What is the purpose of the Comprehensive Annual Financial Report (CAFR)?

The Comprehensive Annual Financial Report (CAFR) serves as an essential tool for transparency and financial analysis. It provides a thorough and detailed overview of a government's financial position and includes comprehensive information beyond what is typically found in a simple financial report. The CAFR presents the government’s financial statements, including its assets, liabilities, revenues, and expenditures, which allows stakeholders—such as citizens, investors, and creditors—to assess the government's financial health and operational efficiency.

This report typically includes three main sections: the Introductory Section, the Financial Section, and the Statistical Section, all of which are aimed at promoting transparency. By presenting a complete picture of the financial status of the government and allowing for comparative analysis over multiple years, the CAFR helps in making informed decisions regarding financial policies and resource allocation.

In contrast to the other options, a CAFR is not merely a simple overview or intended to replace the annual budget; it complements the budget process by providing a more comprehensive view of the actual performance against the planned budget. Furthermore, it certainly does not limit its contents to just liabilities; rather, it includes a wide range of financial data to provide a full financial picture.