Purpose of a Comprehensive Annual Financial Report

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Many state and local governments are required by law to submit a comprehensive annual financial report (CAFR) at the end of every fiscal year, and many other government entities complete a CAFR voluntarily. It differs from a traditional annual report by being much more detailed, often hundreds of pages long.

The purpose of a CAFR is to be transparent about the use of taxpayers' money and to give the public a detailed accounting of all expenditures. A CAFR accomplishes this by including dozens of basic and more intricate financial reports along with notes, narratives and supporting data.

Understanding the History Behind CAFR

After the 1929 stock market crash and the Great Depression that followed, the accounting profession started creating standards for all companies to follow. Eventually, it was decided that an impartial group outside of the profession should set the standards, and the Financial Accounting Foundation (FAF) was formed in 1972.

The FAF created the Financial Accounting Standards Board in 1973 to set standards for corporations and nonprofit organizations. In 1984, the FAF created the Government Accounting Standards Board, which established generally accepted accounting principles and created the CAFR.

Using the CAFR Checklist

A detailed CAFR checklist is available from the Government Finance Officers Association each year, as there are usually changes to requirements or how they are presented. The checklist is lengthy but well worth using when compiling your CAFR and when reviewing it for completeness. It uses a question format to see if the entity needs each piece and if any required specifics have been followed. For example, every CAFR must be divided into introductory, financial and statistical sections.

The introductory section must include a letter of transmittal from the state comptroller — the official responsible for presenting the CAFR — and an organizational chart among other elements. The financial section contains all official financial statements including the management discussion and analysis, statement of net position, balance sheet, combined statements and more plus notes to financial statements.

A rule of the CAFR is that financial statements must undergo an independent audit, and the auditor's report also goes in the financial section. The statistical section presents additional supporting data and analyses including demographics like population and per capita income, perhaps through graphs and tables.

Making Your CAFR Unique

In spite of the CAFR's numerous requirements, it's possible to make your CAFR unique. The state of Maryland, for example, illustrated the introduction to its 2018 CAFR with colorful, whimsical art showing many of the state's attractions and cities, including Baltimore Harbor, Annapolis and Smith Island. The narrative around the art ranged from the state's earliest history to its bankable assets — Chesapeake Bay, the Atlantic Ocean and its proximity to Washington, D.C. — that help to make it a desirable place to live, work and visit.

South Dakota used a Mount Rushmore theme throughout its 2016 CAFR, with an impressive photo on the cover and inset photos of the monument from different angles. The city of Lacey, Washington used a photo of city hall on the cover of its 2017 CAFR but made it look inviting with lush, spring greenery surrounding the building. Inside, there were color photos of city council members, and it used bold, blue bars on headings and text boxes to break up the monotony of financial reports.

When deciding how to present your CAFR, consider your audience and the wide variety of people who might read it. Certainly, it serves its purpose without any frills or photos, and people like bankers are used to reading financial reports. However, if your CAFR could be used as a marketing tool or is viewed by large corporations that you're hoping to entice to move, then making it a showpiece could be worthwhile.

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About the Author

Barbara Bean-Mellinger is a freelance writer who lives in the Washington, D.C. area. She has written on business topics for afkinsider.com, smallbusiness.chron.com, Harbor Style Magazine, the Charlotte Sun and more. Barbara holds a B.S. from the University of Pittsburgh and has won numerous awards in B2B and B2C marketing.

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