Annual Financial Reporting
This page provides a basic overview of annual financial reporting requirements for local governments in Washington State, including GAAP vs. cash basis reporting as well as links to checklists to help entities prepare and review their reports.
RCW 43.09.230 requires every local government in Washington State – including cities, towns, counties, and special purpose districts – to file an annual financial report with the State Auditor’s Office (SAO) within 150 days of the close of each fiscal year.
Most local governments (with a few exceptions such as school districts) have a fiscal year that ends on December 31, which means the deadline for those jurisdictions to file the annual financial report is May 30 of the following year, or May 29 in a leap year due to the extra day in February.
The state auditor may allow local governments a 30-day extension if the governor has declared an emergency pursuant to RCW 43.06.210.
RCW 43.09.245 provides SAO the authority to examine (audit) the financial affairs of local governments, and RCW 43.09.260 requires all local governments be audited at least once every three years. Many of these audits include the review of annual financial reports for accuracy and compliance with requirements prescribed by the SAO in its BARS (Budgeting, Accounting, and Reporting Systems) manuals.
Statement of Auditing Standards (SAS) 115 requires that the auditor (SAO) communicate deficiencies in the internal controls over financial reporting that it may discover during an audit.
"Internal controls" refers to a process designed to provide reasonable assurance about the reliability of the financial reporting document. The design and formality of an entity's internal controls will vary depending on the entity's size and type as well as its management philosophy.
RCW 43.09.200 provides statutory authority to the SAO to prescribe a system of accounting and reporting for all local government entities. It also states that the requirements shall be uniform for every public institution, office and public account of the same class.
While all local governments must file an annual financial report with SAO, the SAO has developed two different approaches for accounting and reporting: Generally Accepted Accounting Principles (GAAP) and "cash basis," also referred to as "other comprehensive basis of accounting" (OCBOA).
Below is a brief summary of the two types of financial reporting; SAO also provides a comparison within both BARS Manuals (see GAAP vs. Cash Basis Reporting).
Generally Accepted Accounting Principles (GAAP)
GAAP is an established set of rules and regulations that provide uniformity and consistency for the accounting of businesses and governments throughout the United States.
Governmental entities are also guided by the Governmental Accounting Standards Board (GASB), an independent private sector organization which establishes accounting and financial standards for the state and local governments that follow GAAP. These standards are recognized as authoritative by state and local governments.
The GAAP method of accounting and reporting is an accrual or modified accrual basis of accounting where costs and expenses are recognized when they occur rather than when actual cash is exchanged. State and local governments must follow GAAP/GASB accounting unless authorized to report using an "other comprehensive basis of accounting."
Approximately 20% of local governments in Washington State report on a GAAP basis.
Some GAAP reporting entities elect to participate in the Government Finance Officers Association (GFOA) Certificate of Achievement for Excellence in Financial Reporting (COA) Program. GFOA established this program to encourage and assist both state and local governments to go beyond the minimum requirements of GAAP/GASB reporting and to prepare what is commonly referred to as an "annual comprehensive financial report" or ACFR.
Those jurisdictions participating in the COA program must submit their financial reports to SAO to satisfy the reporting requirements of RCW 43.09.230, in addition to submitting a copy to GFOA for review and consideration for the Certificate of Achievement.
For more information on the GFOA comprehensive annual financial report, including potential benefits and submittal requirements, see the SAO GAAP BARS Manual Section 4.9, GFOA Financial Reporting Recognition Programs.
"Cash basis," also referred to as "other comprehensive basis of accounting" (OCBOA), is an alternate method of accounting and reporting that is prescribed by the SAO through its authority in RCW 43.09.200. Cash basis accounting and reporting is a more simplified system than accrual, as it only recognizes income and expenses when actually received or disbursed.
Net income under a cash basis system will always equal cash on hand plus funds held in banking institutions (or with the county treasurer) in the name of the entity. This method of reporting is non-conforming to GAAP, and local governments are required to disclose the use of cash accounting and reporting in the notes to financial statements when preparing the annual financial report.
Approximately 80% of local governments in Washington State report on a cash basis.
The State Auditor’s Office provides a number of helpful checklists and guidance documents to help agencies prepare and file their annual reports. To view or download these tools, see the following SAO pages:
- Resource Library – Financial Reporting for Cash Basis Governments
- Resource Library – Financial Reporting for GAAP Governments
Cash-basis cities and counties can also see MRSC’s Schedule 06 Sample Workbook (Excel download). This spreadsheet includes sample calculations for summarizing the agency’s bank reconciliations on a monthly basis, with different tabs for each month as well as a separate tab for year-end totals. Such monthly reconciliations can then be used to complete SAO’s annual Schedule 06 template.
- Recent blog posts about financial reporting – Articles written by MRSC staff and contributors about financial reporting, including annual changes. Articles are listed in reverse chronological order, with the most recent first.