common financial statement ©2019 cliftonlarsonallen llp ......sep 05, 2019 · september 5, 2019....

WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTINGInvestment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor

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State of Vermont CPE TrainingSeptember 5, 2019

Common Financial Statement Mistakes

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Create Opportunities

Speaker Introductions

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Chris Rogers, CPAManaging Principal, State and Local GovernmentCLAChris has over 25 years of experience providing auditing and consulting services to state and local governments. Chris serves a wide range of governmental clients, including states, state agencies, municipalities, pension and OPEB benefit plans, housing authorities, school districts and various quasi-governmental entities.

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Learning Objectives

• Identify common mistakes observed during the financial reporting process

• Improve GAAP financial reporting

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Agenda• Opinions• Reporting Entity• Management’s Discussion & Analysis (MD&A)• Internal Integrity• Financial Statements• Footnote Disclosures• Required Supplementary Information• Tips• Q&A

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Opinions

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Opinions

• Identification of Entity– A Component Unit of a Primary Government?

• Opinion Units• Budget comparison

◊ Are all required budget comparison statements included?◊ Statement vs. RSI

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Presenter

Presentation Notes

Introductions of the team – starting with NLG – who we are – name, role, why I chose CLA

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Create Opportunities 7

Reporting Entity Defined

Opinion Units Audited

No budgetary statements listed in opening paragraph –included as RSI

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Opinions (continued)

• Reference to Other Auditors– Audit Opinion

◊ Identification in scope paragraph◊ Identification in opinion paragraph

– Report on Internal Control and Compliance◊ Inclusion◊ Carve out

• Other auditors• Same firm

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Presenter

Presentation Notes


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Must identify components audited by other auditors

Must identify amounts audited by other auditors for each opinion unit the auditor is rendering an opinion upon

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Must identify amounts audited by other auditors for each opinion unit the auditor is rendering an opinion upon

Must identify any component audited by other auditors that was not performed under Government Auditing Standards

Must identify components audited by other auditors

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Reporting Entity

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Reporting Entity

• Component Units– When was the last time you evaluated your government’s

potential component units?– Evaluate potential component units annually in

conjunction with:◊ GASB Statement No. 61, The Financial Reporting Entity: Omnibus

an Amendment of GASB Statements No. 14 and No. 34◊ GASB Statement No. 80, Blending Requirements for Certain

Component Units, an amendment of GASB Statement No. 14

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Presenter

Presentation Notes


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Reporting Entity

• Component Units– Footnote disclosures

◊ To avoid disparities, make sure your disclosures of component units include:

• The rationale for why each component unit was included and the manner in which it is included (blended or discretely presented)

• The footnote disclosures for each component unit– While GASB doesn’t require that all component unit disclosures

be included, all “significant” component units’ disclosures should be included within the primary government’s financial statements.

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Presentation Notes


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Reporting Entity

• Major Funds– Update your major fund analysis throughout the year,

including during the audit and financial statement preparation◊ Major fund is missed due to consolidation of funds, new activity,

or adjustments noted during the audit◊ Revisit once draft statements are complete

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Presentation Notes


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Management’s Discussion and Analysis (MD&A)

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MD&A

• Ensure it includes a comparison of one year beyond time period covered– Single year report - 2 years compared– Comparative report - 3 years compared

• Length– Should be high level overview/recap, not a novel– Missing elements (e.g. description of currently known

facts, decisions or conditions affecting the future)

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Presenter

Presentation Notes


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MD&A• Editorial comments – keep to a minimum, this is not a political document• Use of acronyms which are not defined• Use of charts

– Percentages don’t add up to 100%– Graphics don't agree with numbers

• Explanations don't make sense or are just an explanation of the math– Interest as a percent of revenues increased because there was more interest

income• Answer the most important question: Why?

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Internal Integrity

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Internal Integrity

• Statements don't agree among themselves– Interfund balances don't agree

◊ Due to does not equal due from◊ Transfers in does not equal transfers out

– Net position/fund balance does not agree between balance sheet and income statements

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Presentation Notes


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Internal Integrity (continued)

• Footnotes don't agree with statements– Relationships are not maintained throughout the statements and

notes– Debt activity in the governmental funds operating statement and the

proprietary funds cash flows does not agree with the footnotes

• Footnote totals have no relationship to financial statements– Due from/due to

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Internal Integrity (continued)

• Amounts included in the reconciliations do not correspond with the amounts in the footnotes

– Debt– Long-term liabilities– Capital outlay, depreciation and gain/loss on disposal– Changes in unavailable revenue

• Common area to have differences of $1 between statements, reconciliation and footnotes

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Financial Statements

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Financial Statements

• Incorrect titling/ terminology– "As of" vs. "Year Ended“– Statement of Net Position vs. Balance Sheet– Deferred vs. Unearned

• Net investment in capital assets– Use of old terminology - Investment in capital assets, net of related

debt– Incorrect calculation

◊ Omits unspent bond proceeds◊ Omits retainage payable

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Presentation Notes


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Financial Statements (continued)• Classification of unrestricted and restricted cash and investments• Cash Flows

– Incorrect method used◊ Direct method◊ Reconcile to operating income◊ 4 categories and not 3◊ Different classifications for certain items (e.g. interest income)

– Misclassification of cash flows– End of year cash does not agree with the Statement of Net Position– Missing Noncash disclosures

◊ Subsidies

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Financial Statements (continued)• Nonmajor funds

– Use of more than one column– Failure to label on the face of the statements

◊ Can lead to other issues if there is a legally adopted budget

• Fiduciary Funds– Presentation of a separate column for the OPEB and Pension trust funds

◊ Can only have one Pension trust fund which must include the OPEB trust◊ Individual fund info should be shown in the footnotes

– Only one column for the agency funds

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Financial Statement (continued)• Budget to actual comparison

– Include for all major governmental funds with a legally adopted budget– Not shown at the legal level of budgetary control– Include both original and final budgets– Titling - GAAP vs. Non-GAAP

• Deferred inflows and outflows– No description in the footnotes– Incorrect placement in statements

◊ Deferred inflows after liabilities◊ Deferred outflows after assets

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Footnote Disclosures

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Footnote Disclosure

• Cash and investments – Statements should correlate with the GASB 40 footnote

and the GASB 72 footnote◊ Suggest including a reconciliation in either/both footnotes to

provide road map back to the statements

– Leveling for FMV under GASB 72◊ Inquire with your investment advisor if level or method (NAV)

changes between years – ask why.

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Footnote Disclosure

• Pension and OPEB– If the employer participates in multiple pension plans,

total pension amounts must be disclosed in the footnotes

– Non-trusted Pension and OPEB plans◊ An amount of the liability should be reported as due within 1 year

• Amount is the estimated benefit payments for the next year

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Footnote Disclosure

• Debt defeasance– There are two different footnotes

◊ Year of defeasance◊ Subsequent years until debt finally retired

• Conduit debt– Disclosure missing– Outstanding balances are not up to date

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Presentation Notes


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Footnote Disclosure• Debt footnote

– Missing maturity dates and/or interest rates for individual debt issues– Debt service table

◊ Separate principal and interest columns◊ 5 individual years of debt service◊ Complete debt service through maturity

• Budget disclosures– Funds with legally adopted budgets– Legal level of control– Budget violations

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Footnote Disclosure

• Budget disclosures (continued)– Amendments to budget

• Net Position and Fund Balance– Use of restricted vs. unrestricted– Deficit net position and fund balances

◊ Identification and method for resolving• Should be a realistic plan for resolution

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Footnote Disclosure

• Prior period adjustments– Correction of an error or GASB implementation

◊ Should disclose each reporting unit (governmental activities, major fund, etc.)

• List the total effect on Business-Type Activities and each proprietary fund

• Same for Governmental Activities and governmental funds

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Required Supplemental Information• Missing or incomplete information

– Pension and OPEB ◊ Pension and OPEB RSI are to be 10 year schedules – they will get larger each year

until year 10 is met◊ Notes to the RSI are required to note changes that significant affect trends in

amounts reported (discount rate, plan changes, etc.)◊ Plan statements require notes to the RSI to discuss methods and assumptions used

is calculating actuarially determined contributions◊ If the Plan is not administered through a trust, this is required to be included in the

RSI

– Budgetary Comparisons◊ Missing notes to the schedules

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Tips• Have a formalized financial reporting process that includes due

dates and responsibilities• Ensure your systems can produce the necessary information• Ensure financial statements are reviewed in detail by personnel

with training and knowledge• Utilize a financial reporting disclosure checklist and/or the GFOA

CAFR checklist• When resources are scarce, consider outsourcing any part of the

process• Utilize your independent audit firm for guidance and assistance

(without impairing independence)

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CLAconnect.com

Thank you!

Chris Rogers, CPAManaging Principal, [email protected]

mailto:[email protected]

common financial statement ©2019 cliftonlarsonallen llp ......sep 05, 2019 · september 5, 2019....

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