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2016 Annual Financial Report: What’s new and what’s changed?


March 22, 2017 by Toni Nelson
Category: Financial Reporting

2016 Annual Financial Report: What’s new and what’s changed?

Each year we provide an overview of the changes by the SAO to its financial reporting requirements. Admittedly, over the years that I have been working with local government my focus has been ‘cash basis’ rather than GAAP reporting. In fact, the majority (77%) of local government entities in Washington State use cash basis as their method of accounting and reporting, and this method is prescribed by the State Auditor’s Office (SAO) through its Cash BARS manual.

Those of you who prepare financial reports according to GAAP know that this complex process requires a more comprehensive reporting format and a considerable amount of time devoted to its completion.

There are a few common denominators between the cash basis and GAAP forms of accounting and reporting. Changes to the 2016 Annual Financial Report that affect both reporting types can be found in three areas: Chart of Accounts, some sections in the Notes to Financials, and the Schedule of Liabilities (09). This blog post will address changes to the common areas as well as addressing new areas for cash-basis reporting. However, GAAP-reporting entities should note that any new GASB reporting requirements are not being addressed.

The SAO BARS manuals for both Cash- and GAAP-reporting entities has an Overview of Significant Changes (Cash / GAAP), released annually, that highlights the SAO changes required for the report year. I would encourage you to review and address those changes applicable to your entity before you begin preparing your report.

Changes to: Chart of Accounts

Changes to the BARS codes (Chart of Accounts) can have significant impacts on your annual report preparation. These codes are used to record the financial transactions of your entity and will subsequently flow to Schedule 01 – Revenues/Expenditures, which is the heart of the online filing system for the SAO. Accuracy here is critical and BARS manual section #4.8.1.20 – reporting for Schedule 01– requires that local government update the incorrect financial data.

There were several BARS code revisions, additions, and deletions this year (refer to the Overview of Significant Changes for Cash- or GAAP-specific links) so I will highlight just the most significant. 

  • 3790000, Capital Contributions: This BARS code was used by entities with proprietary activities, such as water and sewer, to record system development fees, but it has been removed for cash-basis entities. BARS now requires that you use code 367, Contributions and Donations.
  • 380/5800000, Nonrevenues and nonexpenditures: There are several changes to the BARS organization and recording of these nonrevenue and nonexpenditure items. These changes have created some confusion for entities reporting court-related transactions (386/586), which resulted in the SAO releasing a special notice to withdraw this requirement for report year 2016.
  • 531, Storm Drainage: This code was revised to ensure that the account code is used only when there is a separate utility for storm drainage. The fund number for this account code should be in the 400’s.

My recommendation is that you upload your Schedule 01 to the SAO online reporting portal to see what, if any, BARS codes are being red flagged and address these items prior to continuing with your report.

Changes to: Financial Statement C4 (Cash Basis only)

Financial Statement (C4) format for Cash-Basis Entities: The titles of subcategories have been revised and sections of the statement have been rearranged. If you are filing your annual report online using the SAO online filing tool, the C4 financial statement will automatically populate for you. If you are filing using a software-generated format, you will need to verify that the 2016 updated version of the C4 Financial statement is being used.

Changes to: Notes to Financial Statements

There are a few changes to the Notes to Financial Statements for this year

  • Note 1 h – Other Financing Sources or Uses: this note has been removed. Be sure to renumber your remaining items within Note 1.
  • Note X – Deposits and Investments (Cash / GAAP): In this note, changes are primarily directed to GAAP-reporting entities and GASB Statement 72. For cash-basis entities the prescribed language has not been modified except to provide the additional option of reporting at amortized cost.
  • Note X – Pension Plans (Cash / GAAP): The note for cash-basis entities has been updated here for the second year of pension reporting. The Department of Retirement Systems (DRS) provides the Participating Employer Financial Information (PEFI) for report year 2016 and is the source materials for calculating your share of the pension liability and completing this reporting requirement. The SAO has provided Pension Liability worksheets for both cash basis- and GAAP-reporting entities on the BARS Reporting Templates page. This information must additionally be included on Schedule 09.
  • Note X Debt Service Requirements (Cash): This requirement was new for report year 2015 but it’s worth repeating. The table required within the note now segregates the debt service between principal and interest rather than debt type. Be sure to incorporate this new format.  

Changes to: Supplemental Schedules

Schedule 09 – Liabilities: This schedule has been updated such that local governments are now required to provide BARS codes for debt redemption and to record specific ID numbers for debt that is related to streets and roads. If you complete this schedule using the SAO online filing tool, there is now a separate routine for the Street/Road report and it's optional this year. If you would like to participate in this WSDOT/SAO project, be prepared for some additional data entry. The BARS code for redemption of debt should be for principal only (BARS code 591), with the exception of debt for street/roads (see below).

toni-ann-report-photo

Tip: verify BARS codes and amounts reported. Schedule 09 should equal Schedule 01, with the exception of Street/Road codes.

Schedule 21 – Risk Management: This is a required schedule for all local governments (GAAP or Cash). The online filing system asks five questions that will lead to a single conclusion; either that the schedule is not required or that it must be completed. One example of having to complete this schedule is “Reimbursable” agreements with the Employment Security Department (ESD). If you are one of many local government entities that are on a “reimbursable” basis with ESD then you will need to complete this schedule.  

Schedule 22 – Assessment Questionnaire: The requirement to complete this schedule has been expanded beyond the revenue criteria of “usually less than $300,000." Be sure to complete this if you usually report less than $300,000 in revenue annually or if you are one of the following types of local government entities:

  • Fire district
  • Conservation district
  • Transportation benefit (TBD) district
  • Economic and industrial development corporation
  • Cemetery district
  • Diking/drainage district
  • Mosquito/pest/weed district
  • TV reception district
  • Local/regional EMS and trauma care councils
  • Water conservancy board

This is an extensive audit schedule and Schedule 22 must be accessed using the SAO online filing tool.

Last but not least is the reporting deadline. RCW 43.09.230 states:

Such reports shall be prepared, certified, and filed with the state auditor within one hundred fifty days after the close of each fiscal year….

 The filing deadline for the 2016 fiscal year is May 30th and there are “no” exceptions. Whether you file online or file by mail, be sure that it’s completed by May 30th.

The State Auditor’s Office: File Online provides excellent materials on the filing of your annual report using their online filing system, with links to their filing support group.

The MRSC website provides financial report checklists to assist with report completion as well as a checklist for an internal review of your completed financial report to ensure that it meets the internal control requirements of SAS 115. If you have questions, please feel free to contact Toni Nelson, MRSC Financial Consultant via email or phone: 206-625-0916 x 109.

One last suggestion, start now! When it comes to the annual financial report, you should start working on the preparation of this report as soon as you have your yearend financial transactions recorded and bank reconciliations completed. Now is the time to start drafting this important financial document.

About Toni Nelson

Toni has over 24 years of experience with Local Government finance and budgeting. Toni's area of expertise include "Cash Basis" accounting and reporting, budgeting, audit prep and the financial issues impacting small local government.

VIEW ALL POSTS BY Toni Nelson

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