Financial reports are intended to meet the needs of decision makers. Accordingly, timeliness is identified as one of the characteristics of information in financial reporting in Concepts Statement No. 1 of the Governmental Accounting Standards Board (GASB), Objectives of Financial Reporting. To accomplish this objective, financial reports must be available in time to inform decision making. Therefore, financial reports should be published as soon as possible after the end of the reporting period.
Timely financial reporting requires careful, yearlong planning and monitoring1 (e.g., data processing, audit field work) and cannot be reduced to a well-managed busy season. The need for timeliness has to be balanced against the need for reliability, which also was identified as one of the characteristics of information in financial reporting identified in GASB Concepts Statement No. 1. While governments certainly should not sacrifice reliability for timeliness, minor gains in precision ought not to be purchased at the price of indefinite delay. GASB Concepts Statement No. 1 says that “Sometimes a timely estimate is more useful than precise information that takes a long time to produce” (e.g., accounting estimates).
Legislative deadlines for submitting financial statements should be viewed as a minimum standard rather than as an ideal objective. The same holds true for the submission deadlines used by various award programs such as the GFOA’s Certificate of Achievement for Excellence in Financial Reporting Program.
The additional cost of more timely financial reporting (e.g., additional staff and overtime) should be considered. As always, the cost incurred should never exceed the benefits anticipated.
GFOA recommends that governments improve the timeliness of financial reports by following the strategies listed below:
1. Recording activity throughout the year
- Transaction processing. A government should undertake a process of monthly, quarterly, and annual reviews to ensure the ongoing completeness and accuracy of the data it collects. This process should include appropriate reconciliations to identify adjustments, as well as financial analysis of interim management reports to identify anomalous or incomplete data to be corrected. This verification process should be particularly useful in identifying amounts to be estimated as part of the annual verification process so that the data required to make those year-end estimates can be collected throughout the period. Also, this process should facilitate recording certain adjustments for converting governmental fund financials to government-wide financials, for example, capital assets and related depreciation, and changes in long-term liabilities (issuances and repayments), throughout the year rather than after the fiscal year has ended.
- Checklists. Governments should use a period-end closing checklist to ensure that all the necessary steps to perform the close are completed and assigned to an individual. The checklist should encompass the journal entries required to close each period, the reconciliations and account analysis to be performed. The checklist should also include scheduling the annual audit and the list of audit workpapers (in hard or electronic form) that are to be completed by the government (sometimes referred to as “prepared by client” or PBC workpapers).
- Accounting policies and procedures. The government’s documented accounting policies and procedures should (1) identify those items that may need to be estimated and (2) set forth the specific steps (including significant assumptions) to be followed in preparing each different kind of estimate. The procedures should specifically address when these items should be handled during the year; as part of the initial year end closing process, or in the adjustment and analysis process immediately prior to the final year-end closing process.
- Document filing. As workpapers and audit schedules are completed, they should be stored and saved in a logical manner that also facilitates an orderly preparation and review process.
2. Closing and financial statement preparation processing
- The annual closing process. The initial annual close, which includes entering known revenue and expense/expenditure accruals and other standard monthly adjustments, normally occurs within a week to ten days following the end of the period. To avoid delays, all items related to budgetary expenditures (e.g., purchase orders) should be recorded by the end of the period (with exceptions being made only for highly unusual items like natural disasters and major information systems failures). There will inevitably be more adjustments required after the initial close.
- Component Units. When a government includes component units (either blended or discretely presented) as part of its financial reporting entity, there should be early and ongoing communication with those units to ensure that the government receives all of the information to include in its own report without delaying its issuance. Experience appears to demonstrate that there is no substitute for one or more face-to-face meetings for this purpose, although ongoing updates normally can be effectively managed electronically.
- Unforeseen circumstances. The financial report preparation process and the independent audit may identify items that could affect the amounts reported in the financial statements (e.g., lawsuits; legal or contractual violations that include a monetary penalty; instances of potential or actual fraud or abuse). Considerable time may be needed to definitively resolve such items. In such cases, the inherent uncertainty should not unduly delay the financial report preparation process and the independent audit. Accordingly, it often is better to proceed with the issuance of the financial statements based upon estimates, rather than to delay their issuance. Governments should consult with their independent auditors prior to making final decisions about these issues.
3. Implementation of new accounting standards
- Facilitating implementation of new accounting standards. To ensure that accounting standards are implemented by their mandated effective date, a government should monitor the issuance of final guidance from the Governmental Accounting Standards Board (GASB). Upon issuance of such guidance, a government should determine the fiscal year by which the guidance must be implemented and when steps to implement the guidance should be scheduled prior to and during the year of implementation as well as during the financial statement preparation process. To the extent practical, governments should attempt to implement the guidance by at least the period before implementation is mandated. If a government does not early implement, going through the process will allow the government to be better prepared to implement the standard by the required fiscal period.
4. Financial report format and distribution
- Electronic distribution. To save time and avoid potential delays, the government should initially distribute its financial report electronically (e.g., posting on website, or e-mailing an electronic file).
5. Contracting for professional services
- Audit procurement. The request for proposal (RFP) for the services of an independent auditor should specify a public release date for the financial statements.
- Contracts for professional services other than auditing. RFPs for nonaudit services that have a bearing on the financial statements (e.g., actuarial services) should specify the legally required or expected public release date of the financial statements and expressly mention the specific date for completion of their services. The completion date allows time for review of the materials by the government and, if necessary, for the materials to be audited, in order for the government to meet its deadline.
1 Taking a year-long approach to reporting can help a government avoid material auditor-identified adjustments that AU-C Section 265, Communicating Internal Control Related Matters Identified in an Audit, would require to be reported as a significant deficiency or a material weakness. Refer to the GFOA’s best practice on Internal Control Deficiencies in Audits.
2 Examples of items that would need to be estimated include items related to derived tax revenues (e.g., sales and income taxes), uncollectible accounts, claims and judgments, the liability for landfill closure and postclosure care costs, and pollution remediation obligations.
3 See GFOA's best practice on Audit Procurement.
- Board approval date: Friday, September 25, 2020