Preparing financial statements is critical for any organization, and school districts are no exception. Throughout the country, school districts work with independent accounting firms to get their financial statements prepared.
And while it may seem that the outside firm could do all the work in preparing the financial statements, there are certain steps the school district must complete. This article is a broad outline of the tasks performed by the district and those done by the accounting firm.
School District Provides Initial Accounting Data
The process of preparing financial statements starts with the school district itself. The district must provide the final general ledger data for the full fiscal year. This information includes all the individual accounts in the general ledger. Of course, there are some additional schedules and data that must also be provided, but the general ledger is the key item needed for financial statement preparation.
Accounting Firm Performs Analysis and Prepares Entries
After receiving the district’s initial information, the independent accounting firm then prepares several journal entries to format the data properly. Because the financial information given is prepared in the cash-basis format, the accounting firm needs to adjust the accounts and amounts to meet the modified accrual basis format. These changes are referred to as adjusting journal entries (AJEs). The AJEs also consolidate certain accounts so that information is presented in a summary format.
Both Groups Prepare Additional Information
After these early steps are completed, both the school district and the accounting firm must prepare other information and analysis that typically accompany financial statements.
For example, one of the important items at this stage is the Management’s Discussion and Analysis (MD&A). The MD&A is a commentary or narrative to explain certain accounts and amounts that are found in the financial statements. Other items to complete at this phase are transmittal letters and charts and schedules. These additional pieces help tell the background story and fill in any “informational gaps” on the financial statements.
Accounting Firm Drafts and Finalizes
The accounting firm then creates a draft of the financial statements and asks the district to review it carefully. This review period is critical. If anything doesn’t make sense or is missing, this is the time to make it right.
It is tempting to quickly scan the draft statement, but ensuring everything is correctly presented is crucial. Because, once the financial statements are finalized, they are then made available to stakeholders, and no school district wants to publish financial information with errors.
Morgan & Associates Can Help Your School District
Our team has helped hundreds of government organizations – school districts, municipalities, smaller government entities – create and publish financial statements. With our help, you’ll feel confident that the information is correct and will perform well in the event you’re audited.