Financial Analysis & Management Considerations Report 12/31/1997

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City of Lino Lakes, Minnesota Management Report Governmental Accounting Standards Update GOVERNMENTAL ACCOUNTING STANDARDS UPDATE Reporting Model The Governmental Accounting Standards Board (GASB) has issued an "exposure draft" document on issues related to the Governmental Financial Reporting Model. This document proposes significant changes in governmental accounting which will impact internal financial accounting and external financial reporting of the City. A summary of the key provisions of the exposure draft document is presented below: • Fund Perspective Financial Statements. These financial statements would be similar to current financial statements with modified accrual basis of accounting for governmental funds, accrual basis of accounting for business type activities (formerly enterprise and internal service funds). However, the GASB proposes a new definition for fiduciary funds and the elimination of the account groups. • Entity-wide Perspective Financial Statements. These financial statements include full accrual accounting for all activities. The income statement will be replaced by a statement of activities using the net program cost format. Additionally, capital use charges (depreciation) on general fixed assets and infrastructure assets will be required to be reported in the financial statements. • Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). The MD&A letter will be similar to (although will not replace) the current letter of transmittal. Currently, Securities and Exchange Commission (SEC) regulations require private sector registrants to provide a MD&A letter discussing financial conditions, results of operations, etc. Deferred Compensation Plans The Deferred Compensation Fund was established in response to the issuance of the Governmental Accounting Standards Board (GASB) Statement No. 2. GASB Statement No. 2 requires deferred compensation plans adopted under the provisions of Internal Revenue Code Section 457 to be included in the City's Annual Financial Report because they are subject to the claims of the employer's general creditors. Page 70