Are Your Notes Turning Into Zombies?
- Contributors
- Dean Michael Mead
- Rob Lemmon
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In reviewing thousands of audited financial reports, one of the most inadequate practices to repeatedly come to light is what’s commonly referred to as “apply ’em and leave ’em.” This practice relates to notes, initially implemented on GASB disclosure standards, merely being replicated continuously to financial statements in a rote fashion.
After years of repetition without reconsideration, such disclosures become zombie notes. They look like a note is supposed to look, meaning all the information is there, but they are lifeless. A lifeless note is not as effective as it should be at informing financial statement users.
Notes that remain virtually unchanged from year to year, except for updated amounts, stagnate because circumstances change around them. The most effective notes evolve to keep pace with the dynamic environment in which governments operate. Some changes that most significantly affect the effectiveness include:
The annual updating of the information in your disclosures is ill-equipped to fend off their potential zombification. Maximizing the effectiveness (liveliness) of notes requires periodically reexamining them. A reexamination of a note disclosure entails asking more fundamental questions than whether the numbers are up to date:
Some of the more extensive disclosure requirements—such as those for pensions and retiree healthcare and deposits and investments—may merit a fresh look every few years. A good rule of thumb might be to reexamine 10% to 15% of your notes each year.
CRI’s recent joint webinar with Public Trust Advisers (PTA) on investments covered the related GASB pronouncements, the most recent of which were Statement 72 on fair value and Statement 79 on external investment pools. Both pronouncements were effective with fiscal years ending June 30, 2016. For more information, PTA’s Monday Musings newsletter is a valuable resource that looks at the present economic outlook and provides perspectives on the markets, investment strategies, and the global economy.
It is a vast understatement that much has happened since then that might be relevant to existing investment disclosures. Investment performance is directly affected by the economy’s direction and may alter investment decisions and applicable laws and regulations. As a result, new investments and variations on existing investments arise routinely. The level of concern of financial statement users responds to the types of investments a government has and how they have performed. Investments have their own vocabulary, which may require translation to be meaningful to users.
Contact your CRI advisor for help handling all of your note disclosure needs. With newly acquired expertise, we’re available to address all of your notes and financial statement needs.
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