Obtain a copy of a recent Annual Comprehensive Financial Report (during the period this book went to print, ACFR may also have been called the Comprehensive Annual Financial Report). These reports may commonly

1–1. Obtain a copy of a recent Annual Comprehensive Financial Report (during the period this book went to print, ACFR may also have been called the Comprehensive Annual Financial Report). These reports may commonly be obtained from the website of a city or county of your choice. It would be best, but not absolutely necessary, to use an ACFR with a Certificate of Excellence in Financial Reporting from the Government Finance Officers Association. You will answer questions related to the ACFR in Chapters 1 through 8. Answer the following questions related to your ACFR.

What is the fiscal year (year-ending period)?

Identify the name and address of the independent auditor. Is the auditor’s opinion unmodified? If not, describe the modification. Is the opinion limited to the basic financial statements, or does the opinion include combining and individual fund statements?

Does the report contain an organizational chart? A table of contents? A list of principal officials? A letter of transmittal? Is the letter of transmittal dated and signed by the chief financial officer? List the major items of discussion in the letter of transmittal.

Does the report include a Management’s Discussion and Analysis? List the major categories of items discussed.

Does the report include the government-wide statements (Statement of Net Position and Statement of Activities)?

Does the report reflect fund financial statements for governmental, proprietary, and fiduciary funds? List those statements. List the major governmental and proprietary funds (the funds that have separate columns in the governmental and proprietary fund statements).

2–1. Using the Annual Comprehensive Financial Report obtained for Exercise 1–1, answer the following questions:

Compare the items discussed in the MD&A in your ACFR with the list of items in this chapter. Which topics listed in this chapter are not in your ACFR? Which topics are in your ACFR that are not listed in this chapter? Do you think your ACFR has a reasonably complete discussion?

From the MD&A in your report, write a short summary of (1) the financial condition of your government, (2) a comparison of revenues compared with the prior year, (3) a comparison of expenses compared with the prior year, and (4) a comparison of budgeted and actual activity.

From the Statement of Net Position, identify the following: (1) unrestricted net position—governmental activities; (2) unrestricted net position—business-type activities; (3) restricted net position by restriction—governmental activities; (4) restricted net position by restriction—business-type activities; and (5) unrestricted and restricted net position—component units (if any).

From the Statement of Activities, identify the following: (1) net program expense (or revenue)—governmental activities; (2) net program expense (or revenue)—business-type activities; (3) net program expense (or revenue)—component units; (4) change in net position—governmental activities; (5) change in net position—business-type activities; and (6) change in net position—component units. Does the ending net position in this statement agree with the net position figures in the Statement of Net Position?

From the Statement of Revenues, Expenditures, and Changes in Fund Balance for Governmental Funds, identify the names of the major governmental funds. List the net change in fund balance for each major fund.

From the governmental fund statements, take one major fund (other than the General Fund) and prove, using the 10 percent and 5 percent criteria described in this chapter, that the fund is required to be reported as a major fund.

List the major enterprise funds from the Statement of Revenues, Expenses, and Changes in Fund Net Position. For each, identify: (1) the operating income, (2) the operating income (loss), and (3) the change in net position.

3–1.                        Using the annual report obtained for Exercise 1–1, answer the following questions:

                                Review the Statement of Revenues, Expenditures, and Changes in Fund Balances for the governmental funds. List the revenue source classes. Are expenditures reported by character? List the functional classifications under the current character classification. Are Other Financing Sources and Uses presented separately? Does your report show transfers in? Transfers out? Capital leases? Proceeds of bonds?

                                Review the Budgetary Comparison Schedule in the RSI section of your annual report (or Budgetary Comparison Statement, if your government uses that format) for the General Fund. Is the budgetary format used, or is the schedule in the format used for the Statement of Revenues, Expenditures, and Changes in Fund Balances? Does the report reflect the original budget, revised budget, and actual figures? Are variance columns presented comparing the actual with the revised budget and comparing the original with the revised budget? Is a reconciliation between the budgetary basis of accounting and GAAP presented on the Budgetary Comparison Schedule or in a separate schedule? What are the major differences, if any? Are budgetary comparison schedules (or statements) presented for special revenue funds? Are all special revenue funds included?                        

                                Review the note that describes the basis of budgeting (usually in the Summary of Significant Accounting Policies). Is the budget prepared on the GAAP basis or some other basis? Are the differences, if any, between the budgetary basis and GAAP clearly explained?

4–1.                        Using the annual financial report obtained for Exercise 1–1, answer the following questions:

                                Review the General Fund column of the Balance Sheet for governmental funds. What are the major assets? Liabilities? What categories of Fund Balances are reported?

                                Review the General Fund column of the governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances. Prepare a schedule showing percentages of revenues by source. Prepare a schedule showing percentages of expenditures by function. Does your government have significant transfers in or out? Can you identify the fund that provides or receives these resources? Does your government have any other financing sources or uses? Special and/or extraordinary items?

                                Does your government report any special revenue funds as major funds in the governmental fund statements? What are they? What are the major revenue sources? Expenditure functions?

                                Review the notes to the financial statements to determine the measurement focus and basis of accounting used to prepare the governmental fund financial statements. Do the notes describe modified accrual accounting in a manner consistent with this book? Which revenue sources are subject to accrual? Are expenditures generally recognized when goods and services are received? Which specific modifications to accrual accounting are mentioned in the notes?

                                Review the General Fund column of the governmental fund statements from the point of view of a financial analyst. Is the Fund Balance as of the Balance Sheet date larger or smaller than at the beginning of the year? Are reasons for the change apparent from the statements? Compute a ratio of Fund Balance/General Fund Revenues and compare it with your class members’ ratios.

5–1.                        Using the annual financial report obtained for Exercise 1–1, answer the following questions:

                                Examine the governmental fund financial statements. Are any major capital projects funds included? If so, list them. Attempt to find out the nature and purpose of the projects from the letter of transmittal, the notes, or MD&A. What are the major sources of funding, such as bond sales, intergovernmental grants, and transfers from other funds? Were the projects completed during the year?

                                Again looking at the governmental fund financial statements, are any major debt service funds included? If so, list them. What are the sources of funding for these debt

                                Does your report include supplemental information, including combining statements for nonmajor funds? If so, are any capital projects and debt service funds included? If so, list them. Indicate the major revenue and other financing source categories for these funds.

                                Review the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances, specifically the expenditure classification. Compute a ratio of capital outlay/total expenditures. Again, compute a ratio of debt service/total expenditures. Compare those with your classmates’ ratios. Comment on the possible meaning of these ratios.

                                Review the notes to the financial statements, specifically the note (in the summary of significant accounting policies) regarding the definition of modified accrual accounting. Does the note specifically indicate that modified accrual accounting is used for capital projects and debt service funds? Does the note indicate that debt service payments, both principal and interest, are recorded as an expenditure when due?

                                Does your government report capital leases payable in the government-wide Statement of Net Position? If so, can you determine if new capital leases were initiated during the year? Can you trace the payments related to capital leases?

                                Does your government report any permanent funds, either major or nonmajor? If so, list them. What are the amounts of permanent resources available for governmental purposes? What is/are the governmental purpose(s)?

6–1.                        Using the annual financial report obtained for Exercise 1–1, answer the following questions:

                                Review the Statement of Net Position for the proprietary funds. Is the Net Position or the Balance Sheet format used? List the major enterprise funds from that statement. Is the statement classified between current and noncurrent assets and liabilities? Is net position broken down into the three classifications shown in your text? Is a separate column shown for internal service funds?

                                Review the Statement of Revenues, Expenses, and Changes in Net Position for the proprietary funds. Is the “all-inclusive” format used? Are revenues reported by source? Are expenses (not expenditures) reported by function or by object classification? Is depreciation reported separately? Is operating income, or a similar title, displayed? Are nonoperating revenues and expenses shown separately after operating income? Are capital contributions, extraordinary and special items, and transfers shown separately? List any extraordinary and special items.

                                Review the Statement of Cash Flows for the proprietary funds. List the four categories of cash flows. Are they the same as shown in the text? Are interest receipts reported as cash flows from investing activities? Are interest payments shown as financing activities? Is the direct method used? Is a reconciliation shown from operating income to net cash provided by operations? Are capital assets acquired from financing activities shown as decreases in cash flows from financing activities? Does the ending cash balance agree with the cash balance shown in the Statement of Net Position (note that restricted assets may be included)?

                                If your government has an Annual Comprehensive Financial Report, look to any combining statements and list the nonmajor funds. List the internal service funds.

                                Examine the financial statements from the point of view of a financial analyst. Write down the unrestricted net position balances for each of the major enterprise funds and (if you have a ACFR) the nonmajor enterprise funds and internal service funds. Look at the long-term debt of major enterprise funds. Can you tell from the statements or the notes whether the debt is general obligation or revenue in nature? Write down the income before contributions, extraordinary items, special items, and transfers for each of the funds. Compare these numbers with prior years, if the information is provided in your financial statements. Look at the transfers. Can you tell if the general government is subsidizing or is subsidized by enterprise funds?

7–1.                        Using the annual report obtained for Exercise 1–1, answer the following questions:

                                Examine the Statement of Fiduciary Net Position. Which fund types are included? Are increases and decreases shown as additions and deductions on the Statement of Fiduciary Net Position rather than revenues and expenses? What are the main additions? What are the main deductions?

                                Are custodial funds included in the Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position? If so, list them. Describe the purposes for which they exist.

                                Does the government have private-purpose trust funds? If so, list them. Describe the purposes for which they exist. Can you tell if any of those funds are endowments and have resources permanently restricted? How much income was generated by each private-purpose fund, and how much was released for use? Does the government report escheat property as private-purpose funds? If so, indicate the nature of the process by which property is released and for what purposes.

                                Does the government report investment trust funds? If so, describe the nature of the external investment pool. Which other governments are included? Has your government refrained from including its own investments in the investment trust funds?

                                List the pension funds included in the financial statements. From the notes, list the other pension plans available to employees of your governmental unit. Are those plans multiemployer plans? If so, are they agent plans or cost-sharing plans? Defined contribution or defined benefit? Are required disclosures made in the notes for all pension plans, whether or not the plans are included as trust funds? Look at the actuarial status of the plans and comment on the potential impact of pensions on the financial condition of the government.

                                Review the note disclosures regarding investments. Are investments reported at fair value? Do the notes disclose the realized gains or losses on investments? Do the notes categorize investments based on risk? When the government creates internal investment pools for management purposes, does the government report the individual investments and income from those investments in the funds that provided the resources?

8–1.                        Using the annual financial report obtained for Exercise 1–1, answer the following questions:

                                Examine the reconciliation between the governmental fund balances and the governmental-type activities net position. This might be on the governmental fund Balance Sheet or in a separate schedule in the basic financial statements. List the major differences. What is the amount shown for capital assets? How much (if any) is due to the incorporation of internal service funds? Was an adjustment made for deferred property taxes or any other revenue? What is the adjustment due to the inclusion of long-term liabilities? What other adjustments are apparent?

                                Examine the reconciliation between the governmental fund changes in fund balances and the governmental-type activities changes in net position. This might be on the governmental Statement of Revenues, Expenditures, and Changes in Fund Balances or in a separate schedule. List the major differences. How much is due to the difference between depreciation reported on the Statement of Activities and the reported expenditures for capital outlays on the Statement of Revenues, Expenditures, and Changes in Fund Balances? How much is due to differences in reporting expenditures versus expenses for debt service? How much is due to the incorporation of internal service funds? How much (if any) is due to differences in reporting proceeds versus gains on sale of capital assets? How much is due to additional revenue accruals? How much is due to additional expense accruals? What other items are listed?

                                Examine the Statement of Net Position. Attempt to prove the Net Investment in Capital Assets figure from the information in the statement or the notes. List the individual items that are restricted; this might require examination of the notes to the financial statements.

                                Examine the Statement of Activities. List the net expenses (revenues) for governmental activities, business-type activities, and component units. List the change in net position for governmental activities, business-type activities, and component units. Attempt to find from the notes the component units that are discretely presented.

                                Look throughout the annual report for disclosures related to capital assets. This would include the notes to the financial statements, any schedules, and information in the Management's Discussion and Analysis (MD&A). Summarize what is included. What depreciation method is used? Are the lives of major classes of capital assets disclosed?

                                Look throughout the annual report for disclosures related to long-term debt. This would include the notes to the financial statements, any schedules in the financial and statistical sections, and the MD&A. Summarize what is included. Are the schedules listed in this chapter included?