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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 14 – Adjustments to Fund Balances and Net Position

Statement on Auditing Standards (SAS) No. 115, Communicating Internal Control Related Matters Identified in an Audit, establishes standards on communicating matters related to an agency’s internal controls as they apply to financial reporting.

Agencies must have internal controls in place to ensure:

  • The financial information submitted is accurate in all material respects and that all necessary disclosures were made.
  • The internal control structure and procedures provide reasonable assurance as to the proper recording of financial transactions and balances.
  • Management evaluated the effectiveness of the internal control structure over the financial information.

A restatement can be an indicator of a control deficiency that is regarded as at least a significant deficiency and a strong indicator of a material weakness in internal control. A restatement specifically covered by SAS 115 is a restatement of previously issued financial statements to reflect the correction of a material misstatement. The correction of a misstatement includes misstatements due to error or fraud. The correction of a misstatement does not include restatements to reflect a change in accounting principle to comply with a new accounting principle or a voluntary change from one generally accepted accounting principle to another.

Note 14 is required if there is a restatement of fund balance and net position. Do not include restatements in the current year’s activity statement — instead present them as an adjustment to the beginning balance in the fund balance/net position section. Restatements are generally required for:

  • Changes in accounting principle to comply with a new accounting principle.
  • Voluntary change from one generally accepted accounting principle or method of applying a principle to another generally accepted accounting principle or method only if the alternative principle is preferable and more fairly presents the information.
  • Changes in financial reporting entity.
  • Change in the fund type.
  • Correction of an error for legislative appropriations based on the General Revenue Reconciliation.
  • Correction of an error in the financial statements of a prior period.
  • Mistakes in the application of accounting principles.
  • Oversight or misuse of facts that existed at the time the financial statements were prepared.
  • Change from an accounting principle that is not generally accepted to one that is generally accepted.

Per GASB 62, paragraph 62, when prior period adjustments are recorded, the resulting effects are disclosed in the notes to the financial statements. For single-period statements, the disclosure must indicate the effects of these adjustments on the beginning net position for the current reporting period and on the change in net position for the immediately preceding period (prior year).

For governmental fund types, reflect the prior period adjustment as restatements of the beginning fund balance.

Glenn Hegar
Texas Comptroller of Public Accounts
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