Comparison of CAFRs of Philadelphia and Austin Cities
Publication method
The publication methods for the two comprehensive annual financial reports are similar in most respects. Both are addressed to the city mayor, city council members and the people of the city. Both are also prepared and published in accordance with GAAPs for local governments. However, there are a few differences in the two report. The CAFR for the City of Philadelphia is prepared by the Director of Finance while that of the City of Austin is prepared by the Financial and Administrative Services Department. Besides, the CAFR for Philadelphia is for the financial year ended June 30 while that of Austin of for the financial year ended 30th September.
Audit and budget information
Both audit information outline the financial statements audited and the audit opinion of the fairness and truthfulness of the financial statements. Besides, they both describe the responsibility of the auditor and that of the management. In both cases, it is categorically stated that the management is responsible for the financial statements. Both audit information includes other matters such as opinion on required and other supplementary information. They both state that the auditor did not give an audit opinion on management discussion and analysis and other supplementary information due to limited procedures. The only difference is that the independent auditor for the city of Philadelphia is the Deputy City Controller while that of Austin is Deloitte & Touche LLP.
The budgetary information for Philadelphia’s CAFR contains a summary of the budgetary process and the accounting basis for budget preparation. Specific details of the budget are included in the budgetary comparison charter. On the other hand, the budgetary information for the city of Austin includes a summary of the budgetary process as well a summary of the important items in the budget. It indicates that total approved budget for the fiscal year as well as the allocation to the General Fund, enterprise funds, among other funds.
In both cases, the auditor issued a modified report with an unqualified/unmodified opinion. The auditors had the opinion that the basic statements fairly represented the state of the cities. The reports were modified because of the inclusion of other matter paragraphs (Leung, 2011). The auditors stated they could not give an opinion on the management discussion and analysis and other supplementary information due to limited audit procedures. The unmodified opinion was also for basic financial statements, aggregate component units, major funds, and the aggregate of minor funds. They did not give an opinion on the individual components and funds.
Internal audit function
In both CAFRs, there is no mention of the existence of an internal audit control. Both cities do not have an internal audit function. However, the independent auditor for the City of Philadelphia is the Deputy City Controller.
Analysis of Philadelphia CAFR
The introduction
The introduction of the report is comprehensive. The Letter of Transmittal details the fiscal year of the report, accounting standards applied in the preparation of the report, as well as the auditing standards. The instruction indicates that the statements are prepared in accordance with the GAAP for the United States. The letter also indicates that the city has accompanied management narrative with the financial statements. It also includes the profile of the city’s management, organization chart and achievements. The report shows that the city has been professional in preparing its report, and this earned it an award of the Certificate of Achievement for Excellence in Financial Reporting from GFOA for the thirty-fourth consecutive year.
The Financial section
The financial section of the report gives detailed information about the financial status of the city. It includes the report of the independent auditor, comprehensive management discussion and analysis as well as government-wide financial statements. The statements together with the management narrative give a comprehensive view of the financial status of the city. The section also includes fund financial statements for proprietary funds, fiduciary funds and other funds. It also includes component units’ financial statements. Besides, it includes notes to the financial statements which are essential for ensuring completeness and enhancing understanding of the financial statements. The section also includes supplementary information.
The statistical section
The statistical section of the report is also comprehensive with tables detailing the net position of each component, changes in net position, fund balances, changes in fund balances, pledged revenue coverage, principal employees, among other relevant information. The section, therefore, enhances the completeness of the report as well making the report more understandable.
Methods for comparing budgets to actual reports
The city’s government reports government-wide financial statements using the accrual basis of accounting and economic resources measurement focus. Fiduciary and proprietary funds are also are reported on the accrual basis. This implies that it recognises revenues when they are earned and expenses when they are incurred irrespective of the timing of cash flows (Ruppel, 2016). Government fund financial statements are accounted for using the modified accrual basis of accounting and the current financial resources measurement focus (Ruppel, 2016). The modified accrual basis implies that the city recognises expenses immediately they are incurred but recognises revenues only when they are measurable and available.
The city compares budget and actual reports through budgetary comparison schedules. These schedules are not prepared using the modified accrual basis of accounting. In this case, both revenues and encumbrances are applied to the current budget unlike the accrual basis of accounting where encumbrances are applied in the budget for the period in which they are incurred. The budgetary comparison schedules incorporate the original budget, the final budget, the actual and the variance of the actual from the final budget.
Analysis of sources of revenue
Property taxes
The city collects revenue by levying property taxes. Property taxes are imposed on a calendar year basis and are based on the value of the underlying property as at 1st January. The taxes are due on March 31st and are used to finance activities for the year in which they become due. The city classifies property tax revenue under general revenue and reports them under governmental activities or business-type activities. Any other property taxes apart from the two above are reported as internal balances in government-wide financial statements.
Other sources of revenue
Other revenues classified as primary revenue include state and federal grants. These include operating grants and contributions as well as capital grants and contributions. Grants and contributions are reported under the program for which the grant or contribution is made. They are reported as program revenues.
Deferred revenue
The city also receives some revenues in advance. These are reported as unearned income in the fund financial statements of the city except for the General Fund. The General Fund reports two types of deferred revenue; Business Income Receipts Tax and Revenue Received in Advance. The city reported Revenue Received in Advance of $5.5 million for the financial year ended 30th June 2014.
Variations in tax levels of income
Variations occur in the tax levels of income every year. These variations affect the amount of revenue as well as the net position of the city. These variations are recorded immediately the event causing the variation occurs. The variations are also shown in budget comparison schedules.
Management discussion and analysis items
Items of note in the management discussion and analysis include the change in tax revenue. During the year, tax revenue increased by $60 million. Wage and Earnings Tax, Real Property Transfer Tax and BIRT, increased by $82 million. However, real property tax decreased by $22 million hence the net change was $60 million. Another essential item is the 9.16% in expenditures, among other items.
General fund
The general fund is the city’s primary operating fund (Berman, 2014). The balance of the general fu8nd’s surplus decreased by $72.6 million due to excess expenditures over revenues. The general fund balance was 202.1 million in 2014 down from $256.9 million in 2013.
References
Berman, E. (2014). Governmental gaap practice manual 2015. [Place of publication not identified]: Cch Incorporated.
Leung, P. (2011). Modern auditing & assurance services. Milton, Qld.: John Wiley.
Ruppel, W. (2016). Wiley GAAP for Governments 2016: Interpretation and Application of Generall. John Wiley & Sons.
