Question

First, search the internet for the official website of your local city government or a city that interests you. After reviewing the website, locate the latest comprehensive annual financial report (CAFR) available on the website. For example, both the City of Sacramento and the City of Phoenix have their most recent CAFRs online within an accounting/financial section. Use the financial statements you locate to address the following questions:

USE CITY OF NEW YORK AND TARGET TO COMPARE - ANSWER THE QUESTIONS BELOW FOR BOTH NY CITY AND TARGET CAFR

• How does the audit opinion given to this city by its independent auditors differ from the audit opinion rendered on the financial statements of a for-profit business?

• A reconciliation should be presented to explain the difference between the net changes in fund balances for the governmental funds (fund financial statements) and the change in net position for the governmental activities (government-wide financial statements). What were several of the largest reasons for the difference?

• Did the CAFR contain all required components, and what was your impression of how the information was reported?

• What are some significant differences you see between the report you just reviewed and a for-profit statement?

Answer 1

Hello,

I selected to review the latest CAFR for the city of Methuen (where I live) and compare it to Flowserve (selected company from previous discussions).

When reviewing the audit opinions for both types of financial reporting, I noticed a couple of differences. The government version is addressed to the city’s mayor and the council while the for-profit letter is addressed to the board of directors and the shareholders. Both documents start with the explanation of what was audited but the city’s opinion states that the review was done on the governmental activities, business-type activities, each major fund, as well as the aggregate remaining fund for the one year. While the for-profit one explains that the analysis was done on the balance sheet, statement of comprehensive income, stockholder’s equity, and cash flow for the each of the 3 years ending with the current period.

Some of the largest reason for the net changes in the city of Methuen, which was a total deficit of ($29,239,465), were:

1. Capital assets used in governmental activities that are not financial resources so they are not reported in the funds. This was a total of $177,910,846.

2. Long-term liabilities that are due and payable in the current period so are also not reported in the governmental funds. The total for this was $237,679,331.

In my opinion the CAFR did contain all the required components. The GASB statement No. 34 lists the minimum requirements are:

1. Management’s discussion and analysis.

2. Basic financial statements consisting of:

a. Government-wide financial statements, which includes separate columns for the governmental and business-type activities.

b. Fund financial statements displaying information about major funds individually and nonmajor funds in the aggregate for governmental and enterprise funds.

c. Notes to the financial statements.

3. Required supplemental information.

Some of the significant differences that I see between the two reports are that the governmental statements use different terminology such as government and business-type activities as well as fund balances. The required statements are different and the entire focus is different since one concentrates on net profits and the other on fund balances.