9-6
Topic: Other Financial Reporting Issues and Topics
Bloom’s Taxonomy: Evaluate
Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: BB: Critical Thinking
Level of Difficulty: Hard
Solutions to Exercises and Problems
9-15. Since each of the students will have a different annual report, the solutions to 9-15 should
differ from student to student. Note that not all reports that say “CAFR” on the cover
have three sections. Some reports may only contain the middle or financial section.
General Problem Information: Examine the CAFR
Learning Objective: 9-4
Topic: Governmental Financial Reports
Bloom’s Taxonomy: Evaluate
Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: FN Measurement and
Reporting
Level of Difficulty: Hard
9-16. 1. d. 6. a.
General Problem Information: Various
Learning Objective: 9-2
Learning Objective: 9-3
Learning Objective: 9-4
Learning Objective: 9-5
Learning Objective: 9-6
Chapter 09 – Financial Reporting of State and Local Governments
9-12
Ch. 9, Solutions, 9-16 (Cont’d)
Topic: Various Chapter Topics
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB Critical
Thinking
Level of Difficulty: Medium
9-17. 1. Y Waseca County is a general purpose government and by
definition it is therefore a primary government.
General Problem Information: Primary government
Learning Objective: 9-2
Topic: The Governmental Reporting Entity
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB Industry
Level of Difficulty: Medium
Chapter 09 – Financial Reporting of State and Local Governments
9-13
Ch. 9, Solutions (Cont’d)
9-18. CITY OF LYNNWOOD
1. GF ESTIMATED REVENUES 2,000,000
2. GF TAXES RECEIVABLE—CURRENT 1,940,000
ALLOWANCE FOR UNCOLLECTIBLE
CURRENT TAXES 9,000
3. GF OFU—INTERFUND TRANSFERS OUT 25,000
CASH 25,000
4. PF INVESTMENTS—MARKETABLE