Evaluation of a city's basic financial statements. Following is a description of the basic financial statements extracted from an example city's management's discussion and analysis (MD&A). Review the description and respond to the requirements at the end of the case.

Government-wide Financial Statements

The basic financial statements include two government-wide financial statements: the statement of net position and the statement of activities. The government-wide financial statements report information about the city as a whole using accounting methods similar to those used by the private sector. The statement of net position and statement of activities divide the city into the following:

Governmental activitiesAll of the city's basic services are considered to be governmental activities, including public safety, public works, health, parks, planning, cultural and economic development and general administration. These activities are supported primarily with general city revenue such as sales taxes, property taxes, fines and specific program revenue like permit fees and grants.

Business-type activitiesAll the city's enterprise activities are included here. These operations derive revenues from charges for services that are intended to recoup the full cost of operations. Three of these operations require subsidies from tax revenue (airport, transit and recreation services). The city does not include any component units in its financial statements.

Fund Financial Statements

Another major section of the basic financial statements is the fund financial statements. The fund financial statements provide detailed information about each of the city's most significant funds, called "major funds." All "nonmajor" funds are summarized and presented in a single column. The city has three kinds of funds:

Governmental fundsMost of the city's basic services are included in governmental funds. These fund statements are prepared on a modified accrual basis, which means they measure only current financial resources and uses. Capital assets and other long-lived assets, along with long-term liabilities, are not presented in the governmental fund statements. Because this information does not encompass the long-term focus of the government-wide financial statements, additional information is provided to explain the differences between them.

Proprietary fundsThese statements include both enterprise funds and internal service funds. Statements are prepared on the accrual basis and include all their assets and liabilities, current and long-term. This is the same basis used in the government-wide financial statements.

Fiduciary fundsThese statements include activity of funds that report trust responsibilities of the city, These funds are summarized by type: pension, other employee benefit, and private-purpose trust. These assets are restricted in purpose and do not represent discretionary assets of the city. Therefore, these assets are not presented as a part of the government-wide financial statements.

Fiduciary fundsThese statements include activity of funds that report trust responsibilities of the city, These funds are summarized by type: pension, other employee benefit, and private-purpose trust. These assets are restricted in purpose and do not represent discretionary assets of the city. Therefore, these assets are not presented as a part of the government-wide financial statements,

Required

a. Review the foregoing description of the example city's basic financial statements and prepare a detailed listing of the ways that this city's basic financial statements do or do not conform to GASB standards, as described in this chapter.

b. In the description of the city's governmental funds, explain the meaning of the sentence: Because this information does not encompass the long-term focus of the government-wide financial statements, additional information is provided ro explain the differences between them.