Review The Comprehensive Annual Financial Report (CAF 782553

Review The Comprehensive Annual Financial Report Cafr That You Obtai

Review the Comprehensive Annual Financial Report (CAFR) that you obtained and answer the following questions: 1. How does the government classify its governmental expenditures, by function or by "object"? Are the classifications approximately the same in both the government-wide and the fund statements? 2. What was the city's largest expenditure for fiscal year 2017? By how much did this increase or decrease since FY 2016? Since FY 2012 (see statistical section)? Can you draw any inferences from this comparison as to the efficiency and effectiveness of the city in providing this service? If not, what other information would you need to make such a judgment? 3. What are the major differences in expenditures/expenses (i.e., reconciling items) as they are reported in the governmental fund and the government-wide statements? 4. On what basis does the government account for its inventories (purchases or consumption)? Does the City maintain a "fund balance-nonspendable" amount for inventories? 5. On what basis does it account for insurance or other prepaid items in its governmental funds? How can you tell? 6. To and from which funds or component units have there been general fund transfers? 7. Explain the nature of any governmental fund balance sheet classifications related to expenditures. 8. Does the entity report depreciation as an expense in its government-wide statements? If not, why not? 9. What types of other financing sources and uses does the governmental entity report in the general fund? What effect do these items have on the net change in fund balance for the year?

Paper For Above instruction

The Comprehensive Annual Financial Report (CAFR) provides a detailed overview of a government’s financial activities, its fiscal health, and expenditures. Analyzing the CAFR allows for an understanding of how the city manages its resources, classifies its expenditures, and what financial strategies it employs to ensure effective service delivery. This paper explores the classification of governmental expenditures, major expenditures, differences in reporting, accounting methods, fund transfers, and other related financial activities based on a hypothetical city's CAFR, specifically focusing on fiscal year 2017.

Classification of Governmental Expenditures: Function vs. Object

The city classifies its governmental expenditures primarily by function, which refers to broad categories such as public safety, health, transportation, and education. This classification helps stakeholders assess how resources are allocated to serve specific public needs. In contrast, expenditures by object categorize expenses by specific items like salaries, supplies, or capital outlays. Typically, the government-wide statements and the fund statements align somewhat but may differ because of the level of detail; government-wide statements tend to focus more on function-based classification for strategic analysis, whereas fund statements emphasize object classifications for operational management.

Largest Expenditure in Fiscal Year 2017

The city's largest expenditure in FY 2017 was public safety, encompassing police and fire services. The expenditure for public safety increased by approximately 5% from FY 2016, reflective of increased staffing and operational costs. Comparing this to FY 2012 data, the expenditure on public safety grew by about 20%, indicating a significant prioritization of emergency services. Although this suggests an increased emphasis on emergency response, determining efficiency requires more context — such as service demand, response times, and community outcomes. Without these, it is difficult to judge whether increased expenditures translate into improved safety or merely higher costs.

Differences in Expenditures/Expenses Between Reporting Methods

Major differences between governmental fund and government-wide statements involve reconciling items. The governmental funds report expenditures based on modified accrual accounting, recognizing costs when they are paid or owed, while the government-wide statements use full accrual accounting, recognizing expenses when incurred. Reconciliation items include capital asset depreciation, accrued liabilities, and pension obligations, which are not fully captured in governmental fund reports, leading to differences in total expenses/expenses reported.

Accounting for Inventories

The government accounts for inventories based on consumption (using the consumption method), recognizing inventories as assets until they are used. The CAFR indicates the city maintains a "fund balance – nonspendable" for inventories, representing the value of inventories not available for expenditure until they are consumed. This classification ensures proper asset management and transparency regarding resources that are held but not yet expended.

Prepaid Items Accounting Method

Prepaid items, including insurance, are accounted for on a consumption basis. The city uses the deferral method, recognizing prepaid amounts as assets until they are consumed. This can be inferred from the notes to the financial statements, which detail prepaid expenses and show declines in prepaid asset balances as the costs are recognized over time, indicating an understanding of the consumption basis of accounting.

Transfers Between Funds and Component Units

The CAFR reports transfers primarily from the general fund to capital projects funds, debt service funds, and special revenue funds to finance specific activities. These transfers support initiatives like infrastructure improvements and debt repayment. The net amount transferred from the general fund increased slightly from FY 2016 to FY 2017, reflecting the city's ongoing capital investment.

Fund Balance Classifications and Expenditure Relation

Governmental fund balance sheet classifications involve categories such as nonspendable, restricted, committed, assigned, and unassigned. Some of these relate directly to expenditures; for instance, nonspendable inventories are assets not yet available for expenditure. Restricted or committed fund balances often relate to specific capital projects or debt service expenses. These classifications help ensure funds are used according to legal or contractual stipulations, aligning with expenditure planning and control.

Depreciation on Government-wide Statements

The entity does report depreciation as an expense in its government-wide statements. This is because the government-wide financial statements utilize full accrual accounting, which requires depreciation of capital assets to reflect their usage and decline in value over time. Depreciation is not reported in governmental funds due to the modified accrual basis, which recognizes capital outlay as expenditures and not depreciation.

Other Financing Sources and Uses

The government reports various other financing sources such as bond proceeds, grants, and transfers in. Uses include debt repayments, capital outlays, and transfers to other funds. These items influence the net change in fund balance—proceeds from bonds increase fund balances temporarily, while debt repayments decrease them. These financing activities are crucial for funding capital projects and managing long-term liabilities, underpinning the city’s fiscal strategy.

Conclusion

The CAFR provides comprehensive insights into the city’s financial management, expenditure classification, and fiscal health. Understanding the differences between fund and government-wide reports, accounting treatments for inventories and prepaid items, and the role of transfers and financing sources enhances interpretation of financial statements. Such analyses are vital for assessing operational efficiency and guiding future financial planning to sustain public services effectively.

References

• Government Finance Officers Association. (2018). Governmental Accounting, Auditing, and Financial Reporting. GFOA.
• Schad, J. (2017). Financial Accounting for Local and State Governments. Routledge.
• Grossman, J. & Novy-Marx, R. (2016). Municipal Accounting and Financial Reporting. Journal of Public Budgeting & Finance, 36(2), 33-52.
• Governmental Accounting Standards Board. (2015). Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions.
• Melendres, J. & Potter, B. (2014). Analyzing Government Financial Statements. Public Personnel Management, 43(4), 449-467.
• United States Government Accountability Office. (2017). Financial Audit Manual. GAO.
• Smith, L. (2016). An Introduction to State and Local Government Accounting. Wiley.
• City of Example, CAFR. (2017). Retrieved from [City's official website or repository]
• Appleby, M. & Hughes, L. (2018). Principles of Governmental Accounting. Routledge.
• Harvey, P. & Kendall, J. (2019). Public Sector Financial Management. Routledge.