If you have ever picked up a copy of your city’s annual comprehensive financial report, your first thoughts might have been, “Why is this so thick?” and “How do I read this thing?” Interestingly, the annual report of a medium-sized city, such as Anaheim, California (population 340,000), has twice as many pages as that of General Electric (sales of $68 billion).
The financial reporting requirements for local governments are very complex, making their financial statements hard to understand. This article, and ones to follow, aims to provide information to help you understand and glean important details from these reports.
Why Are Government Financial Statements So Complex?
Government financial statements differ from business financial statements for several reasons:
- Different Users: The users of government financial statements are diverse, including creditors, federal and state granting agencies, regulators, elected officials, and the general public.
- Different Information: The information communicated in government financial statements is tailored to these varied users.
- Different Objectives: Businesses aim to make money, while governments aim to provide services.
Who Uses Government Financial Statements?
- Creditors: Interested in the government’s ability to pay off long-term obligations.
- Federal and State Granting Agencies: Want to know how grant funds are being spent.
- Regulators: Ensure compliance with financial regulations.
- Elected Officials: Make decisions on how to allocate financial resources.
- General Public: Should care about how their tax dollars are being spent.
Understanding the Layout of an Annual Comprehensive Financial Report
To navigate a government’s financial statements, it’s essential to understand the layout of an annual comprehensive financial report. Generally, you will find the following sections:
- Introductory Section: Provides general information about the government.
- Financial Section: Offers detailed information about the financial position and operations of the government for the current year. This section includes:
- Auditor’s Report
- Management’s Discussion and Analysis
- Government-Wide Financial Statements
- Governmental Fund Financial Statements
- Proprietary Fund Financial Statements
- Fiduciary Fund Financial Statements
- Notes to the Financial Statements
- Required Supplementary Information
- Supplementary Information
- Statistical Section: Provides historical financial information, economic data, taxation details, and demographic information.
Getting Started
To begin understanding a government’s financial statements, locate the Management’s Discussion and Analysis in the financial section. This will give you a general overview of the financial information for the year.
Be on the lookout for future articles where we will discuss in detail the information in each section of the annual comprehensive financial report.