Before you file your entity’s “unaudited” year-end financial statements, read up on important policy changes handed down by the Auditor of State (AOS) per Bulletin 2015-007. Be sure to pay extra attention to the rules governing the new Hinkle Annual Financial Data Reporting System (Hinkle System – formerly known as AFDRS), scheduled audits related to the Hinkle System, and the new option to include notes with your annual financial statement filings.
Keep reading for a brief overview of these changes and how they will impact you and your financial reporting responsibilities.
New Financial Reporting System Promotes Uniformity
In an effort to increase uniformity in financial reporting, the Hinkle System was originally introduced to cities and counties in time for all 2013 financial statements to be filed. The next year, all school districts, libraries, townships and villages were brought into the mix. Now, as long as your entity is required to file financial statements with the AOS, all reports filed for years 2015 and later will have to comply with the Hinkle System and should do so in accordance with all legal deadlines. Government entities that fail to comply with the mandated basis of accounting and/or filing requirements may be subject to non-compliance citations and penalties. Review AOS Bulletin 2015-007 to find out which public offices and other entities are currently required to file their “unaudited” financial statements with the AOS.
Be sure your financial statement report includes the following minimum required components as outlined by the AOS:
- Governmental entities filing GAAP, OCBOA Cash or OCBOA Modified Cash basis:
- Management’s Discussion & Analysis (Required for GAAP only)
- Basic Financial Statements
- Government-Wide Financial Statements
- Fund Financial Statements
- Notes to the Basic Financial Statements
- Any other Required Supplementary Information (Required for GAAP only)
- Regulatory Cash Basis Entities (commonly referred to as AOS basis)
- Basic Financial Statements
- Statements(s) (or Combined Statement(s)) of Receipts, Disbursements and Changes in Fund Balances – Governmental, Proprietary and Fiduciary, as applicable
- Notes to the Basic Financial Statements
- Basic Financial Statements
Additionally, if you are required to file your entity’s financial statements with the AOS you also need to remember to file the notes that accompany your financial statements – another new requirement of the Hinkle System. Previously, entities that prepared financial statements on a non-GAAP basis were permitted to exclude these notes from their annual filing. This is no longer the case. To avoid confusion and establish uniformity, providing your notes to the financial statements is now a requirement.
File On Time
Establishing uniformity among all government entities is a primary objective of the AOS and you are expected to comply. Entities that file late, incompletely, or fail to file altogether may be subject to a penalty of $25 per day up to a maximum penalty of $750.
According to the AOS, “entities subject to ORC §117.38 filing on a GAAP basis have 150 days following the end of their fiscal year to submit their financial statements.” The timeframes for other affected entities are as follows:
- CICs and development corporations – 120 days following the end of their fiscal year
- Universities and colleges – no later than October 31 of each year
- All other entities, and GAAP-mandated entities choosing not to file on a GAAP basis – 60 days following their fiscal year-end
According to the AOS, entities that fail to comply may be subject to non-compliance citations and penalties established by the ORC.
Submit A Complete Filing
For your financial statement filing to be considered complete (and to avoid any late penalties and/or non-compliance citations) you must include all components, including notes to the financial statements, as outlined above. Remember these following points to ensure your entity’s ongoing compliance with ORC and/or AOS mandates.
- Beginning with audits of financial periods ending in 2016, the AOS and any public accounting firms contracted to perform audits on behalf of the AOS, will be auditing financial statements uploaded and submitted to the AOS in accordance with the Hinkle System.
- During a financial audit, your filing will be scrutinized to determine if your annual financial report filing(s) was complete, timely and prepared in accordance with the mandatory basis of accounting.
- Material noncompliance will be cited as an audit finding if your entity is mandated to prepare its financial statements on a GAAP basis but reports on a non-GAAP basis and/or the financial statements filed were significantly incomplete or misstated.
Change can be scary especially when the risk of noncompliance threatens to adversely impact your entity. Don’t go it alone. Email Rea & Associates to learn more about the Hinkle System and how this new mandatory method of filing your financial reports affects you.
By Chad Welty, CPA (Medina office)
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