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ACCOUNTING PRINCIPLES AND STANDARDS HANDBOOK
CHAPTER 5. FINANCIAL REPORTING
Section 1.0 General
Federal financial reporting consists of two types of reports: (1) general purpose and (2)
management accounting reports.
General -purpose financial reports include internal financial reports and external
management reports.
The objective of internal management reporting is to supply management with clear,
concise, and useful budget execution reports and accounting data. Financial reports
provide financial management information to users outside of the Department.
The objective of external financial reporting is to comply with the reporting requirements
of central agenci es.
Management accounting reports shall provide a means of comparing plans to
perf ormance, and for comparing similar operations from period-to-period and between
organizations. Analyses of variances are integral to reporting results to operating and
program managers and to the Chi ef Fi nanci al Of f i cer (CFO).
General purpose financial reports should provide information on the following:
• Sources and uses of budgetary resources;
• Operati ons and the rel ated resources;
• Government’s assets; and
• Government’s liabilities and financial responsibilities.
They should also provide information that addresses concerns with the future and
discloses the levels of financial controls.
The responsibility for financial and management accounting reports lies with bureau
finance of f i cers. General -purpose financial reports shall be based on data maintained by
approved Departmental f i nanci al management systems(s).
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Section 2.0 Authority
The policies and procedures in this chapter are issued pursuant to the following laws,
regulations, and guidelines:
a. Chief Financial Officers Act of 1990, 31 U.S.C. Sec.3512, 3515 (Public Law
101-576). See http://www.gao.gov/special.pubs/af12194.pdf for GAO
Interpretation
b. Government Performance and Results Act of 1993
c. Government Management Reform Act of 1994
d. OMB Circular A – 11, “Preparation, Submission and Execution of the Budget
Esti mates”
e. OMB Circular A – 127, “Financial Management Systems”
f. OMB Circular A – 130, Appendix III, “Security of Federal Automated
Information Systems”
g. OMB Bulletin 07 – 04, “Audit Requirements for Federal Financial
Statements”
h. OMB Circular A – 134, “ Financial Accounting Principles and Standards”
i. OMB Circular A – 136, “Financial Reporting Requirements”
j. Treasury Fi nanci al M anual , V ol ume I Chapter 2-4700, Agency Reporting
Requirements for the Financial Report of the United States Government
k. FASAB Statement of Federal Financial Accounting Concepts, Standards, and
Guidance
l. Accounting and Auditing Policy Committee: “Audi t Legal Representati on
Letter Gui dance (Issued November 13, 1997)”
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Section 3.0 External Financial Reports
.01 Financial Section of Performance and Accountability Report
The CFO Act of 1990 requi res Executi ve Departments and A genci es to
prepare audited financial statements for revolving funds, trust funds, and
“substantial commercial activities.” The Government M anagement
Reform Act of 1994 expands on the CFO Act by requiring audited
fi nanci al statements f or al l acti vi ti es of the Department. The Director of
OMB prescribes the form and content of financial statements to be
prepared under these Acts. Beginning in FY 1998 and each year
thereaf ter, the Department i s required to prepare a Perf ormance and
Accountability Report that includes audited financial statements consisting
of the following sections:
a. Message from the Chief Financial Officer. This brief transmittal
serves to introduce the statements, as well as summarize highlights of
the auditor’s findings and bureau plan for correcting material
weaknesses, deficiencies, and instances of non-compliance with laws
and regulations.
The transmittal should identify impediments to prompt resolution of
reporting problems cited by the auditor reports, particularly those
problems identified by previous audit reports that remain unresolved.
b. Financial Management and Analysis.
1. Financial Management and Analysis
• Financial Management Systems
• Financial Reporting
• Grants Management
• Human Capital
2. Debt Management
3. Payment Practices
• Electronic Funds Transfer
• Bankcards
• Prompt Payment
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4. Analysis of PAR Fiscal Year Financial Conditions and Results
• Composition of Assets and Assets by Responsibility
Segment
• Trends in Assets
• Composition of Liabilities and Liabilities by Responsibility
Segment
• Trends in Liabilities
• Composition of and Trends in Financing Sources
• Net Cost of Operations by Strategic Goal
• Limitations of the Financial Statements
c. Principal Financial Statements
1. Consolidated Balance Sheets - present, as of a specific time,
amounts of future economic benefits owned or managed by the
Department (assets), amounts owed by the Department (liabilities),
and amounts which comprise the difference (net position).
2. Consolidated Statements of Net Costs - report separately the
components of the net cost of the Department’s operations for the
period by strategic goal. Net cost of operations is the gross cost
incurred by the Department less any exchange revenue earned from
its activities.
3. Consolidated Statements of Changes in Net Position - report the
change in net position during the reporting period. Net position is
affected by changes to its two components: Cumulative Results of
Operations and Unexpended Appropriations. The statement format
is designed to display both components of net position separately
to enable the user to better understand the nature of changes to net
position as a whole.
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4. Combined Statements of Budgetary Resources - provide
information about how budgetary resources were made available as
well as their status at the end of the period. It is the only financial
statement predominantly derived from the Department’s budgetary
general ledger in accordance with budgetary accounting rules,
which are incorporated into GAAP for the Federal Government.
Information on the SBR should be reconcilable to the budget
execution information reported on the SF-133 Report on Budget
Execution and Budgetary Resources to ensure the integrity of the
numbers presented. The Statement of Budgetary Resources should
be aggregated to reflect all the activity of the Department for the
year covered by the financial statement. Budgetary information
aggregated for the Statement of Budgetary Resources should be
desegregated for each bureau and presented as supplementary
information.
5. NOTE: Beginning with the fiscal-year ending 2007 financial
statements, the Consolidated Statements of Financing will be
presented in the notes to the financial statement entitled
“Reconciliation of Net Cost of Operations to Budget,” per OMB
Circular A-136, “Financial Reporting Requirements.” The
Statement of Financing is no longer considered a major financial
statement.
d. Notes to the Principal Statements – provide details on the information
presented in the financial statements. The notes immediately follow
the financial statements.
e. Consolidating Balance Sheet – presents the current fiscal year balance
sheet by bureau, with Departmental elimination entries and a total,
which reconciles to the consolidated balance sheet.
f. Required Supplementary Information (RSI) – provides def erred
maintenance, general information on stewardship land, collection type
heri tage assets, and the Statement of Budgetary Resources by Major
Budget Account for the Department. A Statement of Custodial
Activity, information about social insurance, and risk assumed
information would also be included in this section if applicable, per
OMB Circular A-136, “ Financial Reporting Requirements.”
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NOTE: A s a resul t of SFFAS 29, “ Heri tage A ssets and Stewardshi p
Land,” issued in July 2005, changes to Stewardship PP& E are being
phased in over time. Changes will be made in both fiscal years 2008
and 2009 reporting to this category.
g. Required Supplementary Stewardship Information (RSSI) - provides
information pertaining to the Department’s Stewardship resources and
responsibilities entrusted to it. The Department breaks down reporting
stewardshi p i nvestments i nto three categori es: Non-f ederal Physi cal
Property, Investments in Human Capital, and Investments in Research
and Development (R&D). Information on stewardship reporting
requirements definitions, measurement and implementation guidance
is found in OMB Circular A-136, SFFA S 8, SFFAS 11, SFFA S 14,
SFFA S 16, SFFAS 25, and SFFA S 29. (SFFAS 11, SFFAS 14, and
SFFAS 16 include amendments to SFFAS 8.)
h. Independent Auditor’ s Report – Consists of the Report of Independent
Auditors’ – Cover Letter, which is issued by the Commerce Inspector
General, and the Independent Auditors’ Report (typically including
exhibits)
The auditor will submit an audit report to the head of the reporting
entity, which is made up of at least three parts:
1. An opinion or disclaimer of an opinion, on whether the financial
statements are presented fairly in all material respects in
accordance with applicable accounting standards.
2. A report on internal controls which identifies material weaknesses,
reportable conditions, and other matters; and
3. A report on the entity’s compliance with applicable laws and
regulations.
Further:
• Section 803 (b)(1) of the “Federal Financial Management
Improvement Act of 1996” (FFMIA), requires that auditors
include in their financial statement audits a report on
compliance with FFMIA;
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• FFMIA Section 803 (c)(1) requires that the head of each
agency determine whether the agency’s financial
management systems comply with the Act based on a
review of the report on the applicable agency-wide audited
financial statement and any other information the head of
the agency considers relevant and appropriate;
• FFMIA Section 803 (c)(3) requires that when the agency
head disagrees with the auditor’s findings, the Director of
OMB shall review such determinations and provide a report
on the findings to the appropriate committees of the
Congress; and
• FFMIA Section 803 (c)(3) requires that when the agency
agrees with the auditor’s findings of noncompliance, a
remediation plan be developed in consultation with OMB
that describes the resources and milestones for achieving
compliance. It is recommended that the plan not exceed
three years.
i. In addition, the annual financial statement should include other
accompanying information that, in the judgment of management,
provides users of the financial statement wi th rel evant i nf ormati on
useful for obtaining a better understanding of the entity’s programs and
the extent to which they are achieving their intended objecti ves.
Ref er to the current and the current OMB Circular A-136 for guidance
on the presentation of agency financial statements. Pl ease note that
fi nanci al statement preparers should follow the conventions noted in
the general instructions of the OMB Circular and the Commerce
Fi nanci al Statement Guidance (e.g., round dollar amounts...)
NOTE: The Department prepares consol i dated f i nanci al statements, based
upon bureau submissions. Only one bureau (USPTO) prepares audi ted
stand-al one f i nanci al statements. A l l audi ted f i nanci al statements,
Department and bureau level, need to be in compliance with all applicable
standards. For guidance on bureau submission to the Departmental
fi nanci al statements, refer to the Commerce Fi nanci al Statements
Guidance from the Of f i ce of Fi nanci al M anagement.
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.02 Closing Package
The Closing Package is a methodology developed by Treasury to directly
link information from federal agencies’ audited financial statements to
amounts reported in the consolidated financial statements of the U.S.
Government. A complete closing package consists of the special purpose
audit opinion, the management representation letter for the closing
package, audit trail report (reclassification journal voucher report), closing
package financial statement report, trading partner summary report, notes
reports, and other data reports.
Commerce bureaus submit, or the data is otherwise collected (i.e. from the
Hyperion Financial Management (HFM) system, the following
information to the Office of Financial Management for the Department’s
submission:
a. Expanded Trial Balances, submitted through the HFM system;
b. Closing Package Reclassified Balance Sheet, Statements of Net Cost,
Changes in Net Position, and Custodial Nonexchange Activity;
c. Closing Package Notes and Other Data submitted through HFM and
manual Closing Package submissions; and
d. Closing Package federal trading partners and amounts for federal line
items.
For further information on the Closing Package requirements, please refer
to the current Commerce Financial Statements Guidance issued by the
Office of Financial Management.
.03 Other Reports to OMB and Treasury
Departmental accounting system(s) shall have the capability of producing
fi nanci al and budgetary reports, and supporting schedules, as required by
OM B and Treasury.
In addition to the formal financial statements and budget reports, other
financial reports required by OMB and Treasury include those listed in
Exhibit 5-1, M aj or External Fi nanci al Reports, Exhibit 5-2, Maj or Credi t
and Debt Management Reports, Exhibit 5-3, M aj or Cash Management
Reports, and Exhibit 5-4, M aj or Perf ormance M etri cs Reports.
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Section 4.0 Fi nanci al M anagement Systems
Fi nanci al management systems shoul d be desi gned and operated to meet external
reporting requirements of oversight agencies, and internal information needs of managers.
In addition, financial management systems should be flexible enough to produce, or assist
in producing, special purpose financial reports on an as-needed basi s. Therefore, bureau
fi nanci al management systems must:
a. Meet OMB Circular A-127, “Financial Management Systems,” requirements
which call for systems to: support management’s fiduciary role; support the
legal, regulatory, and other special management requirements of the agency;
support the budget execution functions; support fiscal management of
program delivery and program decision making; comply with internal and
external reporting requirements, including, as necessary, the requirement for
financial statements prepared in accordance with the form and content
prescribed by OMB and reporting requirements prescribed by Treasury; and be
monitored by agency staff to ensure the integrity of financial data;
b. Follow requirements published in Office of Federal Financial Management
(OFFM) Federal Financial Management System Requirements series that
prescribe the functions that must be performed by systems to capture
information for financial statement preparation;
c. Provide security over financial information in accordance with OMB Circular
A-130, Appendix III, “Security of Federal Automated Information Systems.”
And, the financial management system’s internal controls are designed
properly and operating effectively in accordance with OMB Bulletin 07-04,
“Audit Requirements for Federal Financial Statements” (see Sec. 4.01-
Security below);
d. Support strategic planning and performance measurement requirements of
GPRA;
e. Incorporate the U.S. SGL chart of accounts;
f. Incorporate the OMB Object Classification codes included in OMB Circular
A-11, “Preparation, Submission and Execution of the Budget;”
g. Support managerial cost accounting for Departmental responsibility segments;
h. Support proper accrual accounting in compliance with generally accepted
accounting principles of the Federal Government; and
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i. Provide that compensating procedures are applied to financial management
information produced by third parties, such as service bureaus, when it is
determined that financial systems used by third parties to provide those
services do not comply with the provisions of the FFMIA.
.01 Security
Bureau financial systems are required to adhere to all security controls that
are set out for Federal automated information systems in OMB Circular A-
130, Appendix III, “Security of Federal Automated Information Systems.”
“Bureaus shall maintain adequate security for all financial records. At a
minimum, the security for automated systems will provide for the
following:
a. A password system that provides for:
1. Entry into the system only by those individuals that are authorized
to enter data into the system;
2. Entry of data into the system only during authorized hours; and
3. Restrict certain types of transactions to personnel that are
authorized to enter that type of data;
b. A password system that has the capability of periodic change
controlled by the user and a mandatory change at least annually;
c. Recording of users’ identification as part of each transaction;
d. Safeguards of Privacy Act information;
e. The capabilities to limit access to certain files;
f. Prevention for the alteration of data except through the posting of
transactions that are entered through the normal edits and update
process under proper security; and
g. Control over all changes to the system.
In compliance with the Computer Security Act of 1987,” the
Department has established and implemented an Information
Technology (IT) security program to ensure (1) that IT systems operate
effectively and accurately; (2) that there are appropriate technical,
personnel, administrative, physical, environmental, and
telecommunications safeguards in IT systems, and (3) the continuity of
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the operations of IT systems that support critical agency functions are
preserved. For further information on IT security, please see the
Policies drop down content at the Office of the Chief Information
Officer (OCIO) website.
Section 5.0 Fairness of Presentation
All financial reports must identify their purpose and present logical data consistent with
that purpose. If the report classifications do not provide the means of disclosing
significant factors affecting the financial data, proper footnotes and references shall be
appended to the report.
Reports shall be prepared on a consistent basis from period-to-period. Where significant
changes are made in accounting classifications or other concepts underlying a financial
report, which significantly impairs comparability, the effect of the change shall be
disclosed until a proper transition to the new concept(s) can be made.
Financial and operational reports, compiled on a monthly basis, shall include both current
and cumulative transactions recorded on a timely basis. The integrity of financial reports
should not be compromised by the inclusion of prior-period adjustments. Adjustments
and corrections shall be set forth separately in the statements in such a manner that their
financial significance can be readily determined.
Section 6.0 Accuracy
Financial data shall be defined by the chart of accounts as established for the U.S.
Standard General Ledger. Financial reports to central agencies shall be prepared directly
from general ledger accounts, or from records under general ledger control and
reconciliation. System design and procedures shall ensure that all financial transactions
pertaining to an accounting period have been accounted for, either by direct processing
into the accounting system, or by identification and provision of a reasonable estimate if
the transaction cannot be received in time for direct processing. To ensure accuracy and
completeness of reports, closeout procedures shall provide a review of accounts before
final closing of the books for the accounting period.
Procedures will provide for all accounting work to be supervised by a professional
accountant. Such procedures may provide for day-to-day processing controls, proof of
batch listings, and journals of original entry. Closeout procedures, journal vouchers,
general ledger reconciliation and corrections, and formal statements shall be the assigned
responsibility of professional accountants.
One of the most important functions of a finance office is to ensure the accuracy of the
financial data. Steps that need to be taken to increase the likelihood of accurate numbers
on financial statements include:
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a. Ensure that the financial data is drawn from the information contained in the
system;
b. Require that adequate work papers and documentation exists to support the
flow of numbers from the system to the financial statements;
c. Document all adjustments to amounts derived from the accounting system;
d. Reconcile internal records timely with data from outside sources, such as
reports from the Department of the Treasury;
e. Review the numbers for reasonableness, including a comparison against prior-
year amounts and an explanation of unusual variances; and
f. Disclose any uncertainty regarding the reliability of the numbers and the
reasons thereof in the notes to the financial statements.
Section 7.0 Timeliness
Official financial accounting reports to central agencies shall be prepared from financial
accounting systems or subsystems as directed by the Deputy CFO in accordance with due
dates established by the central agency. Such financial reporting system(s) must be able
to produce reports timely enough to meet the mandatory internal and external reporting
deadlines.
Financial transactions issued or approved by management through the last workday of the
reporting period shall be processed for inclusion in the reports. Cutoffs (including
yearend) may be made for specific types of transactions which would not be available for
timely processing at specified reporting periods, provided that action is taken to prevent
distortion of results by such cutoffs. The basis and justification for earlier cutoffs shall be
presented by the bureau finance officer in charge to the Deputy CFO for approval.
Special provisions may be made for reporting accounting transactions relating to
operations overseas or at remote locations, providing that reasonable estimates of
obligations, costs, and expenditures are included in each regular report, and that
procedures are established for adjusting such estimates to actual at the earliest practicable
date. Such operations shall be identified in the accounts as separate cost centers.
Timely financial accounting information is especially critical to the successful preparation
of the reporting entity’s annual f i nanci al statements. A major factor in obtaining an
unqualified audit opinion on the Department’s f i nanci al statements i s ensuri ng that
bureau audits stay on time. Any bureau audits which fall behind risk the possibility of a
scope limitation, and subsequent disclaimer of an opinion by the auditors. Since the
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preparation of the Department-wide consolidated financial statement and subsequent
audit opinion relies on the cumulative results of the individual bureau audits, any one
bureau that falls behind will hold up the whole Department and may adversely affect the
Department’s audit opinion.
Section 8.0 Budgetary Accounting
Budgetary and financial accounting information are complementary, but both the types of
information and the timing of their recognition are necessarily different because of the
difference in focus. Budget information focuses on the obligation and outlay of financial
resources to acquire or provide goods and services as defined by budget concepts.
Operating performance information focuses on the cost of resources used as defined by
accrual accounting standards
The Statement of Budgetary Resources mi rrors OM B’s SF-133, “Report on Budget
Execution” which provides information on budgetary resources and the status of these
resources. In addition to information on the status of budgetary resources, information is
needed to help users determine how information on the use of budgetary resources rel ates
to information on the costs of program operations, and whether information on the status
of budgetary resources is consistent with other accounting information on assets and
liabilities. Thi s obj ecti ve ari ses because accrual -based expense measures used in
financial statements differ from the obligation- based measures used in the budgetary
reports. To satisfy this objective, information is needed about the differences between
budgetary and financial (i.e., proprietary) accounting that arise as a resul t of the di f f erent
measures. This is accomplished through the Reconciliation of Net Cost of Operations to
Budget, which reconciles the budgetary resources obligated for a federal entity’s
programs and operations to the net cost of operating that entity.
Budgetary accounting is governed by OMB Circular A-11, “Preparation, Submission and
Execution of the Budget,” and 31 U.S.C. Ch. 15- Appropriation Accounting. In addition,
Treasury’s Financial Management Service has developed an instruction manual entitled
“Budgetary Accounting in the Federal Government.”
Section 9.0 Measuring Successful Reporting
As previ ousl y stated, the Department’s f i nanci al management system and the reports that
i t generates must serve Department deci si on-makers and managers at vari ous l evel s.
Such information should support:
a. Informed program and resource decisions--this requires information to support
the budget and management decision process, both within the agency and at
the executive and Congressional level.
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b. Compliance with law, policy requirements, and budget and management
decisions--this requires the establishment of controls and the tracking of
spending against requirements.
c. Efficient, effective program delivery--this requires reporting on service efforts,
accomplishments, and costs.
d. Proper stewardship over Federal resources--this requires reporting on
management’s accountability for resources, as well as their cost and service
potential.
e. Protection from future liabilities resulting from current decisions and events--
this requires information on such things as loan guarantees, insurance
exposures, pension commitments, and environmental clean-up decisions.
f. Meeting external reporting requirements--this requires budget formulation and
execution presentation, as well as financial statements describing the financial
position, results of operations, cash flows, and reconciliation to budget
reports.
Annual reviews shall be performed to determine if current reports are still needed, or if
revisions are required to meet the changing needs of program managers. New reports
may also need to be provided in order to enhance or maintain sound decision- making.
Additional changes in budget or program classifications may be necessary during this
annual review. Regular review to keep abreast of management’s ever changing
information requirements is another “measure” of successful reporting.
Section 10.0 Bureau Evaluations of Material or Significant Possible or Actual Unusual
Accounting Transactions
Bureaus are required to evaluate material or significant possible or actual unusual
accounting transactions (e.g. a possible or actual accrued receivable/revenue or accrued
payable/expense or asset, a possible, anticipated, or actual transfer, a possible,
anticipated, or actual budgetary resource or reduction of budgetary resources, a possible
or actual contingency), regardless of whether the item has been apportioned or not
apportioned on the SF 132, Apportionment and Reapportionment Schedule, and research
if a) a proprietary accounting transaction(s) should be recorded; b) a budgetary accounting
transaction should be recorded; and c) if yes to either a) or b), the appropriate accounting
transactions that should be recorded and when (month/year) the accounting transactions
should be recorded.
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For these material or significant possible or actual unusual accounting transactions, the
bureau’s evaluation is required to include consultation with a) the bureau’s CFO or
equivalent, of both the underlying bureau and that bureau’s accounting service provider,
if applicable, or his or her designee(s); and b) the Department’s Office of Financial
Management. As appropriate, consultations should also include c) other bureau or
Departmental offices; d) the U.S. Department of the Treasury, the Office of Management
and Budget, and/or the Federal Accounting Standards Advisory Board; e) any other
federal agencies; and f) any other relevant or applicable sources.
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Exhibit 5-1
MAJOR EXTERNAL FINANCIAL REPORTS
FORM FORM REQUIRED REPORT
NUMBER TITLE BY FREQUENCY
SF-224 Statement of Transactions I TFM 2-3300
Monthly
Various Governmentwide Treasury Account
Symbol Adjusted Trial Balance System
(GTAS) (Trial Balances, Intragovernemtal
Modules, SF 133s, etc.) OMB Circular A-11
Quarterly
SF-133 for Report on Budget Execution for Child OMB CircularA-136
Quarterly
Child Activity Activity for GSA Federal Buildings Fund
N/A CFO Representation for Intra- I TFM 2-4700
Annual
Governmental Activity and Balances
Various Closing Package I TFM 2-4700
Annual
Various Closing Package Material Differences/ I TFM 2-4700
Annual
Status of Disposition Certification Reports
N/A DOC Agency Financial Report (AFR) GPRA
Annual
N/A Federal Activities Inventory Reform FAIR Act
Annual
Act Submission (P.L. 105-270)
N/A Publication of Civil Monetary Penalties Pub. L. 101-410, as Annual
Adjustments for Inflation amended by Pub. L.
104-134 and Sec. 701
of Pub. L. 114-74
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Exhibit 5-2
MAJOR CREDIT & DEBT MANAGEMENT REPORTS
FORM FORM REQUIRED REPORT
NUMBER TITLE BY FREQUENCY
N/A Treasury Report on Receivables I TFM 2-4100
Quarterly
Due from the Public (TROR)
OMB Calculator Subsidy Re-estimates/Technical OMB Circular A-11
Annual
Re-estimates
OMB Calculator Calculation of Interest Earnings on I TFM 2-4600
Annual
Invested Funds
N/A Interest Payments to Treasury by IPAC I TFM 2-4635.20
Annual
