What is a Comprehensive Annual Financial Report?

These reports provide a ton of information on the fiscal health of the community

As we approach the end of the year, local governments of various sizes are diligently working to finalize their 2024 appropriations by January 1st. Commonly known as budgets, these appropriations define the spending limits for the government's revenues. The appropriation ordinance is often considered the most crucial piece of legislation for any local government, reflecting its priorities and values through its financial decisions.

However, despite the significance of an appropriation ordinance, there's a compelling case for the Comprehensive Annual Financial Report (CAFR) being an even more informative document. While the appropriation ordinance is an annual plan, relevant for a single year, the CAFR offers a comprehensive view of the government's financial health over multiple years. It provides detailed insights into past expenditures, as well as the current value of assets and investments managed by the local government in question.

What is a Comprehensive Annual Financial Report and What Does it Say?

A Comprehensive Annual Financial Report (CAFR) serves as a cornerstone in the financial transparency and accountability of local governments. It's an extensive document that offers a detailed view of a government entity's financial status, including its income sources, expenditures, assets, and liabilities. Understanding the purpose of a CAFR and the benefits it offers to both citizens and investors is crucial for anyone engaged in community governance or interested in public sector finance. Some of the benefits that the CAFR provides includes:

Comprehensive Financial Overview: Unlike regular financial reports, a CAFR presents a complete picture of a local government's financial condition. It includes not just the government's operating results for the year but also its long-term financial commitments and assets. This includes physical assets (like buildings and infrastructure) and long-term obligations (like pension liabilities).

Adherence to Accounting Standards: The CAFR is prepared in accordance with the accounting principles established by the Governmental Accounting Standards Board (GASB). This ensures that the financial data is presented consistently and in line with the highest standards, facilitating comparability over time and with other entities.

Public Confidence and Transparency: By providing a detailed and complete financial picture, CAFRs help in building public trust. They demonstrate to the citizens and stakeholders that the government is managing its resources responsibly and is committed to transparency.

More than a Traditional Audit

There are some significant differences between a traditional audit and a CAFR.

Scope and Focus: A traditional audit primarily focuses on the accuracy and fairness of a government's financial statements. An auditor reviews the financial records and gives an opinion on whether the financial statements present a true and fair view of the government's financial position. In contrast, a CAFR provides a more comprehensive and detailed report, including statistical, economic, and demographic information.

Content and Depth: While an audit report usually contains the auditor's opinion, balance sheets, income statements, and notes to the accounts, a CAFR includes these elements and much more. It has three major sections: the introductory section (providing an overview and organizational information), the financial section (with the auditor's report, management's discussion and analysis, basic financial statements, and required supplementary information), and the statistical section (offering additional financial, economic, and demographic data).

Purpose and Usage: An audit's primary purpose is to ensure the accuracy of financial statements and compliance with accounting standards. A CAFR, however, is geared towards providing a detailed and transparent overview of the financial health of the government for a wide range of stakeholders.

What are the Benefits of a CAFR?

At first glance, CAFRs can be somewhat intimidating documents, but understanding a CAFR can provide some important benefits for those residents willing to take the time and review the vital information in the document.

Informed Decisions for Citizens: Citizens benefit from CAFRs as they offer an in-depth look at how their local government is managing public funds. This information is essential for holding elected officials accountable and making informed decisions in local elections and referendums.

Investor Confidence: For investors, particularly those interested in municipal bonds, CAFRs provide a wealth of information to assess the financial health and creditworthiness of a local government. This detailed financial data helps in making informed investment decisions.

Economic Insights: CAFRs also include important economic and demographic information that can be invaluable for businesses and researchers. This data can guide business decisions, like expansion or investments, and provide academics with vital information for studies on public finance and governance.

Transparency and Trust Building: The comprehensive nature of CAFRs fosters a culture of transparency and accountability in local governments, which is fundamental in building trust between the government and its citizens.

In closing, the CAFR is a critical tool for local governments, providing a detailed and comprehensive picture of financial health and commitments. It goes beyond the traditional audit by offering deeper insights and a broader context. This transparency benefits not only the citizens, who gain a clearer understanding of how their government operates financially, but also investors, who rely on the detailed information in CAFRs to make sound investment decisions. The CAFR thus plays a vital role in promoting informed decision-making, accountability, and trust within the community.

If you have interest in looking at the City of Troy’s lastest CAFR, that information is available on the Auditor of State’s website at and search “Troy” in the search box: http://ohioauditor.gov/auditsearch/search.aspx

Correction: Some readers have had some issues with the above link. This link should take you to the audit directly. If that doesn’t work, send us an email at pinnaclestrategiesltd@gmail.com and we will send you one. We also mistakingly referred to this preport as a “Consolidated Annual Financial Report”, when it reality is a “Comprehensive Annual Financial Report”.

Thanks for reading today’s Civic Capacity Newsletter. Please feel free to share this information with your friends and neighbors and feel free to leave your ideas and insights in the comment section!