Chapter 5: Financial Reporting

Financial reporting is the communication of information regarding a governmental unit's accounting activities; it encompasses a broad range of reporting activities, including presentation of the government's annual financial statements, grant applications, and related reports; financial information submitted to state and federal regulatory and granting agencies; budget-to-actual comparison reports; management reporting; and other financial reports for internal and external use. The variety of these reports is evidence of the wide demand for financial information from both internal and external users. As a result, the financial reporting systems and activities of governments must be capable of producing financial information in a variety of formats and levels of detail.

Although the financial reporting activities of governmental entities, including schools, must fulfill a range of user needs, this chapter outlines the financial reporting requirements under Generally Accepted Accounting Principles (GAAP). Therefore, this chapter deals primarily with the preparation and presentation of the governmental annual financial statements and related Governmental Accounting Standards Board (GASB) reporting standards. As discussed in the previous chapter, GASB Statement 34 and other recent pronouncements have significantly modified the basic reporting requirements for governmental entities. The reporting model requires the following financial statements and related information:

• Management's Discussion and Analysis (MD&A) as Required Supplementary Information (RSI);
• basic financial statements
  • government-wide financial statements;
  • fund financial statements;
  • notes to financial statements; and
• RSI other than MD&A.

The basic financial statements and the RSI constitute the minimum requirements for external financial statements. The financial statement components and targeted users are shown in exhibit 2.

The following section outlines the major financial statement elements and identifies the major requirements for presenting a government's annual financial statements. Unless otherwise noted, it may be presumed that accounting and financial reporting guidelines that specifically apply to proprietary or fiduciary funds equally apply to the government-wide level of reporting.