Comprehensive Annual Financial Report Research Articles

Pension Funding in the State of Illinois: A Teaching Case in Governmental Accounting

ABSTRACT This case chronicles events in the State of Illinois over the period 1970 through 2017 that led to an increase in the State's unfunded pension liability from under $1.5 billion to over $137 billion—and growing. It recounts efforts to resolve the impending crisis that yielded unexpected consequences, both large and adverse, and highlights the role of accountants in educating policy makers on the financial impact of pension funding decisions. With these striking events as a backdrop, students use the Comprehensive Annual Financial Report (CAFR) to analyze Illinois' financial condition, assess its revenues and expenditures, interpret disclosures regarding its pension plans, and evaluate plans for their funding. The analyses will provide students with a deeper understanding of the structure and content of the CAFR and of governmental pension accounting, a complex topic on which accounting rules have undergone significant changes.

Assessing fiscal distress in small county governments

Assessing fiscal distress in small county governments

Examining the Usability of the Comprehensive Annual Financial Report’s MD&A using Textual Analytics

[This research collected the Comprehensive Annual Financial Report (CAFR) of different municipalities within New York State and analyzed the usability of the Management's Discussion and Analysis (MD&A) using textual analysis method. Considering the previous studies of the listed company MD&A section and the evaluation of the usability of financial information, this study measures the usability of the CAFRs from the perspectives of timeliness, readability and usefulness. The results show that the usability of CAFR’s MD&A is very low, due to the length of issue period, its difficulty for the public to understand as well as their similarity from year to year. We suggest the municipalities increase the usability of their Reports by including a more detailed discussion and in-depth analysis in the MD&A. Most importantly, we suggest that municipalities provide machine-readable financial information to the public. Abstract Body]

Twenty First Century Water Asset Accounting: Implications Report

Green infrastructure, the use of soil, vegetation, and other natural landscape features to manage and treat water, is increasing in popularity as an alternative to traditional grey infrastructure for water management. However, challenges arise to the widespread adoption of green infrastructure practices because of the difficulty in evaluating, accounting for, and valuing the benefits of such practices. Current accounting frameworks do not adequately account for the value of these assets, and the absence of appropriate accounting and evaluation tools may limit the ability of utilities to maintain or expand green approaches. This project developed two potential accounting frameworks to help water utilities assess and account for the ecosystem services provided by green infrastructure. The frameworks were pilot tested at three participating public wastewater and drinking water utilities over a period of five months to assess the benefits and feasibility of implementing national-scale accounting methods for green infrastructure. Several themes on green infrastructure accounting emerged from the pilot tests: the effects of regulatory vs. non-regulatory drivers, the importance of information flow both to the utilities from outside experts and within municipal government, and the need for standardized methods for assessing and accounting for the services provided by green infrastructure. Pilot test participants indicated that with further refinement of the accounting frameworks and the development of standardized guidance for valuing green infrastructure, national-scale implementation of these accounting frameworks is possible. This report discusses the implications of larger-scale adoption and future research needs to facilitate green infrastructure accounting practices. U.S. cities are facing many challenges including aging water infrastructure and the costs associated with upgrades, changing weather patterns, rising demand for clean water, and more stringent water treatment standards. These pressures and others are affecting how municipal water utilities expand, repair, and maintain the infrastructure that carries and cleans our water. Building more grey infrastructure is the traditional approach to addressing these problems. Some municipalities are, however, turning to green infrastructure3 as an option. These municipalities may be investing in green infrastructure directly for water utility management or indirectly by increasing their green space and greenways. No matter the original intent of the investment, green infrastructure may provide a cost-effective alternative that can help water utilities protect source water supplies, reduce stormwater runoff, and improve water quality. Current municipal accounting standards, however, do not adequately account for the benefits provided by green infrastructure. For example, the Governmental Accounting Standards Board (GASB), which establishes standard accounting practices for state and local governments, requires public utilities to value land assets using the historical purchase price, rather than the current market value and productive capacity. While there are good reasons to value assets at historical cost (such as avoiding over-valuation), this approach may also under-reflect the true asset value of many green infrastructure assets. Furthermore, the lack of a formal approach for accounting for green infrastructure and its benefits may be a barrier to further utility investment in this area and may predispose utilities to favor more investment in grey infrastructure. The lack of comparable accounting methods may also limit utilities' ability to convey green infrastructure's true benefits to ratepayers, policy makers, and investors. This project developed new accounting frameworks to help public drinking water and wastewater utilities more accurately evaluate and catalogue their green infrastructure assets. We developed two model accounting frameworks that could be included in the unaudited supplementary disclosure of a utility's comprehensive annual financial report (CAFR). We pilot tested these two frameworks at three participating utilities: The City of Raleigh (NC) Public Utilities Department, The City of Asheville (NC) Water Resources Department, and Clean Water Services (OR). We conducted surveys and semi-structured interviews to understand the utilities' experiences with the accounting frameworks and how the frameworks could be improved. This report summarizes the implications of the pilot tests, including implications of more widespread adoption of the accounting frameworks, and contributes to the growing body of knowledge surrounding green infrastructure, by offering two approaches for accounting and evaluation that more accurately reflect the value that green infrastructure provides for water utilities. This report also outlines the limitations of these frameworks and suggests future research needs. This title belongs to WERF Research Report Series . ISBN: 9781780405131 (eBook)

Twenty First Century Water Asset Accounting: Case Studies Report

U.S. water utilities are grappling with a diverse suite of challenges. Aging water infrastructure, changing weather patterns, rising demand for clean water, higher water treatment costs, and other pressures are affecting how water utilities expand, repair, and maintain the infrastructure that carries and cleans our water. The traditional approach to addressing these problems – building more grey infrastructure1 – is not the only option. Green infrastructure may provide a cost-effective alternative that can help water utilities protect source water supplies, reduce stormwater runoff, and improve water quality.Current municipal accounting standards, however, do not adequately account for the benefits provided by green infrastructure. For example, the Governmental Accounting Standards Board, which establishes standard accounting practices for state and local governments, requires public utilities to value land assets using the historical purchase price, rather than the current market value. This approach frequently does not capture the full value of the benefits provided by green infrastructure and so may limit utilities' ability to accurately compare the benefits and costs of green and grey infrastructure.The lack of a formal approach for accounting for green infrastructure and its benefits may be a barrier to further utility investment in this area and may predispose utilities to favor more investment in grey infrastructure. The lack of comparable accounting methods may also limit utilities' ability to convey green infrastructure's true benefits to rate payers, municipal governments, and investors.This project developed new accounting methods to help public water utilities more accurately assess the value provided by their green infrastructure assets. The researchers developed two model accounting frameworks that could be included in the unaudited supplementary disclosure part of a utility's comprehensive annual financial report (CAFR). We pilot tested these two frameworks at three participating utilities: The City of Raleigh (NC) Public Utilities Department, The City of Asheville (NC) Water Resources Department, and Clean Water Services (OR). We conducted surveys and semi-structured interviews to understand the utilities' experiences with the accounting frameworks and how the frameworks could be improved.This report summarizes the results of these pilot tests, including the frameworks' strengths and weaknesses and recommendations from the piloting utilities for improving future iterations of the frameworks. Several key themes emerged from these results. Each utility faced a unique set of regulatory, political, and other policy drivers that influenced their use of green infrastructure. The extent and type of both inter- and intra-utility communication affected the utilities' access to information and their ability to fully document their green infrastructure assets. Despite the differences among utilities' drivers and communication pathways, however, all utilities noted the need for standardized approaches that allow for cross-utility comparison.The ability to account for the benefits provided by green infrastructure is critical for further investment in green infrastructure by water utilities, municipalities, and investors. This project contributes to that effort by offering two approaches for accounting that more accurately reflect the value that green infrastructure provides for water utilities.This title belongs to WERF Research Report Series.ISBN: 9781780405124 (eBook)

City responses to economic downturns 2003 to 2009: Statistical and textual analyses of comprehensive annual financial reports

This paper analyzes the impact of economic downturns on the revenue and expense sides of city financing for the period 2003 to 2009 using a convenience sample of the audited end of year financial reports for thirty midsized US cities. The analysis focuses on whether and how quickly and how extensively revenue and spending directions from past years are altered by recessions. A seven year series of Comprehensive Annual Financial Report (CAFR) data serves to explore whether citiesʼ revenues and spending, especially the traditional property tax and core functions such as public safety and infrastructure withstood the brief 2001 and the persistent 2007 recessions? The findings point to consumption (spending) over stability (revenue minus expense) for the recession of 2007, particularly in 2008 and 2009.

City responses to economic downturns 2003 to 2009: Statistical and textual analyses of comprehensive annual financial reports

This paper analyzes the impact of economic downturns on the revenue and expense sides of city financing for the period 2003 to 2009 using a convenience sample of the audited end of year financial reports for thirty midsized US cities. The analysis focuses on whether and how quickly and how extensively revenue and spending directions from past years are altered by recessions. A seven year series of Comprehensive Annual Financial Report (CAFR) data serves to explore whether citiesʼ revenues and spending, especially the traditional property tax and core functions such as public safety and infrastructure withstood the brief 2001 and the persistent 2007 recessions? The findings point to consumption (spending) over stability (revenue minus expense) for the recession of 2007, particularly in 2008 and 2009.

Archiving of Comprehensive Annual Financial Reports (CAFRs) on State Government Web Sites

Rising cost and declining revenues have hampered the financial affairs of state governments, forcing many to curtail services, reduce employee benefits, and trim the workforce, calling into question the fiscal sustainability of many state governments. As a result, stakeholders are demanding greater accountability and increased transparency into state government finances. An important link or communication tool between state governments and stakeholders is the comprehensive annual financial report. The comprehensive annual financial report (CAFR), produced by state governments, provides some insight into how taxpayer dollars are spent and the benefits derived therefrom. This article analyzes the extent to which the states electronically archive the CAFR on their websites and the accessibility of the reports to users searching state government websites.

Discussion of The Influence of Elections on the Accounting Choices of Governmental Entities

Kido, Petacchi and Weber [2012] investigate whether the occurrence of a state gubernatorial election is important to understanding the accrual choices of preparers of the state’s comprehensive annual financial report. Central to the authors’ argument is the idea that voters do not like budget deficits. Politicians, in response, have incentives to use accounting choices to mask deficits in the period before elections. Focusing on a specific accrual, the changes in compensated absences liability, the authors find evidence that the discretionary part of this accrual is smaller in the period before an election, which is consistent with politicians attempting to improve the picture of the state’s financial health. In addition, the authors show that accrual manipulation is positively associated with the vote share of incumbent governors in elections. In my discussion, I ask two questions: (1) how strong are governors’ political incentives to manipulate accruals in the run-up to elections? (2) Can the association between discretionary compensated absence accruals and elections be explained by forces other than politically motivated accounting manipulation? I argue that the incentives to manipulate accruals might well be weak given strong disciplinary mechanisms that induce politicians to transparency. What’s more, I document that elections might produce patterns in state employment. As the compensated absences liability is linked to the payroll, election-induced changes in state employment might be reflected in this accrual. Evidence of an association between the compensated absences accrual and elections, then, does not necessarily imply that politicians manage accounting numbers. To further illustrate this point, I show empirically that gubernatorial elections have little explanatory power for state financial reporting choices that are unaffected by state employment. JEL classification: H70, H72, M41

Discussion of the Influence of Elections on the Accounting Choices of Governmental Entities

Kido, Petacchi and Weber [2012] investigate whether the occurrence of a state gubernatorial election is important to understanding the accrual choices of preparers of the state’s comprehensive annual financial report. Central to the authors’ argument is the idea that voters do not like budget deficits. Politicians, in response, have incentives to use accounting choices to mask deficits in the period before elections. Focusing on a specific accrual, the changes in compensated absences liability, the authors find evidence that the discretionary part of this accrual is smaller in the period before an election, which is consistent with politicians attempting to improve the picture of the state’s financial health. In addition, the authors show that accrual manipulation is positively associated with the vote share of incumbent governors in elections. In my discussion, I ask two questions: (1) how strong are governors’ political incentives to manipulate accruals in the run-up to elections? (2) Can the association between discretionary compensated absence accruals and elections be explained by forces other than politically motivated accounting manipulation? I argue that the incentives to manipulate accruals might well be weak given strong disciplinary mechanisms that induce politicians to transparency. What’s more, I document that elections might produce patterns in state employment. As the compensated absences liability is linked to the payroll, election-induced changes in state employment might be reflected in this accrual. Evidence of an association between the compensated absences accrual and elections, then, does not necessarily imply that politicians manage accounting numbers. To further illustrate this point, I show empirically that gubernatorial elections have little explanatory power for state financial reporting choices that are unaffected by state employment.

Implication of gasb statement no. 34 for reporting and accountability: the georgia experience

Financial reporting is the cornerstone of financial management. In 1999, the Governmental Accounting Standards Board (GASB) ratified unanimously GASB Statement No. 34. In this paper, using the Georgia Comprehensive Annual Financial Report (CAFR) and interviews with practitioners, we examine the implication of GASB 34 for the linkage between reporting and accountability. The research findings show that Statement 34 introduces significant impacts on reporting. However, its implications for accountability and better financial management are yet to be as significant as hoped.

Fiscal Reserves and State Own-Source Expenditure in Downturn Years

This article tests the effects of fiscal reserves on state total own-source expenditure in downturn years. Using a panel data set (fifty states, 1979 to 1999), the article uses the variance-from-trend as the dependent variable to estimate the effects of aggregate reserves as well as budget stabilization funds (BSF) and general fund surpluses (GFS) and obtain their respective coefficients. Two data sources on fiscal reserves are used: the Fiscal Survey of the States and the Comprehensive Annual Financial Report. The article provides evidence that fiscal reserves exert positive effects on state own-source expenditure in downturn years. The effects, however, are mainly from the BSF; the GFS coefficients, even when statistically significant, are only a quarter the size of those for the BSF. Nevertheless, states that do not have a BSF seem still to rely on the GFS. It appears that the BSF has taken over the counter cyclical stabilizing function from the GFS.

Audit Recommendation Follow‐Up Systems: A Survey of the States

This article presents the results of a survey of audit recommendation follow‐up systems currently utilized by state governments. The lack of empirical research on audit recommendation follow‐up systems represents a void in the public sector financial management literature. To fill this void, the authors developed a survey instrument, which was mailed to each state auditor's office having primary responsibility for following up on audit recommendations made during the annual Comprehensive Annual Financial Report (CAFR). The purpose of the study is three‐fold: (1) to describe the major elements of state government audit recommendation follow‐up systems currently in use, (2) to encourage managers, analysts, and others working at all levels of government to access policies and procedures for audit recommendation follow‐up within their own organizations, and (3) to encourage other researchers to explore these systems in greater depth and detail, particularly their uses in financial management, reporting, and other decision‐making activities. U.S. Government Auditing Standards (commonly called The Yellow Book) requires auditors to communicate their findings and provide recommendations that lead to improvements in government operations and programs. Government managers and officials must follow up (monitor) on audit recommendations to ensure their effective implementation. This research represents an initial effort to develop a profile of the characteristics of state government audit recommendation follow‐up systems currently in use.

An empirical investigation into the decision usefulness of service efforts and accomplishments measurements

This study examines the impact of Service Efforts and Accomplishments (SEA) measures by analyzing subjects’ judgments of economy, efficiency and effectiveness of road maintenance. Subjects made performance judgments using SEA data and Comprehensive Annual Financial Report data in a three treatment between-subjects design. Generally, the results support the hypothesis that SEA data provide incremental information to decision makers and support including SEA measures with traditional financial data in at least some reports to constituents.

Data source and measurement differences in municipal accounting measures

Census Bureau data are relied on extensively in municipal accounting research. Building on the earlier work of Icerman and Welch [1987], this study presents a comparative analysis of the primary and secondary data sources (the Comprehensive Annual Financial Report and the Bureau of Census' Survey of Governments (1982; 1983), respectively) for fix key accounting measures. While the two data sources are highly correlated, large differences are detected in the accounting measures. The nature, extent, and implications of the data differences are discussed.