Question

a) Why might analysts be concerned if a government has an unusually high ratio of intergovernmental revenues to total revenues relative to a comparable government? Why might they be concerned if the same ratio is unusually low?

b) The GASB requires governments to identify their principal taxpayers in their CAFRs’ statistical section. In what way does this information contribute to an analysis of financial condition?

Answer 1

a) Intergovernmental revenue is fund received from another government as grant or in form of loans & advances.or shared taxes.

In case of high ratio analyst should be concerned because high ratio denotes more dependency of one government on another government.Government should make expenditure from their own resources.Unusally high ratio of intergovernmental revenue to total revenue effects the operating efficiency.

Analyst should also be concerned with unusally low ratio of intergovernmental revenue to total revenue because extremely low ratio states that proportionate revenue is not collected by government(Revenue which is shared between governments)

For example State government shared highway tax with municipal & country Government.

b) CAFR (Comprehensive Annual Financial Report) It is financial statement that states about statics of the city.It provide accurate information regarding financial position of city.These financial statements comply with accounting standards required by GASB.Identification of principal taxpayer is necessary because it helps to analysis of financial position of city .To know whether Government is able to collect revenue from such taxpayers because their contribution is higher in revenue of Government.If these payments are not received properly then action against such taxpayer can be taken.Hence we can say , this information contribute to analysis of financial condition.