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Financial Statement/Audit Report Review

Vonda Johnson Strayer University November 2, 2012 ACC410 Professor Richard Hendershot

Financial Statement/Audit Report Review


Fund Accounting is a system of accounting used primarily by governments or non-profit organizations. For these entities it is more important to show how their money is spent rather than earned. Their accounting records are comprised of a collection of funds with each having a specific purpose ranging from the operating expenses to the funding of the different activities within the organization. (investorwords.com) Funds are a fiscal and accounting entity with a self balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are separated with the intent of carrying on specific activities or acquiring certain objectives in accordance with special regulations, restrictions or limitations. All governmental entities should establish and maintain those funds required by law and effectual financial administration. Unnecessary funds will result in inflexibility, undue complex problems and inadequate financial administration; for these reasons governments should only require the minimum number of funds uniform with legal and operating requirements. Government funds can be classified into one of eleven different fund types which can be broken down into three broad categories of funds. These funds are Governmental funds, Proprietary funds and Fiduciary Funds. Governmental funds are used to account for tax supported governmental activities. Most governmental activities are financed through governmental funds. The governmental funds are comprised of debt service funds, special revenue funds, special assessment funds, general fund, permanent funds and capital

Financial Statement/Audit Report Review


project funds. The general fund is considered the chief operating fund for the government. It is used to account for all of the resources except those required to be accounted for in another fund. Departments such as the police, fire or parks funded from general sales, income or property tax will be reported in the general fund. Debt service funds are used to account for the accumulation of resources and the payment of general long-term debt principal and interest such as bonds or capital leases. Payment of the bonds comes from revenue sources such as property taxes designated specifically for the bond issue or from transfers from other funds. Special Revenue funds are the funds which account for the transactions which occur when there are restrictions on revenue sources other than major capital projects. Capital Project funds are used to account for financial resources used for acquiring or construction of major capital facilities. The capital project funds are common for major capital activities are financed through borrowing or contributions. Bond proceeds are recognized and disbursed from a capital project funds. Proprietary funds these funds are often consider the income basis funds the activities are similar to those of the private sector. The proprietary funds consist of enterprise fund and internal service fund. Enterprise funds are used to report any activity for which a fee is charged to the external users for the goods and services. The internal service funds are used to report any activity which will

Financial Statement/Audit Report Review


provide a good or service on a cost reimbursement basis to other funds, departments or agencies of the government. GAAP will never require the use of an internal service fund. Fiduciary funds account for the assets held in a trustee capacity or as an agent for others such as private organizations, governments, individuals even other funds. The summary of statement No 34 provided a new financial reporting requirement for state and local governments for the United States. By creating new information it will reconstruct some of the same information governments have presented in the past. The statement will still require governments to provide information about the funds when presenting their financial statements. From the government wide statements MD&A will be able to compare prior year to the current year based on the information contained within the government-wide. It will also give an overall financial picture of the organization from this picture users will be able to see if the organization is successful or failing based on the activities for the year. The users will also be able to see significant changes within funds as well as significant budget fluctuations. MD&A will provide an objective and an analysis of the governments financial activities which will not only be easy to read but it will be based on currently known facts, the decisions and conditions. All capital assets will need to be reported including those of infrastructure in the government wide statements; depreciation expense will need to be reported the statement of activities. There will be three categories for net assets to be

Financial Statement/Audit Report Review


reported they are restricted, unrestricted and permanent endowments. The MD&A also specified a format for the reporting of activities. Detailed information for the primary government, separate fund information should also be presented for the governmental and proprietary funds. MD&A states required government fund statements must include the balance sheet and a statement of revenue, expenditures and change in fund balances. By presenting a summary reconciliation along with the government wide statements will allow the users to determine the relationship between fund and government wide financial statements. Proprietary funds statement of revenues, expenses and changes in net assets should show a difference between the operating and non -operating revenues and expenses. Cash flow statements must be prepared using the direct method. Component units are considered fiduciary in nature but are a separate fiduciary fund statement must be presented as part of the financial statement. The required fiduciary fund statements are the fiduciary net assets and a statement of changes in fiduciary net assets. Interfund activity must be reported separately in the fund financial statements and are usually omitted in the combined government-wide statements. The local government selected was Georgetown County; I would say the entitys financial position deteriorated during the reporting period of 2011. The total revenues for the county decreased by 5.3 million while expenses increased by 1.5 million. The countys tax account did not provide a clear picture due to reconciliation being behind. The county operates on a modified accrual basis it

Financial Statement/Audit Report Review


recognizes revenues as they are received and operates on a cash basis. It refers to expenditures rather than expenses. The general fund gave a complete picture of the actual audited amount, adopted budget, amended budget, revised estimate, the new year proposed budget as well as a comparison of the current year and previous year with a percentage of change. The budget for each department was easily readable and understandable.

Financial Statement/Audit Report Review


References www.investorwords.com www.georgetowncounty.org http://www.gasb.org/st/summary/gstsm34.html Lynn Edward S. Introduction to Fund Accounting