YOUR ANNUAL FINANCIAL STATEMENTS: WHAT TO LOOK FOR AND HOW TO LOOK FOR IT? Presentation for Association of Government Accountants CORDOVA CPAs LLC Bobby Cordova, CPA and Robert Gonzales, CPA April 6, 2018

Introduction Objectives Brief Overview of What Is Included Your Financial Statements Regulatory Reporting versus GAAP Roadmap to Arriving at Your Review Checklist Auditor Interaction

Introduction How will we achieve our Objectives? What is included in the Financial Statements Arrive at a checklist type approach and learn the factors to consider and review when reviewing your annual financial statements How are the financial statements different from what is reported to DFA/HED/PED Discuss account balances that are in your financial statements Give guidance and share some best practices Discuss examples with interaction

Composition/Layout of Your Financial Statements Introductory Section Table of contents Official Roster Financial Section Independent Auditors’ Report Management’s Discussion Analysis Basic Financial Statements Government-Wide Fund Financial Statements Budgetary Statements for General Fund and major special revenue funds Notes to Financial Statements

Overview of Your Financial Statements Supplementary Information Combining and Individual Fund Statements and Schedules Nonmajor Combining Governmental Funds Nonmajor Combining Capital Projects Funds Nonmajor Combining Debt Service Funds Nonmajor Proprietary Funds Supporting Schedules Schedule of Collateral Pledged by Depository for Public Funds Schedule of Deposit and Investment Accounts Schedule of Changes in Fiduciary Assets and Liabilities – Agency Funds Other Schedules Required by OSA Audit Rule

Overview of Your Financial Statements Compliance Section Report on Internal Control and on Compliance Federal Financial Assistance Report on Compliance and Internal Controls over Compliance Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs

Cash vs. Modified Accrual Basis of Accounting Cash Basis Budgetary (Non-GAAP Basis) Account for cash received and cash disbursed Modified Accrual Basis (Current Financial Resources Focus) Accounts for cash received and cash disbursed Recognize revenue when it is available and measurable, recognize expense in a fund when liability is incurred Also includes other accrual amounts Accounts Receivable Inventory Accounts Payable Accrued Liabilities Unearned/Unavailable Revenue Does not include capital assets or components of general long-term debt

Modified Accrual vs. Full Accrual Basis of Accounting Full Accrual Basis (Economic Resources Measurement Focus) Same as modified accrual, however all aspects of the Government's operations are included to give a full picture of the financial position and results from operations Includes Capital Assets General Long-term Debt (and components) Eliminates Interfund Activity

Cash is King! Regulatory DFA/HED/PED Reporting Cash per Financial Statements Using the budgetary statements (harder now as they are not all included) as a check

Account Balance and Disclosure Review Cash and Investments Unrestricted vs. Restricted GASB 40 Note Disclosure Requirements Accounts Receivable Perform RFR analysis and subsequent receipt procedures Property taxes receivable Amount should be the same on Government-Wide and Governmental Fund Statements Revenue amounts will be different by amount that is not collected within 60 days

Account Balance and Disclosure Review Inventory Other Assets Due to/froms Capital Assets State Requirements Depreciation Schedules Deferred Outflows

Account Balance and Disclosure Review Accounts Payable Perform search for unrecorded liabilities Goods and services received before year end (not necessarily invoice date or encumbrances) and paid for subsequent to year end Accrued Payroll Liabilities (Payroll) for services rendered prior to year end, however payment is made after year end. Other Accruals Unearned / Unavailable Revenue Property Taxes

Account Balance and Disclosure Review Long Term Debt Amounts that must agree Debt proceeds on Stmt of Revenues, Expenditures and Changes in Fund Balances to principal additions (debt issuance) in the note disclosure Principal payments on Stmt of Revenues, Expenditures and Changes in Fund Balances to principal deletions Issuance Costs, Premiums, Discounts Net Pension Liabilities PERA/ERB Audited Financial Statements Agreeing the various components and how they should tie out Deferred Inflows

Account Balance and Disclosure Review Net Position and Fund Balance Cash vs. Accrual Restricted vs. Unrestricted Invested in capital assets, net of related debt Restricted for Special Revenue Funds Capital Projects Funds Debt Service Funds Unrestricted GASB Statement No. 54 Spendable vs. Nonspendable i.e. inventory, or any item not available for appropriation Rebudgeted Cash

Account Balance and Disclosure Review Income Statement Components Revenues Expenditures 15

Budgetary Statements Budgetary vs. Actual Statements Original Budget vs. Final Budget vs. Actual Budget Adjustment Requests Budget to actual variances at the expenses Overexpending at the fund or function level results in a finding per 6-6-6 NMSA, 1978 Original adopted budget vs. beginning cash plus any receivable balance Presentation Budgets should have no profit or loss Any excess/deficiency will result in increase or designated amount of prior year cash Reconciliation of change in net assets (budgetary basis) to combining financial statements (modified accrual or GAAP basis) Ending fund balance

Interaction with Auditors Provide auditor with Accounts Receivable Accounts Payable Accruals Accrued Compensated Absences Capital Asset Listing and Rollforward Include depreciation by function Infrastructure Construction in Progress Long-term Debt Rollforward

Interaction with Auditors Provide auditor with all note disclosure information Provide auditor with fund balance rollforward to cash basis, modified accrual basis and full accrual basis Disclosure Checklist (AICPA and OSA) Analytical Procedures

Interaction with Auditors Adjustments Analysis Reconciling to the Financial Statements Communication is Key

Albuquerque, New Mexico Bobby Cordova, CPA Principal Cordova CPAs LLC Albuquerque, New Mexico bobby@cordovacpas.com Robert Gonzales, CPA rg@cordovacpas.com Building strong and genuine, long-term relationships with our clients and team members.