BAR CPA Exam: Understanding the Objectives and Components of Budgetary Comparison Reporting in the ACFR for State and Local Governments

Introduction

Overview of the Annual Comprehensive Financial Report (ACFR)

In this article, we’ll cover understanding the objectives and components of budgetary comparison reporting in the ACFR for state and local governments. The Annual Comprehensive Financial Report (ACFR) is a detailed financial statement prepared by state and local governments to provide a comprehensive view of their financial status. The ACFR adheres to the guidelines set forth by the Governmental Accounting Standards Board (GASB) and typically includes three main sections: the Introductory Section, the Financial Section, and the Statistical Section. The ACFR is designed to give stakeholders—such as citizens, legislators, creditors, and oversight bodies—a transparent and comprehensive account of a government entity’s financial condition, performance, and operations over the fiscal year.

Unlike typical corporate financial reports, the ACFR is unique in that it must comply with specific governmental accounting standards, and it contains more detailed reports on budgetary compliance and the use of public funds. One key element in the Financial Section of the ACFR is the Budgetary Comparison Report, which provides insight into how government entities performed relative to their legally adopted budgets.

Importance of Budgetary Comparison Reporting in State and Local Government Financial Management

Budgetary comparison reporting is a crucial tool for maintaining fiscal accountability within state and local government entities. The process involves comparing the actual financial results of operations to the original and final amended budgets, allowing for an evaluation of the government’s fiscal discipline and efficiency in resource allocation.

This report serves multiple purposes:

• Fiscal Accountability: It holds government officials accountable to the public, demonstrating whether funds were used as authorized by legislative bodies.
• Performance Monitoring: By comparing actual expenditures and revenues to budgeted amounts, it helps to assess how well the government entity managed its resources and whether its objectives were achieved efficiently.
• Transparency and Governance: Budgetary comparison reports promote transparency by revealing variances between the planned and actual use of resources, offering stakeholders a clear view of financial performance.

State and local governments are often mandated by law to adopt annual budgets, making budgetary compliance a central element of government financial management. The budgetary comparison report offers insight into whether a government operated within its legally adopted budget and explains any deviations from it.

Objectives of the Article

The purpose of this article is to provide an in-depth understanding of the role, objectives, and components of budgetary comparison reporting as part of the ACFR for state and local governments. For those studying for the BAR CPA exam, it is critical to grasp both the practical applications and underlying standards governing these reports. The article will:

• Explain the significance of budgetary comparison reporting within the framework of state and local government financial management.
• Detail the components that make up a budgetary comparison report, including the original budget, final amended budget, actual financial results, and variance analysis.
• Clarify the Governmental Accounting Standards Board (GASB) requirements that govern the inclusion and presentation of budgetary comparison schedules in the ACFR.
• Highlight common challenges and issues that arise in budgetary comparison reporting and the role auditors play in ensuring compliance with budgetary requirements.

By the end of this article, readers should have a solid understanding of how budgetary comparison reporting fits into the broader ACFR framework and why it is essential for financial transparency, accountability, and effective resource management in state and local governments.

What is Budgetary Comparison Reporting?

Definition and Purpose

Budgetary comparison reporting is a financial reporting tool used by state and local governments to provide a transparent comparison of actual financial results against the budgeted figures for a fiscal period. The purpose of budgetary comparison reporting is to ensure accountability by demonstrating how closely government entities adhered to their legally adopted budgets and to provide insight into any significant deviations.

At its core, budgetary comparison reporting helps stakeholders—such as citizens, governing bodies, and oversight agencies—evaluate whether a government entity managed its resources efficiently and in accordance with its budgetary plan. It highlights both favorable and unfavorable variances, allowing for a deeper understanding of a government’s fiscal performance and decision-making processes throughout the year.

Legal and Regulatory Requirements

Budgetary comparison reporting is often required by law for state and local governments. Most government entities are legally mandated to adopt an annual budget, which acts as the primary financial management tool for the fiscal year. These budgets must be approved by a governing body, such as a city council or state legislature, and are typically designed to control spending and ensure that public resources are allocated according to legislative priorities.

In addition to legal requirements for budget adoption, government entities must follow specific reporting standards, particularly those set forth by the Governmental Accounting Standards Board (GASB). The purpose of these standards is to ensure consistency, comparability, and transparency in governmental financial reporting. Budgetary comparison reports, as part of the Annual Comprehensive Financial Report (ACFR), must comply with GASB requirements to ensure that stakeholders have a clear and accurate picture of budget performance.

Overview of the Governmental Accounting Standards Board (GASB) Guidelines on Budgetary Reporting

The Governmental Accounting Standards Board (GASB) establishes the accounting and financial reporting standards for state and local governments in the United States. GASB guidelines on budgetary comparison reporting are particularly important, as they ensure that governments provide stakeholders with useful information about how well they adhered to their budgets.

One of the key standards related to budgetary comparison reporting is GASB Statement No. 34, which requires state and local governments to present budgetary comparison schedules in their ACFR. According to this standard:

• Budgetary comparison schedules must include both the original budget and the final amended budget, along with actual financial results.
• These schedules should include an explanation of significant differences between the final budget and actual results, providing context for any major variances.
• The comparison schedules must be presented in either the required supplementary information (RSI) or as part of the basic financial statements, ensuring transparency and accountability.

Additionally, GASB encourages governments to present budgetary comparison reports on the same basis of accounting as the legally adopted budget, which can differ from the modified accrual basis or full accrual basis used for other financial reports. This allows for a more accurate comparison between budgeted and actual figures.

Comparison with Private Sector Financial Reporting

Budgetary comparison reporting in the public sector is distinct from financial reporting in the private sector. In the private sector, financial statements are primarily used to assess profitability, cash flows, and overall financial health, with a focus on adhering to Generally Accepted Accounting Principles (GAAP). Private companies are not required to compare their actual results against a budget in their financial statements, although some companies may choose to do so internally for performance evaluation purposes.

In contrast, budgetary comparison reporting is a formal requirement in the public sector. It is designed to ensure that government entities are using taxpayer dollars effectively and in accordance with their approved budgets. The focus is not on profitability but on accountability, fiscal discipline, and the efficient use of public resources.

Private sector financial reports also tend to emphasize the financial position and operational performance of a company as a whole, while budgetary comparison reports in government focus on compliance with legally adopted budgets and the allocation of resources in specific funds (e.g., the general fund, special revenue funds).

Overall, budgetary comparison reporting is an essential element of governmental financial management that provides transparency and fosters trust in how public resources are managed, which contrasts with the profit-driven objectives seen in private sector reporting.

Objectives of Budgetary Comparison Reporting

Budgetary comparison reporting plays a crucial role in state and local government financial management. It serves multiple objectives that contribute to responsible governance and effective fiscal oversight. The following sections outline the primary objectives of budgetary comparison reporting, which include ensuring accountability, promoting transparency, maintaining budgetary control, and evaluating management’s performance.

Accountability

One of the foremost objectives of budgetary comparison reporting is to ensure that governments are accountable to their citizens, legislators, and other stakeholders for how public funds are used. Since state and local governments operate using taxpayer dollars, they have a fiduciary responsibility to manage those resources prudently and in alignment with legislative mandates.

By comparing actual financial results to the budget, budgetary comparison reports provide a clear view of whether the government adhered to its financial plan. This accountability is critical for fostering trust between government entities and the public, as well as for demonstrating that government officials are acting in the best interest of their constituents. Additionally, accountability is a legal obligation for many state and local governments, and failing to meet budgetary guidelines can result in legal or regulatory repercussions.

Transparency

Budgetary comparison reporting promotes transparency by making the government’s financial planning and actual performance readily available for public scrutiny. These reports allow citizens, legislators, and oversight bodies to see exactly how financial resources were allocated and spent, compared to what was originally planned.

This level of transparency is essential for several reasons:

• It helps stakeholders understand how public resources are being used.
• It highlights any significant deviations between the budget and actual spending or revenue collection, providing context for any necessary adjustments.
• It provides a basis for public discussion and decision-making regarding government priorities and fiscal responsibility.

By publishing budgetary comparison reports in the Annual Comprehensive Financial Report (ACFR), governments make their financial performance more accessible, promoting greater public engagement and trust.

Budgetary Control

Budgetary comparison reporting also serves as an important tool for budgetary control, which refers to the ongoing monitoring of financial performance relative to the legally adopted budget. Governments typically adopt a budget at the start of a fiscal year, setting spending limits and revenue projections based on legislative priorities. As the year progresses, budgetary comparison reports help ensure that expenditures do not exceed appropriations and that revenues align with expectations.

The comparison of actual financial results to the budget allows for the identification of any significant variances that may indicate a need for corrective action. For example, if a department’s spending exceeds its budget allocation, budgetary control mechanisms can be put in place to address the over-expenditure and prevent future budget violations. Similarly, budgetary control helps identify when revenue shortfalls may require adjustments to spending levels.

Effective budgetary control is essential for maintaining fiscal discipline and ensuring that governments do not overspend their available resources. It allows for the timely identification of financial issues, promoting responsible financial management.

Performance Evaluation

Budgetary comparison reporting also provides a framework for evaluating the performance of government management. By comparing actual financial outcomes to the budget, stakeholders can assess how effectively government officials managed public resources during the fiscal year. This performance evaluation is vital for determining whether government entities met their financial objectives and operated within the constraints of their legally adopted budgets.

Performance evaluation through budgetary comparison reporting involves:

• Assessing whether departments or programs adhered to their budgeted appropriations.
• Identifying any areas where cost savings were achieved or where spending exceeded projections.
• Evaluating revenue collection performance against expectations.

These reports provide valuable insights into how well government entities achieved their fiscal goals and whether management made sound financial decisions. They also allow for the identification of trends or recurring issues that may need to be addressed in future budget cycles. Ultimately, this performance evaluation fosters continuous improvement in government financial management, enhancing the overall efficiency of public services.

The objectives of budgetary comparison reporting—accountability, transparency, budgetary control, and performance evaluation—are critical for ensuring responsible financial management and promoting trust in government operations. These objectives work together to provide a clear picture of how state and local governments use public resources and whether they meet their fiscal obligations effectively.

Components of Budgetary Comparison Reporting

Budgetary comparison reporting provides a comprehensive view of government financial performance by comparing key budgetary figures to actual financial outcomes. The report typically consists of four critical components: the original budget, the final amended budget, actual results, and a variance analysis. Each of these components plays an essential role in evaluating how well a government entity adhered to its financial plan and where deviations occurred.

Original Budget

The original budget refers to the initial financial plan approved by the governing body of a state or local government at the beginning of the fiscal year. This budget outlines the expected revenues and authorized expenditures for various programs, departments, or services based on legislative priorities and anticipated economic conditions.

The importance of the original budget lies in its role as a benchmark for accountability. It represents the formal plan for how government resources should be allocated and sets the expectations for spending limits and revenue generation. As the starting point for budgetary comparison reporting, the original budget provides stakeholders with a clear view of the government’s financial goals and the basis for evaluating its fiscal performance.

Final Amended Budget

Throughout the fiscal year, governments may need to revise their budgets to account for unforeseen circumstances, such as revenue shortfalls, changes in legislative priorities, or unexpected expenditures. These revisions result in what is known as the final amended budget.

The final amended budget reflects all adjustments, revisions, and reallocations that occurred after the original budget was adopted. These changes may be necessary due to factors such as:

• Economic fluctuations affecting revenue collections (e.g., tax revenue).
• Emergency expenditures (e.g., natural disasters or public health crises).
• Policy shifts or legislative mandates requiring additional funding.

Budgetary comparison reports present both the original and final amended budgets to provide transparency into how and why the budget evolved during the fiscal year. This allows stakeholders to assess whether the changes were necessary and whether the government was responsive to emerging needs.

Actual Results

The actual results component of budgetary comparison reporting represents the government’s financial performance for the fiscal year. This includes actual revenues collected and actual expenditures incurred in comparison to the original and final amended budgets.

Reporting actual results is essential for assessing whether the government operated within the boundaries of its legally adopted budget. It provides a factual account of financial activities, enabling a direct comparison between what was planned and what was achieved. By reporting actual results, governments demonstrate their fiscal discipline and provide stakeholders with the information needed to evaluate their financial stewardship.

Variance Analysis

Variance analysis involves comparing the actual results to the final amended budget to identify any favorable or unfavorable variances. A favorable variance occurs when actual results are better than budgeted (e.g., higher revenue or lower expenditures), while an unfavorable variance occurs when actual results fall short of the budgeted expectations (e.g., lower revenue or higher expenditures).

Variance analysis is a critical tool for understanding where and why financial performance deviated from the budget. This analysis can highlight:

• Areas where the government exceeded expectations, such as cost savings or higher-than-anticipated revenue.
• Areas of concern, such as overspending in certain departments or revenue collection shortfalls.
• Trends that may inform future budget planning, helping governments improve their fiscal management.

By providing context for variances, budgetary comparison reports offer valuable insights into government operations, allowing stakeholders to assess the effectiveness of fiscal policies and management decisions.

The four components of budgetary comparison reporting—original budget, final amended budget, actual results, and variance analysis—work together to provide a clear and detailed picture of a government’s financial performance. These components enable stakeholders to assess whether a government entity operated within its budget, responded effectively to changing circumstances, and achieved its financial objectives.

Reporting in the ACFR

The Annual Comprehensive Financial Report (ACFR) serves as the primary financial reporting document for state and local governments, providing a comprehensive view of their financial condition and performance. Budgetary comparison reporting plays a key role in this document, offering insight into how well a government adhered to its financial plan for the fiscal year. Understanding where budgetary comparison schedules are located and how they fit into the overall ACFR structure is essential for interpreting these reports effectively.

ACFR Structure Overview

The ACFR is structured into three main sections: the Introductory Section, the Financial Section, and the Statistical Section. Each section serves a distinct purpose in providing a full picture of the government’s financial health and operations.

Introductory Section

The Introductory Section sets the stage for the financial information that follows. It typically includes a transmittal letter from the government’s financial officers, providing an overview of the government’s operations and highlights from the fiscal year. This section may also include organizational charts and a list of principal officials. While this section does not contain detailed financial data, it helps readers understand the context in which the government operates.

Financial Section

The Financial Section is the heart of the ACFR and contains the core financial statements and schedules, including the budgetary comparison schedules. It is subdivided into several key components:

• Management’s Discussion and Analysis (MD&A): This narrative overview explains the financial activities of the government, significant changes in financial position, and key trends affecting the financial statements.
• Basic Financial Statements: These include the government-wide financial statements, fund financial statements, and notes to the financial statements. The basic financial statements provide a broad overview of the government’s finances on a full accrual basis.
• Required Supplementary Information (RSI): This section typically includes the budgetary comparison schedules, offering a comparison between the government’s original budget, final amended budget, and actual results for major funds.

The Financial Section is where stakeholders can access the detailed financial data needed to assess the government’s fiscal health, including information on how well the government managed its budget.

Statistical Section

The Statistical Section provides additional context through a series of trend data and non-financial information. This section typically includes historical data on revenues, expenditures, debt, and economic indicators. While not directly tied to budgetary comparison, the statistical section offers insight into long-term trends that can impact future budgets.

Placement of Budgetary Comparison Schedules in the ACFR

Budgetary comparison schedules are typically found in the Financial Section of the ACFR, specifically in the Required Supplementary Information (RSI) subsection. The schedules compare the original budget, final amended budget, and actual financial results for major governmental funds, providing transparency into the government’s financial performance relative to its budgeted expectations.

In some cases, if deemed important to the overall financial presentation, budgetary comparison schedules may also be presented within the basic financial statements themselves. This placement occurs when the comparison is considered integral to the understanding of the government’s financial activities, particularly for major funds. However, the majority of state and local governments present these schedules as part of the RSI.

Required Supplementary Information (RSI) vs. Basic Financial Statements

One key distinction in the Financial Section of the ACFR is the difference between Required Supplementary Information (RSI) and Basic Financial Statements.

• RSI includes information that is essential for placing the basic financial statements into the appropriate context. The budgetary comparison schedules fall under this category, as they provide important details about the government’s financial performance relative to its legally adopted budget. While the RSI is considered part of the financial reporting package, it is not part of the audited basic financial statements.
• Basic Financial Statements, on the other hand, are the core audited financial statements that provide a complete and detailed picture of the government’s financial position and results of operations. These statements are prepared on an accrual basis of accounting, which may differ from the modified accrual basis often used in budgetary reporting.

While the basic financial statements are subject to a detailed audit, the RSI, including the budgetary comparison schedules, is typically reviewed for consistency with the financial statements but is not subject to the same level of audit scrutiny.

The ACFR provides a comprehensive framework for government financial reporting, with budgetary comparison schedules playing a crucial role in the Financial Section. These schedules are typically presented as Required Supplementary Information, offering a transparent view of the government’s adherence to its legally adopted budget, and allowing stakeholders to evaluate its fiscal performance.

Budgetary Basis of Accounting

The budgetary basis of accounting refers to the method used by state and local governments to record revenues and expenditures when preparing their budgets and budgetary comparison reports. Understanding the different accounting bases used for budgetary purposes is essential, as they may differ from the Generally Accepted Accounting Principles (GAAP) used for financial statement reporting. The following sections explore the key differences between the modified accrual and full accrual bases, the reconciliation process between budgetary and GAAP bases, and the reasons why state and local governments often use the modified accrual basis for budgetary reporting.

Modified Accrual Basis vs. Full Accrual

In governmental accounting, two primary accounting methods are used: the modified accrual basis and the full accrual basis. These accounting methods differ in how they recognize revenues and expenditures, impacting both budgetary reporting and financial statement preparation.

Modified Accrual Basis

The modified accrual basis is typically used for governmental funds, such as the general fund, and is the most common basis for budgetary accounting in state and local governments. Under the modified accrual basis:

• Revenues are recognized when they are both measurable and available. “Available” generally means that the revenue is collectible within the current fiscal period or shortly thereafter (usually within 60 days).
• Expenditures are recognized when the related liabilities are incurred, but there is an emphasis on outflows of current financial resources. This means that long-term liabilities, such as pension obligations or long-term debt, are not recognized as expenditures until payment is due.

The modified accrual basis provides a focus on current financial resources, making it well-suited for budgetary control purposes, as governments often aim to manage short-term cash flow and ensure they have sufficient resources to cover their immediate obligations.

Full Accrual Basis

The full accrual basis is used for government-wide financial statements and proprietary funds (such as enterprise funds), which operate more like private sector businesses. Under the full accrual basis:

• Revenues are recognized when they are earned, regardless of when cash is received.
• Expenses are recognized when they are incurred, regardless of when payment is made.

The full accrual basis provides a broader view of a government’s financial position, including all assets and liabilities, both short-term and long-term. While this method offers a comprehensive perspective on financial health, it is not always practical for budgetary reporting, where the focus is on near-term resources and spending limits.

Reconciliation of Budgetary Basis to GAAP Basis

Because many governments use the modified accrual basis for budgetary reporting and the full accrual basis for financial reporting under GAAP, a reconciliation between the two is often necessary. This reconciliation ensures that stakeholders can see the relationship between the government’s budgetary performance and its financial statements.

The reconciliation process involves adjusting the budgetary comparison schedule to align with the GAAP basis of accounting. Common adjustments include:

• Recognizing long-term liabilities that are not included under the modified accrual basis, such as pension obligations or bonds payable.
• Accounting for capital assets: Under the modified accrual basis, expenditures for capital outlays are recognized when incurred, but under the full accrual basis, these expenditures are capitalized and depreciated over time.
• Timing differences in revenue recognition: Revenues may be recognized at different times under the modified accrual and full accrual bases, necessitating adjustments to align the timing of revenue recognition across both methods.

These reconciliations are typically presented in the notes to the financial statements or as supplementary schedules, providing transparency and consistency between budgetary reports and the government’s official financial statements.

Why State and Local Governments Often Use Modified Accrual for Budgetary Reporting

State and local governments commonly use the modified accrual basis for budgetary reporting because it aligns closely with their primary objectives of managing current financial resources and ensuring compliance with legally adopted budgets. The following reasons explain why the modified accrual basis is favored for budgetary purposes:

1. Focus on Current Resources: The modified accrual basis emphasizes the use of current financial resources, which is critical for ensuring that governments have sufficient funds available to meet their short-term obligations. Since most government operations are funded through annual appropriations, the focus is on managing current-year revenues and expenditures.
2. Budgetary Control: Governments use budgets as a tool to control spending and ensure that public funds are used as authorized by legislators. The modified accrual basis supports this goal by providing a clearer view of the available resources and actual outflows of cash, making it easier to monitor and manage budgetary compliance.
3. Legal Compliance: Many state and local governments are required by law to prepare budgets using the modified accrual basis, as it aligns with statutory requirements for fiscal accountability. This basis ensures that expenditures do not exceed appropriations and that revenues are recognized when they are available to cover current expenditures.
4. Simplicity for Fund Accounting: Since governments typically manage multiple funds, each with its own budget, the modified accrual basis simplifies the process of accounting for the flow of resources within these funds. It allows governments to focus on the inflows and outflows of cash that affect the availability of resources in the short term.

The modified accrual basis is well-suited for budgetary reporting because it aligns with the objectives of fiscal accountability, budgetary control, and compliance with legal requirements. While the full accrual basis is essential for providing a complete view of a government’s long-term financial position, the modified accrual basis remains the preferred method for managing day-to-day operations and ensuring adherence to legally adopted budgets.

GASB Requirements for Budgetary Comparison

The Governmental Accounting Standards Board (GASB) establishes the accounting and financial reporting standards for state and local governments in the United States. These standards ensure consistency, transparency, and accountability in governmental financial reporting. Budgetary comparison reporting is governed by specific GASB standards that set forth guidelines for how governments should present and report their budgetary performance. The following sections outline the key GASB standards, requirements for inclusion in the ACFR, and core principles that guide budgetary reporting.

Overview of Relevant GASB Standards

One of the foundational standards related to budgetary comparison reporting is GASB Statement No. 34, titled Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments. GASB 34 established a framework for financial reporting by requiring governments to present budgetary comparison schedules for their major governmental funds, including the general fund and any other major special revenue funds that have legally adopted budgets.

Key aspects of GASB 34 related to budgetary comparison include:

• Presentation of both original and final amended budgets: Governments must include comparisons of their original legally adopted budget, the final amended budget, and the actual financial results.
• Inclusion of explanations for significant variances: GASB 34 encourages the presentation of explanations for any material differences between the final amended budget and the actual results, providing context for stakeholders.
• Flexibility in format: Budgetary comparison reports can be presented either as part of the basic financial statements or in the Required Supplementary Information (RSI) section, depending on the government’s reporting structure.

Subsequent GASB statements have expanded or clarified the requirements for budgetary comparison reporting. For example, GASB Statement No. 41 made modifications to GASB 34 to further clarify the budgetary comparison requirements and allow governments to present budgetary comparisons using a format that aligns with their budgetary process.

Requirements for Inclusion in the ACFR

Budgetary comparison schedules are an integral part of the Annual Comprehensive Financial Report (ACFR). GASB standards require these schedules to be included for all major governmental funds that have a legally adopted budget. These schedules must compare the original budget, final amended budget, and actual results, and they are often presented as Required Supplementary Information (RSI).

Governments have flexibility in how they include budgetary comparison schedules in their ACFRs. The schedules can be included:

• As part of the basic financial statements: Some governments may choose to present the budgetary comparison schedule directly within the basic financial statements for significant funds, ensuring it is considered a core part of the financial report.
• In the Required Supplementary Information (RSI) section: Most governments include budgetary comparison schedules as RSI, which is presented after the basic financial statements. Although the RSI is not part of the audited financial statements, it is reviewed for consistency and completeness in relation to the basic financial statements.

The inclusion of budgetary comparison reports in the ACFR helps to ensure transparency and accountability by showing how actual financial performance compares to legally adopted budgets.

Key GASB Principles for Budgetary Reporting and Compliance

Several key principles underlie GASB’s approach to budgetary comparison reporting, ensuring that the information provided is both useful and reliable for stakeholders:

1. Budgetary Integrity: One of the fundamental principles behind GASB’s budgetary reporting standards is the concept of budgetary integrity. Governments are required to show how well they adhered to their legally adopted budget, ensuring that expenditures do not exceed appropriations and that revenues are sufficient to cover expenditures. This promotes accountability to taxpayers and legislative bodies.
2. Transparency and Comparability: GASB emphasizes the importance of transparency in governmental financial reporting. Budgetary comparison reports must provide clear and accessible information that allows stakeholders to evaluate financial performance in relation to the approved budget. The requirement to present both the original and final amended budgets enhances transparency by showing how the budget evolved over time and whether the government responded appropriately to changes in financial circumstances.
3. Consistency with the Budgetary Process: GASB standards allow for flexibility in how budgetary comparison reports are presented, enabling governments to align their reporting with their budgetary processes. However, governments must ensure that the basis of accounting used in the budgetary comparison report is consistent with the legally adopted budget, even if this basis differs from GAAP. If the budgetary basis differs from the GAAP basis, governments are required to provide a reconciliation to ensure that stakeholders understand the differences.
4. Accountability for Major Funds: GASB requires budgetary comparison reports for all major governmental funds with a legally adopted budget. Major funds are those that have a significant impact on the government’s overall financial performance, such as the general fund and major special revenue funds. This focus ensures that the most important financial activities are subject to budgetary comparison and scrutiny.
5. Performance Evaluation: By requiring the presentation of actual results alongside the budget, GASB encourages stakeholders to evaluate the government’s financial performance. This evaluation includes analyzing variances between budgeted and actual figures and assessing whether financial management was effective in meeting budgetary goals.

GASB standards, particularly GASB Statement No. 34, provide a clear framework for budgetary comparison reporting. These standards emphasize the importance of accountability, transparency, and budgetary integrity in governmental financial reporting. By requiring the inclusion of budgetary comparison schedules in the ACFR, GASB ensures that governments provide stakeholders with the information they need to assess how well governments adhered to their budgets and managed public resources.

Example of a Budgetary Comparison Schedule

A budgetary comparison schedule is a critical tool in the Annual Comprehensive Financial Report (ACFR), helping stakeholders assess how well a government adhered to its legally adopted budget. The schedule typically presents the original budget, the final amended budget, actual financial results, and the variance between the budgeted and actual figures. This section provides an example of a budgetary comparison schedule and explains how to interpret its key elements.

Sample Format of a Budgetary Comparison Schedule

Below is an example of a simplified budgetary comparison schedule format for a governmental fund:

Category	Original Budget	Final Budget	Actual	Variance (Final Budget vs Actual)
Revenues
Taxes	$10,000,000	$10,500,000	$10,200,000	$(300,000)
Licenses and Permits	$1,000,000	$950,000	$1,000,000	$50,000
Intergovernmental Revenues	$500,000	$600,000	$650,000	$50,000
Charges for Services	$2,000,000	$2,200,000	$2,100,000	$(100,000)
Total Revenues	$13,500,000	$14,250,000	$13,950,000	$(300,000)
Expenditures
General Government	$4,000,000	$4,100,000	$4,050,000	$50,000
Public Safety	$5,000,000	$5,500,000	$5,600,000	$(100,000)
Public Works	$2,000,000	$2,100,000	$2,000,000	$100,000
Health and Welfare	$1,500,000	$1,600,000	$1,550,000	$50,000
Total Expenditures	$12,500,000	$13,300,000	$13,200,000	$100,000
Excess (Deficiency) of Revenues Over Expenditures	$1,000,000	$950,000	$750,000	$(200,000)

This format allows for a clear comparison of the budgeted figures against the actual financial performance, with the variance column highlighting any significant differences.

How to Interpret the Key Elements

Original Budget

The original budget represents the financial plan approved by the government’s legislative body at the beginning of the fiscal year. It outlines the expected revenues and authorized expenditures based on the government’s initial assumptions about the fiscal environment. In the example above, the original budget for total revenues was $13.5 million, while total expenditures were budgeted at $12.5 million, leaving an expected excess of $1 million.

Final Budget

The final budget reflects any amendments or revisions made during the fiscal year to account for changes in economic conditions, legislative priorities, or unforeseen circumstances. Governments may revise their budgets to account for revenue shortfalls or to authorize additional spending. In the example, the final amended budget increased total revenues to $14.25 million and total expenditures to $13.3 million, leaving an anticipated surplus of $950,000. These adjustments provide a more accurate representation of the government’s financial expectations as the fiscal year progressed.

Actual Results

The actual column presents the real financial performance of the government at the end of the fiscal year. It shows the actual revenues collected and expenditures incurred during the reporting period. In the example, actual revenues amounted to $13.95 million, and actual expenditures were $13.2 million, resulting in an actual excess of $750,000.

Variance (Final Budget vs Actual)

The variance column compares the final amended budget to the actual results, highlighting any differences between the two. A positive variance indicates that actual results were better than budgeted, while a negative variance indicates that actual results fell short of expectations. In the example:

• Revenues: The government experienced a negative variance of $300,000 in total revenues, with some categories (e.g., taxes) underperforming relative to the final budget, while others (e.g., intergovernmental revenues) exceeded expectations.
• Expenditures: The government underspent by $100,000 compared to the final budget, with public works and health and welfare spending coming in under budget, while public safety expenditures exceeded the final budget by $100,000.

Interpreting the Schedule

The budgetary comparison schedule provides key insights into a government’s financial management and performance:

• Revenues: Variances in revenue categories can reveal underlying economic conditions, such as lower-than-expected tax collections or higher intergovernmental transfers.
• Expenditures: Analyzing expenditure variances helps stakeholders assess how well the government controlled its spending. In this case, the government overspent in public safety but achieved savings in other areas, resulting in a favorable overall expenditure variance.
• Overall Performance: The final row, “Excess (Deficiency) of Revenues Over Expenditures,” shows the net financial result. A negative variance in this row indicates that the government did not meet its final budgeted surplus target, though it still managed to generate a $750,000 surplus.

The budgetary comparison schedule provides a clear and structured way to compare a government’s budget with its actual financial performance. Understanding the key elements—original budget, final budget, actual results, and variance analysis—enables stakeholders to evaluate how well a government adhered to its financial plan and where deviations occurred, facilitating transparency and accountability in the use of public resources.

Common Issues in Budgetary Reporting

Budgetary comparison reporting is a vital tool for ensuring transparency and accountability in state and local government financial management. However, governments often face several challenges when preparing and presenting budgetary comparison schedules. These challenges can complicate the ability to provide accurate and timely financial reports. The following sections explore common issues that arise in budgetary reporting, including challenges in forecasting and amendments, timing differences between budget preparation and actual results, and reconciliation issues between budgetary and financial statement reporting.

Challenges in Budgetary Forecasting and Amendments

One of the most significant challenges in budgetary reporting is accurately forecasting revenues and expenditures for an entire fiscal year. Governments rely on economic assumptions, historical data, and policy priorities when preparing their budgets. However, unforeseen events or changes in the economic environment can significantly alter revenue collections or expenditure needs. Common challenges include:

• Economic volatility: Fluctuations in the economy, such as recessions, natural disasters, or pandemics, can drastically affect tax revenues, fees, and intergovernmental transfers. Governments may find that their revenue forecasts are overly optimistic or pessimistic depending on the unpredictability of economic conditions.
• Changes in policy: Legislative changes during the fiscal year, such as new programs or changes in tax laws, can require governments to amend their budgets. These amendments may lead to discrepancies between the original and final budget, complicating budgetary comparisons.
• Unanticipated expenditures: Emergencies or unforeseen needs, such as natural disasters or public health crises, may require immediate spending that was not anticipated in the original budget. Governments must amend their budgets to account for these expenditures, which can lead to significant variances between the original budget and actual results.

Frequent amendments to the budget can make it challenging to maintain budgetary control and may obscure the clarity of budget-to-actual comparisons. Governments must strike a balance between amending the budget to reflect reality while maintaining transparency about the reasons for those changes.

Timing Differences Between Budget Preparation and Actual Results

Another common issue in budgetary reporting arises from timing differences between when the budget is prepared and when actual financial results are recorded. These timing issues can result from differences in fiscal years, delays in revenue collections, or timing mismatches between when expenditures are incurred and paid. Specific examples of timing challenges include:

• Revenue recognition: Governments often face delays in receiving certain types of revenue, such as tax collections or federal grants. These delays can create timing mismatches between budgeted revenue expectations and actual collections, leading to variances in the budgetary comparison schedule.
• Expenditure timing: Expenditures may be recorded in a different period from when they were budgeted, particularly in cases where invoices are received late or payments are delayed. For example, capital projects may experience delays, causing expenditures to be recorded in the following fiscal year, even though they were budgeted for the current year.
• Year-end adjustments: At the close of the fiscal year, governments often make adjustments to financial statements, such as recording liabilities or recognizing deferred revenues. These adjustments can create discrepancies between the budgeted amounts and the actual results reported at year-end.

Governments must be transparent about these timing differences and provide explanations in the notes to the financial statements or budgetary comparison schedules to help stakeholders understand the reasons for significant variances.

Reconciliation Issues Between Budgetary and Financial Statement Reporting

Governments frequently encounter reconciliation issues when trying to align the basis of accounting used for budgetary reporting with the GAAP basis used for financial statement reporting. These reconciliation issues can make it difficult for stakeholders to compare budgetary performance with overall financial health. Key reconciliation challenges include:

• Different accounting bases: Many governments prepare their budgets using the modified accrual basis of accounting, which focuses on current financial resources. However, GAAP financial statements are often prepared using the full accrual basis, which includes long-term assets and liabilities. The differences between these two accounting methods require reconciliations to explain variances between the budgetary comparison schedules and the financial statements.
• Recognition of long-term liabilities: Under the modified accrual basis, long-term liabilities (such as bonds or pension obligations) are not recognized as expenditures until payment is due. However, GAAP requires the recognition of these liabilities on the full accrual basis. Reconciling these differences is essential to provide an accurate picture of the government’s financial position.
• Capital outlays: In budgetary reports prepared using the modified accrual basis, capital expenditures are treated as current-year expenses. However, under GAAP, capital outlays are capitalized and depreciated over time. Governments must reconcile these differences to ensure that stakeholders understand how capital expenditures are reflected in both the budget and financial statements.

To address reconciliation issues, governments typically include a reconciliation schedule in the notes to the financial statements or as part of the budgetary comparison report. This schedule provides a detailed explanation of how the budgetary basis differs from the GAAP basis and ensures that stakeholders can interpret both the budgetary comparison schedules and the financial statements correctly.

Common issues in budgetary reporting—such as challenges in forecasting, timing differences, and reconciliation issues—can complicate the process of preparing accurate and transparent budgetary comparison schedules. By understanding these challenges and addressing them through appropriate disclosures and reconciliations, governments can provide stakeholders with meaningful insights into their financial performance and adherence to budgetary constraints.

Importance of Budgetary Reporting for Auditors

Budgetary comparison reports are essential tools for ensuring transparency and accountability in state and local government financial management. Auditors play a critical role in reviewing these reports to ensure they are accurate, compliant with accounting standards, and consistent with other financial statements. This section explores the role of auditors in reviewing budgetary comparison reports, how they assess compliance with GASB standards, and their responsibility for ensuring consistency between budgetary reports and financial statements.

Role of Auditors in Reviewing Budgetary Comparison Reports

Auditors are tasked with reviewing budgetary comparison reports as part of their broader responsibility to evaluate the financial statements of a government entity. These reports, which compare the original and final budgets to actual financial results, provide insight into how well the government adhered to its legally adopted budget and managed public resources.

In their review of budgetary comparison reports, auditors focus on several key areas:

• Accuracy: Auditors verify that the figures in the budgetary comparison reports are accurate, complete, and free from material misstatements. This involves testing both revenue and expenditure figures to ensure they are correctly reported and match supporting documentation.
• Completeness: Auditors ensure that all major governmental funds with legally adopted budgets are included in the budgetary comparison schedules, as required by GASB standards. They also check that both the original and final amended budgets are presented alongside actual results.
• Transparency: Auditors review the budgetary comparison reports to ensure that any significant variances between the final budget and actual results are adequately explained. This helps provide stakeholders with a clear understanding of why financial performance may have deviated from the planned budget.

By conducting these reviews, auditors help to ensure that the budgetary comparison reports provide an accurate and transparent account of government financial performance, which is essential for maintaining public trust.

How Auditors Assess Compliance with GASB Standards

Compliance with Governmental Accounting Standards Board (GASB) standards is a key focus of the auditor’s review of budgetary comparison reports. GASB sets the accounting and reporting requirements for state and local governments, including the presentation of budgetary comparison schedules. Auditors are responsible for assessing whether the government entity has complied with these requirements.

Key GASB standards relevant to budgetary comparison reporting include:

• GASB Statement No. 34: Auditors check that the budgetary comparison schedules are presented in accordance with GASB 34, which requires the inclusion of the original budget, final amended budget, and actual financial results. Auditors also verify that any required explanations for variances between the final budget and actual results are provided.
• Budgetary basis of accounting: Auditors assess whether the budgetary comparison reports are prepared using the budgetary basis of accounting, which may differ from the GAAP basis used in the government’s financial statements. If the budgetary basis differs, auditors check that a reconciliation is included to explain the differences between the two accounting bases.

Auditors may also review any subsequent amendments or revisions to the budget to ensure they were properly authorized and accurately reflected in the final amended budget. By ensuring compliance with GASB standards, auditors help guarantee the consistency and reliability of the budgetary comparison reports.

Auditor’s Responsibility for Ensuring Consistency Between Budgetary Reports and Financial Statements

Auditors are responsible for ensuring that there is consistency between the budgetary comparison reports and the government’s financial statements. This consistency is crucial because the budgetary comparison schedules are often presented in the Required Supplementary Information (RSI) section of the Annual Comprehensive Financial Report (ACFR) rather than in the audited financial statements themselves. While the RSI is not audited to the same degree as the basic financial statements, auditors must still review it for consistency with the audited financial data.

Specific responsibilities of auditors in ensuring consistency include:

• Reconciling differences: Auditors must reconcile any differences between the budgetary basis of accounting (used in budgetary comparison reports) and the full accrual basis of accounting (used in GAAP financial statements). This involves reviewing the reconciliation schedules and ensuring that they provide a clear and accurate explanation of the differences between the two bases.
• Review of variances: Auditors assess whether any variances between budgeted and actual amounts reported in the budgetary comparison schedule are consistent with variances noted in the financial statements. For example, if a significant revenue shortfall is reported in the financial statements, this should be reflected in the budgetary comparison schedule as well.
• Completeness and transparency: Auditors ensure that the government has provided complete and transparent disclosures in both the financial statements and the budgetary comparison reports. This includes verifying that any significant discrepancies between the two sets of reports are adequately explained and that stakeholders can easily reconcile the information presented in each report.

In performing these duties, auditors play a critical role in maintaining the integrity of the government’s financial reporting. By ensuring consistency between budgetary reports and financial statements, auditors help to provide stakeholders with a complete and accurate view of the government’s financial position and budgetary performance.

Auditors play a vital role in reviewing budgetary comparison reports to ensure their accuracy, compliance with GASB standards, and consistency with the government’s financial statements. Their work provides an essential check on government financial reporting, helping to maintain public confidence in the government’s ability to manage its resources responsibly and transparently.

Conclusion

Summary of the Key Objectives and Components of Budgetary Comparison Reporting

Budgetary comparison reporting is a critical tool for state and local governments to demonstrate fiscal responsibility, transparency, and accountability. Its key objectives include ensuring that governments are held accountable for how public funds are used, providing transparency by comparing budgeted figures to actual performance, maintaining budgetary control by monitoring adherence to legally adopted budgets, and evaluating management’s ability to operate within financial constraints. The main components of budgetary comparison reporting—the original budget, final amended budget, actual financial results, and variance analysis—work together to offer a clear and comprehensive view of a government’s financial performance.

Importance of Understanding These Reports for Public Sector Financial Accountability

For anyone involved in public sector financial management or preparing for a professional exam like the BAR CPA, understanding budgetary comparison reporting is crucial. These reports are central to assessing a government’s financial health and its ability to manage public resources effectively. They provide a detailed view of how closely a government adhered to its financial plan and explain any significant deviations. As a cornerstone of government financial transparency, budgetary comparison reports foster trust between governments and their stakeholders, including citizens, legislators, and oversight bodies.

Encouragement to Examine Real-World Examples of ACFRs for Practice

To deepen your understanding of budgetary comparison reporting, it is highly recommended to examine real-world examples of Annual Comprehensive Financial Reports (ACFRs) from various state and local governments. By reviewing actual budgetary comparison schedules, you can see how different governments present their financial data, handle variances, and reconcile budgetary and financial statement reporting. Practicing with these examples will not only help you become more familiar with the format and interpretation of these reports but also enhance your ability to apply these concepts in professional scenarios.