Financial Statement Preparation Helpful Hints WFOA 2017 Conference Financial Statement Preparation Helpful Hints September 13, 2017 Presented by Eva Lindgren, CPA, CGMA

Financial Statement Preparation Helpful Hints “Phases” of Financial Statement Preparation: During the year Year-end Financial statement logistics

Financial Statement Preparation Helpful Hints During the year: Review prior year’s feed back from State Auditor’s Office. Review existing internal controls. Review G/L and interim financial reports. -SAO recommendations, MLs, or findings -I/C adjust if necessary -Address outliers

Financial Statement Preparation Helpful Hints During the year (continued): Review all existing footnotes and verify that what is disclosed reflects actual practices. Read the minutes from the governing board. -make sure FNs are reflective of actual practices. SAMPLE: FIFO inventory -ID fiscally relevant issues which may have bypassed the GL

Financial Statement Preparation Helpful Hints During the year (continued): Prepare any schedules or footnote disclosures which can be compiled prior to year-end. As grants close out, reconcile grant reports to G/L and enter into draft Schedules 15 and 16. Review budget to actual activity. -debt disclosures sometimes lend themselves to early prep -understand variances and whether are required

Financial Statement Preparation Helpful Hints Year-end: Review guidance; get assistance. Analyze the general ledger: Balance Sheet Revenues/Expenditures/Expenses Transfers 3) Prepare year-end workpapers and JEs.

Financial Statement Preparation Helpful Hints Year-end: Review guidance; get assistance: Review the SAO’s Overview of Significant Changes (to the BARS). http://www.sao.wa.gov/local/BarsManual/Pages/BARSManual_GAAP_Appendices.aspx. http://www.sao.wa.gov/local/BarsManual/Pages/BARSManual_Cash_Appendices.aspx.

Financial Statement Preparation Helpful Hints Year-end: Review guidance; get assistance (continued): Consult the SAO Help Desk: https://portal.sao.wa.gov/saoportal/Login.aspx. Consult with the Government Finance Officers Association (GFOA): http://gfoa.org/. (Technical Services)

Financial Statement Preparation Helpful Hints Year-end: Review guidance; get assistance (continued): Use GASB’s Governmental Accounting Research System (GARS): http://www.gasb.org/jsp/GASB/Page/GASBLandingPage%26cid=1176160042327. Consult with Municipal Research and Services Center: http://mrsc.org/Home.aspx.

Financial Statement Preparation Helpful Hints Year-end: Review guidance; get assistance (continued): Consult with colleagues Hire a specialist (e.g. capital asset inventory services)

Financial Statement Preparation Helpful Hints Year-end: 2) Analyze the General Ledger (Balance Sheet): Focus on material and significant balance sheet accounts. Consider rotating analysis for smaller accounts. Perform closer analysis of smaller balances under certain circumstances. Identify any funds at risk of negative equity. -but don’t ignore smaller accounts

Financial Statement Preparation Helpful Hints Year-end: 2) Analyze the General Ledger (Revs./Exps.): Focus on key revenue accounts. Compare rev./exp. activity against prior year. Compare rev./exp. activity against the budget.

Financial Statement Preparation Helpful Hints Year-end: 2) Analyze the General Ledger (Transfers): Make sure that transfers in = transfers out. In the event that a fund is at risk of negative equity, analyze transfers.

Financial Statement Preparation Helpful Hints Year-end: 3) Prepare year-end workpapers: Year-end workpapers should document the analyses made and substantiate adjusted balances. Year-end workpapers are used to support journal entries.

Financial Statement Preparation Helpful Hints Year-end: 3) Prepare year-end workpapers (continued): Consistently use a documented system of tracing. Maintain year-end workpapers in binders or organized in a filing cabinet. Consider providing a set of copies to auditors.

Financial Statement Preparation Helpful Hints Year-end: 3) Prepare year-end workpapers (continued): The preparation and review of the workpaper should be documented (i.e. signed and dated). Year-end workpapers should have a minimum of one reviewer. Controls over Financial Statement Preparation will be presented during the next session as part of the Accounting, Auditing and Reporting Track.

Financial Statement Preparation Helpful Hints C. Financial Statement Logistics: Timing Rounding vs. truncating numbers Formulas Tracings Internal controls

Financial Statement Preparation Helpful Hints C. Financial Statement Logistics: Timing: Start when the time is right - not earlier.

Financial Statement Preparation Helpful Hints C. Financial Statement Logistics: 2) Rounding vs. Truncating Numbers: Only enter rounded numbers into the financial statements. Using pennies and truncating them (i.e. hiding the pennies) will normally cause statements, schedules, and notes to fail to foot, crossfoot and trace.

Financial Statement Preparation Helpful Hints C. Financial Statement Logistics: 2) Rounding vs. Truncating Numbers (continued): Rounding often requires the use of “plugs.” Plugs should be used to tie amounts in the financials to the actual rounded G/L balances for total equity (e.g. total fund balance), by fund. Plugs should be used strategically.

Financial Statement Preparation Helpful Hints C. Financial Statement Logistics: 2) Rounding vs. Truncating Numbers (continued): See the City of Metropolis’ Balance Sheet, Example A See the City of Metropolis’ Statement of Revenues, Expenditures, and Changes in Fund Balance Example B

Financial Statement Preparation Helpful Hints C. Financial Statement Logistics: Rounding vs. Truncating Numbers (continued): Example A: Governmental Funds Assets shown truncated.

Financial Statement Preparation Helpful Hints C. Financial Statement Logistics: Rounding vs. Truncating Numbers (continued): Example A: Governmental Funds Assets shown with pennies and rounded. Formula used here: =round(xy,0)

Financial Statement Preparation Helpful Hints Financial Statement Logistics: Formulas: Test totals are used to ensure that if statements no longer balance; a value will highlight this. Footing and crossfooting totals should be “pure” (i.e. no plugs).

Financial Statement Preparation Helpful Hints Financial Statement Logistics: Formulas (continued): To troubleshoot formulas, use Formulas tab in Excel:

Financial Statement Preparation Helpful Hints Financial Statement Logistics: Tracings: Amounts should trace within the financials between footnote disclosures, statements, MD&A (for GAAP entities), as well as schedules. Identify relevant footnote disclosures, schedules, statements to trace “forwards.”

Financial Statement Preparation Helpful Hints Financial Statement Logistics: Tracings (continued): Key tracings include but are not limited to: Equity balances tie out. Beginning balances for current financials = ending balances in prior year audited financials (fund balances, capital assets, long-term liabilities, etc.). Cash and cash equivalents (all funds B/S, Entity-wide B/S , Statements of Cash Flows, footnotes)

Financial Statement Preparation Helpful Hints Financial Statement Logistics: Tracings (continued): Key tracings include but are not limited to: Debt (Proprietary Fund B/S, Entity-wide B/S, footnotes, and Schedule 9 – Long-term Liabilities) Capital Assets (Proprietary Fund B/S, Entity-wide B/S, and footnotes) Transfers in and out must balance and trace.

Financial Statement Preparation Helpful Hints Financial Statement Logistics: Tracings (continued): Consistently use documented system of tracing for bridging workpapers. Bridging workpapers = workpapers used to trace from the G/L and additional supporting documentation into the financials.

Financial Statement Preparation Helpful Hints Financial Statement Logistics: 5) Internal Controls: Financial statement and their bridging workpapers should be reviewed by someone other than the preparer. The reviewer should have strong knowledge of Governmental GAAP and the SAO BARS. Preparation and review should be documented (i.e. dated signatures)

Financial Statement Preparation Helpful Hints Questions?

Financial Statement Preparation Helpful Hints Eva Lindgren, CPA, CGMA eva@eklaccountingsolutions.com (877) 578-2896 EKLAccountingSolutions.com