The Benefits of Preparing a Comprehensive Annual Financial Report (CAFR)


Governments may benefit from preparing a comprehensive annual financial report instead of just a basic financial statement.

The Government Finance Officers Association (GFOA) reports that 4,231 organizations received the Certificate of Achievement for Excellence in Financial Reporting in 2016. That is just over 4 percent of all governments in the US. Today, most governments prepare only the basic financial statement, which is the minimum necessary for fair presentation in conformity with generally accepted accounting principles.

 

So, what is a CAFR? According to the GFOA, a CAFR consists of three sections: introductory, financial, and statistical. Each has benefits that the basic financial statement does not.

 

Introductory section A key benefit to the CAFR is that the introductory section includes a letter of transmittal. Unlike the management’s discussion and analysis, which is included in the financial section and contains specified required elements, the transmittal letter may contain subjective information. This allows a government’s management to highlight accomplishments and discuss major initiatives. Management may include prospective information and discuss long-range planning for the government. According to Governmental Accounting, Auditing, and Financial Reporting published by the GFOA, an effective transmittal letter should discuss a profile of the government and the economy in which it operates. Other elements of the introductory section include the table of contents, organizational chart, and list of officials.

 

Financial section The financial section contains most of what is required for basic financial statements. What differentiates the CAFR is that this section includes individual fund statements for all of a government’s funds. A benefit of including individual fund financial statements is that management can present more detailed budget information and comparative data, both of which make the information much more useful to people who will read the CAFR. In basic financial statements, budgetary information is presented only for major funds.

 

Statistical section The final section is the statistical section, which allows operational, economic, and historical data to be included. This provides a context for assessing a government’s economic condition. The statistical section is made up of the following broad categories:

  • Information on financial trends
  • Information on revenue capacity
  • Information on debt capacity
  • Demographic and economic information
  • Operating information

 

To prepare a CAFR or not to prepare a CAFR When considering this decision, keep in mind that a major benefit of preparing a CAFR is that it gives governments the opportunity to participate in the GFOA’s Certificate of Achievement for Excellence in Financial Reporting program. This program allows management to earn a certificate and recognition for its preparation of the CAFR.

 

If you are interested in preparing a CAFR, we recommend first visiting the GFOA’s website. We also encourage you to contact members of LaPorte’s Public Sector Industry Group. We welcome the opportunity to assist you in planning for, preparing, or reviewing your first comprehensive annual financial report.

 

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