Common deficiencies in government financial statements (Part 1).

Publication: CPA Government & Nonprofit Report

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COPYRIGHT 2006 Aspen Publishers, Inc.

There are still a number of reporting deficiencies found in today's government financial statements. The following is a list of the more current deficiencies that report preparers and auditors should be alert to:

Overall

There shouldn't be any reference to specific GASB statements in the notes to financial statements. It's not necessary since the notes disclose that the government is following generally accepted accounting principles (GAAP).

Notes should supplement the financial statements and shouldn't include more disclosures than necessary. Lengthy footnotes often confuse the readers. Care should be taken as to what is included and avoid additional information unless the government feels it needs to be presented to make the financial statements more useful.

Management Discussion and Analysis (MD&A)

1. Placing the MD&A in front of the auditor's opinion. The opinion should precede the MD&A.

2. Presenting additional information beyond the eight required elements (GASB 34, paragraph 11). Most governments only need seven elements since most do not use the modified approach to infrastructure. Some special purpose business-type activity entities may only need five or six elements since they may not have any major funds.

3. Including unnecessary information in the initial description of the basic financial statements; for example, descriptions of non-major funds, definitions of fund types, etc.

4. Reporting only the amount or percentage of the changes up of down, not the reasons for the change. Must discuss why the numbers have changed since last year. This is particularly important with the analysis of the condensed financial statement information and major funds found in paragraph 11(c) and (d), and the budgetary information found in paragraph 11(e).

5. Failing to present all of the required information...

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