Management Report and Recommendations 12/31/1999

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- City of Lino Lakes, Minnesota Page 6 Reporting Model The Governmental Accounting Standards Board (GASB) has issued Statement No.34 on issues related to the Governmental Financial Reporting Model. The implementation date for an organization the size of the City is the year 2003. This new reporting model significantly changes governmental accounting, which will impact the internal financial accounting and external financial reporting of the City. As a result, it will involve a significant commitment of time by the finance department staff. A summary of the key provisions of the statement is presented below: Key features of the new model. Even though the new governmental financial reporting model has deep roots in traditional public sector accounting and financial reporting, it offers many new features. The most important of these new features are: • Govemment -wide financial reporting. For the first time, users of state and local government financial reports have access to government -wide financial statements that provide a clear picture of the government as a single, unified entity. These new government -wide financial statements complement rather than replace traditional fund -based financial statements. • Additional long -term focus for govemmental activities. Traditional reporting for tax - supported (govemmental) activities has focused on near -term inflows, outflows, and balances of spendable financial resources. The new financial reporting model retains this short-term focus in the _ governmental fund financial statements while providing a long -term perspective on these same activities in the government -wide financial statements. • Narrative overview and analysis. The new governmental financial reporting model provides financial report users with a simple narrative introduction, overview, and analysis of the basic financial statements in the form of managements discussion and analysis (MD&A). _ • Information on major funds. It is widely agreed that fund information is most useful when presented for individual funds rather than for aggregations of funds (e.g., all special revenue funds). Accordingly, the new governmental financial reporting model presents individual fund data for each of a govemment's major funds. • Expanded budgetary reporting. In the past, budgetary comparisons were based solely on the final amended budget. Under the new governmental financial reporting model, information on the original budget is also presented. In addition, the new model eliminates aggregated budget presentations (e.g., totals for all budgeted special revenue funds) in favor of comparisons for the general fund and each individual major fund. Infrastructure reporting. As with any major change, adoption of a new governmental financial reporting model sparked some controversy. Specifically, many preparers of state and local government financial statements generally supported the new model but were not persuaded that the proposed benefits of capitalizing and depreciating a government's general infrastructure assets (e.g., roads, bridges, dams) outweigh the related costs. Accordingly, the Government Finance Officers Association (GFOA) has formally taken the position that each government must make its own decision on whether to comply with the infrastructure reporting provisions of GASB Statement No. 34 based on its own evaluation of the relative costs and benefits of infrastructure reporting. For governments that elect to implement the infrastructure reporting provisions of GASB Statement No. 34, GFOA recommends adopting a least -cost implementation strategy consistent with the provisions of that statement. The practical application of such a strategy would reflect the following recommendations: