C.A.F.R stands for Comprehensive Annual Financial Report and is used by the United States government means to check the fiscal position of a state, municipal or any government entity. The report must comply with the accounting standards, that is, G.A.A.P (Generally Accepted Accounting Principles) which are promoted by the G.A.S.B.
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The entity I choose is the Talbot County in Maryland, which is a government entity; its report is composed of 125 pages, which clearly show the financial position of the county. The report is divided into three sections; the introductory section, the financial section and lastly the statistical section. The introductory section gives us an overview about what to expect for the fiscal year, it goes on to assure the inspecting body that the numbers in the report are accurate and free from any erasures whatsoever. The financial section, on the other hand, displays all the assets, liabilities and capital that flow within the county for the financial year. Finally, the statistical section is an analysis of the financial section; it elaborates the figures in the previous section to any reader. (Granof, 2011) The statistics bit is the most crucial part of the report, but it is dependent on the accuracy of the financial section.
The introductory bit of the report is where the reader can catch a glimpse of what the report is about. The report goes on to tell us about the various bodies, which have validated the figures that are in the documents; it has followed all the procedures undertaken. A normal financial report is supposed to go through several authorized bodies before it is presented to the final organization that is G.A.S.B. The report also details the location of the county, its establishment date, the number of towns under its care and their locations. The organization of the government of the county is also described, which is a way of displaying the bureaucratic order within the county, the electing period of the legislative among others. (Granof, 2011) The services provided by the county government are also listed these services help improve the welfare of the residents of the county and in the end reduce the gap between the rich and the poor. The budget allocation process is also depicted, the person in charge who is the county manager and supervision of the county council. The procedures for submission of requests during the budget making are also explained. The introduction goes on to list the factors that determine the financial position of the county, being aware of such factors enable the budgetary committees to know their adversaries. (Ruppel, 2010)
The county was awarded the Certificate of Achievement for Excellence in Financial Reporting by the national body known as G.F.O.A. The award is prestigious and is only given to the parties that have composed a detailed accurate report that abides to the standards laid down for such reports. For the fiscal year ending June 30, 2010, the county of Talbot satisfied the accounting principles and legal requirements set for the preparation for such a document. The county has an impressive 10-year record for attaining and retaining the award this shows the care and expertise invested in the preparation of the document. (Fischer, et, al, 2012)
The letter of transmittal which is part of the introduction addresses the issues that affect the financial condition of the county, for example, how the local economy has been affected by the declining economic crisis. How the county has adapted in order to counter these effects and not increase taxes, Talbot is utilizing its tourist resources in order to supplement its revenue. Such efforts benefit the county residents and the county’s budget in the end. The other factor is long term financial planning. The county has set up measures in order not to lend any money although it had done the contrary the previous year. (Ruppel, 2010) The funding for 2012 will be focused on ongoing building projects because no new project was initiated in the year 2012. The income tax in recent years has had a declining trend, and the county management is keen to change this trend for the better in order to increase its revenue base. The employee benefits including pension money is also a factor, considering that the county has pension workers for its employees and other benefits for the same. The county allocated a trust fund to cater for this and deposited around $7.0 million and $2.0 for future purposes. (Granof, 2011)
Review of the Financial Section
This section starts with an independent auditor’s report, which assures the inspection body that it had performed an audit to the financial statements of the county. The auditor acknowledges that they did not perform an audit the Board of Education financial statements. The auditing body approves their work as being above par and how they achieve their objective of understanding the financial statements of the county. The auditor also provides an overview of the contents they have included in the final report. They also display strict adherence to the regulations set by the GASB. (Granof, 2011)
The entity in question did not receive an opinion from the audit firm this is because they are provided with few procedures, which do not suffice to provide assurance about the statements. (Fischer, et, al, 2012)Although the audit firm is supposed to come up with opinions concerning the financial position of the county, the G.A.S.B provides limited procedures for the audit firm to manipulate. (Ruppel, 2010)
The report contains management’s discussion and analysis (M.D&A) which first displays the financial highlights of the ending year. All positive and negative adjustments to the financial position of the county are detailed here. In these highlights, it is noted that the net worth of the assets of the county exceeds the liabilities, a large percentage of these assets are attributed to government activities. The income tax decreases from the previous year, and it is viewed as a continuing trend from prior years. Fund balances are also mentioned and are planned to meet the funding needs of the county, and a portion of the fund is set aside for a “rainy day”. The development of an” other post-employment” benefits (O.P.E.B) trust and it get it is funding from the fund balance. The county’s debt situation in mentioned last, it decreases from the previous year to $4.1 million that is a positive trend and a motivation to the county’s fiscal policy makers. (Fischer, et, al, 2012)
The report provides reconciliation between total government net assets per the government wide statement of net assets and total government balances per the governmental funds balance sheet. The reconciling items for the two entities are loans and advances, and these helps in the comparison between governmental activities and governmental funds. The Talbot County has governmental funds, and they are maintained in the form of general, capital projects and exceptional revenue. For each fund, the information pertaining it is presented in differently in the governmental fund balance sheet and the governmental fund statement. (Granof, 2011)
The report includes required supplementary information, which incorporates a budgetary relationship for the annually adopted budget complying with the General fund. It also contains the budgetary comparisons for the Capital Projects, other governmental, and enterprise funds and combining statements for other governmental funds. The combining statements included in the report are for the Governmental funds whose reports are after notes on the financial statements.
The statistical section tries to form and understanding of the financial situation from all the figures and trends shown in the financial section. The statistics of the data might be more than one year old and, therefore, unaudited. The statistics section is divided into five sections; financial trends, revenue capacity, debt capacity, demographic and economical information and finally the operating information. The population of Talbot County for the year in question is approximately 37.7 million people, which is a steady increase from the previous year that was 36.2 million people. The County’s leading employer is the Shore Health Systems/E.M.H which employs roughly 2000 employees from the area. (Fischer, et, al, 2012)
The information included in the statistical section is mainly schedules, which have a range of fields from the previous years; this provides readers with the necessary information to measure the growth of the county. (Granof, 2011)
In my opinion, the fiscal policies shown by the County are way above expectations, the way they handle their asset base is impeccable. To add to that the reduction of their debt and liabilities despite the economic situation of the whole country is also impressive.