What is a Comprehensive Annual Financial Report (CAFR)?
A Comprehensive Annual Financial Report (CAFR) is a thorough and comprehensive presentation of a government’s financial position as of the end of its fiscal year. The CAFR includes governmental accounting information about revenues, expenditures, and financial statements. This report adheres to accounting principles set by the Governmental Accounting Standards Board (GASB) and is intended to provide greater transparency and accountability to taxpayers and investors.
Sections of a CAFR
A CAFR typically consists of three major sections:
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Introductory Section: This contains general information about the reporting entity. It often includes the entity’s organizational structure, an overview of economic conditions, a letter of transmittal from the chief executive.
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Financial Section: Includes the entity’s basic financial statements, which are ideally accompanied by notes to clarify crucial information. This section also holds the independent auditor’s report and the management’s discussion and analysis (MD&A).
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Statistical Section: Provides additional financial and non-financial data to illustrate the economic and demographic conditions within which the entity operates. It typically extends the analysis over a period of time.
Examples
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State Government CAFR: The state government CAFR will compile fiscal information across various departments and agencies within the state. It includes vital summaries—a blueprint of revenues, expenditures, larger debts, and an enumeration of all public programs.
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Municipal Government CAFR: A report for cities and counties that presents detailed budgets, fund statements, and operational results for city-run operations like schools, fire departments, and municipal services.
Frequently Asked Questions (FAQs)
Q1: Why is the CAFR essential for governmental entities?
The CAFR provides a comprehensive view of a government’s overall financial health, helping stakeholders make informed decisions. It promotes transparency and accountability by offering detailed, audited, and standardized data.
Q2: How often is the CAFR produced?
The CAFR is produced annually, covering the fiscal year’s accounting period.
Q3: Who is responsible for compiling and auditing the CAFR?
Finance departments within governmental entities typically compile the CAFR, which must be audited by independent external auditors to ensure accuracy and compliance.
Q4: How is the CAFR different from a regular budget report?
While a budget report estimates future revenues and expenditures, the CAFR provides a historical analysis of financial activities and the actual financial position at the end of the fiscal year.
Q5: Where can I access a CAFR?
Most CAFRs are available on the official websites of the respective governmental entities or can be obtained upon request from their finance departments.
Related Terms
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General Fund: The primary operating fund of a government, which accounts for all financial resources except those required to be accounted for in another fund.
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Auditor’s Report: A formal opinion by an external auditor on a government’s financial statements.
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GASB (Governmental Accounting Standards Board): The source for generally accepted accounting principles (GAAP) used by state and local governments in the United States.
Online Resources
- Government Finance Officers Association (GFOA)
- Governmental Accounting Standards Board (GASB)
- U.S. Securities and Exchange Commission (SEC)
Suggested Books for Further Studies
- “Governmental and Nonprofit Accounting: Theory and Practice” by Robert J. Freeman, Craig D. Shoulders, Gregory S. Allison, and G. Robert Smith Jr.
- “Financial Reporting and Analysis: Using Financial Accounting Information” by Charles H. Gibson
- “Accounting for Governmental and Nonprofit Entities” by Jacqueline Reck and Suzanne Lowensohn
Accounting Basics: “CAFR (Comprehensive Annual Financial Report)” Fundamentals Quiz
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