Question

In: Accounting

First, search the internet for the official website of your local city government or a city...

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 NEW YORK STATE AND TARGET TO COMPARE

  • 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?

Solutions

Expert Solution

Ans :Render a report expressing opinion that the financial statements present fairly the financial position, changes in financial positions and where applicable, cash flows of the organization.Opinions based on reasonable assurance that statements are free from material misstatements.Present fairly means in conformity with GAAP .

Scope: Describes the nature of the audit
Opinion: Expresses the auditor's opinion about the fairness of the financial statements
Explanatory: Used in most governmental audits, usually related to auditor's role in reviewing supplementary information

Unqualified (clean)- Statements present fairly the financial position and changes in position (and cash flows if applicable) according to GAAP (GAAP and GAAS)
Qualified opinion- Statements contain a material departure from GAAP or there is a material scope limitation
Adverse opinion-Financial statements don't present fairly in conformity with GAAP
Disclaimer of opinion-highly material scope limitation

An audit is a type of third-party review meant to assure the entity's management and outside concerned parties. An audit may focus on ensuring that the entity's financial records are accurate and complete. Another focus of an audit may be on the entity's internal controls. The internal controls are a set of procedures applied to all of the business's actions. These practices are meant to promote efficiency, prevent fraud and generate accurate financial information.

CAFR stands for Comprehensive Annual Financial Report . A CAFR is a set of financial statements for a state, municipality or other governmental entity that comply with the accounting requirements established by the Governmental Accounting Standards Board (GASB). It must be audited by an independent auditor using generally accepted government auditing standards.

The CAFR consists of three sections: Introductory, Financial and Statistical.

The Introductory section orients and guides the reader through the report. The Financial section presents the entity’s basic financial statements as well as notes to the statements and the independent auditors’ report. The Statistical section provides additional financial and statistical data, including data about financial trends that may better inform the reader about the government’s activities.

A nonprofit with a mission to change the world – or, at least your corner of it. Perhaps you’re a seasoned entrepreneur or you have owned a for-profit business in the past. Whatever the circumstances, you know that the nonprofit has a completely different financial framework than a for-profit business, which results in a slew of accounting differences. Failing to maintain the nonprofit’s books according to the special state and federal laws that govern nonprofits can jeopardize the organization’s tax-exempt status and can lead to legal liability for board members, officers and staff.

One of the basic accounting differences between a for-profit company and a nonprofit corporation derives from ownership. Individuals and entities can own percentages or shares of a for-profit company, known as equity. An owner’s stock or percentage of ownership is recorded in the company’s accounting system and increased or decreased over time. The owners listed on the books are entitled to benefit from the company’s activities by receiving dividends or disbursements of profits, or having the value of the ownership shares or percentages increase with the company’s successful performance in the marketplace.

A nonprofit is not owned by anyone. Even though you may have founded the organization or sit on its board of directors, you don’t own any percentage of the entity. Under the laws of the state in which you set up the nonprofit, the company is run by its board, officers and staff as a public trust. This means in the organization’s accounting system, there are no owner’s equity or retained earnings accounts.


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