1/23/2017 CPA s using dro ne s? E nd o f Ac c o unting Pro fe ssio - - PDF document
1/23/2017 CPA s using dro ne s? E nd o f Ac c o unting Pro fe ssio n a s we kno w it? T he E nd o f Ac c o unting ? Use o f XBRL . GASB F unding ? Yo u a re va lua b le (a t le a st fo r no w)! T he o ffic e o f
1/23/2017 1
nd o f Ac c o unting Pro fe ssio n a s we kno w it?
he E nd o f Ac c o unting ?
.
unding ?
he o ffic e o f the future !
2Now, on to the main attr action!
4 1/23/2017 1
1/23/2017 2
he State Po o le d I nve stme nt F und is a utho rize d b y sta tute to inve st funds in ac c o rda nc e with po lic y g uide line s a ppro ve d by the F unding Bo a rd. T he c urre nt re so lutio n o f the F unding Bo a rd g ive s the T re a sure r a ppro va l to
inve st in c olla te r alize d c e r tific a te s of de posit in a uthor ize d state de positorie s, pr ime c omme r c ial pape r, prime banke rs’ a c c e ptanc e s, bonds, note s, and tre asury bills of the Unite d Sta te s or othe r obligations g ua ra nte e d a s to princ ipa l a nd inte re st by the Unite d Sta te s or a ny of its ag e nc ie s, r e pur c ha se a g r e e me nts for oblig a tions of the Unite d Sta te s
a g e nc ie s, and se c uritie s le nding a g r e e me nts whe re by se c ur itie s ma y be loa ne d for a fe e . Inve stme nts in de r ivative type se c ur itie s a nd inve stme nts of hig h risk a re prohibite d.
n additio n to the funds in the State Po o le d I nve stme nt F und, the T e nne sse e Co nso lidate d Re tire me nt Syste m (T CRS), a pe nsio n trust fund; the Co lle g e Sa ving s Pla ns, a private - purpo se trust c o nsisting
the Ba c c ala ure a te E duc a tio n Syste m T rust (BE ST ) and the T e nne sse e Sta rs Co lle g e Saving s 529 Pro g ra m (T NSta rs); the T e nne sse e Pro mise Sc ho la rship E ndo wme nt T rust, a part o f the e duc a tio n fund, a spe c ial re ve nue fund; a nd the Cha irs o f E xc e lle nc e (COE ) T rust, a pe rma ne nt fund; are a uthorize d by statute s to inve st in long-
te rm inve stme nts, inc luding bonds, de be nture s, pr e fe r re d stoc k a nd c ommon stoc k, r e a l e sta te a nd othe r g ood a nd solve nt se c uritie s subje c t to the a pprova l of the a pplic a ble boa rds of tr uste e s.
he pr ic e that would be r e c e ive d to se ll a n a sse t or paid to tr a nsfe r a lia bility in a n “orde rly” tra nsa c tion be twe e n “ma rke t pa rtic ipa nts” a t the me a sure me nt da te . (c onsiste nt with GASB Conc e pts State me nt 6)
a c te r istic s of fair value
a g ove rnme nt’s princ ipal or most advanta ge ous marke t
11air value is not an option
war d
he
fa ir va lue de finition, is to e stima te the e xit pr ic e of a sse ts a nd lia bilitie s
his e xit pr ic e is de te r mine d a t the me asur e me nt date fr
spe c tive of a mar ke t par tic ipant that c ontr
the a sse t or is oblig a te d for the lia bility
12 1/23/2017 3
e e le ve ls:
e ve l 1: quote d pr ic e s (unadjuste d) for ide ntic al asse ts or liabilitie s in ac tive marke ts that a gove rnme nt c an ac c e ss at the me asur e me nt date
e ve l 2: Inputs, othe r than quote d pric e s inc lude d in L e ve l 1, that are
vable for an asse t or liability (e ithe r dire c tly or indire c tly)
e ve l 3: Unobse r vable inputs for an asse t or liability – Suc h as manage me nt’s assumption
de fault rate among unde rlying mortgage s of a mortgage -bac ke d se c urity.
13Apply Apply valua aluatio tion technique(s) technique(s) tha that best best re represent present fai fair value value in the he circu circumstances stances using sing on
he three three inputs: nputs: Observable vs. Unobservable Observable vs. Unobservable Level Level 1- Most
eliable Level Level 2- Reliable eliable Level Level 3- Least east Reliable Reliable
Definiti tion
An inve vestme ment is is a secur urity or other asse asset tha hat is held pri primaril arily fo for the he purpose
presen present serv ervice ca capa paci city th that is bas based solely solely on
its ability to gen ener erat ate cash ash or to be sold
ener erat ate cash ash.
Servic ice capac apacit ity refer efers to a gover government’s ment’s mission mission to provid
ervices vices.
Held ld prim imar arily ily fo for income or pro rofi fit—acqu quired firs rst and nd fo fore remo most for fut future ure inco ncome and nd pro profit it.
Assets th that at me meet et th the definition inition of an investment ent gen generally rally are are to be measu easured red at fair air valu alue.
Except ceptio ions ns to fair ir va value lue includ lude mone ney market arket fun unds ds or
2a7-like 2a7-like extern xternal investm nvestmen ent pools.
he pur pose of the a sse t is de te r mine d by the gove r nme nt a t the time of a c quisition (howe ve r se e Q&A 2016-1, 4.53)
nme nt de te rmine s whe the r the a sse t is a n inve stme nt or a nothe r type
c la ssific a tion should be r e ta ine d for futur e fina nc ia l re por ting pur pose s- e ve n if the g ove r nme nt’s usa g e
a sse t c ha ng e s
the n la te r is he ld
for r e sa le , the a sse t should not be re c la ssifie d a s a n inve stme nt
17 T ype of Inve stme nts Me asur e me nt Applic able Guidanc e I nve stme nts in no npartic ipa ting inte re st- e arning inve stme nt c o ntrac ts Co st-base d me asure State me nt 31, par. 8 I nve stme nts in unallo c ate d insuranc e c o ntrac ts I nte re st-e arning inve stme nt c o ntrac ts State me nt 31, par. 8 State me nt 59, par. 4 Mo ne y marke t inve stme nts and partic ipa ting inte re st- e arning inve stme nt c o ntrac ts with maturity o f < o ne ye ar and are he ld by g o ve rnme ntinve stme nt po o ls Amo rtize d c o st State me nt 31, par. 9
18 T ype of Inve stme nts Me asure me nt Applic able Guidanc e I nve stme nts he ld by 2a7-like e xte rnal inve stme nt po o ls Amo rtize d c o st State me nt 31, par. 16 F ully be ne fit-re spo nsive ne ss synthe tic g uarante e d inve stme nt c o ntrac ts Co ntrac t value State me nt 53, par. 67 I nve stme nts in life insuranc e c o ntrac ts Cash surre nde r value 1/23/2017 4
marke t transac tion
amount a lia bility c ould be liquidate d with a c ounte rparty at the ac quisition date
he re quire me nts o f this Sta te me nt are e ffe c tive fo r financ ial sta te me nts fo r re po rting pe rio ds be g inning afte r June 15, 2015. E arlie r applic a tio n is e nc o urag e d. I n the pe rio d this Sta te me nt is first a pplie d, c hang e s made to c o mply with this Sta te me nt sho uld be tre a te d as an adjustme nt o f prio r pe rio ds, a nd financ ial sta te me nts pre se nte d fo r the pe rio ds a ffe c te d sho uld be re sta te d. Ho we ve r, re sta te me nt o f a sse ts tha t will no lo ng e r be me a sure d a t fair value is no t re q uire d if re sta te me nt is no t pra c tic a l.
f re sta te me nt o f the fina nc ial sta te me nts fo r all prio r pe rio ds pre se nte d is no t pra c tic a l, the c umula tive e ffe c t o f applying this Sta te me nt, if a ny, sho uld be re po rte d a s a re sta te me nt o f b e g inning ne t po sitio n (o r fund bala nc e o r fund ne t po sitio n, a s appro pria te ) fo r the e arlie st pe rio d re sta te d (g e ne ra lly the c urre nt pe rio d). Also , the re aso n fo r no t re sta ting prio r pe rio ds pre se nte d sho uld be e xplaine d. I n the pe rio d this Sta te me nt is first applie d, the no te s to the fina nc ial sta te me nts sho uld disc lo se the na ture
any re sta te me nt and its e ffe c t.
he use o f a c q uisitio n value fo r transac tio ns re fe rre d to in parag raph 79 sho uld be applie d
pr
to tra nsac tio ns o c c urring in the pe rio d tha t this Sta te me nt is first applie d.
23 1/23/2017 5
ac tic e Issue - GAAP Hie r ar c hy:
he Hie rarc hy will be re duc e d from four c ate gorie s to two c ate gorie s:
Offic ially e sta blishe d ac c ounting princ iple s – Gove rnme ntal Ac c ounting Sta ndards Boa rd (GASB) State me nts. (And the GAAP Codific ation whe n State me nts are adde d)
GASB T e c hnic al Bulle tins; GASB Imple me ntation Guide s; and lite rature of the Ame ric an Institute of Ce rtifie d Public Ac c ountants (AICPA) if spe c ific ally c le are d by the
he AICPA lite ra ture will c ontain a state me nt that indic ate s it has be e n c le are d (i.e . the majority of the Board Me mbe rs did not obje c t to its issuanc e ) by the GASB.
ac tic e Issue - GAAP Hie r ar c hy:
ac c ountants will utilize nonauthoritative guidanc e :
GASB Conc e pts State me nts; pronounc e me nts and
lite ratur e
F inanc ial Ac c ounting Standar ds Boar d, F e de ral Ac c ounting Standards Advisory Board, Inte rnational Public Se c tor Ac c ounting Standards Board, Inte rnational Ac c ounting Sta ndards Board, and AICPA (othe r tha n AICPA lite rature c le are d by the GASB); prac tic e s that are wide ly re c ognize d and pre va le nt in sta te and loc al gove rnme nt; lite rature
assoc iations
re gulatory a ge nc ie s; and ac c ounting te xtbooks, handbooks, and artic le s.
26ac tic e Issue – Ce r tain E xte r nal Inve stme nt Pools a nd Pool Pa rtic ipa nts:
xposure Draft E xpe c te d 2nd Q 2015
2015
ffe c tive Date , fisc al ye ar e nding June 30, 2016
C r ule s re lative to mone y mar ke t funds, many e xte rnal inve stment pools may fac e inte re st rate risks that c re ate fair value losse s. T his standard will a ddre ss appropriate me asureme nt and disc losure re quire me nts.
28a pproxima te fa ir va lue for mone y ma rke t funds be c ause of the ir natur e
e rm
iquidity
he se pools ha ve tra ditiona lly be e n pe rmitte d to r e por t the ir inve stme nts a t Amortize d Cost
position in the pool base d on share value pric e s that re fle c t amortize d c ost
29his tr e a tme nt wa s ba se d on SE C Rule 2a -7 whic h pr
ite r ia for this me thod
C c r ite r ia (suc h a s T e nne sse e ’s L GIP) ha ve be e n pe r mitte d to r e por t a ll of the ir inve stme nts a t a mor tize d c osts, a nd
he se Pools ha ve be e n pe rmitte d to r e por t the ir position ba se d on sha re va lue pric e s tha t re fle c t a mor tize d c ost
the SE C ha s c ha ng e d Rule 2a -7 to re quire stric t fair value me thods
he r e for e , GASB c ould no long e r r e ly on Rule 2a -7 to a llow GAAP ba se d re porting a t Amortize d Cost
30 1/23/2017 6
ite r ia with its own GAAP ba se d c r ite r
air Value is always pe rmitte d
air Value , it c annot subse que ntly re ve rse that e le c tion
Share ) Crite ria:
ity Re quir e me nts
e quire me nts
e quire me nts
iquidity R e quire me nts
e quire me nts
31 32 1/23/2017 1
Jerry E. Durham, CPA, CGFM, CFE
1WHAT’S MY MOTIVATION
2SOURCE: CENTER FOR STATE AND LOCAL GOVERNMENT EXCELLENCE
3SOURCE: CENTER FOR STATE AND LOCAL GOVERNMENT EXCELLENCE
4SOURCE: CENTER FOR STATE AND LOCAL GOVERNMENT EXCELLENCE
5GASB RECALCULATING
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ACCOUNTING AND FINANCIAL REPORTING FOR PENSIONS AND RELATED ASSETS THAT ARE NOT WITHIN THE SCOPE OF GASB STATEMENT 68, AND AMENDMENTS TO CERTAIN PROVISIONS OF GASB STATEMENTS 67 AND 68
7PENSIONS NOT IN SCOPE OF 68
TRUSTS
June 30, 2016
YOU CAN’T NET THE PLAN ASSETS AGAINST THE PLAN PENSION LIABILITY
PENSIONS NOT ADMINISTERED THROUGH TRUSTS
EMPLOYER ASSETS
PENSIONS NOT ADMINISTERED THROUGH TRUSTS
FUNDING SITUATION.
11THREE MAIN ISSUES – AMENDMENTS TO 67 AND 68
THE AMOUNTS REPORTED
PARTICIPATING GOVERNMENT HAVE INFLUENCE.
NEW RSI DISCLOSURES
1/23/2017 3
JOINING A PENSION PLAN
SPECIFIC TO AN INDIVIDUAL EMPLOYER
MAKE A ONE-TIME CONTRIBUTION FOR PURPOSES OF REDUCING THE NET PENSION LIABILITY
SPECIFIC PAYABLES TO DEFINED BENEFIT PLANS
FOR A ONE-TIME ASSESSMENT TO AN INDIVIDUAL OR NONEMPLOYER CONTRIBUTING ENTITY.
STATUTORY) FINANCING OBLIGATIONS ASSOCIATED WITH THE POOLED PORTION OF THE TOTAL PENSION LIABILITY (EVEN IF SEPARATE PAYMENT TERMS).
SPECIFIC PAYABLES TO DEFINED BENEFIT PLANS
REPORTING PERIOD IN WHICH THE CONTRIBUTION OF THE NONEMPLOYER CONTRIBUTING ENTITY IS REPORTED AS A CHANGE IN THE NET PENSION LIABILITY (OR COLLECTIVE NET PENSION LIABILITY)
15RECOGNITION OF NONEMPLOYER REVENUE WHEN NOT IN A SPECIAL FUNDING SITUATION.
PENSIONS PROVIDED THROUGH CERTAIN MULTIPLE-EMPLOYER DEFINED BENEFIT PENSION PLANS
16EXCEPTION – CERTAIN PENSION PLANS
EXCEPTION - CERTAIN PENSION PLANS
REGARDING THE ABILITY OF STATE AND LOCAL GOVERNMENTAL EMPLOYERS TO OBTAIN NECESSARY INFORMATION RELATED TO PENSIONS THAT ARE PROVIDED THROUGH “CERTAIN” MULTIPLE- EMPLOYER DEFINED BENEFIT PENSION PLANS. THE OBJECTIVE OF THIS STATEMENT IS TO ADDRESS THAT ISSUE.
1/23/2017 4
EXCEPTION - CERTAIN PENSION PLANS
GASB 68 NO LONGER APPLIES TO THESE PLANS.
EXCEPTION - CERTAIN PENSION PLANS
THROUGH A COST-SHARING MULTIPLE-EMPLOYER DEFINED BENEFIT PENSION PLAN.
STATE AND LOCAL GOVERNMENTAL EMPLOYERS AND TO EMPLOYEES OF EMPLOYERS THAT ARE NOT STATE AND LOCAL GOVERNMENTAL EMPLOYERS
HAS NO PREDOMINANT STATE OR LOCAL GOVERNMENTAL (EITHER INDIVIDUALLY OR COLLECTIVELY WITH OTHER STATE OR LOCAL GOVERNMENTAL EMPLOYERS THAT PROVIDE PENSIONS THROUGH THE PENSION PLAN
20EXCEPTION - CERTAIN PENSION PLANS
ARE PRESENTED IN STAND-ALONE FINANCIAL REPORTS OR ARE INCLUDED IN THE FINANCIAL REPORTS OF ANOTHER GOVERNMENT
REQUIRED CONTRIBUTIONS TO THE PENSION PLAN FOR THE REPORTING PERIOD, AND A PAYABLE SHOULD BE REPORTED FOR UNPAID REQUIRED CONTRIBUTIONS AT THE END OF THE REPORTING PERIOD
UNPAID REQUIRED CONTRIBUTIONS
21EXCEPTION - CERTAIN PENSION PLANS
LIABILITIES TO THE PENSION PLAN THAT ARISE IN THE REPORTING PERIOD (FOR EXAMPLE FOR AMOUNTS ASSESSED TO AN INDIVIDUAL EMPLOYER UPON JOINING A COST-SHARING PENSION PLAN) AND A PAYABLE SHOULD BE REPORTED FOR UNPAID AMOUNTS AT THE END OF THE REPORTING PERIOD.
22EXCEPTION - CERTAIN PENSION PLANS
EXCEPTION - CERTAIN PENSION PLANS
MOST RECENT FISCAL YEARS (INCLUDE REASON IF CANNOT INCLUDE 10 YEARS IN NOTES TO RSI)
PENSION PLAN
SIGNIFICANTLY AFFECT TRENDS IN THE AMOUNTS REPORTED (FOR EXAMPLE CHANGES IN THE SIZE OF THE POPULATION COVERED BY THE BENEFIT TERMS OR CHANGES IN REQUIRED CONTRIBUTION RATES)
24 1/23/2017 5
PENSION ISSUES
25PENSION ISSUES
DATE ON OR AFTER JUNE 15, 2017
26CRITERIA IN PARAGRAPH 3 OF STATEMENT 67
(ALSO AMENDS STATEMENT 73)
27PENSION ISSUES – STATEMENT 82 PENSION ISSUES
INFORMATION
PURPOSES
OF PAYMENTS MADE TO EMPLOYERS TO SATISFY EMPLOYEE CONTRIBUTION REQUIREMENTS
28PENSION ISSUES
PRESENTATION OF PAYROLL-RELATED MEASURES IN REQUIRED SUPPLEMENTARY INFORMATION
IN RSI
67 AND 68 WOULD BE AMENDED TO INSTEAD REQUIRE THE PRESENTATION OF “COVERED PAYROLL”
29PENSION ISSUES
SUPPLEMENTARY INFORMATION
EMPLOYEES ON WHICH CONTRIBUTIONS TO A PENSION PLAN ARE BASED, AND UPON WHICH CERTAIN RSI RATIOS CALCULATED (PENSIONABLE PAYROLL)
PROVIDED WITH PENSIONS THROUGH THE PENSION PLAN (TOTAL PAYROLL)
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REQUIRED SUPPLEMENTARY INFORMATION
31 31Note: Only 5 years are presented here; 10 years of information would be required
Net Pension Liability
REQUIRED SUPPLEMENTARY INFORMATION
32 32Note: Only 5 years are presented here; 10 years of information would be required
Employer Contributions
PENSION ISSUES
FINANCIAL REPORTING PURPOSES:
ACTUARIAL STANDARDS OF PRACTICE, IS NOT CONSIDERED TO BE IN CONFORMITY WITH THE REQUIREMENTS OF STATEMENTS 67, 68, AND 73 FOR THE SELECTION OF ASSUMPTIONS IN DETERMINING THE TOTAL PENSION LIABILITY
33PENSION ISSUES
CONTRIBUTION REQUIREMENTS:
REQUIREMENTS THAT ARE IDENTIFIED BY THE PENSION PLAN TERMS AS PLAN MEMBER CONTRIBUTIONS
BE CLASSIFIED AS PLAN MEMBER CONTRIBUTIONS
BE CLASSIFIED AS EMPLOYEE CONTRIBUTIONS, INCLUDING FOR PURPOSES OF DETERMINING A COST-SHARING EMPLOYER’S PROPORTION
34PENSION ISSUES
EMPLOYEE CONTRIBUTION REQUIREMENTS:
SHOULD BE INCLUDED IN SALARIES AND WAGES OF THE PERIOD FOR WHICH THE CONTRIBUTION REQUIREMENTS (FOR EXAMPLE, IF AN EMPLOYER “PICKS UP” EMPLOYEE CONTRIBUTIONS IN CONNECTION WITH AN ELECTION MADE FOR TAX REPORTING PURPOSES), THE EMPLOYER SHOULD DISCLOSE INFORMATION ABOUT THE ARRANGEMENT
35MADE BY THE EMPLOYER TO SATISFY PLAN MEMBER CONTRIBUTION
EMPLOYER AS SALARY EXPENSE, THOSE CONTRIBUTIONS SHOULD BE CLASSIFIED AS PLAN MEMBER CONTRIBUTIONS FOR PURPOSES OF THIS STATEMENT. OTHERWISE, THOSE CONTRIBUTIONS SHOULD BE CLASSIFIED AS EMPLOYER
EXPENSE.
OUTFLOWS/INFLOWS, & PENSION EXPENSE.
36EMPLOYER-PAID MEMBER CONTRIBUTIONS
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CLASSIFIED AS MEMBER CONTRIBUTIONS.
BE CLASSIFIED AS EMPLOYEE CONTRIBUTIONS.
AMOUNT OF EXPENSE RECOGNIZED BY THE EMPLOYER
DISCLOSE INFORMATION ABOUT THE ARRANGEMENT.
37EMPLOYER-PAID MEMBER CONTRIBUTIONS PENSION ISSUES
PARAGRAPH 7 (DEVIATIONS FROM ASOP) SHOULD BE APPLIED ON A PROSPECTIVE BASIS.
38 39 1/23/2017 1
Jerry E. Durham, CPA, CGFM, CFE
1Effective Dates—June 30
2015
Statement 68—Pensions—Employers Statement 69—Government Combinations and Disposals of Government Operations Statement 71—Pension Transition for Contributions Made Subsequent to the Measurement Date 2016
Statement 72—Fair Value Measurement and Application Statement 73—Pensions—Related Assets (outside scope of Statements 67 and 68) Statement 76—Hierarchy of GAAP for State/Local Governments Statement 79 – Certain External Investment Pools and Pool Participants 2017
Statement 73—Pensions Amendments to Certain Provisions of 67 & 68 Statement 74—Financial Reporting – OPEB Plans Statement 77—Tax Abatement Disclosures Statement 78 – Pensions Provided through Certain Multiple‐Employer Defined Benefit Plans Statement 79 – Certain Investment Pools and Participants Statement 80 ‐ Blending Requirements for Certain Component Units Statement 82 – Pension Issues 2018
Statement 75—Accounting and Financial Reporting – OPEB – Employers Statement 81 – Irrevocable Split‐Interest Agreements Statement 82 – Pension Issues (Certain Provisions related to Assumptions) 2 3OPEB Plans 74
This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple‐Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement 43, and Statement No. 50, Pension Disclosures.
4 Addresses both OPEB Plans Administered through Trusts & not administered through Trusts Requires reporting of liability in the Notes to the F.S. or in Financial Statements
Trust: Total Opeb Liability – FNP= NPL Not trust: Total OPEB liability = Liability
Discount Rate –
Trust – Single Discount rate = LTeRoR as projected sufficient Not trust – 20‐year, tax‐exempt general obligation municipal
bonds (AA/Aa or higher)
5OPEB Plans – 74
Accounting for assets accumulated for OPEB that does not meet the trust criteria:
Single employer – continue to be reported as assets of
the employer
Multiple‐employer – report the assets in an Agency
Fund
Exception – employer is a member of the OPEB plan (agency
fund should exclude the employer amounts)
6OPEB Plans – 74
1/23/2017 2
7OPEB Employers ‐ 75
Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, establishes new accounting and financial reporting requirements for governments whose employees are provided with OPEB, as well as for certain nonemployer governments that have a legal obligation to provide financial support for OPEB provided to the employees of other entities.
8OPEB Employers ‐ 75
The scope of this Statement includes OPEB plans—defined benefit and defined contribution—administered through trusts that meet the following criteria:
Contributions from employers and nonemployer contributing entities to the OPEBplan and earnings on those contributions are irrevocable.
OPEB plan assets are dedicated to providing OPEB to plan members in accordancewith the benefit terms.
OPEB plan assets are legally protected from the creditors of employers, nonemployercontributing entities, and the OPEB plan administrator. If the plan is a defined benefit OPEB plan, plan assets also are legally protected from creditors of the plan members. This Statement also includes requirements to address financial reporting for
assets accumulated for purposes of providing defined benefit OPEB through OPEB plans that are not administered through trusts that meet the specified criteria.
9OPEB Employers ‐ 75
Defined Benefit OPEB That Is Provided through OPEB Plans That Are Not Administered through Trusts That Meet the Specified Criteria For employers that provide insured benefits—defined benefit OPEB through an arrangement whereby premiums are paid or other payments are made to an insurance company while employees are in active service, in return for which the insurance company unconditionally undertakes an obligation to pay the OPEB of those employees—this Statement requires recognition of OPEB expense/expenditures equal to the amount of premiums or other payments required in accordance with their agreement with the insurance company. In addition to the amount of OPEB expense/expenditures recognized in the current period, a brief description of the benefits provided through the arrangement is required to be disclosed.
10OPEB Employers ‐ 75
Defined Benefit OPEB That Is Provided through OPEB Plans That Are Not Administered through Trusts That Meet the Specified Criteria For defined benefit OPEB, other than insured benefits, that are provided through OPEB plans that are not administered through trusts that meet the specified criteria, this Statement requires an approach to measurement of OPEB liabilities, OPEB expense, and deferred outflows of resources and deferred inflows of resources related to OPEB parallel to that which is required for OPEB provided through OPEB plans that are administered through trusts that meet the specified criteria. Similar note disclosures and required supplementary information are required to be presented. However, the requirements incorporate modifications to reflect the absence of OPEB plan assets for financial reporting purposes.
11OPEB Employers ‐ 75
Defined Contribution OPEB This Statement requires an employer whose employees are provided with defined contribution OPEB to recognize OPEB expense for the amount of contributions or credits to employees’ accounts that are defined by the benefit terms as attributable to employees’ services in the period, net of forfeited amounts that are removed from employees’ accounts. A change in the OPEB liability is required to be recognized for the difference between amounts recognized in expense and amounts paid by the employer to (or benefit payments through) a defined contribution OPEB plan. In governmental fund financial statements, OPEB expenditures are required to be recognized equal to the total of (1) amounts paid by the employer to (or benefit payments through) an OPEB plan and (2) the change between the beginning and ending balances of amounts normally expected to be liquidated with expendable available financial resources. An OPEB liability is required to be recognized to the extent the liability is normally expected to be liquidated with expendable available financial resources. Notes to financial statements of an employer with a defined contribution plan are required to include descriptive information about the OPEB plan and benefit terms, contribution rates and how they are determined, and amounts attributed to employee service and forfeitures in the current period.
12 1/23/2017 3
OPEB Employers ‐ 75
Special Funding Situations In this Statement, special funding situations are defined as circumstances in which a nonemployer entity is legally responsible for providing certain forms of financial support for OPEB of the employees of another entity. Relevant forms of financial support are contributions directly to an OPEB plan that is administered through a trust that meets the specified criteria, including benefit payments as OPEB comes due for OPEB provided through such a plan, or making benefit payments directly as the OPEB comes due in circumstances in which OPEB is provided through an OPEB plan that is not administered through a trust that meets the specified criteria. Such support is a special funding situation if either (1) the amount of contributions or benefit payments, as applicable, for which the nonemployer entity legally is responsible is not dependent upon one or more events unrelated to the OPEB or (2) the nonemployer entity is the only entity with a legal obligation to make contributions directly to an OPEB plan or to make benefit payments as OPEB comes due, as applicable. This Statement requires an employer that has a special funding situation for defined benefit OPEB to recognize an OPEB liability and deferred outflows of resources and deferred inflows of resources related to OPEB with adjustments for the involvement of nonemployer contributing entities. The employer is required to recognize its proportionate share of the collective OPEB expense, as well as additional OPEB expense and revenue for the OPEB support of the nonemployer contributingOPEB Employers ‐ 75
Special Funding Situations The approach that is required by this Statement for measurement and recognition of liabilities, deferred outflows of resources and deferred inflows of resources, and expense by a governmental nonemployer contributing entity in a special funding situation for defined benefit OPEB is similar to the approach required for cost‐sharing employers. The information that is required to be disclosed in notes to financial statements and presented in required supplementary information of a governmental nonemployer contributing entity in a special funding situation depends on the proportion of the collective net OPEB liability that it recognizes. In circumstances in which a governmental nonemployer contributing entity recognizes a substantial proportion of the collective net OPEB liability, requirements for note disclosures and required supplementary information are similar to those for cost‐sharing employers. Reduced note disclosures and required supplementary information are required for governmental nonemployer contributing entities that recognize a less‐than‐substantial portion of the collective net OPEB liability. This Statement also establishes requirements related to special funding situations for defined contribution OPEB.
14OPEB Employers – 75
Post Employment Benefits ‐ Employers:
The Gist of the Employer Standard is to require recording
Outflows and Inflows.
Currently only a Net OPEB Obligation is recorded. Increased Notes Disclosures and RSI.
15OPEB Employers – 75
Post Employment Benefits ‐ Employers:
In essence, just like GASB 67 and 68. Except, the numbers will be much bigger! Will supersede GASB Statements 45 and 57.
1640
The Basic Three‐Step Approach for Defined Benefit Pensions
25 62 80
1) Project Benefit Payments 2) Discount Future Payments
Present Value of Payments
3) Attribute to Employee Service Periods
17 For Active and Inactive Employees TPL How much money would I need to invest today to cover all the expected OPEB Benefits for this employee?Healthcare Trend Rate
Just Like Pensions, Not!
Still have an implicit rate subsidy calculation Preserves the alternative measurement calculation
employees or less – active and inactive employees Sensitivity disclosure is broadened to include Healthcare Trend Rate in addition to the Discount Rate in Notes to Financial Statements Considerations for Employers who not have a Trust Fund are incorporated in 75 rather than by an Amendment (i.e. 73)
18 1/23/2017 4
Thought Question?
Is it more difficult to estimate pension benefits into the future, or More difficult to estimate healthcare costs into the future?
19Questions!
20 1/23/2017 1
Jerry E. Durham, CPA, CGFM, CFE
Effective Dates—June 30
2015
Statement 68—Pensions—Employers Statement 69—Government Combinations and Disposals of Government Operations Statement 71—Pension Transition for Contributions Made Subsequent to the Measurement Date 2016
Statement 72—Fair Value Measurement and Application Statement 73—Pensions—Related Assets (outside scope of Statements 67 and 68) Statement 76—Hierarchy of GAAP for State/Local Governments Statement 79 – Certain External Investment Pools and Pool Participants 2017
Statement 73—Pensions Amendments to Certain Provisions of 67 & 68 Statement 74—Financial Reporting – OPEB Plans Statement 77—Tax Abatement Disclosures Statement 78 – Pensions Provided through Certain Multiple‐Employer Defined Benefit Plans Statement 79 – Certain Investment Pools and Participants Statement 80 ‐ Blending Requirements for Certain Component Units Statement 82 – Pension Issues 2018
Statement 75—Accounting and Financial Reporting – OPEB – Employers Statement 81 – Irrevocable Split‐Interest Agreements Statement 82 – Pension Issues (Certain Provisions related to Assumptions) 2 What: The Board issued Statement 77, which requires disclosures about a government’s tax abatement agreements Why: Information about revenues that governments forgo is essential to understanding financial position and economic condition, interperiod equity, sources and uses of financial resources, and compliance with finance related legal or contractual requirements When: Effective for periods beginning after December 15, 2015
i.e. Calendar year 2016, and fiscal year June 30, 2017 4 Practice Issue ‐Tax Abatement Disclosures:
Many governments offer tax abatements, but little
information is publicly available regarding the provisions of the tax abatement agreements or the magnitude of the effect those agreements have on the government’s ability to raise resources in the future.
Often times in Tennessee they take the form of In‐
Lieu‐Of‐Tax Agreements
5 Practice Issue ‐Tax Abatement Disclosures:
1984 Saturn Corporation
$20 ‐30 million cash for training $50,000 million for Saturn Parkway Maury County Agreements: Rezoned Property Issued Industrial Revenue Bonds In‐lieu‐of Tax Agreements with City of Columbia, City 1/23/2017 2
Practice Issue ‐Tax Abatement Disclosures:
Maury County had no disclosures in the Notes
to the Financial Statements
8 Practice Issue ‐Tax Abatement Disclosures:
Nissan Headquarters
$197,600 in tax breaks and incentives from State and WilliamsonCounty
$64 million in relocation assistance ($50,000/person) $6 million for temporary office space $23 million site incentive $80.3 million “enhanced jobs tax credit” $5.5 million “headquarters tax credit” $3 million for recruitment $1 million for fast track job training $14.8 million in tax abatements from Williamson County University of Tennessee study suggested that the economic benefit
Boost to local income = $527 million Increase to local tax revenues = $24 million Produce 13,260 new jobs 9 Practice Issue ‐Tax Abatement Disclosures:
2008 VW Original Plant
Total package, $577 million in incentives 2016 VW Expansion
Total package, possible $300 million $165.8 million for site development, prep, etc. $52.5 million loan from Chattanooga and Hamilton County,about half to be repaid
$12 million state training grant $33 million in property tax breaks over the next decade More 10 Does not include all transactions that reduce tax revenues Emphasis is on the substance of the arrangement meeting the definition, not on its name or form Would apply only to arrangements meeting this definition:
A reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which (a) one or more governments promise to forgo tax revenues to which they are otherwise entitled and (b) the individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or the citizens of those governments.
11 Tax Expenditures
Cost
foregoing the collection
taxes the government was entitled to collect
Tax Exemptions Tax Deductions Tax Abatements Type of Revenue
A tax (not a fee or service charge) 12 1/23/2017 3
Tax Abatements:
Proceed from an agreement The agreement does not have to be in writing The agreement does not have to be legally enforceable The agreement must precede the “abatement” The substance of the agreement rather than the form
determine whether an “abatement” has taken place
Can be agreements of the government itself, or Agreements of others that reduce the government’s
revenue What about Tax Increment Financing? What
about Tax Rebates that are in substance abatements?
13 A government would disclose separately (a) its
tax abatements and (b) tax abatements that are entered into by other governments that reduce the reporting government’s taxes Disclose own tax abatements by major program Disclose those of other governments by the government and specific tax abated May disclose individual tax abatements above quantitative threshold established by the government (may use different thresholds for government vs. other governments) Disclosure would commence in the period in which a tax abatement agreement is entered into and continue until the tax abatement agreement expires, unless otherwise specified
14 The disclosures may be aggregated by major tax abatement programs Governments are not required to present information if they are legally prohibited from doing so (however, that fact must be disclosed) Disclose information for discrete component units:
If essential to fair presentation of the government –
then like any other agreement of the government
If not essential to fair presentation, then disclose like
an agreement of another government
15 Brief Descriptive Information Government’s Own Abatements Other Government’s Abatements Name of program Purpose of program Name of government Tax being abated Authority to abate taxes Eligibility criteria Abatement mechanism Recapture provisions Types of recipient commitments 16 Other Disclosures Government’s Own Abatements Other Government’ s Abatements Dollar amount of taxes abated Amounts received or receivable from other governments associated with abated taxes Other commitments by the government Quantitative threshold for individual disclosure Information omitted due to legal prohibitions 17 Perhaps even more interesting are the disclosures that are not required. For example:
The names of the entities that received a tax abatement How an entity that received a tax abatement, spent or is
spending the money
The actual or potential benefits to the local government
the letter of transmittal for disclosure. Number of Tax Abatement Agreements Duration of Tax Abatements Total Amount of Abatements over the duration of
agreement
18 1/23/2017 4
19 Practice Issue ‐Tax Abatement Disclosures:
1984 Saturn Corporation
$20 ‐30 million cash for training $50,000 million for Saturn Parkway Maury County Agreements: Rezoned Property Issued Industrial Revenue Bonds In‐lieu‐of‐Tax Agreements – Maury County In‐lieu‐of Tax Agreements with City of Columbia, City Which
the following represents a “tax abatement”?
incentive to locate
the first 5 years after relocation
Which of the following represents a “tax abatement”?
a particular project which also reduces the shared corporate income tax of a local government
farmer or company
for a company and statutorily requires a local government to reduce its local sales tax rate as part of the agreement
Which of the following would never be a “tax abatement”?
under the circumstances
the state government but is shared with a local government by formula
relocate to Tennessee
Which of the following properly accounts for the tax revenue forgone
the books
the government?
Revenue, and Debit an Expenditure/Expense
1/23/2017 5
Tax abatement agreements for discretely presented component units should?
treated like any
agreement
the government itself
treated like an agreement
another government
Which of the following are not true for tax abatement disclosures?
the abatements must be presented for the current year and future years
programs
and other governments that provide tax abatements including component units
government may establish a threshold for individual agreements
Blending Requirements for Certain Component Units ‐ 2017
Blending Requirements
Practice Issue ‐ Blending Requirements for Certain Component Units:
Exposure Draft June 2015 GASB 80 Issued in January 2016
Effective for periods beginning after June 15, 2016. (i.e
calendar year 2017 and fiscal year June 30, 2017)
Earlier Application encouraged
28Blending Requirements
Practice Issue ‐ Blending Requirements for Certain Component Units:
Certain
financial reporting entities such as the Healthcare Industry (BTA) desire to be able to present all component units in either a single column or by a multi‐column approach for blended component units.
Problem, their component units do not meet the
requirements for blending.
29Blending Requirements
Practice Issue ‐ Blending Requirements for Certain Component Units:
The statement amends Statement 14 paragraph 53 to
add a “new” blending requirement:
Not‐for‐profit corporations Primary government is the sole corporate member Applies to all state and local governments
30 1/23/2017 6
Blending Requirements
Practice Issue ‐ Blending Requirements for Certain Component Units:
Additional Blending Criteria:
“A component unit should be included in the reporting
entity financial statements using the blending method when the component unit is organized as a not‐for‐profit corporation in which the primary government is the sole corporate member.” Notice the title, Certain Component Units.
The application is limited in scope.
31Blending Requirements
Practice Issue ‐ Blending Requirements for Certain Component Units:
The statement does not apply to component units
included under provision of Statement 39.
So now we have Statements 14, 39, 61, 80 and 34 that all
help us understand the reporting entity and how to report component units.
32Irrevocable Split‐Interest Agreements ‐ 2018
Irrevocable Split‐Interests
Practice Issue – Accounting and Reporting for Irrevocable Split‐Interest Agreements:
Exposure Draft Issued June 2015 GASB 81 Issued March 2016 Effective for Periods beginning after 12/15/2016 (i.e calendar
year 2017, fiscal year 2018) Definition of Irrevocable Split‐Interests:
A split‐interest agreement in which the donor has not
reserved, or conferred to another person, the right to terminate the agreement at will and have the donated assets returned to the donor or third party.
34Irrevocable Split‐Interests
Practice Issue – Accounting and Reporting for Irrevocable Split‐Interest Agreements:
Irrevocable split‐interest agreements are a specific
type of giving arrangement used by donors to provide resources to two or more beneficiaries, including
trusts, charitable remainder trusts, charitable annuity gifts, and life‐interests in real estate.
35Irrevocable Split‐Interests
Practice Issue – Accounting and Reporting for Irrevocable Split‐Interest Agreements:
Since there are different types of agreements, a
determination has to be made about the type.
When does the interest begin and terminate? Is the Government the intermediary or is the intermediary a
third party?
If the donation is capital property (e.g. land), how do I plan
to use the property? Capital Asset or Investment.
Will I use fair value or acquisition value?
36 1/23/2017 7
Irrevocable Split‐Interests
Practice Issue – Accounting and Reporting for Irrevocable Split‐Interest Agreements:
Since there are different types of agreements, a
determination has to be made about the type (cont’d).
Do you have the lead interest or the remainder interest? If the government is the Intermediary and has a remainder
interest normally debit an asset, credit a liability for the lead interest, and credit a deferred inflow for the difference (government’s remainder interest).
37Irrevocable Split‐Interests
Practice Issue – Accounting and Reporting for Irrevocable Split‐Interest Agreements:
Since there are different types of agreements, a
determination has to be made about the type (cont’d).
If the government is the Intermediary and has a lead
interest normally debit an asset, credit a liability for the remainder interest, and credit a deferred inflow for the difference.
38Irrevocable Split‐Interests
Practice Issue – Accounting and Reporting for Irrevocable Split‐Interest Agreements:
Since there are different types of agreements, a
determination has to be made about the type (cont’d).
If a third party is the Intermediary and the government has
a beneficial interest, normally debit an asset and credit a deferred inflow when the government becomes aware of the agreement and has sufficient information to measure the beneficial interest.
39Irrevocable Split‐Interests
Practice Issue – Accounting and Reporting for Irrevocable Split‐ Interest Agreements:
If a third party is the Intermediary and the government has a
beneficial interest, what is sufficient information:
Government is specified by name Government has an unconditional beneficial interest The donation agreement is irrevocable The donor has not granted variance power to theintermediary with regard to the donated resources
The intermediary is not under the control of the donor The government’s ability to assign its beneficial interest isnot subject to approval of the intermediary
The government’s attempt to assign its beneficial interestdoes not invalidate the government’s beneficial interest and thereby terminate the agreement
40Irrevocable Split‐Interests
Practice Issue – Accounting and Reporting for Irrevocable Split‐Interest Agreements:
FASB Statement 136 Transfers of Assets to a Not‐for‐
Profit Organization or Charitable Trust That Raises or Holds Contributions for Others, requires the resources held in an irrevocable trust as assets and contributions into the trust to be recorded as assets and the contributions into the trust as revenues of the beneficiary government (Para 15).
41Irrevocable Split‐Interests
Practice Issue – Accounting and Reporting for Irrevocable Split‐Interest Agreements:
Obviously, there are many variations of the scenarios
we have looked at that require different entries and calculations.
The
statement does not mention disclosure requirements!
42 1/23/2017 8 Certain Asset Retirement Obligations
ARO
Certain Asset Retirement Obligations (ARO):
Exposure Draft Issued December 7, 2015 Statement 83 Issued November 2016 Effective for periods beginning after June 15, 2018 FASB Statement 143, Accounting for Asset
Retirement Obligations (2001) has been followed.
Should costs be capitalized, what should be
disclosed?
44ARO
Asset retirement obligation—A legal obligation associated with the retirement of a capital asset, the unavoidable costs of retiring an asset Retirement of a tangible capital asset—The other‐than‐temporary removal of a capital asset from service (such as from sale, abandonment, recycling, or disposal) Includes: Nuclear power plant decommissioning Coal ash pond closure (those that are not landfills) Contractually required land restoration such as removal ofwind turbines
Sewage Treatment Facilities Other similar obligations But not the pollutions they cause! Excludes: Landfills (GASB 18), However this is the most common ARO Pollution remediation obligations from abnormal operation(GASB 49)
Conditional obligations to perform asset retirement activities,such as most asbestos removal
45ARO
Asset Retirement Obligations (ARO):
Legally enforceable liability Internal obligating event Associated with a tangible capital asset Recognizea liability when incurred and reasonably estimable
Use probability weighing of all potential outcomes or ifthis is not available at a reasonable cost, then use most likely amount
Record a deferred outflow = to liability Remeasurethe liability for effects
inflation and deflation annually and other relevant factors. Book if significant
Special recognition for recognition of minority interestscalculated under other than GASB GAAP
46ARO
Asset Retirement Obligations (ARO) ‐ Disclosures:
Disclose
funding requirements and amounts accumulated and restricted for payment of the liability
Nature of government’s AROs Methods and assumptions used for estimates of
liabilities
Estimated remaining useful life of associated
tangible assets
Disclose the fact and reasons why a liability is not
reasonably estimable
Similar disclosures for minority interests
47ARO
1/23/2017 9
Coming Soon to a
Government Near You!
Questions!
50 1/23/2017 1
Really, There’s More?
January 25, 2017
Jerry E. Durham, CPA, CGFM, CFE
Fiduciary Activities
2017 (July 1, 2018 to June 30, 2019)
Relationship?
Fiduciary Activities
Fiduciary Activities
use, exchange, or employment of the present service capacity of the assets.
6 1/23/2017 2
Fiduciary Activities
revenues are generated by the government itself such as taxes or utility charges), and
neither part of the financial reporting entity nor recipients of the government’s goods or services
have administrative or direct financial involvement in the program
7Fiduciary Activities
67
GASB 73 (Pension not administered through a Trust but meet the definition of an equivalent arrangement).
Fiduciary Activities
Private-Purpose Trusts
Trust Agreement or Equivalent Arrangement:
accordance with benefit terms
Fiduciary Activities
would require a Trust Agreement or Equivalent Arrangement:
in accordance with benefit terms
Fiduciary Activities
– Formerly Agency Fund
through a trust agreement or equivalent arrangement
11Fiduciary Activities
report additions and deductions in more detail (i.e. by source , investment income, investment costs, and deductions by type including administrative costs.)
12 1/23/2017 3
Fiduciary Activities
to disburse fiduciary resources
additions and deductions in more detail (i.e. by source , investment income, investment costs, and deductions by type including administrative costs.)
13Fiduciary Activities
Government should include Fiduciary Component Units.
fiduciary activities should present fiduciary fund financial statements within its basic financial statements.
15Fiduciary Activities
contributions into a pension trust fund managed by a third party where control is not established?
16Financial Reporting Model
ED expected April 2020, Final Statement expected November 2021
Interpretation 6.
Accounting Standards Advisory Council (GASAC)
improve/enhance the effectiveness of the overall financial reporting model
18 1/23/2017 4
Financial Reporting Model
(Interpretation 6)
19Financial Reporting Model
Term Focus?)
Nonoperating Revenue of Expenses
Funds
Financial Reporting Model
for enhancing the financial statement analysis component, consider the elimination
requirements that are boilerplate and no longer necessary for understanding the financial reporting model, and clarify guidance for presenting currently known facts, decisions, or conditions that are expected to have a significant effect on financial position or results of operations.
Financial Reporting Model
and consider whether a government-wide statement of cash flows should be required, and if so, how those cash flows should be presented.
22Financial Reporting Model
debt service funds, either individual or in aggregate.
when a CAFR is not presented.
23Debt?
Invititation to Commnet
1/23/2017 5
Financial Reporting Model
Term Focus?)
statements consistent with the measurement focus and basis of accounting.
recommended.
25Financial Reporting Model
evaluating the guidance for the separate presentation of
Financial Reporting Model
Budgetary Variances
Financial Reporting Model
should be presented in the basic financial statements.
Financial Reporting Model
focus should there be a change to the measurement focus for permanent funds
funds?
measurement focus?
29Financial Reporting Model
basic financial statements or RSI) for the budgetary comparison information and consider whether and, if so, which budget variances should be required to be presented.
30 1/23/2017 6
Financial Reporting Model
for more consistent presentation.
31Debt?
Election Time – The Candidates
Leases - Lessee
Ended June 30, 2020
approach
35Leases - Lessee
the right to use an underlying asset
right to use a nonfinancial asset for a period of time in an exchange or exchange-like transaction
1/23/2017 7
Leases - Lessee
currently call “Operating” leases.
accounted for under leases guidance, but would be considered a “purchase” that was financed.
and an “intangible” asset except for Short-term leases.
governmental funds, also record an “other financing source” and “capital outlay expenditure”.
37Leases - Lessee
under the contract of 12 months or less
Leases - Lessee
(unless short term)
made over the lease term
capital asset
the lease begins
Leases - Lessee
lease liability
Statement of Net Position - Lessee
Leases - Lessee
use an underlying asset (the noncancellable period) plus
when exercise of that option is reasonably certain, or
when the exercise of that option is reasonably certain.
1/23/2017 8
Leases - Lessee
natural resources
arrangement (GASB 60)
43Leases - Lessee
Leases - Lessor
lease term
lease term
lease term
lease term plus payments received at or before the lease begins that relate to future periods
books
46Statement of Net Position - Lessor
Leases - Lessor
books
1/23/2017 9
Leases – Lessor
Leases - General
the Lease Component from the Non-lease Component
in some cases
50Leases - General
Leases - General
Leases - General
Leases - General
1/23/2017 10
Leases - General
proceeds = deferred inflow/outflow of resoures
the deferred amount
the term
the leaseback
55Leases - General
asset, not the underlying asset itself
a lease receivable
Revenue and Expense Recognition
need to make decisions
transactions that have not been specifically addressed
conceptual framework
58Revenue and Expense Recognition
approach for revenue. Is this useful for Governments? Should it be applied to revenue and expenses?
concept statement be applied to revenues?
59Revenue and Expense Recognition
such as compensated absences and postemployment benefits.
expenses, including salaries and circumstances when government is the customer. Should guidance be developed?
additional disclosures be made for revenue transactions?
additional disclosures be made for expense transactions that are not described in current GASB literature?
60 1/23/2017 11
Jerry E. Durham, CPA, CGFM, CFE
Questions?
61 1/23/2017 1
1AGA Winter Seminar
SINGLE AUDIT UPDATE CODE OF FEDERAL REGULATIONS TITLE 2, SUBTITLE A, CHAPTER II, PART 200 UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND AUDIT REQUIREMENTS FOR FEDERAL AWARDS
2SINGLE AUDIT UPDATE THE NEW UNIFORM GRANT GUIDANCE OR UNIFORM GUIDANCE OR “UGG” OR “SUPER CIRCULAR?”
3GETTING TO THE GUIDANCE?
4 5 6 1/23/2017 2
7HTTPS://CFO.GOV/COFAR/
8RUNNING THE SEARCH NUMBERS
9 1024 10 8 24 5 6 7 3
5 10 15 20 25 30 35 2015 2016 2017 2018 Projected Average Number of Major Programs for Each State 2015-2018
Type A Type B
+80% CURRENT ISSUES
200.331(F)]
1/23/2017 3
13 14 1/23/2017 1 2016 ASB Update
January 25, 2017
Jerry E. Durham, CPA, CGFM, CFE
Session Objectives
Recently issued standards and guidance ASB active agenda The thoughts and
expressed in this presentation are my own. They do not necessarily represent the views of the Audit Standards Board.
Slide 2 3Two different types of Standards:
Statements
Standards Setters:
= Generally Accepted Auditing Standards = GAAS
Book = GAGAS
= Single Audit Guidance = A-133/New Uniform Gudiance
4 5Standards Setters (cont’d):
Standards Board) = International Audit Standards = ISAs??
= Standards for Publicly Traded Companies = AS??
Why have Auditing Standards?
not to think.
It is all about Credibility!
6 1/23/2017 2
Yellow Book Revision Update
Basically the same chapters Independence won’t change much in general but will be combined with ethics. Will have a different look. Some changes to CPE requirements. Some changes to Performance Audit Standards.
Recently Issued Statements on Standards for Attestation Engagements (SSAE)
SSAE #16 (the SSAE formerly know as SAS 70)
SSAE #16, Reporting on Controls at a Service Organization
Issued April 2010 Effective for practitioners’ reports dated on or after June 15, 2011 Clarified, converged and restructured Was codified at AT-801 then recodified AT-C 320
SSAE #16, Reporting on Controls at a Service Organization
Peer Review Questions:
provided by the service organization and their effect on the user entity’s internal control relevant to the audit, sufficient to identify and assess the risks of material misstatement?
significance of those services to the user entity, including their effect on the user entity's internal control
SSAE #16, Reporting on Controls at a Service Organization
Peer Review Questions (cont’d)
financial reporting processes affected by the service organization
undertaken by the service organization
1/23/2017 3
Organizations that may Require SOC Reports
Software as a Service (SaaS) Application Service Providers (ASP) Credit Card Processing Platforms Cloud Computing | Virtualization | on demand Computing Services Internet Service Providers (ISP) Web Design and Development Web Hosting Social Media | Content Tagging and Aggregators Data Center and Co-Location Providers Managed Services
Organizations that may Require SOC Reports
Third Party Administrators (TPA) Captive Providers Medical Billing Print and Mail Delivery Online Fulfillment Rebate Processing | Online and Mail Transportation Services Tax Credit and Empowerment Services Payroll Services Registered Investment Advisors (RIA)
SSAE #18 (the SSAE formerly know as every other SSAE)
SSAE #18, Attestation Standards: Clarification and Recodification
Issued April 2016 Effective for practitioners’ reports dated on or after May 1, 2017 Clarified, converged and restructured Will be codified in AT-C sections
SSAE #18, Attestation Standards: Clarification and Recodification - Convergence
Oops, Something is missing?
17SSAE #18, Attestation Standards: Clarification and Recodification - Convergence
Consideration of standards of the IAASB
Engagements Other than Audits or Reviews of Historical Financial Information”
Financial Information Included in a Prospectus
18 1/23/2017 4
Engagements AT‐C 105, Concepts Common to All Attestation Engagements AT‐C 205, Examination Engagements AT‐C 210, Review Engagements AT‐C 215, AUP Engagements
Every engagement
AT 20, 50, AT 20, 50, 101 and 201
+
SSAE #18 – Recodification and Structure
AT‐C 305, Financial Forecasts and Projections
(AT 301)
AT‐C 310, Reporting on Pro Forma Information
(AT 401)
AT‐C 315, Compliance Attestation
(AT 601)
AT‐C 320, Reporting
Service Organization
(AT 801)
+
When applicable
AT‐C 395 – Management’s Discussion and Analysis (AT 701)
SSAE #18, Attestation Standards: Clarification and Recodification - Convergence
Oops, Something is still missing?
20SSAE #18: Key Changes
Requires a written assertion from responsible party.
but the auditors report is required to be restricted and include a statement that that the responsible party did not provide an assertion.
Required representation letter. Risk assessment for examination engagements. More detailed requirements, such as to obtain an engagement letter. Moves guidance for reporting on internal control in an integrated audit (AT 501) to SASs. Retains guidance for MDA examinations (AT 701) “as is”.
SAS 129, Letters to Underwriters and Certain Other Requesting Parties (the SAS that is not formerly known - Comfort Letters) (AU-C 920) SAS 130 (the SAS formerly known as the “Oops”, the SSAE that was missing)
SAS No. 130: Audit of Internal Control Over Financial Reporting (ICFR) Integrated with Audit
Moved from attestation standards (AT 501) to auditing standards. Applies when auditor is required to examine and report on effectiveness of internal control over financial reporting. Effective for integrated audits for periods ending on or after December 15, 2016.
1/23/2017 5
Key Provisions of SAS No.130
Removes option to examine and report on management’s assertion about the effectiveness of internal control; required to examine and report directly on the effectiveness of ICFR. Highlights that COSO’s Internal Control – Integrated Framework and the GAO’s Standards for Internal Control in the Federal Government, provide suitable and available criteria. Clarifies that the risk factors considered in audit of ICFR are the same as those in the financial statement audit. Materiality for ICFR is the same as Audit materiality. Allows the auditor to use the work of internal audit and others.
Key Provisions of SAS No.130
SAS 130, Raise Any Red Flags with You??
SAS No. 131 - Amendment to SAS No. 122 Section 700, Forming an Opinion and Reporting
Issued January 2016; effective for audits for periods ending on or after June 15, 2016 Clarifies that unless an audit is within the jurisdiction of the PCAOB, the auditor is required to conduct the audit in accordance with GAAS When the audit is not within the jurisdiction of the PCAOB, use the form of the report required by PCAOB standards with reference to GAAS
Company Accounting Oversight Board and in accordance with auditing standards generally accepted in the United States of America”
Auditor Reporting, Including Going Concern
Auditor Reporting
GOAL:
auditor’s report
IAASB Auditor Reporting Project
Auditor’s Report
IAASB Auditor Reporting Standards
Opinion section mandated first New sections:
Other proposed improvements to enhance transparency and clarify responsibilities Effective for periods beginning on or after December 15, 2016.
1/23/2017 6
Illustrative ISA Report
INDEPENDENT AUDITOR’S REPORT To the Shareholders of ABC Company [or Other Appropriate Addressee] Opinion We have audited the financial statements of ABC Company (the Company), which comprise the statement of financial position as at December 31, 20X1, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, (or give a true and fair view of) the financial position of the Company as at December 31, 20X1, and (of) its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).Illustrative ISA Report
Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in [jurisdiction], and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.Illustrative ISA Report
Key Audit Matters [Not Required for a Non-Listed Company – May be Included at the Auditor’s Discretion] Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. [Description of each key audit matter in accordance with ISA 701.]Illustrative ISA Report
Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to ceaseIllustrative ISA Report
Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includesIllustrative SAS Report
ASB Redlined Letter.pdf ASB Letter.pdf Proposed effective date: Not decided yet. Proposed date for vote on exposure draft is May 2017.
1/23/2017 7
Additional Information
Additional information is available on the IFAC website at: https://www.ifac.org/auditing-assurance/new-auditors- report#node-32410
EXPOSURE DRAFT
Going Concern
Going Concern – Differences between GAAP and GAAS
Period of time related to the going concern assessment
year from date of financial statements.
statements
Going Concern Interpretations
Use applicable financial reporting framework - if GAAP, then FASB or GASB
ASB looking to amend AU-C 570 (SAS 126, June 2012)
The ASB believes the following will be the most significant changes if this proposed SAS is issued as final.
financial statements and specific elements, accounts, or items of a financial statement, the application guidance should include as an example that the requirement to consider fair presentation includes an evaluation of whether disclosures related to risk and uncertainties are needed to achieve fair presentation.
statements prepared in accordance with a special purpose framework, the ASB proposes that AU-C section 570 applies.
The ASB believes the following will be the most significant changes if this proposed SAS is issued as final.
Financial Information. Under extant AU-C section 930, the auditor is required to perform inquiries and consider the adequacy of disclosures to address the issue of substantial doubt about the entity’s ability to continue as a going concern.
auditor to include an emphasis-of matter paragraph in the auditor’s report when certain conditions or events exist related to substantial doubt about an entity’s ability to continue as a going concern. This decision was based on the ASB’s desire to achieve consistency in auditor reporting in both the annual audit and interim financial information.
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Going Concern Interpretations
ASB looking to amend AU-C 570 (SAS 126, June 2012) ASB looking to amend AU-C 800, Special Purpose Frameworks ASB looking to amend AU-C 805, Single Financial Statements, Specific Financial Statement Elements, Accounts, or Items. ASB looking to amend AU-C 930, Interim Financial Information Proposed Effective Date – Periods beginning on or after December 15, 2017
EXPOSURE DRAFT
AUDITOR INVOLVEMENT WITH EXEMPT OFFERING DOCUMENTS Auditor Involvement – Exempt Offerings
Exempt Offerings:
the Securities Act of 1933, as amended or
Federal Trade Commission.
Auditor Involvement – Exempt Offerings
Triggers for Involvement - Current:
Underwriters and Certain Other Requesting Parties, or an attestation engagement report in lieu of a comfort or similar letter on information included in the offering document
broker-dealers, or other financial intermediaries in connection with an offering document
auditor’s report in the offering document
Auditor Involvement – Exempt Offerings
Triggers for Involvement:
For exempt offerings on or after June 15, 2018
Other Current and Upcoming Projects
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#AICPAnaaatsENHANCING AUDIT QUALITY
A FOCUS ON PROFESSIONAL SKEPTICISM, QUALITY CONTROL AND GROUP AUDITS
KEY PUBLIC INTEREST ISSUES TO ADDRESS
address increasing complexity and new technologies in the business and audit environment, and deliver against the public’s heightening expectations of audit quality
is to continue to be a critical challenger, supported by a regime focused on public interest and quality management, and well observable for stakeholders
50PROFESSIONAL SKEPTICISM: KEY QUESTIONS BEING CONSIDERED
What is professional skepticism? What are the skills/competencies required to exercise PS? What are the impediments affecting the consistent application of PS? How can the concept of PS be emphasized in the context of the projects on quality control, group audits, and accounting estimates (ISA 540)? What other actions may be necessary? Framework? Guidance? Training? …..
Exploring a more proactive, scalable and robust response to managing quality:
changing business environment
– investigating root causes of identified deficiencies, reassessment
remedial actions
governance, including leadership responsibilities for quality
emphasis needed?
QUALITY CONTROL‒QUALITY MANAGEMENT APPROACH
QUALITY CONTROL (cont.)
Emphasis on importance of the role and responsibilities of the engagement partner Exploring transparency reporting trends, including feasibility of international requirements The impact on audit quality of evolving audit delivery models Involving other auditors that are not component auditors – is more guidance needed? Firms that operate as networks – are more requirements and guidance needed? Monitoring and remediation (including “root-cause” analysis) Engagement quality control reviews – reinforce importance and elevate prominence
GROUP AUDITS – NEED FOR A FRESH LOOK?
How to drive a “top-down” approach as groups become more complex and structures continue to evolve Focus on roles and responsibilities of the group engagement partner and group engagement team, including sufficient and appropriate involvement in component auditor’s work Acceptance of a group audit (including access issues) Component materiality Work on components that are not significant Consolidation procedures Emphasis on importance of strong two-way communication between group engagement team and component auditors Requirements and guidance for component auditors?
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Comment period closes: May 16, 2016 May–Dec 2016: Analysis of comments; IAASB discussions Dec 2016 IAASB meeting: Presentation of project proposals for Quality Control and Group Audits; discussion about way forward on Professional Skepticism 2017 onwards: Standard-setting activities –
Quality Control and Group Audits
Quality Control and Group Audits
Next Steps Auditor Reporting - DOL
Revisions to auditor’s report on EBPs to help auditors better understand their responsibilities and to provide users with more information about what auditors do, especially in the case of the limited scope audit Reporting on compliance with certain provisions of laws, regulations, plan documents, and other agreements Required procedures for reporting on compliance Exposure Draft proposed for 1/2017
Current and Upcoming Projects
Sustainability Reporting Direct Engagements (Exposure Proposed 1/2017)
party.
Specified Procedures Engagements (Exposure Proposed 1/2017) (No Written Assertions) Generic Internal Control Attestation Standard (Other than ICFR at AU-C 501)
57Related Assurance Services
Data Analytics
Cyber Security
Helpful Information and Resources
Authoritative standards for non-issuers (SASs, SSARSs, SSAEs, SQCSs) as of June 1 are available at http://www.aicpa.org/RESEARCH/STANDARDS/Pages/default.aspx
AICPA Accounting and Auditing Technical Hotline (877) 242-7212 - techinquiry@aicpa.org http://www.aicpa.org/Research/TechnicalHotline/Pages/TechnicalH
Questions
Jerry E. Durham, CPA, CGFM, CFE
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