Comprehensive Annual Financial Report (CAFR): Overview of Government Financial Reporting

August 25, 2024 3 min read Finance Government Regulations CAFR Financial Reporting Government Annual Report Budget

A detailed description of the Comprehensive Annual Financial Report (CAFR), which provides a thorough and publicly accessible financial summary of a governmental entity.

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The Comprehensive Annual Financial Report (CAFR) is a detailed and standardized report that provides a complete accounting of a government entity’s financial status over a fiscal year. It is a vital tool for transparency and accountability, documenting both the financial and economic activities of the entity. This report is essential for stakeholders, including taxpayers, government officials, and creditors, as it offers insight into the financial health and operational performance of the government.

Structure of CAFR

Statement of Revenues, Expenditures, and Changes in Fund Balance (All Funds)

This section details the financial performance of all funds by summarizing the total revenue collected, the expenditures incurred, and the net changes in fund balance. It portrays the fiscal viability and budgetary performance.

Statement of Revenues, Expenditures, and Changes in Fund Balances, Budget and Actual (Government Fund Types)

For government fund types, this statement aligns actual financial data with the approved budget, showcasing variances and helping analyze budget adherence and fiscal discipline.

Statement of Revenues, Expenses, and Changes in Retained Earnings (Proprietary Funds)

This statement focuses on proprietary funds, such as utilities and other self-sufficient activities, detailing their income, operating expenses, and changes in retained earnings.

Statement of Changes in Financial Position (Proprietary Funds)

Also known as the cash flow statement, it details how cash and other financial resources are generated and used within proprietary funds. This section underscores the liquidity and operational efficiency of these funds.

Historical Context

The concept of the CAFR originated in the United States and is regulated by the Governmental Accounting Standards Board (GASB) guidelines. Its adoption promotes uniformity, transparency, and comparability in governmental financial reporting.

Applicability and Use

CAFRs are indispensable for various stakeholders:

Taxpayers and Citizens: Ensures transparency about how public funds are managed and utilized.
Government Officials: Assists in decision-making and strategic planning.
Creditors and Investors: Provides insight into the creditworthiness and financial stability of the government entity.
Regulatory Bodies: Guarantees compliance with accounting standards and legal requirements.

Governmental Accounting Standards Board (GASB): A private non-governmental organization that sets accounting and financial reporting standards for U.S. state and local governments.
Proprietary Funds: Funds used to account for government activities that operate similarly to private business enterprises, including utilities and other self-sufficient activities.
Fund Balance: The net position of a governmental fund (balance of assets and liabilities) available for future expenditures.

FAQs

What is the purpose of a CAFR?

The CAFR aims to present a comprehensive overview of a government’s financial status, ensuring transparency and accountability in the management of public funds.

How often is a CAFR published?

CAFRs are published annually, following the closure of the fiscal year.

Who prepares the CAFR?

Typically, the finance department of the government entity, under the oversight of the chief financial officer or equivalent, prepares the CAFR.

What are the major sections of a CAFR?

The major sections include the Introductory Section, Financial Section (with the required statements), and the Statistical Section.

Summary

The Comprehensive Annual Financial Report (CAFR) is an essential document for understanding the financial activities and status of a government entity. It provides stakeholders with detailed information on revenues, expenditures, fund balances, and overall fiscal health over a fiscal year. Adhering to established standards like GASB guidelines, the CAFR promotes financial transparency and accountability, aiding informed decision-making and fostering public trust.