Background of the ACFR
The ACFR follows GASB (Governmental Accounting Standards Board) 34, which establishes financial reporting standards for state and local governments, including school districts. As a result of the standards and requirements, all ACFRs follow the same format, regardless of the entity type or location.
If possible, have an example of an ACFR in front of you as we go through the sections that follow. Sample ACFRs are available on the ASBO International website.
Comprised of many pages of text, tables, and charts, the ACFR can be overwhelming to a new business official who does not come from an accounting/auditing background.
ACFR Sections
The ACFR is comprised of three sections: the Introductory Section, the Financial Section, and the Statistical Section.
Introductory Section
This section includes the title page, the table of contents, and the letter of transmittal.
The letter of transmittal is written by the district and addressed to the board. The purpose of this letter is to provide information about the district that is not included in the financial statements — the equivalent of an open house tour.
The letter can be as long or as short as the district chooses and can include graphics, pictures, and charts along with the writings. The letter is signed by the superintendent and business official.
After the letter of transmittal, the next three pages are the district organization chart, the roster of officials, and consultants and advisers.
Financial Section
This is the most important section of the ACFR and includes several parts:
1. The Independent Auditor’s Report. This report provides an opinion on the financial statements. This multi-page letter outlines in detail the following:
- Basis for Opinion(s).
- Management’s Responsibility for the Financial Statements.
- Auditor’s Responsibility for the Audit of the Financial Statements.
- Other Matters.
- Other Reporting Required by Government Auditing Standards.
2. Management’s Discussion and Analysis (MD&A). This report is prepared by the district and comprises key financial highlights of the district, an analysis of budgeted areas, capital assets, debt service, and a discussion of the future. This report can be as brief or as detailed as the district chooses.
3. Financial Statements. These include:
A Schedule: District (government)-wide financial statements. This includes a statement of net position, which focuses on operational accountability (assessing if the entity is covering costs in the long run) and presents a consolidated statement of net assets. This is not a balance sheet. Governmental and business-type activities for the year are summarized with assets, liabilities, and net position.
For the revenues and expenditures, a statement of activities is prepared showing expenditures that are offset by program revenues tied to the expenditures. Revenues that are not aligned with the expenditures are shown at the bottom of the schedule. Fund balance is not part of this schedule. The difference between revenues and expenditures results in a change in net position. The basis of accounting is accrual (revenues recorded when earned, expenditures when they become a liability).
These statements are presented to give a broad view of the district’s financial balance. They indicate whether the district has enough resources to maintain viability in the future.
Some of the assets/liabilities presented on the A schedule, as they relate to district-wide functions, are not on the B Schedule. Capital assets, pension information, long-term liabilities, current liabilities, non-current liabilities, and deferred revenue are examples.
B Schedule: Fund financial statements. These financial statements have more detail than the A Schedule and are presented as a balance sheet and statement of revenues, expenditures, and changes in fund balances. Modified accrual accounting is used (revenues and expenditures are recorded when measurable and available.). Governmental funds (general fund, special revenue, capital projects, debt service) are presented on this balance sheet. Business-type funds will be presented in a separate statement.
The focus of these statements is fiscal accountability to determine whether current financial resources were obtained from authorized services and expended only for authorized purposes during the period under audit.
Since these two schedules utilize different methods of accounting, reconciliation is necessary to tie out to the net assets (Schedule B to A). This reconciliation is presented after the revenues, expenditures, and changes in fund balance.
The business-type statement of net position and statement of revenues, expenses, and changes in net position, along with a statement of cash flows, are presented as part of the B Schedule section of the report.
4. Notes to the Financial Statements. The notes provide detailed explanations of various components of the financial statements, including pension information, capital assets and depreciation, cash balances, and interfund balances.
5. Budgetary Comparison Schedules for All Funds. These pages look similar to a budget status schedule that is run on the district accounting software. A reconciliation is prepared from budgetary to GAAP (Generally Accepted Accounting Principles) basis.
6. Required Supplementary Information: This part of the report provides required supplementary information:
- Pensions (GASB 68)
- Post-employment Benefits Other Than Pensions
- School-Based Budget Schedules
- Special Revenue Fund
- Capital Projects
- Proprietary Funds
- Fiduciary Funds
- Long-Term Debt
Statistical Section
After the supplementary information, the statistical section schedules appear. These schedules are prepared by the district and are unaudited. They provide a wealth of information for the district/governmental entity, such as data regarding enrollment, budget size, expenditures, aid, and wealth of the communities.
Single Audit
The final set of information is related to the Single Audit. The U.S. Department of Treasury defines a single audit in the following manner:
A Single Audit is required from all recipients who expend $750,000 or more in aggregate federal financial assistance within their fiscal year. Single Audits are comprised of two main sections: Financial Statements: Audit of a recipient’s financial statements, policies, documentation, and system of internal controls. Programmatic Compliance Evaluation: Test of a recipient’s compliance with the requirements of their federal awards which often assesses the effectiveness of award spending and evaluate performance progress.
If a district meets the requirements, the audit firm will utilize additional procedures to ensure compliance with Government Auditing Standards. The auditor will report on the following:
- Compliance with Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards.
- Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance and Report on the Schedule of Expenditures of Federal Awards Required by the U.S. Uniform Guidance and Schedule of Expenditures of State Financial Assistance as required by (state ) OMB Circular (number).
The next pages include a schedule of federal and state awards identifying each award, including receipts, expenditures, and any payable/receivable/deferred revenue balance. The notes accompany the aforementioned schedule.
The last page of the report is the schedule of findings and questioned costs, if any, that have been identified in the year under audit.
In Sum
All business officials should be familiar with the ACFR. Knowing how the report is organized will empower business officials in their role as financial officers. If a business official is looking to change districts, the first step in determining if the move is the right one would be to read the ACFR. Each schedule, including the notes and Single Audit section, will outline the current and future financial health of the district.