Best Practices & Advisories
Targets and Guidelines
- GAAP Financial Reporting as Base Line for State and Local Governments - GFOA urges individual state and local governments to fulfill their financial reporting responsibilities by 1) Maintaining an accounting system adequate to provide all of the data needed to allow for the timely preparation of financial statements for the entire financial reporting entity in conformity with GAAP; 2) Issuing timely financial statements for the entire financial reporting entity in conformity with GAAP as part of a CAFR; and 3) Having those financial statements independently audited in accordance with either GAAS or GAS, as appropriate.
- Fund Balance Guidelines for the General Fund - GFOA recommends that governments establish a formal policy on the level of unrestricted fund balance that should be maintained in the general fund for GAAP and budgetary purposes. GFOA recommends, at a minimum, that general-purpose governments, regardless of size, maintain unrestricted budgetary fund balance in their general fund of no less than two months of regular general fund operating revenues or regular general fund operating expenditures.
- Working Capital Targets for Enterprise Funds - GFOA recommends that local governments adopt a target amount of working capital to maintain in each of their enterprise funds. Ideally, targets would be formally described in a financial policy and/or financial plan. GFOA recommends that governments use working capital as the measure of available margin or buffer in enterprise funds.
- Website Posting of Financial Documents - GFOA encourages every government to use its website as a primary means of communicating financial information to citizens and other interested parties.
Financial Statement Preparation
- Timely Financial Reporting - GFOA makes the following recommendations about ways to improve the timeliness of financial reports for governmental entities: 1) record activity throughout the year; 2) improve closing and financial statement preparation processing; 3) Implement of new accounting standards; and 4) distribute the financial report electronically.
- Fund Accounting Applications - GFOA recommends that every state or local government that uses fund accounting3 establish clear criteria for determining whether a given fund in its accounting system should be treated as a fund for purposes of external financial reporting.
- Budgetary Comparisons as Part of the Basic Financial Statements - GFOA recommends that all state and local governments present mandated budgetary comparisons as part of their audited basic financial statements.
- Tax Abatement Transparency - GFOA recommends that governments that are party to significant tax abatements complete several steps identified in this best practice.
- Special Revenue Funds Used for Budgeting but Not Financial Reporting GFOA advises that if a government is legally required to report a given activity as a special revenue fund, but must include that activity as part of its General Fund for purposes of GAAP financial reporting, the government should:
- Maintain separate information on each legally mandated special revenue fund in its accounting system; and
- Provide schedules for each legally mandated special revenue fund within the statements and schedules subsection of the CAFR that follows the notes to the financial statements, accompanied by an explanation that those funds are presented as part of the General Fund in the basic financial statements.
- Securities Lending Transactions in Financial Statements - GFOA believes that assets, liabilities, income and expenses related to securities lending transactions should be reported in the financial statements in the manner that best reflects the true nature of these transactions, consistent with the provisions of GASB Statement No. 28.
- Modified Approach for Infrastructure - GFOA recommends that governments consider several factors identified in this best practice in the process of deciding whether to use depreciation accounting or the modified approach for a given network or subsystem of infrastructure assets.
- Departmental Reports and Supplementary Information - GFOA recommends that items identified in this best practice be included as supplementary information in separately issued reports for departments of the general fund.
- Departmental Reports and Management’s Discussion and Analysis - GFOA recommends that MD&A be presented in conjunction with departmental reports, individual fund reports, and similar reports. When MD&A are presented voluntarily, GFOA recommends that their contents be closely modeled on the requirements for MD&A set forth in GASB Statement No. 34 and tailored to the reporting unit's specific circumstances.
- Popular Reporting of Financial Information - GFOA encourages governments to supplement their CAFR with simpler, "popular" reports designed to assist those who need or desire a less detailed overview of a government's financial activities.
- Basis of Accounting versus the Budgetary Basis - GFOA recommends that the budget document clearly defines the basis of accounting used for budgetary purposes. If the budgetary basis of accounting and the GAAP basis of accounting are the same, this fact should be clearly stated. If the budgetary basis of accounting and the GAAP basis of accounting are different, major differences and similarities between the two bases of accounting should be noted.
- Periodic Disclosure and the Comprehensive Annual Financial Report - GFOA recommends that governments subject to SEC Rule 15c2-12 consider using the CAFR as their disclosure document for providing information useful to existing and potential investors in the secondary market and meeting their obligation to provide annual disclosure for the secondary market, as required by Rule 15c2-12.
GFOA Award Programs
GFOA established the Certificate of Achievement for Excellence in Financial Reporting Program (CAFR Program) in 1945 to encourage and assist state and local governments to go beyond the minimum requirements of generally accepted accounting principles to prepare comprehensive annual financial reports that evidence the spirit of transparency and full disclosure and then to recognize individual governments that succeed in achieving that goal. The goal of the program is not to assess the financial health of participating governments, but rather to ensure that users of their financial statements have the information they need to do so themselves.
Reports submitted to the CAFR program are reviewed by selected members of the GFOA professional staff and the GFOA Special Review Committee (SRC), which comprises individuals with expertise in public-sector financial reporting and includes financial statement preparers, independent auditors, academics, and other finance professionals.
GFOA established the Popular Annual Financial Reporting Awards Program (PAFR Program) in 1991 to encourage and assist state and local governments to extract information from their comprehensive annual financial report to produce high quality popular annual financial reports specifically designed to be readily accessible and easily understandable to the general public and other interested parties without a background in public finance and then to recognize individual governments that are successful in achieving that goal.
GFOA has developed a searchable database that contains all award winners for both the CAFR and PAFR award programs.