Question

In: Accounting

When posting about your CAFR or NFP entity, include the entity name in the Subject line...

When posting about your CAFR or NFP entity, include the entity name in the Subject line and the web link to the document in your posting.

1. What is the name and city of the auditors for the CAFR?

2. Does the auditors' opinion reveal any unfavorable issues?

3. MD&A section: discuss any highlights or issues of concern

Solutions

Expert Solution

The Comprehensive Annual Financial Report (CAFR) is a thorough and detailed presentation of the state's financial condition. It reports on the state's activities and balances for each fiscal year.

The CAFR is presented in three sections:

  1. Introductory section - includes transmittal letter.
  2. Financial section - includes the independent auditor's report and contains management's discussion and analysis, government-wide financial statements, fund financial statements, notes to the financial statements, required supplementary information, combining financial statements, and schedules.
  3. Statistical section - includes additional financial, economic, and demographic information.

Most state and local governments are required by law to issue basic financial statements, and some, including Texas, are legally required to issue a CAFR as well. Many governments not required to issue a CAFR do so anyway because it represents a best practice in government finance.

answer to question 1

There is no single, central location for all government CAFRs. Typically, CAFRs are posted on a government’s website under “Publications” or “Reports,” along with other financial documents such as budgets and performance reports.

CAFRs typically are stored as a PDF available for download. The Texas Comptroller’s office provides links to annual reports and CAFRs for certain participating Texas local governments through our Transparency Stars program .

A regular annual report typically presents only basic financial statements about the government. A CAFR, by contrast, presents a wider variety of important information intended to help the reader properly understand the basic statements.

A budget is a plan for a future fiscal period, typically a year, primarily showing how tax revenue will be allocated; a CAFR contains the actual results of the prior year’s financial activities.

answer to question 2

To lend credibility to management’s assurances, companies call in independent auditors from an outside accounting firm to audit their internal controls and financial statements. Auditors don’t check every transaction, so their reports don’t give you 100 percent assurance that the financial statements don’t include misstatements about the company’s assets and liabilities.

The audit opinion is the statement that expresses by independent auditors to their client’s financial statements as the result of auditors’ examination.

The audit opinion is very important for stakeholders because it let them know whether or not the information in the financial statements that they are using is correct and they can use that information for their decision making.

The audit opinion also indirectly informs the users of financial statements how is the integrity of senior management as well as the directors of the entity.

The auditor's opinion does not judge the financial position of the reporting entity. Nor does it otherwise interpret accounting data. Instead, the published opinion addresses two questions:

  • Firstly, do the statements conform to Generally Accepted Accounting Principles (GAAP)?
  • And, secondly, do they fairly represent the entity's financial accounts?

answer to question 3

Auditors are not required to audit the Management discussion and Analysis section. MD&A section in SEC Filings are the opinions of the management about the company’s financial and busines health and provides details of its future opertations.

The corporate world has adopted the MD&A route to demonstrate their commitment to the Company’s vision and strategy, and how the management has created value and delivered a performance in light of their long term goals. When the term management is referred throughout this topic, it will be involving complete structure of organization including the Board of Directors, Chief Executive Officer and other Chiefs, their reporting officers/controllers of various departments – Human Resources (People), Finance, Marketing, Production, and Operations, etc and the remaining middle and lower management levels. Hence, MD&A does not only dissect financial figures/results but also looks into the Human resources and operations side of the business, which the fundamental and key factors to any business organization.

"MD&A is the linchpin of disclosure and is being closely scrutinized by the SEC's Corporation Finance and Enforcement Divisions." Other than the financial statements, MD&A is the area of disclosure that receives the most SEC comments.

Several of the SEC's new disclosure requirements reflect a direct response to particular problems that were encountered over the past year. For example, new requirements relating to off balance sheet arrangements relate to the Enron debacle and the Dynegy case. With regard to disclosure of contractual obligations, new rules were prompted by the failures of Winstar, Global Crossing and other companies with liquidity crises that weren't disclosed in their MD&A.

one among major cocern is ' New Audit Committee Responsibilities '

In order to determine that a company has an ACFE, its board of directors needs to conclude that the individual who constitutes the financial expert has any one of five attributes, which can be gained through any of four prescribed means of education or experience.

If the board relies on "other relevant experience" as part of its designation of the ACFE, the company will be required to list the other relevant experience in its proxy statement. Some companies have amended their audit committee charters to identify other experience that may fall within this category in advance preparation for their reliance on it. Companies are also using expanded D&O questionnaires as a basis for determining the status of an audit committee financial expert.


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