Financial Statement of the City of Glendale, Arizona - PowerPoint Presentation Example

Introduction The of Glendale, Arizona’s Comprehensive Annual Financial Report (CARF) is often presented at the close of each financial year which includes full financial statements in compliance with the generally accepted principles of accounting (GAAP) which is audited by an independent auditor in conformity with the generally accepted auditing standards (GAAS). As such, this report will discuss the significance of CARF and various that comprise this financial report. The report will also outline the correlation between the city’s internal funds and government funding. Other elements such as debt by the government and the city council as long as its long term plans will also be discussed in the report. The report will also outline the significance of net positions on the financial statements of large organizations that are specifically concerned about saving the interests of the public. Significance of independent audit of the city council’s financial statement As a point of departure, it can be noted that a full independent audit for The City of Glendale, Arizona was carried out by Clifton Larson, Allen LLP, a firm of licensed accountants. Auditing financial statements of a large entity that is accountable of dealing with public funds is very important since it helps to reduce cases of fraud while at the same time promoting accountability. This can be possible if an independent auditor is contracted. These people help people to assess the financial information of the organization through implementation of accounting and auditing standards that are within the expected standards of the financial rules and regulations in a given country (Intakhan & Ussahawanitchakit, 2010). In this case, the independent auditors were hired in compliance with the accounting principles generally accepted in the United States of America. It should be noted that the Federal Government has greater authority and control to ensure that the local governments are acting within the expected standards. According to the auditors’ report, the financial statement has been presented in a fairly manner that is representative of the financial position of the governmental activities in conjunction with The City of Glendale, Arizona. The fairness of a financial statement can be achieved if an independent contractor is given the opportunity to perform that particular task. Georgiade (2011), states that the responsibilities of the independent auditor when conducting an audit of financial statements should be in compliance with GAAS and include the following: “Obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, due to either fraud or error.” In this case, effort has been made to ensure that the financial statements for Arizona City Council are free from bias. Government type and City type of business The major governmental activities of business type include public safety, public works, general government, community environment as well as interest on long term debt. While the business type activities of the general council include housing, water and sewer sanitation as well as landfill. Therefore, it can be noted that there is a correlation between the city and governmental business like activities. The government plays a pivotal role in monitoring the activities of the city council in order to protect the interests of the people. All issues related to financial performance of the city council are closely monitored by a segment of the government so as to ensure that the interests of the people at large are protected. The long term interests of the government include the provision of community safety, environmental protection among other issues that that promote the interests of the members of the community at large. The government works hand in glove with the city council in order to provide the services that impact on the general welfare of the citizens at large. The statements of Net Position The financial statement indicates that the city’s net position increased $4201, or 43 % while the government net position decreased by $6401 or 1.2 %. These changes have been attributed to different factors. For instance, the increase in city tax led to the increase of the city’s net position. The significance of this financial statement is that it serves an indicator to show if the city is operating positively. For example, an increase in the net position indicates that the city is able to sustain its operations and is operating within the expected standards. This entails that it does not unnecessarily borrow funds from the government to finance its operations. On the other hand, it can be noted that a decrease in the net position is a negative indicator with regards to the operations of either the city or the government. Operating revenues should show a positive sign of growth to show that the city is operating within the expected standards. Another notable aspect is that the total cost of all city programs decreased as a result of a decrease in the expenses of the operating costs. This is a positive indicator about the financial performance of the city given that its operational costs should be lower than the revenue generated from its operations. Since the city witnessed an increase in its net position, it can be concluded that its capacity to generate revenue increased during the 2012-2013 financial year. In other words, this entails that city’s debt margin was lowered. Essentially, an organization that is capable of increasing its net position on its own from its operation is financially viable such that it can sustain its long term operations. The city also issued $239 875 in Municipal Property Cooperation Bonds to refund the 2003-2004 MPC bonds. This shows again that the city is able to reduce its liabilities while at the same time improving its performance in terms of acquiring more assets. An organization that presents a large gap between assets and liabilities shows that it is operating effectively. As long as the liabilities are lower than the assets and there are indications that the gap is widening, it can be noted that the organization is operating within the expected standards. As of 30 June 2013, the City assets exceeded liabilities by $990, 703 according to the financial statement presented and this is a positive indicator that it is investing in assets such as buildings and equipment. However, the debt that exists can be repaid using other means not the assets that have been accumulated by the company. Main sources of government and city revenue From the financial statement presented, it can be observed that the main source of government revenue is the General Fund which obtains the bulk of its revenue from sales taxes. The General Fund witnessed an increase of revenue by $28, 779 or 21.2% from the previous year. Government funds are mainly used to fund long term projects such as infrastructural development. The government has a responsibility of financing large projects such as infrastructural development like roads as well as other public buildings. The other major sources of revenue for the government include charges for services, operating grants and contributions, capital grants and contributions. The major source of revenue for the government is through taxes and the funds generated are used for various purposes that are also oriented towards the development of the municipality. In most cases, an increase in taxes often offsets the expenses incurred by the organization. The council in compliance with the US government regulations of local governments can increase taxes on certain services as a way of generating revenue. Though the customers will be forced to fork out more money, it can be seen that the city council will be in a position to generate more revenue that can be channelled towards other developmental projects. This also helps to minimize the chances of incurring debts by the municipality. As reflected in the financial statement of The City of Glendale, Arizona, the organization has managed to lower the rate of debt significantly. This means that service delivery can also be improved if the organization is able to generate enough revenue that can sustain its operations. On the other hand, the majority (57,45%) of the city revenue comes from property and sales taxes as well as urban revenue. It seems the city council has surplus revenue from its operations since it has managed to increase in net position as indicated in the discussion above. An increase in the net position is a sign that the organization has managed to generate more revenue while at the same time offsetting the expenses it has incurred in its operations. Essentially, the aim of any business is to generate surplus revenue that can sustain the operations of the organization in its long run while at the same time putting measures in place that are meant to ensure that expenses are minimised. The idea is to ensure that the operating costs are lower than the revenue generated so as to ensure that the organization can sustain other activities such as paying labour costs. In terms of long term debt at the end of the current fiscal year, the city’s debt stood at $1, 020, 889 compared to $1, 064, 620 the previous year showing a 4.11% net decrease. The government also has long term liabilities that include the following: bonds payable, capital lease obligations, as well as developer payable obligations. These obligations are often recorded as long term liabilities in the financial statement of the organization. Operating lease revenue The city leases offices as well as vehicles to different stakeholders and this is another source of revenue for the organization. The revenue generated from different lease agreements is used for various developmental purposes by the city. Of notable concern is that fact that as of fiscal year 2013, the City did not commit any short term debt. However, long term debts are often incurred in terms of general obligation bonds. These are mainly used to provide funds for the acquisition and construction of major capital facilities. Compensation and pension fund for council workers The City Council of Glendale, Arizona has a deferred compensation plan where the employees can contribute part of their salary to a fund that is administered by a third part, Great West and they can access these funds at a later date when they retire or their contract has been terminated. It can also be seen that the city contributes to three different cost sharing pension plans. The financial statement of the City shows that the government does not provide pension funds for the employees. However, the City Council itself has pension plans for the employees and they can contribute to any of the chosen scheme that suits their needs. The employees have a choice to make among the different schemes available. The City also offers retiree health plans that are meant to assist the employees to meet their health expenses when they retire. Conclusion Overall, the report discussed major aspects presented in the financial statement of The City of Glendale, Arizona for 2013. A critical analysis of this financial statement shows that it is in compliance with the expected standards set by the American government. The net positions of both the government and the City show a positive performance since they exceed the liabilities. Basically, an organization’s revenue should exceed its operating costs in order to show that its financial performance is healthy. This is a positive indicator to show the level of performance of the organization. Transparency and accountability are virtues that should guide the operations of large organizations like The City Council of Glendale, Arizona. There is a tendency by the responsible authorities to misuse funds for their own benefit and this has a negative impact on the performance of the organization. In order to counter this problem, the services of independent auditors should be hired. As observed in the case, the financial statement of The city of Glendale, Arizona has been presented in a fair and transparent manner since an independent auditor was hired. It has also been observed that the financial statement was prepared in compliance with the standard expectations of the US government. References Kueppers, B.J. & Sullivan, K.B. (2010). ‘How and why an independent audit matters.’ 2010Macmillan Publishers Ltd. 1741-3591 International Journal of Disclosure and GovernanceVol. 7, 4, 286–293 Georgiades, G. (2012). ‘AICPA Statement on Auditing Standards, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards.’ Volume 11, Issue 8. Intakhan, P. and Ussahawanitchakit, P. (2010). Role of Audit Experience and Ethical Reasoning in Audit Professionalism and Audit Effectiveness through a Moderator of Stakeholder Pressure: An Empirical Study of Tax Auditors in Thailand. Journal of Academy of Business and Economics, 10(5): 1-14. Financial Statement for the City of Arizona 2013. Viewed from: https://www.glendaleaz.com/finance/documents/june302013cafr.pdf Read More