Financial Statement / Audit Report Review - Essay Example

Financial ment/Audit Report Review Introduction A financial ment refers to an official record of the financial activities of a company, entity or a person (Hammock, 2009). It is also referred to as a financial report or an audit report. This paper will review a financial statement of a local government in Virginia and analyze the method of accounting used for the funds. It will evaluate the use of the method of accounting for the funds as required by GASB, and assess the application and compliance of GASB statement number 34.

It will also discuss basic financial statements, management decisions and analysis for state and local government to each of the funds. Thirdly, it will evaluate management’s discussion and analysis (MD&A) and its significances. It will also determine whether the entity’s financial position improved or deteriorated during the reporting period. Finally, it will speculate on the causes of the paper’s review of the financial statements. This article will look at the Mayor or Town Council local government in Virginia.

A significant financial statement in the town council of Virginia is the CAFR. It refers to the Comprehensive Annual Financial Report (Hammock, 2009). It is presented in three key parts. The introductory segment contains a financial summary, discussion of a town’s economy, and organization plans for a town’s government. The financial segment includes the town auditor's report, management's discussion and analysis (Hammock, 2009). The statistical segment contains unaudited financial, economic trend, and demographic information for the town on multi-year grounds.

Three funds present in the CAFR are: the general funds, proprietary funds, and the public enterprise funds. Accounting is carried out in two methods, cash accounting and accrual accounting. Cash accounting refers to a method of accounting in which receipts are recorded at the time they are established, and expenditures at the time they are paid. Accrual accounting is an accounting method that measures the position and performance of a business by distinguishing economic procedures irrespective of when cash transactions happen.

General funds are placed in cash accounting because they are essential to the success of a town (Hammock, 2009). Proprietary funds are also classified as general funds because recording of their receipts is done at the time of their transactions and during settling of its expenses. The public enterprise fund falls in the category of accrual accounting because it is controlled by settlers of the town. It also measures the position and performance of a business by distinguishing economic procedures irrespective of when cash transactions happen (Hammock, 2009).

The GASB statement sets latest financial reporting requirements for state and local governments in the U.S. The GASB and MD&A are accountable for setting principles of state and local governmental and financial reporting and accounting. Researchers think that the effectiveness of the two will result in valuable information to those who use financial statements and guides, plus it will educate the public. This includes auditors, issuers, and users of those financial statements (Hammock, 2009).

People can now enjoy an open decision-making procedure that supports extensive public contribution. The MD&A holds a company’s annual financial statement in which the company’s administration converses over several aspects of their firm, both present and past. The MD&A is an extremely vital segment of an annual report, mainly for those analyzing the essentials which include administration and administration style (Hammock, 2009). In a critic view, the MD&A should offer an easily readable and objective investigation of a government's financial procedures based on currently identified decisions, facts or conditions.

It should embrace differences of the earlier year to the present year based on the government’s broad information. It should provide a breakdown of the government's general financial position plus results of operations to help those who use it to assess whether that financial position has enhanced or worsened as a result of the year's events (Hammock, 2009). The entity’s financial position has deteriorated. Below follow an explanation of the thought. Figures in the CAFR financial statements in the town councils have markedly decreased.

Researchers have broken this down into three phases (Hammock, 2009). The first phase is the era in which every town’s financial statement had a budget of $100 million per year. This was in the late 90’s (Hammock, 2009). The second phase is the era in which every town’s financial statement ranged from $80 to $100 million, but not over. This signified a drop in the annual budget. The third phase is the era in which every town’s financial statement ranged from $60 to $80 million (Hammock, 2009).

This was also a drop from the previous phase. In conclusion, the MD&A should end with an account of currently recognized decisions, facts, or conditions that are projected to have a considerable outcome on the financial position or results of operations. Reference Hammock, A. (2009). West Virginia politics and government, (politics and governments of the American States). Nebraska: University of Nebraska Press.