The Deadline for Compliance is June 30, 2022. A number of new debt and lease standards have been added to government agencies’ financial reporting requirements. For this post, we are zeroing in on the condition that government agencies are being required to add additional footnotes to their financial statements.
With this new reporting requirement for government entities, the goal is transparency, which is excellent for bondholders, grantors, and the public. However, the change concerns many agency employees who may have questions about the length of their financial reports going forward.
We suggest the following to deliver the data and keep you in compliance with the new regulations, simplify the job, and reduce pages:
- Group like items
- Use tables
- Make a graph or chart
For example, if each lease has a separate narrative page for each item, this could add significant length and redundant information to the footnote section. Even the smallest agencies can have dozens of copiers and computers, for instance. One paragraph with all the required information for each would unnecessarily lengthen their financial reports.
The goal of any format(s) you choose is to make the information more accessible for the stakeholders to digest and keep the financial statements reasonably short while also providing all the information required by the Government Accounting Standards Board (GASB).
PLEASE, don’t wait until the last minute!
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Group like items
Look at your lease and rental payments. Are there like items? Trucks? Cars? What about copiers and computers? Consolidate the trucks, cars, and other vehicles into one form. Group the office equipment.
When stakeholders read the report, they quickly see a summary of items grouped together to understand the types of leases all in one place. Even in narrative form, the footnotes will be shorter if like items are consolidated to one page per grouping instead of one page per item.
A table might include the lease term, interest rates, when leases started, and when they expire. This is especially helpful for some governments that may have hundreds of leases, where even groupings of leases in a narrative form would add volumes to their financial statements. Check with the IRS requirements to make sure of exactly what data are needed.
- A table (from Page 94 of the GAAFR Appendix D Illustrative Comprehensive Annual Financial Report could look like this:
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Use tables
Tables can be used for many types of items. A page for each item would be less appealing for stakeholders to read. Still, some short narratives can explain items in general terms.
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Consolidate Amortization Tables, if Allowable under Terms of Debt Agreements:
Amortization tables can be consolidated for like items, such as future lease payments, bonds payable, and direct borrowings and placements. Each debt issuance or lease does not need its own amortization table, unless required by the agency’s bond or debt covenants for disclosures. Amortization tables for each issuance could also be included outside the footnotes in the Supplementary Information section of the annual report, if a separate presentation for each issuance is needed.
Conclusion and Recommendations
Compliance with the new financial reporting disclosure requirements is not something that should overwhelm you if you start early. Should you have questions, you can ask your accountant, and you can also take a look at this “Comprehensive General Purpose Checklist for All Government Types.” It will give you an idea of the government’s intention if it’s your first time out, and is comprehensive enough to help your agency understand the scope of work.
Another resource with many examples is the Governmental Accounting, Auditing, and Financial Reporting Appendix D: Illustrative Comprehensive Annual Financial Report referenced above. It is available electronically at www.gfoa.org/GAAFR/AppendixD.
For leases, you will be collecting lots of data, and it’s applicable for this fiscal year. Simplify the task by gathering lease and rent information so you or your accountant can eliminate the last-minute rush and help keep the footnote pages under control. It is your agency’s responsibility to collect the data well ahead of the June 30, 2022 deadline.
Review of benefits: Stakeholders will appreciate the transparency, and boards of directors looking to make financial decisions will be more likely to choose an easy-to-read financial statement with organized footnotes over a multi-page, complex document. Everyone saves time by consolidating the footnotes and complying with Generally Accepted Accounting Principles in the most straightforward manner possible. Furthermore, the clarity and organization of your footnotes go a long way toward maintaining the clarity and conciseness required to continue earning the GFOA’s Award for Excellence in Financial Reporting.
LSL can help with any part of your financial footnote requirements and ensure you meet your lease accounting deadline. Contact your LSL partner or manager, or you can get in touch with us here.
Consolidating Financial Report Footnotes
