Spring 2006 issue of Horizons

INDUSTRY PUBLIC SECTOR Common Financial Statement Reporting Deficiencies

only discuss “what” has occurred, but also provide some analysis as to “why” something occurred. No one is in a bet- ter position to provide that analysis than the finance directors and CFOs of governments. These financial managers of gov- ernments are the individuals who are the most knowledge- able about: (1) the transactions, events and conditions that are reflected in the government's financial report; and (2) the fiscal policies that govern its operations. The MD&A should provide an objective and easily readable analysis of the gov- ernment's financial activities. The reader of the MD&A should be able to ascertain whether the government's financial posi- tion improved or deteriorated. However, this is not always the end result. This analysis should be based on facts and not suppositions and should discuss the positive and negative aspects of the comparison between the current year and the prior year.

Preparing financial statements for state and local govern- ments can be an enormous task. There are numerous accounting standards and disclosure requirements to follow as well as just sheer volume of information to present. Based on a recent compilation of common deficiencies performed by the GFOA Special Review Committee, as well as recently published articles, there are common mistakes made in the preparation of financial statements for state and local govern- ments including: MD&A • Inadequate analysis included in the MD&A. Frequently, the MD&A merely provides condensed financial statement infor- mation without adequate discussion. The MD&A should not

39 • spring 2006 issue