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Accounting, Week 3
- Use of Funds.What activities of the government are reported as being administered by internal service funds? (Note: Working capital funds, revolving funds, industrial funds, and intragovernmental service funds are other names used for funds of the type discussed in Chapter 7.) If internal service funds are not used by the reporting entity, does the report disclose how financing and accounting for activities such as purchasing, motor pools, printing, data processing, and other activities commonly used by more than one fund are handled? Does the report state the basis of accounting used for the internal service funds?
- Fund Disclosure.In the balance sheet(s) or statement(s) of net position displaying information for the internal service fund(s), are assets classified in accord with practices of profit-seeking businesses, or are current, capital, and other assets not separately displayed? If there are receivables other than from other funds or other governments, are allowances for estimated uncollectibles provided? Are allowances for depreciation deducted from related capital asset accounts?
Are current liabilities and long-term debt properly distinguished in the balance sheet? Are long-term loans from other funds properly distinguished from capital contributions received from other funds?
Are budgetary accounts (Estimated Revenues, Appropriations, Encumbrances) used by the internal service funds? From what sources were revenues actually obtained by each internal service fund? How are costs and expenses of each fund classified? Are noncash expenses, such as depreciation, separately disclosed? Do the revenues of each fund exceed the costs and expenses of the period? Compute the net income (or net loss) of each fund in this category as a percentage of its operating revenue for the period. Does the net income (or net loss) for any fund exceed 5 percent of operating revenues? If so, do the statements or the accompanying notes explain how the excess is being used or how the deficiency is being financed?
- Statement of Cash Flows.Is a statement of cash flows presented for internal service funds? If so, how does the cash provided by operations shown in this statement relate to the revenues and expenses shown in the statement of revenues, expenses, and changes in net position, or other similarly titled operating statement? Are cash flows from financing activities presented separately for noncapital- and capital-related activities? Is there a section for cash flows from investing activities?
- Government-wide Financial Statements.Is there a column for business-type activities on the statement of net position and statement of activities? Is there any evidence that the internal service fund account balances were collapsed into the Governmental Activities column? If enterprise funds are the predominant participants in the internal service fund, do you see evidence that the internal service fund balances are reported in the Business-type Activities column of the government-wide statements?
- Use of Funds. What activities of the government are reported as being administered by enterprise funds? Does the government own and operate its water utility? Electric utility? Gas utility? Transportation system? Are combining statements presented in the financial section of the CAFR for all enterprise funds, or are separate statements presented for each enterprise fund? Do all enterprise funds use accrual accounting? Are all funds in this category earning revenues at least equal to costs and expenses? If not, how is the operating deficit being financed? Do the notes include segment information on individual enterprise funds where applicable (see “Required Segment Information” section of this chapter)?
Are sales to other funds or other governments separately disclosed? Are there receivables from other funds or other governments? How are receivables from component units, if any, disclosed? Is there any evidence that enterprise funds contribute amounts to the General Fund in lieu of taxes to help support services received by the enterprise? Is there any evidence that enterprise funds make excessively large contributions to the General Fund or any other funds?
- Utility Funds.Is it possible to tell from the report whether utilities of this government are subject to the same regulations as investor-owned utilities in the same state? (If the utility statements use account titles prescribed by the NARUC and the FERC, as described in this chapter, there is a good chance that the governmentally owned utilities are subject to at least some supervision by a state regulatory agency.) What rate of return on sales (or operating revenues) is being earned by each utility fund? What rate of return on total assets is being earned by each utility fund?
Is depreciation taken on the utility plant? Are accounting policies and accounting changes properly disclosed? If so, what method of depreciation is being used? Does each utility account for its own debt service and construction activities in the manner described in this chapter? What special funds or restricted assets are utilized by each utility?
- Government-wide Financial Statements.What proportion of the net position of the business-type activities are reported as net investment in capital assets, restricted, and unrestricted? Were the business-type activities profitable; that is, did revenues exceed expenses?
Does the government operate a tax agency fund or participate in a tax agency fund operated by another government? Does the government act as an agent for owners of property within a special assessment district and for the creditors of those property owners? Does the government operate one or more pass-through agency funds? If so, describe.
Does the government operate, or participate in, a cash and investment pool? If so, is the pool operated as an investment trust fund? If there is a cash and investment pool and it is not reported as an investment trust fund, how is it reported? Explain.
Does the government operate one or more private-purpose trust funds? If yes, explain the purpose(s).
Does the report contain all of the introductory material recommended by the GASB? Is the introductory material presented in such a manner that it communicates significant information effectively—do you understand what the government is telling you? On the basis of your study of the entire report, do you think the introductory material presents the information fairly? Comment on any information in the introductory section you feel is unnecessary, and explain why.
- Do the statements, notes, and schedules in the financial section present the information required by the GASB? Are Total columns provided in the basic financial statements and schedules for the primary government and the reporting entity? If so, are the Total columns for the current year compared with Total columns for the prior year?
- Review your answers to the questions asked in Exercises 3–15 and 4–15 in light of your study of subsequent chapters of the text and your analysis of all portions of the annual report. Based on your current knowledge and understanding of government accounting, would you change or modify any of your earlier answers? If so, explain how you would change them and why you would change them.
Does the statistical section present information in the five categories defined by the GASB? What tables and schedules are presented for each category? Does the information provided in each category appear to meet the purpose of the category? Explain your response.
In your opinion, what are the most important information needs that a governmental annual report should fulfill for each of the following:
- Members of the legislative branch.
- Interested residents.
- Creditors or potential creditors.
In what ways does the CAFR you have analyzed meet the information needs you have specified for each of the four groups, assuming that members of each group make an effort to understand reports equivalent to the effort you have made? In what way does the report fail to meet the information needs of each of the four groups?
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