Comprehensive Annual Financial Report Briefing Abstract The City of Detroit, founded in 1701, and incorporated in 1806, is in Wayne County, State of Michigan. Detroit is on an international waterway, which connects by means of the St. Lawrence Seaway to seaports around the world. Existing as the largest city in the State of Michigan, Detroit is notorious for its tradition in automotive and is a colloquialism for the automobile industry in the United States. Detroit is also known for its popular music legacies, which residents celebrate in several familiar nicknames, Motor City, Motown or simply the “D. In a city, whose population is likely at 951,270, Detroit is also known for its liquor distribution during the prohibition in 1920. Each year, government entities, such as the City of Detroit is required to compile a comprehensive annual financial report, or CAFR, complying with the governmental accounting standards board accounting requirements. Comprehensive annual financial reports are detailed presentations of an entities financial condition, reporting on annual activities and balances.
This official statement also includes a letter of transmittal, manager’s discussion and analysis, and has four sections: Introduction, financial section, statistical section, and compliance section. This briefing will review and discuss the comparison of governmental accounting and profit financial accounting. This briefing will also detail how to understand governmental reporting and reporting entities. Last, this briefing will outline management discussion and analysis reports for the state of Michigan. Comprehensive Annual Financial Report Briefing
Comparison of Accounting Practices Business reports, to include financial reports often refer to the terms nonprofit or not-for-profit, profit, and for-profit to describe an entity classification. These terms are significant as they determine the types of accounting transaction and activities covering a period. Although accounting practices, and activities are most associated between operations of a business enterprise; those of profit, accounting is not restricted to businesses. It also deals with non-business operations.
Government or nonprofit entities accounting, being a separate division of accounting, has various accounting practices of which they operate; however, have the same principles. These practices and principles are different from those of for-profit entities (businesses) such that for-profit entities focus on wealth creation, where governmental entities are budget-driven. Budgets’ are key fiscal documents and is the culmination of the political process. For example, according to “Comprehensive Annual Financial Report – City Of Detroit” (2010), the City’s 2010 General Fund Budget is $1. 8 billion.
The city also reports that this budget is void of additions or material changes to existing taxes (Budget to Actual Comparison– General Fund). In a similar manner, businesses rely on annual reports to provide shareholders and other interested parties pertinent information about the entities activities and financial performance. Profit margins prove the financial health of a business, although budgets are internal communications to measure results. The key difference in the reporting for the two classifications is that the budget (nonprofit) is a forward communication, while the annual report (profit) is a historic communication.
Government Reporting and Reporting Entity Government reporting entities are made up of organizations of which the government controls. The key point to consider about government reporting agencies is to ascertain which public sector the government controls. Reporting entities are the assets, liabilities, revenues, expenses, and cash flow of a board, department, agency, and fund included in a government financial statement summary. Government entities are often made up of additional nonprofit organization, and for-profit organizations called component units.
These units are legal and separate entities where the state is accountable. Exclusion of component units alters the state’s financial statement in such a way that it would present misleading or incomplete (“Office of Financial Management”, 2012). Just for clarity, according to “Governmental Accounting Standards Board” (2013), the financial reporting entity consists of (a) the primary government; (b) organizations for which the primary government is financially accountable; and (c) other organizations for which the nature and significance of their elationship with the primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete (Summary of Statement No. 14 The Financial Reporting Entity (Issued 6/91)). With that in mind, governments are likely to construct separate legal entities to perform governmental duties. For example, the City of Detroit has nine legally separated organizations, which make up their component units.
For instance, the Economic Development Corporation, and Museum of African American History are two of the nine component units included in the government reporting Comprehensive Annual Financial Report – City of Detroit. (2010). Considering reporting entities, the Statement of Financial Accounting Standards No. 94 best defines and prescribes the recommended treatment. For example, the Statement of Financial Accounting Standards prescribes that consolidated reporting is the only appropriate method to report. Management Discussion & Analysis (MD)
This section of the comprehensive annual financial report is required to summarize an organization’s annual results, providing a managerial opinion on the financials, addressing discussion of risks, comparisons to previous years, and a breakdown of financials according to sections and locations. Management discussion and analysis contains forward-looking discussion paying close attention to uncertainties and the manager’s perception of opportunities and risks. The manager also highlights factors faced that are out of his or her control.
For example, the comprehensive annual financial report: City of Detroit includes in its management discussion and analysis the financial position of the city, with the overview of annual activities ending June 30th 2010. The financial highlights include the government’s net asset totals with explanation of increases or decreases Comprehensive Annual Financial Report – City of Detroit. (2010). Reference(s): Comprehensive Annual Financial Report – City of Detroit. (2010). Retrieved from http://www. detroitmi. gov/… /CAFR/2010%20CAFR%20draft%20122010%.. Copley, P. A. , & Engstrom, J. H. 2011). Essentials of accounting for governmental and not-for-profit organizations (10th ed. ). New York, NY: McGraw-Hill. Governmental Accounting Standards Board. (2013). Retrieved from http://www. gasb. org/ Granof, M. H. , & Wardlow, P. S. (2011). Core concepts of government and not-for-profit accounting (2nd ed. ). New York, NY: Wiley & Sons. Office of Financial Management. (2012). Retrieved from http://www. ofm. wa. gov/policy/glossary. asp Wilson, E. R. , Kattellus, S. C. , & Reck, J. L. (2010). Accounting for governmental & nonprofit entities (15th ed. ). New York, NY: McGraw-Hill.