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Chap11 - Chapter 11 Issues of Reporting Disclosure and...

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Chapter 11 Issues of Reporting, Disclosure and Financial Analysis Questions for Review and Discussion 1. The key criterion is financial accountability — the primary government either appoints a voting majority of the unit’s governing body or a majority of the unit’s governing body is composed of primary government officials and the primary government is able to impose its will upon the potential component unit or there is the potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government. 2. Discrete presentation is when one or more component units are reported in separate columns, in addition to those pertaining to the primary government. Blending is when the component units’ transactions and balances are reported as if they were part of the primary government — that is, the component units’ funds are accounted for just as they were funds of the primary government. Blending is required when the primary government and the component units are controlled by governing boards having the same members or the component unit provides services solely to the primary government. If those conditions are not satisfied then discrete presentation is required. 3. Discrete presentation, as it must be applied in government-wide statements, allows for the aggregation of any number of different component units, irrespective of type and basis of accounting. Therefore, it is said, the information is overly aggregated and hence of little value. This problem is mitigated by the requirement of Statement No. 34 that the government provide detailed financial information about each of its major component units. 4. The three main sections of the CAFR are: the introductory section; the financial section and the statistical section. The main components of the financial section are: the auditor’s report the management discussion and analysis (MD&A) 11-1
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the basic financial statements required supplementary information other than the MD&A combining statements and schedules 5. The combining statements provide the details of the nonmajor funds, one column for each of the funds. The totals columns of the combining statements tie into the amounts reported in the nonmajor funds column of the funds statements. Combining statements of nonmajor funds are not required by Statement No. 34; they may be presented as supplementary information. Internal service funds are presented in the proprietary fund statements in a single column that combines all of the government’s funds of that type. They do not have to be separately reported in the basic fund statements even if they would otherwise meet the criteria for classification as major funds. Therefore, it is appropriate that the internal service funds be reported upon in combining statements.
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