Government GPS

The Latest Rules and Regulations That Impact Your Government Entity

The benefits of timely financial reporting

timely financial reporting, closing your books, year end, government accountingIt’s the holiday season – you’re busy, your staff is busy, life is full of interruptions, and for you December 31 ending governments out there, you’ve still got to close your books at year-end. There’s only so much time between your actual year-end, when your entity is really performing closing entries to begin your annual audit and ultimately, when your audited financial statements are issued. You don’t want to lose sight of the importance of timely financial reporting.

According to Statements of Financial Accounting Concepts (SFAC No. 2), for financial statements to be useful to the reader, they must be relevant. One of the elements of relevancy is the timeliness of having the information. Specifically, your organization should have timely financial reporting information available while you are able to influence decisions. An example may be a decision regarding the early pay-off of debt when you haven’t finished reconciling the last few months’ bank statements. How can management or a Board of Directors decide on whether to pay down the debt early if they aren’t entirely sure what their cash position is with the bank at year-end? With the enormous amount of information a large government has to process after year-end to properly close its books, it is no wonder you see some entities pushing four, five or even six months after year-end before they have an audit ready trial balance.

So, exactly when would closing entries be considered untimely? This is a question that will differ from one entity to another and requires professional judgment. Here’s an example of when it might differ: a publicly traded company with financial statement users, such as investors, requiring relevant information as soon as possible as opposed to a governmental entity with bond holders wanting relevant information. One entity is required by the SEC to issue certain reports in a timely manner after each quarter, or year-end, and the other may go up to six months past year-end before issuing any comprehensive annual financial report.

According to the authors of GASBC No. 1, State and Local Governments should provide timely financial reporting in a recommended goal of 90 days from fiscal year-end. Issuance as late as six months after year-end limits your management’s ability to take any remedial action, if required. So, even though we all may have a full day of activities and work to do during this busy holiday season, we need to remember that there are users of the information we are trying to present that rely on us to be as timely as possible.

Brian Hemmerle, CPA, CFE