Best Response

Never had a pub fin IB interview, but I do work with a lot of government clients.

You should know that governmental entities and typical for profit companies have different accounting methods. Governmental entities use "fund accounting". Might want to Google it to get a better understanding, but basically a governmental entity will have separate financial statements for a number of funds rather than one set of financials that a for-profit company would have. So a City would have a General Fund, a Capital Projects Funds, an Enterprise Fund, etc I'll give you a brief overview of how the financial statements work in fund accounting and draw the analogous parallel with a for-profit company.

Income statement: Operating revenues (same) Less: Operating expenditures (same) Equals: Operating surplus/deficit (Operating income/loss) Plus: Transfers in/out (really no parallel....this is when one fund transfers money to another fund) Plus: Other financing sources/uses (other income/loss) Equals: Net surplus/deficit (net income) Fund balance - beg period (retained earning beg period) Fund balance - end period (retained earnings end period…beg fund balance + net surplus/deficit = ending fund balance)

Balance sheet is pretty much the same until you get to fund balance (retained earnings). The fund balance is broken into unrestricted, undesignated assets (can do anything with this money, think liquidity) and restricted assets (these assets are illiquid and that are set aside to be used for certain future funding needs).

Also, know about the different types of municipal bonds: general obligation bonds and revenue bonds: GOs are usually considered safer as they are backed by the full faith and credit of the issuer. Debt is paid back by the tax revenues of the issuer (usually property tax revenues or sales tax revenues). Revenue bonds are backed by a specific revenue source, such as tolls collected from a toll way, fees collected from water and sewer usage, etc. Revenue bonds are typically considered to carry more risk than GOs. But it really comes down to doing fundamental credit analysis (i.e. a water revenue bonds from Niagara Falls > a GO bond from Detroit).

Hope this helps.

 

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