Governmental Accounting Conference April 16, 2018 Objectives - PDF document

4/12/2018 • GASB 45, Pa ra g ra ph 7, Sta te s tha t OPE B a rise s fro m a n e xc ha ng e o f sa la rie s a nd b e ne fits fo r e mplo ye e se rvic e s, a nd it is pa rt o f the c o mpe nsa tio n tha t e mplo ye rs o ffe r fo r se rvic e s re c e ive d. • Simply put, GASB sa ys OPE B me e ts the de finitio n o f a lia b ility. • GASB wa s e sta b lishe d in 1984. • T he OPE B Pro je c t b e g a n in 1988 b e c a use o f a g ro wing c o nc e rn a b o ut the po te ntia l ma g nitude o f e mplo ye ro b lig a tio ns. • Pushe d a lo ng b y F ASB Sta te me nt 81, Disc lo sure o f Po stre tire me nt He alth Care and L ife I nsuranc e Be ne fits , whic h wa s c o nside re d, L e ve l B GAAP fo r Go ve rnme nts, b e c a use GASB did no t ha ve a sta nda rd. • Mo st Go ve rnme nts did no t a pply the F ASB sta nda rd. • By 1988, F ASB ha d issue d a mo re c o mpre he nsive sta nda rd. F ASB 106 wa s title d mplo ye r’ s Ac c o unting fo r Po stre tire me nt Be ne fits Othe r than Pe nsio ns . T he ne w E sta nda rd e sse ntia lly re fle c te d the sa me me a sure me nt fo r OPE B a s wa s re q uire d in F ASB 87, E mplo ye r’ s Ac c o unting fo rPe nsio ns , issue d in De c e mb e r, 1985. • GASB sta te d tha t g o ve rnme nts sho uld no t a pply F ASB 87, b e c a use GASB wa s ma king pro g re ss o n its o wn sta te me nt tha t wa s a ntic ipa te d in the ne a rfuture . 22

4/12/2018 • GASB issue d a n inte rim Sta te me nt - Sta te me nt 12, Disc lo sure o f I nfo rmatio n o n Po ste mplo yme nt Be ne fits Othe r than Pe nsio n Be ne fits by S tate and L o c al mplo ye rs, in Ma y o f 1990. GASB 12 wa s e ffe c tive fo r 7/ 1/ 90 to Go ve rnme nt E 6/ 30/ 91 fina nc ia l sta te me nts. • Sta te me nt 12 spe c ific a lly sta te d tha t g o ve rnme nta l e mplo ye rs we re no t re q uire d to imple me nt F ASB 106. • Sub se q ue ntly, GASB pro vide d e mplo ye rs the o ptio n o f a pplying GASB 27, Ac c o unting fo r Pe nsio ns by S tate and L o c al Go ve rnme ntal E mplo ye rs , whic h wa s issue d in No ve mb e ro f 1994. • I n No ve mb e r o f 1994, GASB issue d a se c o nd inte rim Sta te me nt, Sta te me nt 26, F inanc ial Re po rting fo r Po ste mplo yme nt He althc are Plans Administe re d by De fine d Be ne fit Pe nsio n Plans . I t re q uire d se pa ra te re po rting . • De lib e ra tio ns c o ntinue d in 1994 a nd 1995. T he pro je c t wa s pla c e d o n ho ld in 1997 pe nding c o mple tio n o f GASB 34. • GASB re sume d disc ussio ns in 1999. • GASB issue d two e xpo sure dra fts, o ne fo r OPE B Pla ns a nd One fo r E mplo ye rs in F e b rua ry o f 2003. A re vise d e xpo sure dra ft wa s issue d in Ja nua ry 2004 re q uiring the c o nc e pt o f a n implic it ra te sub sidy. • And GASB 43, F inanc ial Re po rting F o r Po ste mplo yme nt Be ne fits Plans Othe r T han Pe nsio ns, wa s issue d in April, 2004 a nd GASB 45, Ac c o unting and F inanc ial han Pe nsio ns, wa s Re po rting by E mplo ye rs fo r Po ste mplo yme nt Be ne fits Othe r T issue d in June , 2004. • And the r e st as the y say, is Histor y. • GASB 74 a nd 75 we re issue d in June , 2015. • GASB 74 wa s e ffe c tive fo r June 30, 2017. • GASB 75 is e ffe c tive fo r June 30, 2018. • T his histor y take s us fr om 1988 to 2015. Appr oximate ly 27 ye ar s. 23

4/12/2018 47 • T his Sta te me nt supe rse d e s a ll re ma ining re q uire me nts o f: • Sta te me nt No . 43, F inanc ial Re po rting fo r Po ste mplo yme nt Be ne fit Plans Othe r T han Pe nsio n Plans , a s a me nde d • Sta te me nt No . 57, OPE B Me asure me nts by Ag e nt mplo ye r Plans . E mplo ye rs and Ag e nt Multiple -E • Sta te me nt No . 25, F inanc ial Re po rting fo r De fine d Be ne fit Pe nsio n Plans and No te Disc lo sure s fo r De fine d Co ntributio n Plans , a s a me nde d • Sta te me nt No . 50, Pe nsio n Disc lo sure s • Vario us o the rparag raphs 48 24

4/12/2018 • I f yo u do no t ha ve a OPE B T rust F und, • I f yo u a re no t a c c umula ting a sse ts to pa y fo r OPE B b e ne fits, • T he n… • GASB 74 do e s no t a pply to yo u! 49 • Ac c o unting fo r a sse ts a c c umula te d fo r OPE B tha t do e s no t me e t the trust c rite ria : • Sing le e mplo ye r – c o ntinue to b e re po rte d a s a sse ts o f the e mplo ye r • Multiple -e mplo ye r – re po rt the a sse ts in a n Ag e nc y F und • E xc e ptio n – e mplo ye r is a me mb e r o f the OPE B pla n (a g e nc y fund sho uld e xc lude the e mplo ye ra mo unts) 50 25

4/12/2018 • Addre sse s b o th OPE B Pla ns Administe re d thro ug h T rusts & no t a dministe re d thro ug h T rusts • Re q uire s re po rting o f lia b ility in the No te s to the F ina nc ia l Sta te me nts o r o n the fa c e o f the F ina nc ia l Sta te me nts • T rust : T o ta l OPE B L ia b ility minus F iduc ia ry Ne t Po sitio n = Ne t OPE B L ia b ility • No T ust : T o ta l OPE B lia b ility = L ia b ility r • Disc o unt Ra te – • T rust – Sing le Disc o unt ra te = L T e Ro R a s pro je c te d suffic ie nt • No T ust – 20-ye a r, ta x-e xe mpt g e ne ra l o b lig a tio n munic ipa l b o nds r (AA/ Aa o r hig he r) 51 2017 Mo nta na CAF R 26

4/12/2018 2017 Mo nta na CAF R 2017 Mo nta na CAF R 27

4/12/2018 2017 Mo nta na CAF R 2017 Mo nta na CAF R 28

4/12/2018 • F und F ina nc ia l Sta te me nts – Mo difie d Ac c rua l? • Or • Go ve rnme nt-wide F ina nc ia l Sta te me nts – F ull Ac c rua l? 2017 Mo nta na CAF R 29

4/12/2018 2017 Mo nta na CAF R • Sta te me nt No . 75, Ac c o unting and F inanc ial Re po rting Pe nsio ns , fo r Po ste mplo yme nt Be ne fits Othe r T han e sta b lishe s ne w a c c o unting a nd fina nc ia l re po rting re q uire me nts fo r g o ve rnme nts who se e mplo ye e s a re pro vide d with OPE B, a s we ll a s fo r c e rta in no ne mplo ye r g o ve rnme nts tha t ha ve a le g a l o b lig a tio n to pro vide fina nc ia l suppo rt fo r OPE B pro vide d to the e mplo ye e s o f o the r e ntitie s. 60 30

4/12/2018 • GASB 75, Ac c o unting and F inanc ial Re po rting fo r Po ste mplo yme nt Be ne fits • I s e ffe c tive fo r the ye ar e nde d June 30, 2018. • What sho uld yo u be do ing ? Go o d que stio n. 61 • Po st E mplo yme nt Be ne fits - E mplo ye rs: • T he Gist o f the E mplo ye r Sta nd a rd is to re q uire re c o rding o f the Ne t OPE B L ia b ility, OPE B E xpe nse , a nd re la te d De fe rre d Outflo ws a nd I nflo ws. • Curre ntly o nly a Ne t OPE B Ob lig a tio n is re c o rde d (E xa mple , ma king the minimum pa yme nt o n a c re dit c a rd). • I nc re a se d No te s Disc lo sure s a nd RSI (Pa g e s a nd Pa g e s). 62 31

4/12/2018 • Po st E mplo yme nt Be ne fits - E mplo ye rs: • I n e sse nc e , just like GASB 67 a nd 68. • E xc e pt, the numb e rs will b e muc h b ig g e r! • Will supe rse de GASB Sta te me nt 45. 63 • Yo u ta ke o ut a ho use mo rtg a g e o f $200,000 (i.e . yo u pro mise to pa y $200,000) • T he Mo rtg a g e is Pa ya b le o ve r 20 ye a rs a t $10,000 pe r ye a r • (Assume no inte re st fo r this illustra tio n) • $10,000 is the c a sh disb urse d during a ye a r, b ut this is no t wha t yo u owe . • Afte r the first ye a r, yo u still owe $190,000 e ve n tho ug h yo u ha ve funde d yo ur mo rtg a g e pa yme nts fo r the c urre nt ye a r. 32

4/12/2018 T he Ba sic T hre e -Ste p Appro a c h fo r De fine d Be ne fit Pe nsio ns He a lthc a re T re nd Ra te F or Ac tive a nd Ina c tive E mploye e s 1) Project Benefit Payments 25 40 62 80 2) Discount Future Payments Present Value of Payments How muc h mone y would I T OL ne e d to inve st today to c ove r all the e xpe c te d OPE B Be ne fits for 3) Attribute to Employee Service Periods this e mploye e ? 65 33

4/12/2018 • Yo u hire 10 ne w e mplo ye e s a nd pro mise to pa y the ir me dic a l insura nc e pre miums a fte r re tire me nt. T his is pro je c te d to c o st $200,000 a t so me da te in the future . • Yo u ma ke c urre nt c o ntrib utio ns to the pla n b y pa ying a a c tua rilly de te rmine d a mo unt during the c urre nt ye a r. (Pa y a s yo u g o ) • Ho we ve r, if yo ur a c tua l c o ntrib utio ns a re no t e no ug h to c o ve r the a c tua ria lly de te rmine d c o ntrib utio ns, yo u ha ve a lia b ility tha t GASB 45 sa ys ne e ds to b e re c o rde d to da y. (b ut 45 ha s b e e n supe rse de d b y 75) • Unde r GASB 75, yo u o we $200,000 fo r the ne w e mplo ye e s. But wha t if yo u a lre a dy o we d $2,500,000 to c urre nt e mplo ye e s, tha t ha d ne ve r b e e n re c o rde d, wha t ha ppe ns? • We ha ve he ld me e ting s with F ina nc e a nd Administra tio n (F &A) • We ha ve ta lke d d ire c tly to GASB • F &A will pro vide the OPE B info rma tio n • Will utilize a va lua tio n a nd me a sure me nt da te o ne ye a r pre vio us to the fina nc ia l sta te me nt da te . • An Ac tua ria l Study will b e pro vide d (ma y no t b e individua lize d). • I f it is individua lize d, it ma y no t b e c e rtifie d b y the Ac tua ry. • T e mpla te No te s disc lo sure s will b e pro vide d. • I nfo rma tio n fo r Jo urna l E ntrie s will b e supplie d b ut no t the Jo urna l E ntrie s? • Cha rte r Sc ho o ls a re no t se pa ra te d a t this po int? 34

4/12/2018 • Que stio n, • Do sta te a nd lo c a l g o ve rnme nts ha ve to pro vide OPE B Be ne fits? • Que stio n, • Wha t c a n Ido to re duc e my Ne t OPE B L ia b ilitie s? • F o r Sta te E mplo ye e s: • No ne w OPE B e mplo ye e s a fte r July 1, 2015, so wha t will tha t me a n? 35

4/12/2018 • Still ha ve a n implic it ra te sub sidy c a lc ula tio n • Pre se rve s the a lte rna tive me a sure me nt c a lc ula tio n o ptio n fo r sma ll e mplo ye rs a nd pla ns tha t ha ve 100 e mplo ye e s o r le ss – a c tive a nd ina c tive e mplo ye e s • Se nsitivity disc lo sure is b ro a de ne d to inc lude He a lthc a re T re nd Ra te in a dditio n to the Disc o unt Ra te in No te s to F ina nc ia l Sta te me nts • Co nside ra tio ns fo r E mplo ye rs who do no t ha ve a T rust F und a re inc o rpo ra te d in 75 ra the r tha n b y a n Ame ndme nt (i.e . 73) 72 36

4/12/2018 • Ma y o r ma y no t use “se rvic e c re dits” in the pro je c tio n o f b e ne fits. T his wo uld a lmo st a lwa ys b e inc lude d in pe nsio n c a lc ula tio ns. 73 • Va lua tio n F re q ue nc y ha s c ha ng e d: • Old - E mplo ye e s o f 200 o r mo re = b ie nnia lly • Old - E mplo ye e s o f le ss tha n 200 = trie nnia lly • Old – F e we r tha n 100 = Alte rna tive Me tho d (Optio n) • Ne w – Me a sure me nt no e a rlie r tha n 1 ye a r • Ne w – Va lua tio n da te o f no mo re tha n 30 mo nths a nd 1 o ne da y prio r to F YE • Ac tua rie s must fo llo w ASOP • Only o ne Ac tua ria l Me tho d 74 37

4/12/2018 • Ne t OPE B L ia b ility (75) vs. Ne t OPE B Ob lig a tio n (45) • T ruste d Pla ns vs. No n-T ruste d Pla ns • De fe rra ls Ca lc ula te d • Co ntrib utio ns a fte r the me a sure me nt da te • Spe c ia l F unding situa tio ns • E tc . • Co st Sha ring Pla ns inc lude d • No te s to F ina nc ia l Sta te me nts (e .g . Se nsitivity Ana lysis) • RSI 75 • E nsure tha t yo ur individua l pa yro ll re c o rds a re c o mple te a nd up to da te : • Hire a ve ry g o o d Ac tua ry • Ma ke sure the c e nsus da ta yo u pre se nt to the Ac tua ry a g re e s with yo ur e mplo ye e re c o rds • Audito rs a nd the Ac tua ry will ne e d to kno w ho w ma ny a re a c tive a nd ho w ma ny a re ina c tive • E sta b lish I nte rna l Co ntro ls o ve r the c e nsus da ta a c c umula tio n pro c e ss • Co rre c t na me a nd ide ntific a tio n suc h a s so c ia l se c urity numb e r • Co rre c t b irth da te • Ma le o r F e ma le liste d in the re c o rd • Da te o f hire a nd da te o f te rmina tio n 76 38

4/12/2018 • Be pre pa re d to b e ha ssle d b y yo ur Audito rs! 77 So What Should I Be Doing? • Ac c o unting : • T he b e g inning GASB 45 Ne t OPE B Ob lig a tio n will b e re ve rse d o ff the b o o ks a nd a ne w GASB 75 Ne t Pe nsio n L ia b ility will b e c a lc ula te d a nd re c o rde d. • T his will b e a “re sta te me nt” o f b e g inning ne t po sitio n. I t is a o ne time “hit” to yo ur fina nc ia l sta te me nts. 78 39

4/12/2018 Othe r Guida nc e I mple me nta tio n Guide No . 2017-2, F ina nc ia l Re po rting fo r Po ste mplo yme nt Be ne fit Pla ns Othe r T ha n Pe nsio n Pla ns T hought Que stion? • I s it mo re diffic ult to e stima te pe nsio n b e ne fits into the future , o r • Mo re diffic ult to e stima te he a lthc a re c o sts into the future ? 80 40

4/12/2018 Que stio ns! 81 Je rry E . Durha m, CPA, CGF M, CF E 41

4/12/2018 Ne w Sta te me nts E ffe c tive 2018 o r L a te r I rre vo c a b le Split-I nte re st Ag re e me nts - 2018 81 42

4/12/2018 I rre vo c a b le Split-I nte re sts • Pr ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts: • E xposur e Dr aft Issue d June 2015 • GASB 81 Issue d Mar c h 2016 • E ffe c tive for Pe r iods be ginning afte r 12/ 15/ 2016 (i.e . c ale ndar ye ar 2017, fisc al ye ar 2018) • De finition of Ir r e voc able Split- Inte r e sts: • A split-inte r e st agr e e me nt in whic h the donor has not r e se r ve d, or c onfe r r e d to anothe r pe r son, the r ight to te r minate the agr e e me nt at will and have the donate d asse ts r e tur ne d to the donor or thir d par ty. 85 I rre vo c a b le Split-I nte re sts • Pr ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts: • Ir r e voc able split-inte r e st agr e e me nts ar e a spe c ific type of giving ar r ange me nt use d by donor s to pr ovide r e sour c e s to two or mor e be ne fic iar ie s, inc luding gove r nme nts. E xample s inc lude c har itable le ad tr usts, c har itable r e mainde r tr usts, c har itable annuity gifts, and life -inte r e sts in r e al e state . 86 43

4/12/2018 I rre vo c a b le Split-I nte re sts • Pr ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts: • Sinc e the r e ar e diffe r e nt type s of agr e e me nts, a de te r mination has to be made about the type . • Whe n doe s the inte r e st be gin and te r minate ? • Is the Gove r nme nt the inte r me diar y or is the inte r me diar y a thir d par ty? • If the donation is c apital pr ope r ty (e .g. land), how do I plan to use the pr ope r ty? Capital Asse t or Inve stme nt. • Will I use fair value or ac quisition value ? 87 I rre vo c a b le Split-I nte re sts • Pr ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts: • Sinc e the r e ar e diffe r e nt type s of agr e e me nts, a de te r mination has to be made about the type (c ont’d). • Do you have the le ad inte r e st or the r e mainde r inte r e st? • If the gove r nme nt is the Inte r me diar y and has a r e mainde r inte r e st nor mally de bit an asse t, c r e dit a liability for the le ad inte r e st, and c r e dit a de fe r r e d inflow for the diffe r e nc e (i.e . the gove r nme nt’s r e mainde r inte r e st). 88 44

4/12/2018 I rre vo c a b le Split-I nte re sts • Pr ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts: • Sinc e the r e ar e diffe r e nt type s of agr e e me nts, a de te r mination has to be made about the type (c ont’d). • If the gove r nme nt is the Inte r me diar y and has a le ad inte r e st nor mally de bit an asse t, c r e dit a liability for the r e mainde r inte r e st, and c r e dit a de fe r r e d inflow for the diffe r e nc e (i.e . the gove r nme nt’s le ad inte r e st). 89 I rre vo c a b le Split-I nte re sts • Pr ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts: • Sinc e the r e ar e diffe r e nt type s of agr e e me nts, a de te r mination has to be made about the type (c ont’d). • If a thir d par ty is the Inte r me diar y and the gove r nme nt has a be ne fic ial inte r e st, nor mally de bit an asse t and c r e dit a de fe r r e d inflow whe n the gove r nme nt be c ome s awar e of the agr e e me nt and has suffic ie nt infor mation to me asur e the be ne fic ial inte r e st. 90 45

4/12/2018 I rre vo c a b le Split-I nte re sts • Pr ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts: • If a third party is the Inte rme diar y and the gove r nme nt has a be ne fic ial inte r e st, what is suffic ie nt infor mation: • Gove r nme nt is spe c ifie d by name • Gove r nme nt has an unc onditional be ne fic ial inte r e st • T he donation agr e e me nt is ir r e voc able • T he donor has not gr ante d var ianc e powe r to the inte r me diar y with r e gar d to the donate d r e sour c e s • T he inte r me diar y is not unde r the c ontr ol of the donor • T he gove r nme nt’s ability to assign its be ne fic ial inte r e st is not subje c t to appr oval of the inte r me diar y • T he gove r nme nt’s atte mpt to assign its be ne fic ial inte r e st doe s not invalidate the gove r nme nt’s be ne fic ial inte r e st and the r e by te r minate the agr e e me nt 91 I rre vo c a b le Split-I nte re sts • Pr ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts: • F ASB State me nt 136 T r ansfe r s of Asse ts to a Not-for - Pr ofit Or ganization or Char itable T r ust T hat R aise s or Holds Contr ibutions for Othe r s, r e quir e s the r e sour c e s he ld in an ir r e voc able tr ust as asse ts and c ontr ibutions into the tr ust to be r e c or de d as asse ts and the c ontr ibutions into the tr ust as r e ve nue s of the be ne fic iar y gove r nme nt (Par a 15). 92 46

4/12/2018 I rre vo c a b le Split-I nte re sts • Pr ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts: • Obviously, the r e ar e many var iations of the sc e nar ios we have looke d at that r e quir e diffe r e nt e ntr ie s and c alc ulations. • T he state me nt doe s not me ntion disc losur e r e quir e me nts! 93 Ce rta in Asse t Re tire me nt Ob lig a tio ns - 2019 47

4/12/2018 ARO • Ce r tain Asse t Re tir e me nt Obligations (ARO): • E xposur e Dr aft Issue d De c e mbe r 7, 2015 • State me nt 83 Issue d Nove mbe r 2016 • E ffe c tive for pe r iods be ginning afte r June 15, 2018 • F ASB State me nt 143, Ac c ounting for Asse t Re tir e me nt Obligations (2001) has be e n followe d. • Should c osts be c apitalize d, what should be disc lose d? 95 ARO • Asse t r e tir e me nt obligation —A le gal obligation assoc iate d with the r e tir e me nt of a c apital asse t, the unavoidable c osts of r e tir ing an asse t • R e tir e me nt of a tangible c apital asse t — T he othe r-than- te mpora r y r e moval of a c apita l a sse t fr om se r vic e (suc h a s fr om sale , abandonme nt, r e c yc ling, or disposal) • Inc lude s: • Nuc le ar powe r plant de c ommissioning • Coal ash pond c losur e (those that ar e not landfills) • Contr ac tually r e quir e d land r e stor ation suc h as re moval of wind tur bine s • Se wage T r e atme nt F ac ilitie s • Othe r similar obligations • But not the pollutions the y c ause ! • E xc lude s: • L andfills (GASB 18), Howe ve r this is the most c ommon ARO • Pollution r e me diation obligations fr om abnor mal ope r ation (GASB 49) • Conditional obligations to pe rfor m asse t re tir e me nt ac tivitie s, suc h as most asbe stos re moval 96 48

4/12/2018 ARO • Asse t Re tir e me nt Obligations (ARO): • L e gally e nfor c e able liability • Inte r nal obligating e ve nt • Assoc iate d with a tangible c apital asse t • Re c ognize a liability whe n inc ur r e d and r e asonably e stimable • Use pr obability we ighing of all pote ntial outc ome s or if this is not available at a r e asonable c ost, the n use most like ly amount • Re c or d a de fe r r e d outflow = to liability • Re me asur e the liability for e ffe c ts of inflation and de flation annually and othe r r e le vant fac tor s. Book if signific ant • Spe c ial r e c ognition for minor ity inte r e sts c alc ulate d unde r othe r than GASB GAAP 97 ARO • Asse t Re tir e me nt Obligations (ARO) - Disc losur e s: • Disc lose funding r e quir e me nts and amounts ac c umulate d and r e str ic te d for payme nt of the liability • Natur e of gove r nme nt’s AROs • Me thods and assumptions use d for e stimate s of liabilitie s • E stimate d r e maining use ful life of assoc iate d tangible asse ts • Disc lose the fa c t and re asons why a liability is not re asonably e stimable • Similar disc losur e s for minor ity inte r e sts 98 49

4/12/2018 ARO F iduc ia ry Ac tivitie s - 2020 84 50

4/12/2018 F iduc ia ry Ac tivitie s • Sta te me nt No . 14, T he F inanc ial Re po rting E ntity , Pa ra g ra ph 19 • I nc lude “if the prima ry g o ve rnme nt ha s a fiduc ia ry re spo nsib ility fo r the m” • Sta te me nt No . 61, T he F inanc ial Re po rting E ntity: Omnibus • F iduc ia ry a c tivitie s b ro a de r tha n re po rting e ntity c o nside ra tio ns –so no t a ddre sse d • E xisting sta nda rds • F iduc ia ry re spo nsib ilitie s no t de fine d • I nc o nsiste nt a pplic a tio n • Busine ss-type a c tivitie s • Go ve rnme nta l Ac c o unting Sta nda rds Adviso ry Co unc il (GASAC) • Hig h prio rity to a ddre ss fiduc ia ry a c tivitie s 101 F iduc ia ry Ac tivitie s • April 2010 –a dde d to Pre -Ag e nda Re se a rc h • Re vie w c urre nt pra c tic e s • Co nduc t surve y o f use rs • Aug ust 2013 –a dde d pro je c t to Curre nt T e c hnic a l Ag e nda • No ve mb e r 2014 –issue d Pre limina ry Vie ws • 36 Re spo nse s • 3 Pub lic he a ring s –18 o rg a niza tio ns a nd individua ls te stifie d • F ie ld te sts c o nduc te d • De c e mb e r2015 –issue d E xpo sure Dra ft • 37 Re spo nse s • Pub lic he a ring –13 o rg a niza tio ns a nd individua ls te stifie d • Oc to b e r2016 –c o nduc te d we b ina ro n te nta tive re visio ns • Ja nua ry 2017 –issue d Sta te me nt No . 84 • E ffe c tive Date , Cale ndar Ye ar 2019, F isc al Ye ar E nde d June 30, 2020 102 51

4/12/2018 F iduc ia ry Ac tivitie s • I mpro ve g uida nc e re g a rding the ide ntific a tio n o f fiduc ia ry a c tivitie s fo r a c c o unting a nd fina nc ia l re po rting • F o c us is o n: • (1) whe the r a g o ve rnme nt is c o ntro lling the a sse ts, a nd • (2) the b e ne fic ia rie s with who m the re la tio nship e xists • Se pa ra te c rite ria fo r fiduc ia ry c o mpo ne nt units a nd po ste mplo yme nt b e ne fit a rra ng e me nts tha t a re fiduc ia ry a c tivitie s • 4 fiduc ia ry funds tha t sho uld b e re po rte d: • Po ste mplo yme nt trust funds • I nve stme nt trust funds • Priva te -purpo se trust funds • Custo dia l funds 103 F iduc ia ry Ac tivitie s • Ob je c tive : • I mpro ve c o nsiste nc y a nd c o mpa ra b ility o f fiduc ia ry a c tivitie s re po rting • I nc re a se use fulne ss o f fiduc ia ry a c tivity info rma tio n fo r a sse ssing a g o ve rnme nt’ s a c c o unta b ility in its ro le a s a fiduc ia ry • Applie s to a ll sta te a nd lo c a l g o ve rnme nts 104 52

4/12/2018 F iduc ia ry Ac tivitie s • De fine s a nd c la rifie s fiduc ia ry a c tivitie s • I ntro duc e s “c usto dia l” funds, e limina te s a g e nc y funds 105 F iduc ia ry Ac tivitie s • F o ur pa ths to ma king this de te rmina tio n: • Co mpo ne nt units tha t pro vide po ste mplo yme nt b e ne fits • Co mpo ne nt units tha t do no t pro vide po ste mplo yme nt b e ne fits • Po ste mplo yme nt b e ne fit a rra ng e me nts tha t a re no t c o mpo ne nt units • All o the r a c tivitie s 53

4/12/2018 F iduc ia ry Ac tivitie s • Prima ry g o ve rnme nts (PG) a nd/ o r c o mpo ne nt units (CU) ma y ha ve fiduc ia ry a c tivitie s • Sta nd a rd g ive s spe c ific g uid a nc e to d e te rmine if a n a c tivity is a fiduc ia ry a c tivity • Pa ra g ra phs 6-9: Co mpo ne nt units (fiduc ia ry c o mpo ne nt units) • Pa ra g ra phs 10-11: Othe r a c tivitie s 107 • Still lo o k to c rite ria o f GASB 14, a s a me nde d, fo r CU d e te rmina tio n • L e g a l o r a ssume d o b lig a tio n to ma ke c o ntrib utio ns to le g a lly se pa ra te pe nsio n a nd OPE B pla ns is c o nside re d a fina nc ia l b urde n • Co ntro l o f CU a sse ts b y PG is no t a c o nside ra tio n whe n de te rmining if CU is fiduc ia ry c o mpo ne nt unit 108 54

4/12/2018 • F iduc ia ry a c tivity if a ny o ne o f the fo llo wing : • Pe nsio n pla n a dministe re d thro ug h a trust tha t me e ts c rite ria o f pa ra . 3 o f GASB 67 • OPE B pla n a dministe re d thro ug h a trust tha t me e ts c rite ria o f pa ra . 3 o f GASB 74 • Asse ts fro m e ntitie s o utside re po rting e ntity a c c umula te d fo r pe nsio ns (pa ra . 116 o f GASB 73 - i.e . No t in a trust). • Asse ts fro m e ntitie s o utside re po rting e ntity a c c umula te d fo r OPE B (pa ra . 59 o f GASB 74 – i.e . No t in a trust) 109 • I f CU b ut not pe nsio n/ OPE B a rra ng e me nt a s pre vio usly de sc rib e d, CU is fiduc ia ry a c tivity if re la te d a sse ts a re a ny o ne o f fo llo wing : • 1) a ) a dministe re d thro ug h a trust a g re e me nt a nd the g o ve rnme nt is no t a b e ne fic ia ry, b ) de dic a te d to pro viding b e ne fits a s pe r b e ne fit te rms, AND c ) le g a lly pro te c te d fro m c re dito rs o f the g o ve rnme nt; or • 2) fo r the b e ne fit o f individua ls a nd no a dministra tive invo lve me nt o r dire c t fina nc ia l invo lve me nt b y g o ve rnme nt a nd a sse ts a re no t fro m the g o ve rnme nt pro viding g o o ds o r se rvic e s; or 110 55

4/12/2018 • I f CU b ut no t pe nsio n/ OPE B a rra ng e me nt, CU is fiduc ia ry a c tivity if re la te d a sse ts a re a ny o ne o f fo llo wing (c o ntinue d): or • 3) fo r the b e ne fit o f o rg a niza tio ns o r o the r g o ve rnme nts o utside the re po rting e ntity a nd a sse ts a re no t de rive d fro m the g o ve rnme nt pro viding g o o ds o r se rvic e s to tho se o rg a niza tio ns 111 • F o o tno te 1 - Whe n do e s a g o ve rnme nt ha ve a dministra tive c o ntro l o r dire c t fina nc ia l invo lve me nt? • E xa mple s o f a dministra tive invo lve me nt: • I f it mo nito rs c o mplia nc e with the re q uire me nts o f the a c tivity tha t a re e sta b lishe d b y the g o ve rnme nt o r b y a re so urc e pro vide r tha t do e s no t re c e ive the dire c t b e ne fits o f the a c tivity • I f it de te rmine s e lig ib le e xpe nditure s tha t a re e sta b lishe d b y the g o ve rnme nt o r b y a re so urc e pro vide r tha t do e s no t re c e ive the dire c t b e ne fits o f the a c tivity • I f it ha s the a b ility to e xe rc ise disc re tio n in ho w a sse ts a re a llo c a te d • E xa mple o f dire c t fina nc ia l invo lve me nt: • I f it pro vide s ma tc hing re so urc e s fo r the a c tivitie s 56

4/12/2018 • Go ve rnme nt c o ntro ls the a sse ts o f a n a c tivity if tha t g o ve rnme nt: • Ho lds the a sse ts • Ha s the a b ility to dire c t the use , e xc ha ng e o r e mplo yme nt o f the a sse ts • Re stric tio ns do no t ne g a te a g o ve rnme nt’ s c o ntro l 113 • I f not CU, pe nsio n a nd OPE B a rra ng e me nts a re fiduc ia ry a c tivitie s if the g o ve rnme nt c o ntro ls: • Pe nsio n pla n a dministe re d thro ug h a trust tha t me e ts c rite ria o f pa ra . 3 o f GASB 67 • OPE B pla n a dministe re d thro ug h a trust tha t me e ts c rite ria o f pa ra . 3 o f GASB 74 • Asse ts fro m e ntitie s o utside o f re po rting e ntity a c c umula te d fo r pe nsio ns (pa ra . 116 o f GASB 73) • Asse ts fro m e ntitie s o utside o f re po rting e ntity a c c umula te d fo r OPE B (pa ra . 59 o f GASB 74) 114 57

4/12/2018 T ypic a l Go ve rnme nt T ypic a l Addre ss T ypic a l Zip Co de T ypic a l T rust Co mpa ny T ypic a l Addre ss T ypic a l Zip Co de 58

4/12/2018 • Othe r a c tivitie s a re c o nside re d fiduc ia ry a c tivitie s if AL o f L the fo llo wing a re me t: • Go ve rnme nt c o ntro ls the a sse ts; and • Asse ts o f the a c tivity a re not : • De rive d so le ly fro m the g o ve rnme nt’ s o wn-so urc e re ve nue , or • F ro m g o ve rnme nt-ma nda te d no ne xc ha ng e o r vo lunta ry no ne xc ha ng e tra nsa c tio ns, E XCE PT fo r pa ss-thro ug h g ra nts fo r whic h the re is no a dministra tive o r dire c t fina nc ia l invo lve me nt fro m the g o ve rnme nt; and 118 59

4/12/2018 • T he a sse ts a sso c ia te d with the a c tivity ha ve o ne o r mo re o f the fo llo wing c ha ra c te ristic s: • (a ) a re a dministe re d thro ug h a trust a g re e me nt a nd the g o ve rnme nt is no t a b e ne fic ia ry, AND (b ) a re de dic a te d to pro viding b e ne fits to re c ipie nts a s pe r b e ne fit te rms, AND (c ) a re le g a lly pro te c te d fro m c re dito rs o f the g o ve rnme nt; or • a re fo r the b e ne fit o f individua ls a nd the g o ve rnme nt do e s no t ha ve a dministra tive invo lve me nt o r dire c t fina nc ia l invo lve me nt with the a sse ts a nd the a sse ts a re no t de rive d fro m the g o ve rnme nt pro viding g o o ds o r se rvic e s. 119 • F o o tno te 2: F o r purpo se s o f this pro visio n, the de sc riptio ns o f a dministra tive invo lve me nt a nd dire c t fina nc ia l invo lve me nt o f a g o ve rnme nt tha t is a re c ipie nt o f a pa ss-thro ug h g ra nt pro vide d in pa ra g ra ph 5 o f Sta te me nt 24 sho uld b e a pplie d. • T ha t pa ra g ra ph sta te s, “A re c ipie nt g o ve rnme nt ha s a dministra tive invo lve me nt if, fo r e xa mple , it • (a ) mo nito rs se c o nda ry re c ipie nts fo r c o mplia nc e with pro g ra m-spe c ific re q uire me nts, • (b ) de te rmine s e lig ib le se c o nda ry re c ipie nts o r pro je c ts, e ve n if using g ra nto r-e sta b lishe d c rite ria , o r • (c ) ha s the a b ility to e xe rc ise disc re tio n in ho w the funds a re a llo c a te d. A re c ipie nt g o ve rnme nt ha s dire c t fina nc ia l invo lve me nt if, fo r e xa mple , it fina nc e s so me dire c t pro g ra m c o sts b e c a use o f a g ra nto r-impo se d ma tc hing re q uire me nt o r is lia b le fo r disa llo we d c o sts.” 120 60

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4/12/2018 Own-So urc e Re ve nue s • Ge ne ra te d b y a g o ve rnme nt itse lf • I nc lude s: • E xc ha ng e a nd e xc ha ng e -like re ve nue s • I nve stme nt e a rning s • De rive d ta x re ve nue s • I mpo se d no ne xc ha ng e re ve nue s 123 F iduc ia ry Ac tivitie s – T ype • F o ur fiduc ia ry fund type s - • Pe nsio n (a nd o the r e mplo ye e b e ne fit; OPE B) trust funds • Pe nsio ns/ OPE B a dministe re d thro ug h trusts tha t me e t the c rite ria o f pa ra . 3 o f GASB 67 o r GASB 74 • Othe r e mplo ye e b e ne fit pla ns fo r whic h re so urc e s a re he ld in a trust tha t me e ts the c rite ria o f pa ra . 11c (1) a nd (2) o f GASB 84 a nd the c o ntrib utio ns a nd re la te d e a rning s a re irre vo c a b le • I nve stme nt trust funds • E xte rna l po rtio n o f inve stme nt po o ls a nd individua l inve stme nt a c c o unts a re he ld in a trust tha t me e ts the c rite ria o f pa ra . 11c (1) 124 62

4/12/2018 F iduc ia ry Ac tivitie s – T ype • F o ur fiduc ia ry fund type s (c o ntinue d) - • Priva te purpo se trust funds • Ac tivitie s tha t a re no t re q uire d to b e he ld in a pe nsio n/ OPE B trust b ut a re he ld in a trust tha t me e ts the c rite ria o f pa ra . 11c (1) • Custo dia l funds • No t re q uire d to b e re po rte d in a ny o f the o the r 3 type s o f trust funds • E xte rna l po rtio n o f inve stme nt po o ls no t he ld in trust, re po rt in se pa ra te c o lumn unde r c usto dia l funds c la ssific a tio n • So me fle xib ility in re po rting g ive n to b usine ss-type a c tivitie s • E limina te s e xisting a g e nc y fund type • Will re q uire e xa mina tio n o f c urre nt a g e nc y funds 125 F iduc ia ry Ac tivitie s • Sta nda lo ne b usine ss type a c tivitie s: • A sta nd a lo ne BT A’ s fiduc ia ry a c tivitie s sho uld b e re po rte d in se pa ra te fiduc ia ry fund fina nc ia l sta te me nts. • Re so urc e s e xpe c te d to b e he ld 3 mo nths o r le ss c a n b e re po rte d inste a d in the sta te me nt o f ne t po sitio n, with inflo ws a nd o utflo ws re po rte d a s o pe ra ting c a sh flo ws in the sta te me nt o f c a sh flo ws 63

4/12/2018 GASB Go ve rnme nts Overview of Reporting Units and Opinion Units FOR DISCUSSION PURPOSES ONLY ---------------------------------------------------------------------------------------Basic Financial Statements------------------------------------------------------------------------------------ Financial -- Statements Government-wide Financial Statements Fund Financial Statements Fund Governmental Funds Proprietary Funds Fiduciary Funds Categories Pension (and Aggregate Aggregate Internal Private- Business- Each Major Each Major Other Investment Reporting Governmental Discretely Presented Nonmajor Nonmajor Service Purpose Agency type Governmenta Enterprise Employee Trust Units Activities Component Units Governmental Enterprise Fund Trust Funds Activities l Fund Fund Benefit) Funds Funds Funds Type Funds Trust Funds Separate Separate Separate unit Separate unit unit for unit for each each Opinion Units Aggregate all as single "Remaining fund information": Aggregate all as a single unit unit Option to combine 127 • GASB 84 • Me mo writte n to CPA’ s da te d Oc to b e r 2016. • Pro po se d So lutio n – Pe nsio n a nd OPE B T rust F unds: • T he Divisio n b e lie ve s c urre nt sta nda rds supp o rt the re po rting o f a fiduc ia ry fund in the situa tio ns disc usse d a b o ve a nd we ma y q ue stio n a n e ntity’ s fina nc ia l sta te me nt pre se nta tio n a nd a CPA’ s a udit re spo nse in c e rta in o b vio us situa tio ns. Ho we ve r, the Divisio n will c o ntinue to a llo w disc re tio n whe n ma king de te rmina tio ns a b o ut fiduc ia ry re spo nsib ility a nd fina nc ia l sta te me nt pre se nta tio n a s it re la te s to Pe nsio n a nd OPE B T rust F unds until the e ffe c tive da te o f the E xpo sure Dra ft. Our o ffic e will no t re q uire fina nc ia l sta te me nts to b e re sta te d a nd re sub mitte d until the F iduc ia ry Ac tivitie s E xpo sure Dra ft is fina lize d into a n Ac c o unting Sta nda rd a nd tha t Sta nda rd b e c o me s e ffe c tive . • E ffe c tive Da te (Ca le nda r Ye a r 2019, F isc a l Ye a r July 1, 2019 to June 30, 2020, E a rlie r Applic a tio n E nc o ura g e d. 128 64

4/12/2018 Omnib us - 2018 85 De finitio n • a b us. • a vo lume c o nta ining se ve ra l no ve ls o r o the r ite ms pre vio usly pub lishe d se pa ra te ly. • "a n o mnib us o f he r first trilo g y“ • c o mprising se ve ra l ite ms. • "Co ng re ss pa sse d a n o mnib us b udg e t pa c ka g e " • e a rly 19th c e ntury: via F re nc h fro m L a tin, lite ra lly ‘ fo r a ll,’ • Omni me a ns - a ll; o f a ll thing s. • "o mnisc ie nt" 65

4/12/2018 Omnib us 2017 • State me nt 85 Issue d Mar c h 2017 • E ffe c tive Date , July 1, 2017 to June 30, 2018 131 Omnib us • Matte r s to be Conside r e d: • Clar ific ation to State me nt 14 for single c olumn busine ss type ac tivitie s • Clar ific ation to State me nt 69 about pr ospe c tive r e c lassific ation of Goodwill • Contr adic tion of Re al E state Valuation be twe e n GASB State me nts 48 and 62 vs. GASB State me nt 72. Use 72 de finitions. 132 66

4/12/2018 Omnib us • Matte r s to be Conside r e d: • T he use of the wor d “should” in Par agr aph 69c of GASB State me nt 72, implie s that use of the “Amor tize d Cost” me thod is “r e quir e d” r athe r than allowe d. (May was use d in GASB State me nt 31 Par agr aph 9) • How to c onside r on-be half payme nts that ar e le gally r e quir e d afte r imple me ntation GASB 68, 73, and 75. 133 Omnib us • Matte r s to be Conside r e d: • T o pr ovide the e xc e ption for OPE B e mploye r s similar to those pr ovide d to e mploye r s unde r GASB 78 (i.e . non-gove r nme ntal c ost shar ing pe nsion plans) • T o addr e ss the issue of c ove r e d-e mploye e payr oll vs. c ove r e d payr oll for OPE B. • E mploye r payme nts made to satisfy me mbe r c ontr ibution r e quir e me nts unde r OPE B. (i.e . like GASB State me nt 82 for pe nsions). 134 67

4/12/2018 Ce rta in De b t E xting uishme nts - 2018 86 Ce rta in De b t E xting uishme nt I ssue s • I n Aug ust 2016, the Bo a rd issue d a n E xpo sure Dra ft pro po sing g uida nc e fo r c e rta in issue s re la te d to de b t e xting uishme nts • Re se a rc h fo und tha t Sta te me nts 7 a nd 23 o n de b t re funding s a nd Sta te me nt 62 o n de b t e xting uishme nts a re wo rking e ffe c tive ly, b ut tha t c e rta in issue s ne e d to b e a ddre sse d • Sta te me nt 86 wa s issue d in Ma y 2017 • E ffe c tive da te wo uld b e pe rio ds b e g inning a fte r June 15, 2017, i.e . July 1, 2017 to June 30, 2018 68

4/12/2018 Ce rta in De b t E xting uishme nt I ssue s • I n-sub sta nc e de fe a sa nc e using o nly e xisting re so urc e s • De b t c o nside re d de fe a se d in sub sta nc e (like re funding s) whe n o nly e xisting re so urc e s a re pla c e d in trust, if trust re stric te d to o nly e sse ntia lly risk-fre e mo ne ta ry a sse ts (like fo r re funding s) • Wo uld re c o g nize the diffe re nc e b e twe e n the ne t c a rrying a mo unt o f the de b t a nd the re a c q uisitio n pric e a s a g a in o r lo ss in the pe rio d o f de fe a sa nc e ( unlike re funding s) • No te s to the fina nc ia l sta te me nts: • Wo uld de sc rib e the tra nsa c tio n in the pe rio d it o c c urs (like re funding s) • Wo uld disc lo se re ma ining o utsta nding b a la nc e in e a c h pe rio d the de fe a se d de b t re ma ins o utsta nding (ma y c o mb ine with re funde d a mo unt) Ce rta in De b t E xting uishme nt I ssue s • Pre pa id insura nc e fo r all de b t e xting uishme nts: • At the time de b t is e xting uishe d/ de fe a se d, a ny re la te d pre pa id insura nc e tha t re ma ins wo uld b e inc lude d in the ne t c a rrying a mo unt o f the de b t fo r the purpo se o f c a lc ula ting the diffe re nc e b e twe e n its re a c q uisitio n pric e a nd ne t c a rrying a mo unt 69

4/12/2018 Ce rta in De b t E xting uishme nt I ssue s • Ne w no te to fina nc ia l sta te me nts fo r all in-sub sta nc e de fe a sa nc e s (using o nly e xisting re so urc e s and re funding s) • I f sub stitutio n o f the e sse ntia lly risk-fre e mo ne ta ry a sse ts in e sc ro w with mo ne ta ry a sse ts tha t a re no t e sse ntia lly risk-fre e is no t pro hib ite d, a g o ve rnme nt wo uld disc lo se in the no te s to the fina nc ia l sta te me nts: • I n the pe rio d o f the de fe a sa nc e : the fa c t tha t sub stitutio n is no t pro hib ite d • I n sub se q ue nt pe rio ds: the a mo unt o f de b t de fe a se d in sub sta nc e tha t re ma ins o utsta nding fo r whic h tha t risk o f sub stitutio n e xists • E ffe c tive da te wo uld b e pe rio ds b e g inning a fte r June 15, 2017, i.e . July 1, 2017 to June 30, 2018 L e a se s - 2021 87 70

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4/12/2018 L e a se s - L e sse e • L e ase s: • PV issue d Nove mbe r 2014 • E xposur e Dr aft Issue d Januar y 25, 2016 • F inal Standar d E xpe c te d May 2017 • Pr opose d E ffe c tive Date , Cale ndar 2019 or F isc al Ye ar E nde d June 30, 2020 • Conve r ge with F ASB and Inte r national Standar ds • F ASB still has a dual appr oac h • GASB and Inte r national Standar ds ar e using a single appr oac h 143 L e a se s - L e sse e • L e ase s: • F oundational Pr inc iple – All le ase s ar e financ ings of the r ight to use an unde r lying asse t • De finition of a le ase – A c ontr ac t that c onve ys the r ight to use a nonfinanc ial asse t for a pe r iod of time in an e xc hange or e xc hange -like tr ansac tion • If owne r ship tr ansfe r s, the n a sale not a le ase 144 72

4/12/2018 L e a se s - L e sse e • L e ase s: • T he de finitions ar e inte nde d to inc lude what we c ur r e ntly c all “Ope r ating” le ase s. • “Capitalize d” L e ase s (c ur r e nt guidanc e ) will not be ac c ounte d for unde r le ase s guidanc e , but would be c onside r e d a “pur c hase ” that was financ e d. • Ope r ating le ase s would be r e c or de d as a liability and an “intangible ” asse t e xc e pt for Shor t- te rm le ase s. • In gove rnme ntal funds, also r e c or d an “othe r financ ing sour c e ” and “c apital outlay e xpe nditur e ”. 145 L e a se s - L e sse e • L e ase s: • Shor t- te r m L e ase • A le ase that at its be ginning has a maximum possible te r m unde r the c ontr ac t of 12 months or le ss • 12 months inc lude s options to e xte nd • Re c or d the shor t-te r m le ase tr ansac tion like an ope r ating le ase unde r old standar d • De bit E xpe nse s/ E xpe nditur e s • Cr e dit Cash 146 73

4/12/2018 L e a se s - L e sse e L e a se s - L e sse e Ove r one Ye ar ?? 74

4/12/2018 L e a se s - L e sse e • L e ase s - Me asur e me nt: • L iability • Re c ognize a le ase liability at the be ginning of a le ase (unle ss shor t te r m) • Use the pr e se nt value of c e r tain payme nts to be made ove r the le ase te r m • Asse t • Re c ognize an intangible asse t for the r ight to use the c apital asse t • Value of le ase liability plus payme nts to le ssor at or be for e the le ase be gins • Initial dir e c t c ost ne c e ssar y to plac e the asse t into se r vic e 149 L e a se s - L e sse e • L e ase s: • Also r e c ognize Inte r e st e xpe nse / e xpe nditur e on the le ase liability • Re c ognize amor tization e xpe nse for the asse t • Shor te r of the L e ase T e r m, or • Use ful L ife of the Unde r lying Asse t 150 75

4/12/2018 Sta te me nt o f Ne t Po sitio n - L e sse e L e a se s - L e sse e • L e ase s: • L e ase T e r m: • Pe r iod dur ing whic h a le sse e has a nonc anc e llable r ight to use a n unde r lying asse t (the nonc anc e llable pe r iod) plus • T he le sse e ’s optional e xte nsion (if applic able ) of the le ase whe n e xe r c ise of that option is r e asonably c e r tain, or • T he le sse e ’s option to te r minate (if applic able ) the le ase whe n the e xe r c ise of that option is r e asonably c e r tain. • Inc lude s fisc al funding c lause s 152 76

4/12/2018 L e a se s - L e sse e • L e ase s: • E xc lude c e r tain tr ansac tions: • Contr ac ts that tr ansfe r owne r ship of the unde r lying asse t • T his would be c onside r e d a sale • L e ase s of intangible asse ts • Contr ac ts for e xplor ation/ e xploitation of non- r e ge ne r ative natur al r e sour c e s • L e ase s of biologic al asse ts, inc luding timbe r • Contr ac ts that me e t the de finition of a se r vic e c onc e ssion ar r ange me nt (GASB 60) 153 L e a se s - L e sse e • L e ase s - Disc losur e s: • De sc r iption of le ase agr e e me nt • Amount of le ase asse ts • Sc he dule of futur e le ase payme nts 154 77

4/12/2018 Summa ry I nitia l Re po rting ? Asse ts L iability De fe r r e d Inflow I nta ng ib le a sse t (rig ht to Pre se nt va lue o f NA L e sse e use unde rlying a sse t)— future le a se va lue o f le a se lia b ility plus pa yme nts (inc l. pre pa yme nts a nd initia l fixe d pa yme nts, dire c t c o sts tha t a re va ria b le a nc illa ry to pla c e a sse t in pa yme nts b a se d use o n inde x o r ra te , re a so na b ly c e rta in re sidua l g ua ra nte e s, e tc .) • L e a se re c e iva b le NA E q ua l to le a se L e ssor (g e ne ra lly inc luding re c e iva b le plus sa me ite ms a s le sse e a ny c a sh lia b ility) re c e ive d up fro nt • Co ntinue to re po rt tha t re la te s to a le a se d a sse t future pe rio d Summa ry Sub se q ue nt Re po rting ? Asse ts L iability De fe r r e d Inflow L e sse e Amo rtize o ve r sho rte r o f use ful life o r Re duc e b y NA le a se te rm le a se pa yme nts (le ss a mo unt o f inte re st e xpe nse ) • De pre c ia te le a se d a sse t (unle ss L e sso r NA Re c o g nize inde finite life o r re q uire d to b e re ve nue re turne d in its o rig ina l o r e nha nc e d o ve r the c o nditio n) le a se te rm • Re duc e re c e iva b le b y le a se o n a pa yme nts (le ss pa yme nt ne e de d to syste ma tic c o ve r a c c rue d inte re st) a nd ra tio na l b a sis 78

4/12/2018 L e a se s - L e sso r • L e ase s - Me asur e me nt: • Re c e ivable • Re c ognize a le ase r e c e ivable at the be ginning of the le ase te r m • Use the pr e se nt value of the le ase payme nts ove r the le ase te r m • De fe r r e d Inflow of Re sour c e s • Re c ognize a de fe r r e d inflow a t the be ginning of the le ase te r m • Use the pr e se nt value of the le ase payme nts ove r the le ase te r m plus payme nts r e c e ive d at or be for e the le ase be gins that r e late to futur e pe r iods • Asse t • Continue to r e por t the unde r lying asse t on L e ssor ’s books 158 79

4/12/2018 Sta te me nt o f Ne t Po sitio n - L e sso r L e a se s - L e sso r • L e ase s – Subse que nt Re por ting • L e ase Payme nts • Re duc tion of Re c e ivable • Inte r e st Inc ome • Re duc tion to De fe r r e d Inflows – Re ve nue • Ove r the te r m of the le ase , or • Ove r a syste matic and r ational manne r • Asse t • Continue to r e por t the unde r lying asse t on L e ssor ’s books • Continue to de pr e c iate the asse t 160 80

4/12/2018 L e a se s – L e sso r • L e ase s - Disc losur e s: • De sc r iption of le ase agr e e me nt • T otal Amount of le ase Re ve nue 161 81

4/12/2018 L e a se s - Ge ne ra l • L e ase s: • L e ase s with multiple c ompone nts • Se par ate the L e ase Compone nt fr om the Non-le ase Compone nt • Se par ate the unde r lying asse ts • May tr e at multiple le ase c ompone nts as a single le ase unit in some c ase s 163 L e a se s - Ge ne ra l • L e ase s: • Combining L e ase s with multiple c ontr ac ts • Cr ite r ia for c ombine d single c ontr ac t • E nte r e d into at or ne ar the same time • Same Counte r par ty • Ce r tain additional c r ite r ia me t • T he n e valuate as a c ontr ac t with multiple c ompone nts 164 82

4/12/2018 L e a se s - Ge ne ra l • L e ase s: • Ame ndme nts to le ase c ontr ac ts • Modific ations • If r ight to use is r e duc e d = par tial te r mination • Ac c ounting • L e sse e • Re me asur e the le ase liability • Adjust le ase asse t ac c or dingly • L e ssor • Re me asur e the le ase r e c e ivable • Adjust de fe r r e d inflow 165 L e a se s - Ge ne ra l • L e ase s: • T e r minations • L e sse e • Re duc e the le ase liability • Re duc e the le ase asse t • Diffe r e nc e = a gain or loss • L e ssor • Re duc e the le ase r e c e ivable • Re duc e the de fe r r e d inflow • Diffe r e nc e = gain or loss 166 83

4/12/2018 L e a se s - Ge ne ra l • L e ase s: • Suble ase s • L e sse e now be c ome s the le ssor • T wo se par ate le ase agr e e me nts e xist 167 L e a se s - Ge ne ra l • L e ase s: • Sale and L e ase bac k • Must inc lude a qualifying sale • Othe r wise the tr ansac tion is bor r owing • Se par ate tr e atme nt • Sale • L e ase bac k • Diffe r e nc e be twe e n c ar r ying value of the asse t sold and ne t pr oc e e ds = de fe r r e d inflow/ outflow of r e sour c e s • Amor tize the de fe r r e d amount ove r the te r m of the le ase bac k 168 84

4/12/2018 L e a se s - Ge ne ra l • L e ase s: • Summar y of Ke y Change s • No distinc tion be twe e n a Capital L e ase and Ope r ating L e ase • Distinguish be twe e n long-te r m and shor t-te r m le ase s • Use le ase ac c ounting only if owne r ship doe s not tr ansfe r othe r wise pr e se nt as F inanc ial Sale / Pur c hase of an Asse t • L e ase s r e por t intangible asse t for r ight to use unde r lying asse t, not the unde r lying asse t itse lf • L e ssor s c ontinue to r e por t the unde r lying c apital asse t and a le ase r e c e ivable • Se ve r al ne w Disc losur e s 169 L e a se s - Ge ne ra l 170 85

4/12/2018 L e a se s - Ge ne ra l 171 L e a se s - L e sse e 86

4/12/2018 L e a se s - L e sse e Ove r one Ye ar ?? • Co ming So o n to a Go ve rnme nt Ne a r Yo u! 87

4/12/2018 Que stio ns! 175 Apr il 16, 2018 176 88

4/12/2018 177 Audit Suc c e ss vs. F a ilure • E ve ry a udito r in this ro o m is o ne mista ke a wa y fro m a la wsuit, o r wo rse ye t, the lo ss o f re puta tio n tha t ma y no t b e re sto ra b le . • We a re no t re me mb e re d fo r o ur ma ny a udit suc c e sse s, we a re re me mb e re d fo r o ur fa ilure s. • Co mptro lle r’ s Po lic y a b o ut le g isla to rs. F ive minute rule . • Co mptro lle r’ s ne w “no ” F inding s Pro g ra m. 178 89

4/12/2018 L e t’ s b e Ho ne st • If you have n’t: • Had a disagr e e me nt with an audit c lie nt • Re c e ive d an angr y phone c all fr om a c lie nt • He ar d fr om a state le gislator about your findings or ac tions • Be e n e xpose d to r idic ule in the me dia • Had a lac k of c oope r ation fr om a c lie nt • Be e n attac ke d pe r sonally at some le ve l • Had a le ss than fr ie ndly e xit c onfe r e nc e • E tC. • T he n: • You pr obably have n’t be e n doing your job! 179 L e t’ s b e Ho ne st • If you have n’t: • Made an e r r or in judgme nt dur ing an audit • Ove r looke d an immate r ial fr aud dur ing an audit • L e ft out some thing in a le tte r or note s, e tc . • Misc alc ulate d a numbe r • F aile d to c atc h a mistake dur ing the supe r visor y r e vie w • F aile d to inc lude ade quate doc ume ntation whe n you did the wor k • Had numbe r s that faile d to ar tic ulate • E tc . • T he n: • You ar e not human, and • You pr obably have n’t be e n doing your job! 180 90

4/12/2018 L e t’ s b e Ho ne st • Its how you handle all the se things that is impor tant: • Did you follow the auditing standar ds? • Did you r e ac t in kind? • Did you make matte r s wor se ? • Did you le ar n anything? • Did you ge t additional tr aining? • Did you c or r e c t your mistake ? • Do you have a plan for addr e ssing the se type s of issue s? • How you de al with the se type s of issue s has a lot to do with the le ve l of pr ofe ssional r e spe c t your audit or ganization will r e c e ive . 181 182 91

4/12/2018 • Six Dime nsions of c lie nt se r vic e (aic pa – by bob ve r e s): • Se tting Cle ar e xpe c tations • Be ing r e sponsive to c lie nt r e que sts and me ssage s • Making inte r ac tions with c lie nts an e njoyable / Ple asant e xpe r ie nc e • Pr oviding High-quality pr ofe ssional advise and pr ofe ssional se r vic e • E xhibiting e xe mplar y c onduc t and c har ac te r in all busine ss inte r ac tions • Building a c lose , tr usting, wor king r e lationship with the c lie nt and visibly c ar ing about his/ he r we ll-be ing 183 Audit Se rvic e s – F ive Ove ra rc hing Princ iple s Ma ke Co mmunic a t inte ra c tio ns io n: K e e p with a udite e the a udite e T he a udit a s No n- E xhib it info rme d. Be o b je c tive s Pro vide hig h- c o nfro nta tio e xe mpla ry ho ne st. Be a nd q ua lity na l a nd No n- c o nduc t a nd re spo nsive to re spo nsib ilitie pro fe ssio na l de fe nsive a s c ha ra c te r in c lie nt s sho uld b e se rvic e . po ssib le (i.e . a ll a udit re q ue sts, c le a r. no t a n us inte ra c tio ns. q ue stio ns, a g a inst the m a nd a tmo sphe re ) me ssa g e s. . 184 92

4/12/2018 • T he audit obje c tive s and r e sponsibilitie s should be c le ar . • T his pro vide s c o ntro l o ve r a udit va ria b le s • Ma na g e s e xpe c ta tio ns • F irst ste p in Building trust • Pr ovide High-quality pr ofe ssional se r vic e . • Ac c o mplishe s the sta te d o b je c tive s • Builds trust • Communic ation: Ke e p the audite e infor me d. Be hone st. Be r e sponsive to c lie nt r e que sts, que stions, and me ssage s. • T his de mo nstra te s Co o pe ra tio n • Builds trust 185 • Make inte r ac tions with audite e as Non-c onfr ontational and Non-de fe nsive as possible (i.e . not an us against the m atmosphe r e ). • We a re o b je c tive a nd fa ir • Wha t Audite e s ha ve he a rd a nd think a b o ut a n a udit is no t true • Builds trust • E xhibit e xe mplar y c onduc t and c har ac te r in all audit inte r ac tions. • We a re the re a l de a l • We a re wo rthy o f yo ur trust 186 93

4/12/2018 • Wha t wa s the K e y e le me nt in ma na g ing e xpe c ta tio ns a nd impro ving c lie nt re la tio nships in the la st two slid e s? 187 L e t the m kno w yo u a re c o ming Me e t with c lie nts, a udit c o mmitte e s, inte rna l a udito rs – Who ? Be g o o d a t wha t yo u do - YB Pro vide tra ining Disc uss issue s e a rly 188 94

4/12/2018 Ope nne ss a nd ho ne sty Ne w a udito rs Re po rts, L e tte rs, finding s (impo rta nt o r pic ky) Sta te le g isla to rs No surprise s 189 Re spe c t the ir sc he dule s Pre pa re lists o f e xpe c ta tio ns o r do c ume nts Ma inta in inde pe nde nc e Dre ss a nd a c t pro fe ssio na lly No c a re le s missta ke s 190 95

4/12/2018 Answe r q ue stio ns – with a utho rity – no b luffs Be pe rso na b le b ut a vo id pe rso na l re la tio nships Do c ume nt a ll re le va nt c o mmunic a tio ns Do c ume nt fo r ne xt ye a r’ s a udito rs Re me mb e r na me s 191 Audit Se rvic e s – F ive Ove ra rc hing Princ iple s Ma ke Co mmunic a t inte ra c tio ns io n: K e e p with a udite e the a udite e T he a udit a s No n- E xhib it info rme d. Be o b je c tive s Pro vide hig h- c o nfro nta tio e xe mpla ry ho ne st. Be a nd q ua lity na l a nd No n- c o nduc t a nd re spo nsive to re spo nsib ilitie pro fe ssio na l de fe nsive a s c ha ra c te r in c lie nt s sho uld b e se rvic e . po ssib le (i.e . a ll a udit re q ue sts, c le a r. no t a n us inte ra c tio ns. q ue stio ns, a g a inst the m a nd a tmo sphe re ) me ssa g e s. . 192 96

4/12/2018 • Re spe c t the ir sc he dule s • L e t the m kno w yo u a re c o ming • Pre pa re lists o f • Me e t with c lie nts, a udit e xpe c ta tio ns o r do c ume nts c o mmitte e s, inte rna l a udito rs - Who • Ma inta in ind e pe nde nc e • Be g o o d a t wha t yo u do - • Dre ss/ Ac t pro fe ssio na lly YB • No c a re le s missta ke s • Pro vide tra ining • Answe r q ue stio ns with • Disc uss issue s e a rly a utho rity • Ope nne ss a nd ho ne sty • Be pe rso na b le a vo id • Ne w a udito rs re la tio nships • Do c ume nt a ll • Re po rts, L e tte rs, finding s 193 c o mmunic a tio ns What is the point: We know situations like the se ar e going to ar ise in almost e ve r y audit. Shouldn’t we know the answe r s be for e the audit be gins? 194 97

4/12/2018 • Othe r c onside r ations: • Ne ve r fig ht stupid b a ttle s. • T he re a re thre a ts to inde pe nde nc e o n e ve ry a udit. • T he g re a te st thre a ts to o ur inde pe nde nc e in a ppe a ra nc e a re : • pe rso na l re la tio nships • Gifts • Me ssa g e s, e spe c ia lly tho se tha t use unpro fe ssio na l, vulg a r, o r pro fa ne la ng ua g e • T he g re a te st thre a ts to o ur inde pe nde nc e in mind a re : • Bia s • F a milia rity • No na udit se rvic e s 195 • Othe r c onside r ations (c ont’d): • What is the most impor tant ingr e die nt in the audit pr oc e ss? • Pe ople . Auditor s must be able to e nc ounte r and manage pe ople (inc luding the mse lve s). • Auditor s ne e d to have e xc e ptional pe ople skills. (Do we pr ovide any tr aining in this ar e a?) • We walk a fine line be twe e n e mpathizing with our c lie nts and pe r for ming in ac c or danc e with standar ds. 196 98

4/12/2018 • E xc e ptional pe ople c alle d auditor s: • Auditor s must: • Have both vision and instinc t • Be able to se e the for e st for the tr e e s (big pic tur e amongst the tiny de tails) • Not make mountains out of mole hills • Have e xc e ptional pe ople skills while maintaining pr ofe ssional ske ptic ism • Have inte llige nc e , mingle d with c ommon se nse and the ability to make good de c isions • Be le ade r s who ar e se lf-motivate d • Have supe r ior c ommunic ation skills 197 • E xc e ptional pe ople c alle d auditor s (c ont’d): • Ne w Hir e s: T he inte r vie w pr oc e ss should in some way atte mpt to gage pe r sonality and c ommunic ation skills. 198 99

4/12/2018 Why a m I g e tting this finding ? • Ask yo urse lf, I f I we re in the c lie nt’ s sho e s, wo uld I unde rsta nd Why I wa s g e tting a pa rtic ula r finding ? • F o r e xa mple , Se g re g a tio n o f dutie s finding in a sma ll o ffic e • Unle ss the c lie nt unde rsta nds the why, the c lie nt will a ssume he / she is b e ing pic ke d o n o r b ullie d b y the g o ve rnme nt 199 200 100