Q1. How does the modified accrual basis of accounting differ from the accrual basis?
-The concept of Modified Accrual basis is more popular in the preparation of the financial statements of Government Agencies as those financial statements focus on the flow of current financial resources and if the available resources were allocated and used in conformity with the budgetary and other financial constraints. Under this accrual method, the government agencies use the combination of accrual accounting and cash basis accounting. Hence, under this accrual method of accounting, revenues that will not be collected in the time period so as to pay-off current period obligations, will not be included as part of revenue figures. In the similar manner, obligations that will not be paid from the currently available financial resources will also not affect the fiscal performance of the reporting year. Hence, unlike the accrual basis of accounting where line items are divided into current and non-current basis, the modified accrual basis of accounting will recognize only that revenues that will be collected in time so that they could pay the current obligations and only those expenditures will be recognized that will be paid in the current operating period.
Q2. What are the three sections of a comprehensive annual financial report (CAFR)? What information is contained in each section? How do the minimum requirements for general purpose external financial reporting related in scope to the CAFR?
-The Comprehensive Annual Financial Report has three different sections, namely:
- Introduction- This section contains title page, contents page and information relating to principal officials, transmittal letter and state organization chart.
- Financial Section- This section contains information related to basic financial statements, Auditor’s reports, Management Discussion & Analysis, Independent Auditor’s Report and other Required Supplementary Information.
- Statistical Section- This section includes information on the financial trends, revenue capacity, debt capacity, demographic information, economic information and operating information.
The minimum requirements for the general purpose external financial reporting related to the scope of CAFR are:
i)Management’s discussion and analysis section: The MD&A section of CASR should include the basic financial statements and also provide analytic information of the organizations’ financial activity
ii)The basic financial statements: This includes:
(a) Government-wide financial statements: The government-wide financial statements are required to display information relating to the reporting government, except for its fiduciary activities. In addition, the statements should also include separate columns for the government as well as business activities of the government. Al such information should be prepared using the accrual basis of accounting and by using the economic resources.
(b) Fund financial statements: These statements are presented only after government-wide financial statements and include financial information relation to the primary government’s Governmental , Proprietary and Fiduciary funds.
(iii) Notes to the financial statements: This includes additional notes to the financial statements.
c. Required supplementary information other than MD&A section: This include excerpt for MD&A section, supplementary information relating to budgetary comparison. All such information should be presented immediate to the notes to the financial statements.
Works Cited
Guide to Implementation of GASB Statement 34 on Basic Financial Statement. (n.d.). Retrieved October 7, 2014, from http://www.gasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175827486403&blobheader=application/pdf&blobcol=urldata&blobtable=MungoBlobs
Modified Accrual Accounting. (n.d.). Retrieved October 7, 2014, from Investopedia: http://www.investopedia.com/terms/m/modified-accrual-accounting.asp
