Now, on to the main attr action! 4 2 1/23/2017 Je r r y is - - PDF document

1/23/2017 1

• 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 the future !

1/23/2017 2

Now, on to the main attr action!

1/23/2017 1

• Je r

• lle r
• f the T

• c al Gove r

• ximate ly 1800 loc al gove r

• le as

• fe ssional c omplianc e pr
• c e dur

• ds. Je r

• c e ss within the division. Most r

• f the

• fe ssional or

• lle r

• r

• f the Assoc iation of Ce r

• n GF

• gr

• gr
• am. Je r

• vide d tr

• lle r

• lina. In addition to the se dutie s, Je r

• Je r

• sthwaite Dur

• lle r

• f the adjunc t fac ulty for

• Je r

• m the Unive r

• tin. He is a me mbe r
• f the Ame r

• f

• f ACF

• m the T

• gr

• ugh the Unive r

• Je r

1/23/2017 2

1/23/2017 3

1/23/2017 4

• T

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 a c c o rda nc e with po lic y g uide line s a ppro ve d b y the F unding Bo a rd. T he c urre nt re so lutio n o f the F unding Bo ard g ive s the T re a sure r a ppro va l to

inve st in c ollate r alize d c e r tific ate s of de posit in author ize d state de positor ie s, pr ime c omme r c ial pape r , pr ime banke r s’ ac c e ptanc e s, bonds, note s, and tr e asur y bills of the Unite d State s or othe r obligations guar ante e d as to pr inc ipal and inte r e st by the Unite d State s or any of its age nc ie s, r e pur c hase agr e e me nts for obligations of the Unite d State s

• r its

age nc ie s, and se c ur itie s le nding agr e e me nts whe r e by se c ur itie s may be loane d for a fe e . Inve stme nts in de r ivative type se c ur itie s and inve stme nts of high r isk ar e pr

• hibite d.
• I

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 lida te 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 priva te - purpo se trust c o nsisting

• f

the Ba c c a la ure ate E duc atio n Syste m T rust (BE ST ) a nd 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 pa rt o f the e duc a tio n fund, a spe c ia l 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; ar

e author ize d by statute s to inve st in long- te r m inve stme nts, inc luding bonds, de be ntur e s, pr e fe r r e d stoc k and c ommon stoc k, r e al e state and othe r good and solve nt se c ur itie s subje c t to the appr

• val of the applic able boar

ds of tr uste e s.

1/23/2017 5

1/23/2017 6

• T

he pric e that would be re c e ive d to se ll a n a sse t or paid to tra nsfe r a lia bility in a n “orde rly” tr ansac tion be twe e n “ma rke t pa rtic ipa nts” at the me asure me nt date . (c onsiste nt with GASB Conc e pts State me nt 6)

• An e xit pr

ic e

• Othe r c ha ra c te ristic s of fa ir va lue
• Mar

ke t- base d, not an e ntity- spe c ific me asur e me nt

• Base d
• n

a gove rnme nt’s pr inc ipal

• r most advantage ous

mar ke t

• F

air value is not an option

• Onc e c hose n, this me thod must be use d g oing forward
• T

he

• bje c tive , base d on the

fair value de finition, is to e stimate the e xit pric e of a sse ts and liabilitie s

• T

his e xit pric e is de te rmine d a t the me a sure me nt da te fr

• m the pe r

spe c tive of a mar ke t par tic ipant that c ontr

• ls

the a sse t or is obligate d for the liability

1/23/2017 7

• Consist of thr

e e le ve ls:

• L

e ve l 1: quote d pric e s (una djuste d) for ide ntic a l a sse ts or lia bilitie s in a c tive ma rke ts tha t a g ove rnme nt c a n a c c e ss a t the me a sure me nt da te

• L

e ve l 2: Inputs, othe r tha n quote d pric e s inc lude d in L e ve l 1, tha t a re

• bse rva ble for a n a sse t or lia bility (e ithe r dir

• – Ma rke t quote s for simila r asse ts
• – Yie ld c ur

• L

e ve l 3: Unobse rvable inputs for a n a sse t or liability – Suc h a s manage me nt’s assumption

• f the

de fa ult rate a mong unde rlying mortgage s of a mortgage - bac ke d se c urity.

Apply Apply valuation aluation technique(s) technique(s) that that best best represent represent fair fair value value in the he circumstances circumstances using sing one

• ne of the

he thr three inpu nputs: s: Observable vs. Un Observable vs. Unobservable

• bservable

Level Level 1- Most

• st Reliable

liable Level Level 2- Reliable eliable Level Level 3- Least st Re Reliable liable

1/23/2017 8

• Defini

Definitio tion

• An

An investme stment nt is is a security urity or other er asset asset tha hat is held pr prima imarily ily fo for the purpose o e of i f income o e or p r profit and with ith a pres esen ent servic vice capacity capacity that that is is bas based solely solely on its ability to g

• generate cash or t

r to b

• be s

e sold to g

• generate cash.
• Service

rvice capaci apacity refers ers to a governme vernment’s nt’s mission ssion to to provide

• vide service

ervices. s.

• Held

Held primar primarily ily for income ncome or profi fit—a t—acquired quired first first and nd foremost remost for future ture income me and profit. fit.

• Assets

Assets that at meet meet the the definition efinition of an investment nvestment generally generally are are to be measu easured red at fair fair value. alue.

• Exceptions

Exceptions to to fai fair value value include nclude money money market arket funds unds or 2a7-like 2a7-like external external inves investmen ment pools. pools.

• T

he purpose of the a sse t is de te rmine d by the g ove rnme nt at the time of a c quisition (howe ve r se e Q&A 2016- 1, 4.53)

• Onc e the g ove rnme nt de te rmine s whe the r the a sse t is a n

inve stme nt or a nothe r type

• f a sse t, the

c la ssific a tion should be re ta ine d for future fina nc ia l re porting purpose s- e ve n if the g ove rnme nt’s usa g e

• f the

a sse t c ha ng e s

• ve rtime
• If a n a sse t is initia lly re porte d a s a c a pita l a sse t a nd

the n la te r is he ld

• nly

for re sa le , the a sse t should not be re c la ssifie d a s a n inve stme nt

1/23/2017 9

I nve stme nts in no npartic ipating 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 ntra c ts State me nt 31, par. 8 State me nt 59, par. 4 Mo ne y marke t inve stme nts and partic ipating 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 nt

• the r than e xte rnal

inve stme nt po o ls Amo rtize d c o st State me nt 31, par. 9

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 ntra c ts Ca sh surre nde r value

1/23/2017 10

• Ac quisition Value (AV)
• Pr

ic e paid to ac quir e an asse t with e quivale nt se r vic e pote ntial in an or de r ly mar ke t tr ansac tion

• r amount

a liability c ould be liquidate d with a c ounte r par ty at the ac quisition date

• Asse ts that should be me asur

e d using AV:

• Donate d Capital Asse ts
• Donate d wor

ks of ar t, histor ic al tr e asur e r s, e tc

• Capital Asse ts r

e c e ive d in a SCA

• 83. T

he re q uire me nts o f this Sta te me nt a re e ffe c tive fo r fina nc ia l sta te me nts fo r re po rting pe rio ds b e g inning a fte r June 15, 2015. E a rlie r a pplic a tio n is e nc o ura g e d. I n the pe rio d this Sta te me nt is first a pplie d, c ha ng e s ma de to c o mply with this Sta te me nt sho uld b e tre a te d a s a n a djustme nt o f prio r pe rio ds, and fina nc ia l sta te me nts pre se nte d fo r the pe rio ds a ffe c te d sho uld b e 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 b e me a sure d a t fa ir va lue is no t re q uire d if re sta te me nt is no t pra c tic a l.

1/23/2017 11

• 84. I

f re sta te me nt o f the fina nc ia l sta te me nts fo r a ll 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 a pplying this Sta te me nt, if a ny, sho uld b e 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 b a la nc e o r fund ne t po sitio n, a s a ppro pria te ) fo r the e a rlie st pe rio d re sta te d (g e ne ra lly the c urre nt pe rio d). Also , the re a so n fo r no t re sta ting prio r pe rio ds pre se nte d sho uld b e e xpla ine d. I n the pe rio d this Sta te me nt is first a pplie d, the no te s to the fina nc ia l sta te me nts sho uld disc lo se the na ture

• f

a ny re sta te me nt a nd its e ffe c t.

• 85. T

he use o f a c q uisitio n va lue fo r tra nsa c tio ns re fe rre d to in pa ra g ra ph 79 sho uld b e a pplie d

pr

• spe c tive ly

to tra nsa c tio ns o c c urring in the pe rio d tha t this Sta te me nt is first a pplie d.

1/23/2017 12

1/23/2017 13

• Pr

ac tic e Issue - GAAP Hie r ar c hy:

• T

he Hie ra rc hy will be re duc e d from four c a te g orie s to two c ate gor ie s:

• A.

Offic ially e stablishe d ac c ounting pr inc iple s – Gove r nme ntal Ac c ounting Standar ds Boar d (GASB) State me nts. (And the GAAP Codific ation whe n State me nts ar e adde d)

• B.

GASB T e c hnic al Bulle tins; GASB Imple me ntation Guide s; and lite r atur e of the Ame r ic an Institute of Ce r tifie d Public Ac c ountants (AICPA) if spe c ific ally c le ar e d by the

• GASB. T

he AICPA lite r atur e will c ontain a state me nt that indic ate s it has be e n c le ar e d (i.e . the major ity of the Boar d Me mbe r s did not obje c t to its issuanc e ) by the GASB.

• Suc h as Industr

• Pr

ac tic e Issue - GAAP Hie r ar c hy:

• Afte r the two c ate gor

ie s of author itative lite r atur e , ac c ountants will utilize nonauthor itative guidanc e :

• Sour

c e s of “nonauthor itative ” ac c ounting lite r atur e inc lude GASB Conc e pts State me nts; pr

• nounc e me nts and
• the r

lite r atur e

• f the

F inanc ial Ac c ounting Standar ds Boar d, F e de r al Ac c ounting Standar ds Advisor y Boar d, Inte r national Public Se c tor Ac c ounting Standar ds Boar d, Inte r national Ac c ounting Standar ds Boar d, and AICPA (othe r than AICPA lite r atur e c le ar e d by the GASB); pr ac tic e s that ar e wide ly r e c ognize d and pr e vale nt in state and loc al gove r nme nt; lite r atur e

• f
• the r pr
• fe ssional

assoc iations

• r

r e gulator y age nc ie s; and ac c ounting te xtbooks, handbooks, and ar tic le s.

1/23/2017 14

• Pr

ac tic e Issue – Ce r tain E xte r nal Inve stme nt Pools and Pool Partic ipants:

• E

xposur e Dr aft E xpe c te d 2nd Q 2015

• State me nt 79 issue d De c e mbe r

2015

• E

ffe c tive Date , fisc al ye ar e nding June 30, 2016

• Be c ause of a c hange in SE

C r ule s r e lative to mone y mar ke t funds, many e xte r nal inve stme nt pools may fac e inte r e st r ate r isks that c r e ate fair value losse s. T his standar d will addr e ss appr

• pr

iate me asur e me nt and disc losur e r e quir e me nts.

1/23/2017 15

• Amor

tize d c ost would be e xpe c te d to appr

• ximate fair

value for mone y mar ke t funds be c a use of the ir na ture

• High Quality Inve stme nts
• Dive r

se Por tfolio

• Shor

t T e r m

• High L

iquidity

• T

he se pools have traditionally be e n pe rmitte d to re port the ir inve stme nts at Amortize d Cost

• Pool me mbe rs have re porte d the ir position in

the pool base d on share value pric e s that re fle c t amortize d c ost

• T

his tr e atme nt was base d on SE C Rule 2a-7 whic h pr

• vide d the c r

ite r ia for this me thod

• Pools me e ting the SE

C c r ite r ia (suc h as T e nne sse e ’s L GIP) have be e n pe r mitte d to r e por t all of the ir inve stme nts at amor tize d c osts, and

• T

he se Pools have be e n pe r mitte d to r e por t the ir position base d on shar e value pr ic e s that r e fle c t amor tize d c ost

• Howe ve r

, the SE C has c hange d Rule 2a-7 to r e quir e str ic t fair value me thods

• T

he r e for e , GASB c ould no longe r r e ly on Rule 2a-7 to allow GAAP base d r e por ting at Amor tize d Cost

1/23/2017 16

• GASB propose s to re plac e Rule 2a- 7 c rite ria

with its own GAAP base d c rite ria. As propose d

• Use of Amor

tize d Cost r e mains pur e ly optional

• Use of F

air Value is always pe r mitte d

• Onc e a pool has e le c te d to use F

air Value , it c annot subse que ntly r e ve r se that e le c tion

• Amor

tize d Cost (Stable Ne t Asse t Value – NAV – Pe r Shar e ) Cr ite r ia:

• Matur

ity Re quir e me nts

• Quality Re quir

e me nts

• Dive r

sific ation Re quir e me nts

• L

iquidity Re quir e me nts

• Me e ts Shadow Pr

ic e Re quir e me nts

1/23/2017 1

Jerry E. Durham, CPA, CGFM, CFE

WHAT’S MY MOTIVATION

1/23/2017 2

SOURCE: CENTER FOR STATE AND LOCAL GOVERNMENT EXCELLENCE

SOURCE: CENTER FOR STATE AND LOCAL GOVERNMENT EXCELLENCE

1/23/2017 3

SOURCE: CENTER FOR STATE AND LOCAL GOVERNMENT EXCELLENCE

GASB RECALCULATING

73, 78, 82

1/23/2017 4

73

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

PENSIONS NOT IN SCOPE OF 68

• PRACTICE ISSUE
• EXPOSURE DRAFT ISSUED MAY 2014.
• GASB STATEMENT 73 ISSUED JUNE 2015.
• EFFECTIVE DATES:
• “PLANS” NOT ADMINISTERED THROUGH TRUSTS -
• FISCAL YEAR BEGINNING AFTER JUNE 15, 2016 (I.E. JUNE 30, 2017)
• ASSETS ACCUMULATED FOR PENSIONS NOT ADMINISTERED THROUGH

TRUSTS

• FISCAL YEAR BEGINNING AFTER JUNE 15, 2015
• AMENDMENTS TO GASB 67 AND 68 -
• FISCAL YEAR BEGINNING AFTER JUNE 15, 2015
• EARLIER APPLICATION ENCOURAGED IN BOTH SITUATIONS

June 30, 2016

1/23/2017 5

• SUMMARY – 6/30/17
• SAME PURPOSE AS IF THERE WERE A TRUST ARRANGEMENT
• ONLY DIFFERENCE IS, YOU DON’T HAVE FIDUCIARY NET POSITION BECAUSE

YOU CAN’T NET THE PLAN ASSETS AGAINST THE PLAN PENSION LIABILITY

• APPLY PROVISIONS OF 67 AND 68 IN TERMS OF CALCULATIONS
• JUST DON’T NET ASSETS AND LIABILITIES, AND
• USE A DISCOUNT RATE FOR A HIGH-GRADE MUNICIPAL RATE

PENSIONS NOT ADMINISTERED THROUGH TRUSTS

• TREATMENT OF ACCUMULATED ASSETS:
• EMPLOYERS:
• SINGLE EMPLOYER PLAN
• REPORT AS EMPLOYER ASSETS
• MULTIPLE-EMPLOYER PLAN
• REPORT EMPLOYER’S PROPORTIONATE SHARE OF ACCUMULATED ASSETS AS

EMPLOYER ASSETS

• PLANS:
• REPORT IN AN AGENCY FUND

PENSIONS NOT ADMINISTERED THROUGH TRUSTS

1/23/2017 6

• #1 NEW DISCLOSURES – NOTES TO RSI
• #2 SPECIFIC PAYABLE TO A DEFINED BENEFIT PENSION PLAN
• #3 RECOGNITION OF NONEMPLOYER REVENUE WHEN NOT IN A SPECIAL

FUNDING SITUATION.

THREE MAIN ISSUES – AMENDMENTS TO 67 AND 68

• #1
• PREVIOUS - INVESTMENT FACTORS THAT SIGNIFICANTLY AFFECT TRENDS IN

THE AMOUNTS REPORTED

• AMENDMENT – LIMITED TO FACTORS OVER WHICH THE PENSION PLAN OR

PARTICIPATING GOVERNMENT HAVE INFLUENCE.

• E.G. MANAGEMENT CHANGES IN INVESTMENT POLICIES.

NEW RSI DISCLOSURES

1/23/2017 7

• #2
• SEPARATELY FINANCED SPECIFIC LIABILITY:
• AN INCREASE IN THE TOTAL PENSION LIABILITY DUE TO AN INDIVIDUAL EMPLOYER

JOINING A PENSION PLAN

• AN INCREASE IN THE TOTAL PENSION LIABILITY DUE TO A CHANGE IN BENEFIT TERMS

SPECIFIC TO AN INDIVIDUAL EMPLOYER

• A CONTRACTUAL COMMITMENT FOR A NONEMPLOYER CONTRIBUTING ENTITY TO

MAKE A ONE-TIME CONTRIBUTION FOR PURPOSES OF REDUCING THE NET PENSION LIABILITY

• NOT OBLIGATIONS ASSOCIATED WITH POOLED OBLIGATION
• EVEN IF SEPARATE PAYMENT TERMS EXIST

SPECIFIC PAYABLES TO DEFINED BENEFIT PLANS

• CHANGES:
• DEFINES “SEPARATELY FINANCED SPECIFIC LIABILITY”
• A SPECIFIC CONTRACTUAL LIABILITY TO A DEFINED BENEFIT PENSION PLAN

FOR A ONE-TIME ASSESSMENT TO AN INDIVIDUAL OR NONEMPLOYER CONTRIBUTING ENTITY.

• CLARIFIES EXCLUSION OF PAYABLES FOR UNPAID (LEGAL, CONTRACTUAL, OR

STATUTORY) FINANCING OBLIGATIONS ASSOCIATED WITH THE POOLED PORTION OF THE TOTAL PENSION LIABILITY (EVEN IF SEPARATE PAYMENT TERMS).

• PROVIDES REVENUE RECOGNITION GUIDANCE.

SPECIFIC PAYABLES TO DEFINED BENEFIT PLANS

1/23/2017 8

• #3
• AMENDMENT:
• GASB 24, ON BEHALF PAYMENTS, RECOGNIZE REVENUE IN THE

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)

RECOGNITION OF NONEMPLOYER REVENUE WHEN NOT IN A SPECIAL FUNDING SITUATION.

78

PENSIONS PROVIDED THROUGH CERTAIN MULTIPLE-EMPLOYER DEFINED BENEFIT PENSION PLANS

1/23/2017 9

EXCEPTION – CERTAIN PENSION PLANS

• PRACTICE ISSUE – CERTAIN PENSION PLANS:
• PROJECT BEGAN SEPTEMBER 2015
• EXPOSURE DRAFT ISSUED OCTOBER 2015
• STATEMENT 78 ISSUED DECEMBER 2015
• EFFECTIVE DATE, JUNE 30, 2017

EXCEPTION - CERTAIN PENSION PLANS

• DURING THE IMPLEMENTATION OF STATEMENT 68 AN ISSUE AROSE

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.

• DIFFICULT OR IMPOSSIBLE TO GET INFORMATION

1/23/2017 10

EXCEPTION - CERTAIN PENSION PLANS

• GASB’S SOLUTION:
• REMOVE THESE PLANS FROM THE SCOPE OF GASB 68.

GASB 68 NO LONGER APPLIES TO THESE PLANS.

• UTILIZE AN OLD APPROACH

EXCEPTION - CERTAIN PENSION PLANS

• CERTAIN PENSION PLANS - CRITERIA:
• PROVIDED TO EMPLOYEES OF STATE OR LOCAL GOVERNMENTAL EMPLOYERS

THROUGH A COST-SHARING MULTIPLE-EMPLOYER DEFINED BENEFIT PENSION PLAN.

• THAT IS NOT A STATE OR LOCAL GOVERNMENTAL PENSION PLAN
• THAT IS USED TO PROVIDE DEFINED BENEFIT PENSIONS BOTH TO EMPLOYEES OF

STATE AND LOCAL GOVERNMENTAL EMPLOYERS AND TO EMPLOYEES OF EMPLOYERS THAT ARE NOT STATE AND LOCAL GOVERNMENTAL EMPLOYERS

• THAT

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

1/23/2017 11

EXCEPTION - CERTAIN PENSION PLANS

• CERTAIN PENSION PLANS - SOLUTION:
• REQUIREMENTS APPLY WHETHER THE GOVERNMENT’S FINANCIAL STATEMENTS

ARE PRESENTED IN STAND-ALONE FINANCIAL REPORTS OR ARE INCLUDED IN THE FINANCIAL REPORTS OF ANOTHER GOVERNMENT

• PENSION EXPENSE SHOULD BE RECOGNIZED EQUAL TO THE EMPLOYER’S

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

• THE ONLY PENSION LIABILITY THAT WILL BE PRESENTED IS THE AMOUNT OF ANY

UNPAID REQUIRED CONTRIBUTIONS

EXCEPTION - CERTAIN PENSION PLANS

• CERTAIN PENSION PLANS:
• PENSION EXPENSE ALSO SHOULD BE RECOGNIZED FOR SEPARATE

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.

1/23/2017 12

EXCEPTION - CERTAIN PENSION PLANS

• CERTAIN PENSION PLANS:
• VARIOUS NOTE DISCLOSURES
• COLLECTIVE BARGAINING
• DESCRIPTION OF SPECIFIC PAYABLE FUNDING REQUIREMENTS AND AUTHORITY

EXCEPTION - CERTAIN PENSION PLANS

• CERTAIN PENSION PLANS:
• REQUIRED SUPPLEMENTARY INFORMATION
• A SCHEDULE OF THE EMPLOYER’S REQUIRED CONTRIBUTIONS FOR EACH OF THE 10

MOST RECENT FISCAL YEARS (INCLUDE REASON IF CANNOT INCLUDE 10 YEARS IN NOTES TO RSI)

• THE SCHEDULE SHOULD SEPARATELY IDENTIFY AMOUNTS ASSOCIATED WITH EACH

PENSION PLAN

• NOTE DISCLOSURES FOR RSI SHOULD INCLUDE INFORMATION ABOUT FACTORS THAT

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)

1/23/2017 13

82

PENSION ISSUES

PENSION ISSUES

• PRACTICE ISSUE – CERTAIN PENSION PLANS:
• STATEMENT 82 ISSUED MARCH 2016
• EFFECTIVE DATE, JUNE 30, 2017
• EXCEPT FOR PARAGRAPH 7, WHICH IS EFFECTIVE FOR THE FIRST MEASUREMENT

DATE ON OR AFTER JUNE 15, 2017

1/23/2017 14

• SCOPE – PENSION PLANS ADMINISTERED THROUGH TRUSTS THAT MEET THE

CRITERIA IN PARAGRAPH 3 OF STATEMENT 67

• ADDRESS ISSUES RAISED DURING THE IMPLEMENTATION OF STATEMENT 67 & 68

(ALSO AMENDS STATEMENT 73)

PENSION ISSUES – STATEMENT 82 PENSION ISSUES

• PRACTICE ISSUE – PENSION ISSUES
• THREE ISSUES COVERED:
• THE PRESENTATION OF PAYROLL-RELATED MEASURES IN REQUIRED SUPPLEMENTARY

INFORMATION

• DEVIATIONS FROM ACTUARIAL STANDARDS OF PRACTICE FOR FINANCIAL REPORTING

PURPOSES

• CLASSIFICATION

OF PAYMENTS MADE TO EMPLOYERS TO SATISFY EMPLOYEE CONTRIBUTION REQUIREMENTS

1/23/2017 15

PENSION ISSUES

• PRACTICE ISSUE – PENSION ISSUES
• #1
• THE

PRESENTATION OF PAYROLL-RELATED MEASURES IN REQUIRED SUPPLEMENTARY INFORMATION

• STATEMENTS 67 AND 68 REQUIRE PRESENTATION OF “COVERED-EMPLOYEE PAYROLL”

IN RSI

• STATEMENTS

67 AND 68 WOULD BE AMENDED TO INSTEAD REQUIRE THE PRESENTATION OF “COVERED PAYROLL”

PENSION ISSUES

• PRACTICE ISSUE – PENSION ISSUES
• THE PRESENTATION OF PAYROLL-RELATED MEASURES IN REQUIRED

SUPPLEMENTARY INFORMATION

• “COVERED PAYROLL” IS THE PORTION OF COMPENSATION PAID TO ACTIVE

EMPLOYEES ON WHICH CONTRIBUTIONS TO A PENSION PLAN ARE BASED, AND UPON WHICH CERTAIN RSI RATIOS CALCULATED (PENSIONABLE PAYROLL)

• “COVERED EMPLOYEE PAYROLL” IS THE PAYROLL OF EMPLOYEES THAT ARE

PROVIDED WITH PENSIONS THROUGH THE PENSION PLAN (TOTAL PAYROLL)

1/23/2017 16

REQUIRED SUPPLEMENTARY INFORMATION

Note: Only 5 years are presented here; 10 years of information would be required

Net Pension Liability

REQUIRED SUPPLEMENTARY INFORMATION

Note: Only 5 years are presented here; 10 years of information would be required

Employer Contributions

1/23/2017 17

PENSION ISSUES

• PRACTICE ISSUE – PENSION ISSUES
• #2
• DEVIATIONS FROM ACTUARIAL STANDARDS OF PRACTICE FOR

FINANCIAL REPORTING PURPOSES:

• THE STATEMENT WOULD CLARIFY THAT A DEVIATION, AS THE TERM IS USED IN

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

PENSION ISSUES

• PRACTICE ISSUE – PENSION ISSUES
• #3
• CLASSIFICATION OF PAYMENTS MADE TO EMPLOYERS TO SATISFY EMPLOYEE

CONTRIBUTION REQUIREMENTS:

• IN SOME CIRCUMSTANCES, EMPLOYERS MAKE PAYMENTS TO SATISFY CONTRIBUTION

REQUIREMENTS THAT ARE IDENTIFIED BY THE PENSION PLAN TERMS AS PLAN MEMBER CONTRIBUTIONS

• FOR PURPOSES OF APPLYING STATEMENT 67, THE EMPLOYER CONTRIBUTIONS SHOULD

BE CLASSIFIED AS PLAN MEMBER CONTRIBUTIONS

• FOR PURPOSES OF APPLYING STATEMENT 68, THE EMPLOYER CONTRIBUTIONS SHOULD

BE CLASSIFIED AS EMPLOYEE CONTRIBUTIONS, INCLUDING FOR PURPOSES OF DETERMINING A COST-SHARING EMPLOYER’S PROPORTION

1/23/2017 18

PENSION ISSUES

• PRACTICE ISSUE – PENSION ISSUES
• CLASSIFICATION OF PAYMENTS MADE TO EMPLOYERS TO SATISFY

EMPLOYEE CONTRIBUTION REQUIREMENTS:

• AN EMPLOYER’S EXPENSE AND EXPENDITURES FOR THOSE CONTRIBUTIONS

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

• GASBS 67, FOOTNOTE 2—IN SOME CIRCUMSTANCES, CONTRIBUTIONS ARE

MADE BY THE EMPLOYER TO SATISFY PLAN MEMBER CONTRIBUTION

• REQUIREMENTS. IF THE CONTRIBUTION AMOUNTS ARE RECOGNIZED BY THE

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

• CONTRIBUTIONS. (SAME DESCRIPTION IN 68 & 73 CONSIDERED EMPLOYER CONTRIBUTIONS)
• PENSION EXPENSE DEFINITION – USING FOOTNOTE 2 WOULD RESULT IN A CHANGE IN PENSION

EXPENSE.

• CONSIDERATION FOR COST-SHARING PLANS IN DETERMINATION OF ALLOCATION OF NPL, DEFERRED

OUTFLOWS/INFLOWS, & PENSION EXPENSE.

EMPLOYER-PAID MEMBER CONTRIBUTIONS

1/23/2017 19

• STANDARD CHANGES:
• APPLYING GASB 67: EMPLOYER PAID MEMBER CONTRIBUTIONS WOULD BE

CLASSIFIED AS MEMBER CONTRIBUTIONS.

• APPLYING GASB 68: EMPLOYER PAID EMPLOYEE CONTRIBUTIONS WOULD

BE CLASSIFIED AS EMPLOYEE CONTRIBUTIONS.

• FOR PENSION EXPENSE EMPLOYEE CONTRIBUTIONS REDUCE THE

AMOUNT OF EXPENSE RECOGNIZED BY THE EMPLOYER

• IF EMPLOYER “PICKS UP” EMPLOYEE CONTRIBUTIONS, EMPLOYER SHOULD

DISCLOSE INFORMATION ABOUT THE ARRANGEMENT.

EMPLOYER-PAID MEMBER CONTRIBUTIONS PENSION ISSUES

• PRACTICE ISSUE – PENSION ISSUES
• CHANGES ADOPTED TO CONFORM TO THE REQUIREMENTS OF

PARAGRAPH 7 (DEVIATIONS FROM ASOP) SHOULD BE APPLIED ON A PROSPECTIVE BASIS.

1/23/2017 20

1/23/2017 1

Jerry E. Durham, CPA, CGFM, CFE

Effective Dates—June 30

 2015

 2016

 2017

 2018

1/23/2017 2

OPEB 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.

1/23/2017 3

 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)

OPEB 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

fund should exclude the employer amounts)

OPEB Plans – 74

1/23/2017 4

OPEB 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.

1/23/2017 5

OPEB Employers ‐ 75

 The scope of this Statement includes OPEB plans—defined benefit and defined contribution—administered through trusts that meet the following criteria:

 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.

OPEB 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.

1/23/2017 6

OPEB 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.

OPEB 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.

1/23/2017 7

OPEB Employers ‐ 75

• entities. This Statement requires that the employer disclose in notes to financial statements

OPEB Employers ‐ 75

1/23/2017 8

OPEB Employers – 75

 Post Employment Benefits ‐ Employers:

 The Gist of the Employer Standard is to require recording

• f the Net OPEB Liability, OPEB Expense, and Deferred

Outflows and Inflows.

 Currently only a Net OPEB Obligation is recorded.  Increased Notes Disclosures and RSI.

OPEB 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.

1/23/2017 9

40

The Basic Three‐Step Approach for Defined Benefit Pensions

25 62 80

Present Value of Payments

Healthcare Trend Rate

Just Like Pensions, Not!

 Still have an implicit rate subsidy calculation  Preserves

the alternative measurement calculation

• ption for small employers and plans that have 100

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)

1/23/2017 10

Thought Question?

 Is it more difficult to estimate pension benefits into

the future, or

 More difficult to estimate healthcare costs into the

future?

Questions!

1/23/2017 1

Jerry E. Durham, CPA, CGFM, CFE

Effective Dates—June 30

 2015

 2016

 2017

 2018

1/23/2017 2

77

 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

1/23/2017 3

 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

 Practice Issue ‐Tax Abatement Disclosures:

 1984 Saturn Corporation

• f Mt. Pleasant, City of Spring Hill ($3.5 Billion plant)

1/23/2017 4  Practice Issue ‐Tax Abatement Disclosures:

 Maury County had no disclosures in the Notes

to the Financial Statements

1/23/2017 5

 Practice Issue ‐Tax Abatement Disclosures:

County

 Practice Issue ‐Tax Abatement Disclosures:

 2008 VW Original Plant

 2016 VW Expansion

about half to be repaid

1/23/2017 6

 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:

 Tax Expenditures

 Cost

• f

foregoing the collection

• f

taxes the government was entitled to collect

 Type of Revenue

1/23/2017 7

 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?

 A government would disclose separately (a) its

• wn

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

1/23/2017 8

 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

1/23/2017 9

 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

• f granting the tax abatement

the letter of transmittal for disclosure.  Number of Tax Abatement Agreements  Duration of Tax Abatements  Total Amount of Abatements over the duration of

agreement

1/23/2017 10

 Practice Issue ‐Tax Abatement Disclosures:

 1984 Saturn Corporation

• f Mt. Pleasant, City of Spring Hill ($3.5 Billion plant)

1/23/2017 11  Which

• f

the following represents a “tax abatement”?

• A. A property tax exemption for church property
• B. A donation of land to a industrial company as

incentive to locate

• C. A reduction in landfill charges for a company for

the first 5 years after relocation

• D. None of the above

 Which of the following represents a “tax abatement”?

• A. The State of Tennessee reduces corporate income tax for

a particular project which also reduces the shared corporate income tax of a local government

• B. A greenbelt assessment that reduces property tax for a

farmer or company

• C. The State of Tennessee reduces the state sales tax rate

for a company and statutorily requires a local government to reduce its local sales tax rate as part of the agreement

• D. None of the above

1/23/2017 12  Which of the following would never be a “tax

abatement”?

• A. A tax reduction that would be available to anyone

under the circumstances

• B. A tax that is charged and collected by authority of

the state government but is shared with a local government by formula

• C. A donation of land to an industry as an incentive to

relocate to Tennessee

• D. None of the above

 Which of the following properly accounts for the

tax revenue forgone

• n

the books

• f

the government?

• A. Credit

Revenue, and Debit an Expenditure/Expense

• B. Credit Revenue, and Debit a Receivable
• C. Debit an Expenditure/Expense, and Credit Cash
• D. None of the above

1/23/2017 13  Tax

abatement agreements for discretely presented component units should?

• A. Be

treated like any

• ther

agreement

• f

the government itself

• B. Be

treated like an agreement

• f

another government

• C. Either A or B
• D. None of the above

 Which of the following are not true for tax abatement

disclosures?

• A. Gross dollar amount of

the abatements must be presented for the current year and future years

• B. Disclosures may be aggregated for different types of

programs

• C. Disclosures must be separated between the government

and other governments that provide tax abatements including component units

• D. The

government may establish a threshold for individual agreements

• E. A and C

1/23/2017 14

Blending Requirements for Certain Component Units ‐ 2017

Blending Requirements

 Practice Issue ‐ Blending Requirements for Certain

Component Units:

 Effective for periods beginning after June 15, 2016. (i.e

calendar year 2017 and fiscal year June 30, 2017)

 Earlier Application encouraged

1/23/2017 15

Blending 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.

Blending Requirements

 Practice Issue ‐ Blending Requirements for Certain

Component Units:

 The statement amends Statement 14 paragraph 53 to

add a “new” blending requirement:

1/23/2017 16

Blending Requirements

 Practice Issue ‐ Blending Requirements for Certain

Component Units:

 Additional Blending Criteria:

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.

Blending 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.

1/23/2017 17

Irrevocable Split‐Interest Agreements ‐ 2018

Irrevocable Split‐Interests

 Practice Issue – Accounting and Reporting for

Irrevocable Split‐Interest Agreements:

year 2017, fiscal year 2018)  Definition of Irrevocable Split‐Interests:

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.

1/23/2017 18

Irrevocable 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

• governments. Examples include charitable lead

trusts, charitable remainder trusts, charitable annuity gifts, and life‐interests in real estate.

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.

third party?

to use the property? Capital Asset or Investment.

1/23/2017 19

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).

interest normally debit an asset, credit a liability for the lead interest, and credit a deferred inflow for the difference (government’s remainder interest).

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).

interest normally debit an asset, credit a liability for the remainder interest, and credit a deferred inflow for the difference.

1/23/2017 20

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).

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.

Irrevocable Split‐Interests

 Practice Issue – Accounting and Reporting for Irrevocable Split‐

Interest Agreements:

beneficial interest, what is sufficient information:

intermediary with regard to the donated resources

not subject to approval of the intermediary

does not invalidate the government’s beneficial interest and thereby terminate the agreement

1/23/2017 21

Irrevocable 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).

Irrevocable 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!

1/23/2017 22

Certain Asset Retirement Obligations

ARO

 Certain Asset Retirement Obligations (ARO):

 FASB Statement 143, Accounting for Asset

Retirement Obligations (2001) has been followed.

 Should costs be capitalized, what should be

disclosed?

1/23/2017 23

ARO

wind turbines

(GASB 49)

such as most asbestos removal

ARO

 Asset Retirement Obligations (ARO):

• f

1/23/2017 24

ARO

 Asset

Retirement Obligations (ARO) ‐ Disclosures:

funding requirements and amounts accumulated and restricted for payment of the liability

liabilities

tangible assets

reasonably estimable

ARO

1/23/2017 25

Coming Soon to a

Government Near You!

Questions!

1/23/2017 1

Really, There’s More?

January 25, 2017

Jerry E. Durham, CPA, CGFM, CFE

Major Projects

1/23/2017 2

Fiduciary Activities

• Fiduciary Activities:
• PV issued November 2014.
• Exposure Draft issued December 8, 2015.
• Final Standard expected 1st Q 2017.
• Effective date for periods beginning after December 15,

2017 (July 1, 2018 to June 30, 2019)

• Definition - When is a government in a Fiduciary

Relationship?

• Controls Assets

1/23/2017 3

Fiduciary Activities

Fiduciary Activities

• Fiduciary Activities:
• Control is established if the primary government:
• Holds the assets for the benefit of others.
• The government has the ability to administer or direct the

use, exchange, or employment of the present service capacity of the assets.

1/23/2017 4

Fiduciary Activities

• Fiduciary Activities:
• Report the activity as a fiduciary activity if:
• The government controls the assets, and
• The assets are not derived from the government’s own-source revenue (i.e.

revenues are generated by the government itself such as taxes or utility charges), and

• One or more of the following criteria is met:
• Assets are administered through a trust agreement or equivalent arrangement.
• Assets are not to be provided to individuals who are required to be a resident
• r recipients of government’s goods and services
• Assets are to be provided to organizations or other governments that are

neither part of the financial reporting entity nor recipients of the government’s goods or services

• The assets result from a pass-through grant for which the government does not

have administrative or direct financial involvement in the program

Fiduciary Activities

• Fiduciary Activities:
• Report the activity as a fiduciary activity if:
• The government controls the assets, and
• One or more of the following criteria is met:
• The activity is a pension benefit arrangement with the scope of GASB

67

• The activity is a OPEB plan with the scope of GASB 74
• The government is required to apply the provisions of paragraph 116 of

GASB 73 (Pension not administered through a Trust but meet the definition of an equivalent arrangement).

• What about 457 Plans?? (GASB 32)
• Plans as of August, 1996?

1/23/2017 5

Fiduciary Activities

• Fiduciary Activities:
• Continue to use Fiduciary Funds (4 types).
• Pension and Other Employee Benefit Trusts, Investment Trust,

Private-Purpose Trusts

• Pension/Other Employee Benefit Trust Funds would require a

Trust Agreement or Equivalent Arrangement:

• Assets are dedicated to providing benefits to plan members in

accordance with benefit terms

• Assets are legally protected from Creditors of the Government
• Contributions are irrevocable (not including refunds)
• Government itself is not a beneficiary

Fiduciary Activities

• Fiduciary Activities:
• Investment Trust and Private Purpose Trust Funds

would require a Trust Agreement or Equivalent Arrangement:

• Assets are dedicated to providing benefits to plan members

in accordance with benefit terms

• Assets are legally protected from Creditors of the Government
• Government itself is not a beneficiary

1/23/2017 6

Fiduciary Activities

• Fiduciary Activities:
• A new fund would be established – “Custodial Fund”

– Formerly Agency Fund

• Used to report any fiduciary activity not administered

through a trust agreement or equivalent arrangement

Fiduciary Activities

• Fiduciary Activities:
• Two Required Financial Statements
• The Statement of Fiduciary Net Position
• The Statement of Changes in Fiduciary Net Position would

report additions and deductions in more detail (i.e. by source , investment income, investment costs, and deductions by type including administrative costs.)

1/23/2017 7

Fiduciary Activities

• Fiduciary Activities:
• Two Statements:
• Statement of Fiduciary Net Position.
• Report liabilities when an event has occurred that compels the government

to disburse fiduciary resources

• Section 529 College Savings Plan
• County Sales Tax Collections for Cities
• The Statement of Changes in Fiduciary Net Position would report

additions and deductions in more detail (i.e. by source , investment income, investment costs, and deductions by type including administrative costs.)

1/23/2017 8

Fiduciary Activities

• Fiduciary Activities:
• Fiduciary Fund Financial Statements of a Primary

Government should include Fiduciary Component Units.

• Stand-alone business-type activities also engaged in

fiduciary activities should present fiduciary fund financial statements within its basic financial statements.

Fiduciary Activities

• Fiduciary Activities:
• What would happen if a government deposited

contributions into a pension trust fund managed by a third party where control is not established?

1/23/2017 9

Financial Reporting Model

• Financial Reporting Model Reexamination:
• Research approved August 2013.
• ITC Issued December 2016, PV expected July 2018,

ED expected April 2020, Final Statement expected November 2021

• Reexamine Statements 34, 35, 37, 41, 46 and

Interpretation 6.

• Rank #1 Priority for Research by Governmental

Accounting Standards Advisory Council (GASAC)

• Objective: Evaluate the current model and issues to

improve/enhance the effectiveness of the overall financial reporting model

1/23/2017 10

Financial Reporting Model

• Financial Reporting Model Reexamination:
• State and Local Reporting Model (34 & 35)
• Lingering tweeks to (34, 35, & 37)
• Budgetary Comparison Schedule (41)
• Net position restricted by enabling legislation (46)
• How to understand modified accrual accounting

(Interpretation 6)

Financial Reporting Model

• Financial Reporting Model Reexamination:
• MD&A
• Government-wide F/S Format
• Major Funds – Debt Service Funds
• Governmental Fund F/S Measurement Focus (Near-

Term Focus?)

• BTA Financial Statement Format – Operating vs.

Nonoperating Revenue of Expenses

• Classification/Measurement Focus for Permanent

Funds

• Budgetary Comparisons
• Reduce Complexity and Permit more timely F/S

1/23/2017 11

Financial Reporting Model

• Financial Reporting Model Reexamination:
• MD&A
• Explore
• ptions

for enhancing the financial statement analysis component, consider the elimination

• f

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.

• More analysis = the Why

Financial Reporting Model

• Financial Reporting Model Reexamination:
• Government-wide F/S Format
• Explore alternatives for the format of the statement of activities

and consider whether a government-wide statement of cash flows should be required, and if so, how those cash flows should be presented.

1/23/2017 12

Financial Reporting Model

• Financial Reporting Model Reexamination:
• Major Funds – Debt Service Funds
• Explore options for providing additional information about

debt service funds, either individual or in aggregate.

• Debt Service Funds are sometimes not even presented

when a CAFR is not presented.

• Near-Term Financial Resources Approach? 60 days?
• Working-Capital Approach? 1 year?
• Total Financial Resources Approach? No Capital Assets or

Debt?

• Cash Basis?

Invititation to Commnet

1/23/2017 13

Financial Reporting Model

• Financial Reporting Model Reexamination:
• Governmental Fund F/S Measurement Focus (Near-

Term Focus?)

• Explore a conceptually consistent measurement focus and basis
• f accounting.
• Develop a presentation format for governmental fund financial

statements consistent with the measurement focus and basis of accounting.

• In conjunction with this project, the conceptual framework project
• n recognition of elements of financial statements would be

recommended.

Financial Reporting Model

• Financial Reporting Model Reexamination:
• BTA Financial Statement Format
• Evaluate operating indicator alternatives in conjunction with

evaluating the guidance for the separate presentation of

• perating and nonoperting revenues and expenses.
• Current Guidance
• Distinguish between operating and nonoperating
• Disclose policy used to distinguish
• Question?
• Do we need more guidance on how to distinguish?

1/23/2017 14

Financial Reporting Model

• Financial Reporting Model Reexamination:
• Budgetary Comparison Reporting – Presentation of

Budgetary Variances

• Current Guidance
• Encourage reporting of budgetary variances
• Question?
• Should budgetary variance reporting be required?
• If so, which variance?
• Final Budget to Actual
• Original Budget to Actual
• Other

Financial Reporting Model

• Financial Reporting Model Reexamination:
• Fiduciary Fund Financial Statements
• Explore where the Fiduciary Fund Financial Statements

should be presented in the basic financial statements.

• Should they roll forward to Government-wide Level?

1/23/2017 15

Financial Reporting Model

• Financial Reporting Model Reexamination:
• Permanent Funds
• Current Guidance:
• Report as governmental fund
• Use modified accrual measurement focus
• Question:
• If we change to near-term or working capital measurement

focus should there be a change to the measurement focus for permanent funds

• Should we still report permanent funds with governmental

funds?

• Should we report with governmental funds but use a different

measurement focus?

Financial Reporting Model

• Financial Reporting Model Reexamination:
• Budgetary Comparisons
• Explore the appropriate method of communication (either as

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.

1/23/2017 16

Financial Reporting Model

• Financial Reporting Model Reexamination:
• Other
• Reduce Complexity and Permit more timely F/S
• Extraordinary and Special Items – Clarify Guidance

for more consistent presentation.

• Near-Term Financial Resources Approach? 60 days?
• Working-Capital Approach? 1 year?
• Total Financial Resources Approach? No Capital Assets or

Debt?

Election Time – The Candidates

1/23/2017 17

1/23/2017 18

Leases - Lessee

• Leases:
• PV issued November 2014
• Exposure Draft Issued January 25, 2016
• Final Standard Expected 2nd Q 2017
• Proposed Effective Date, Calendar 2019 or Fiscal Year

Ended June 30, 2020

• Converge with FASB and International Standards
• FASB still has a dual approach
• GASB and International Standards are using a single

approach

Leases - Lessee

• Leases:
• Foundational Principle – All leases are financings of

the right to use an underlying asset

• Definition of a lease – A contract that conveys the

right to use a nonfinancial asset for a period of time in an exchange or exchange-like transaction

• If ownership transfers, then a sale not a lease

1/23/2017 19

Leases - Lessee

• Leases:
• The definitions are intended to include what we

currently call “Operating” leases.

• “Capitalized” Leases (current guidance) will not be

accounted for under leases guidance, but would be considered a “purchase” that was financed.

• Operating leases would be recorded as a liability

and an “intangible” asset except for Short-term leases.

• In

governmental funds, also record an “other financing source” and “capital outlay expenditure”.

Leases - Lessee

• Leases:
• Short-term Lease
• A lease that at its beginning has a maximum possible term

under the contract of 12 months or less

• 12 months includes options to extend
• Record the short-term lease transaction like an
• perating lease under old standard
• Debit Expenses/Expenditures
• Credit Cash

1/23/2017 20

Leases - Lessee

• Leases - Measurement:
• Liability
• Recognize a lease liability at the beginning of a lease

(unless short term)

• Use the present value of certain payments to be

made over the lease term

• Asset
• Recognize an intangible asset for the right to use the

capital asset

• Value of lease liability plus payments to lessor at or before

the lease begins

• Initial direct cost necessary to place the asset into service

Leases - Lessee

• Leases:
• Also recognize Interest expense/expenditure on the

lease liability

• Recognize amortization expense for the asset
• Shorter of the Lease Term, or
• Useful Life of the Underlying Asset

1/23/2017 21

Statement of Net Position - Lessee

Leases - Lessee

• Leases:
• Lease Term:
• Period during which a lessee has a noncancellable right to

use an underlying asset (the noncancellable period) plus

• The lessee’s optional extension (if applicable) of the lease

when exercise of that option is reasonably certain, or

• The lessee’s option to terminate (if applicable) the lease

when the exercise of that option is reasonably certain.

• Includes fiscal funding clauses

1/23/2017 22

Leases - Lessee

• Leases:
• Exclude certain transactions:
• Contracts that transfer ownership of the underlying asset
• This would be considered a sale
• Leases of intangible assets
• Contracts for exploration/exploitation of non-regenerative

natural resources

• Leases of biological assets, including timber
• Contracts that meet the definition of a service concession

arrangement (GASB 60)

Leases - Lessee

• Leases - Disclosures:
• Description of lease agreement
• Amount of lease assets
• Schedule of future lease payments

1/23/2017 23

Leases - Lessor

• Leases - Measurement:
• Receivable
• Recognize a lease receivable at the beginning of the

lease term

• Use the present value of the lease payments over the

lease term

• Deferred Inflow of Resources
• Recognize a deferred inflow at the beginning of the

lease term

• Use the present value of the lease payments over the

lease term plus payments received at or before the lease begins that relate to future periods

• Asset
• Continue to report the underlying asset on Lessor’s

books

1/23/2017 24

Statement of Net Position - Lessor

Leases - Lessor

• Leases – Subsequent Reporting
• Lease Payments
• Reduction of Receivable
• Interest Income
• Reduction to Deferred Inflows – Revenue
• Over the term of the lease, or
• Over a systematic and rational manner
• Asset
• Continue to report the underlying asset on Lessor’s

books

• Continue to depreciate the asset

1/23/2017 25

Leases – Lessor

• Leases - Disclosures:
• Description of lease agreement
• Total Amount of lease Revenue

Leases - General

• Leases:
• Leases with multiple components
• Separate

the Lease Component from the Non-lease Component

• Separate the underlying assets
• May treat multiple lease components as a single lease unit

in some cases

1/23/2017 26

Leases - General

• Leases:
• Combining Leases with multiple contracts
• Criteria for combined single contract
• Entered into at or near the same time
• Same Counterparty
• Certain additional criteria met
• Then evaluate as a contract with multiple components

Leases - General

• Leases:
• Amendments to lease contracts
• Modifications
• If right to use is reduced = partial termination
• Accounting
• Lessee
• Remeasure the lease liability
• Adjust lease asset accordingly
• Lessor
• Remeasure the lease receivable
• Adjust deferred inflow

1/23/2017 27

Leases - General

• Leases:
• Terminations
• Lessee
• Reduce the lease liability
• Reduce the lease asset
• Difference = a gain or loss
• Lessor
• Reduce the lease receivable
• Reduce the deferred inflow
• Difference = gain or loss

Leases - General

• Leases:
• Subleases
• Lessee now becomes the lessor
• Two separate lease agreements exist

1/23/2017 28

Leases - General

• Leases:
• Sale and Leaseback
• Must include a qualifying sale
• Otherwise the transaction is borrowing
• Separate treatment
• Sale
• Leaseback
• Difference between carrying value of the asset sold and net

proceeds = deferred inflow/outflow of resoures

• Amortize

the deferred amount

• ver

the term

• f

the leaseback

Leases - General

• Leases:
• Summary of Key Changes
• No distinction between a Capital Lease and Operating Lease
• Distinguish between long-term and short-term leases
• Use lease accounting only if ownership does not transfer
• therwise present as Financial Sale/Purchase of an Asset
• Leases report intangible asset for right to use underlying

asset, not the underlying asset itself

• Lessors continue to report the underlying capital asset and

a lease receivable

• Several new Disclosures

1/23/2017 29

Revenue and Expense Recognition

• Revenue and Expense Recognition:
• ITC Expected 1st Q 2018
• Preliminary Views Expected 4th Q 2019
• Exposure Draft Expected 2nd Q 2021
• Final Standard Expected 2nd Q 2022
• Improve information regarding revenues and expense users

need to make decisions

• Provide guidance regarding exchange and exchange-like

transactions that have not been specifically addressed

• Evaluate revenue and expense recognition in the context of the

conceptual framework

1/23/2017 30

Revenue and Expense Recognition

• Revenue and Expense Recognition:
• Should we recognize exchange transactions when the sale
• ccurs or when (or as) the obligation (contract) is fulfilled.
• New FASB guidance introduces a performance obligation

approach for revenue. Is this useful for Governments? Should it be applied to revenue and expenses?

• GASB 33 was issued prior to Concept Statement 4. Should the

concept statement be applied to revenues?

Revenue and Expense Recognition

• Revenue and Expense Recognition:
• GASB provides guidance for certain exchange transactions

such as compensated absences and postemployment benefits.

• Guidance does not exist for other types of common exchange

expenses, including salaries and circumstances when government is the customer. Should guidance be developed?

• Should

additional disclosures be made for revenue transactions?

• Should

additional disclosures be made for expense transactions that are not described in current GASB literature?

1/23/2017 31

Jerry E. Durham, CPA, CGFM, CFE

Questions?

1/23/2017 1

AGA 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

1/23/2017 2

SINGLE AUDIT UPDATE THE NEW UNIFORM GRANT GUIDANCE OR UNIFORM GUIDANCE OR “UGG” OR “SUPER CIRCULAR?”

GETTING TO THE GUIDANCE?

1/23/2017 3

1/23/2017 4

HTTPS://CFO.GOV/COFAR/

1/23/2017 5

RUNNING THE SEARCH NUMBERS

1/23/2017 6

24 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

• 45%
• 6%

+80% CURRENT ISSUES

• REPORTING PENSIONS (RULE CHANGE TO BE ISSUED) [SEE UNIFORM GUIDANCE 200.431(G)]
• SMOOTHING (SEE APPENDIX 7 OF COMPLIANCE SUPPLEMENT)
• GAGAS FINDINGS [SEE UNIFORM GUIDANCE, 200.511(A)] (OUR DEPT. OF JUSTICE REPORT)
• SEPARATE CORRECTIVE ACTION PLAN [SEE UNIFORM GUIDANCE, 200.511(C)]
• ALL GRANTS COMBINED FROM ALL SOURCES = OVER $750,000 [SEE UNIFORM GUIDANCE

200.331(F)]

• SFA ASSISTANCE AWARDS
• 23 NEW Q&AS EXPECTED SOON

1/23/2017 7

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

• pinions

expressed in this presentation are my own. They do not necessarily represent the views of the Audit Standards Board.

1/23/2017 2

Two different types of Standards:

• GASB Accounting Standards = GAAP
• How do I report numbers on the Financial

Statements

• Law vs. GAAP
• Who really sets GAAP??
• Auditing Standards
• How do I perform the audit of the numbers

Standards Setters:

• AICPA/ASB

= Generally Accepted Auditing Standards = GAAS

• GAO = Government Auditing Standards = Yellow

Book = GAGAS

• OMB?

= Single Audit Guidance = A-133/New Uniform Gudiance

1/23/2017 3

Standards Setters (cont’d):

• IFAC/IAASB (International Auditing and Assurance

Standards Board) = International Audit Standards = ISAs??

• PCAOB/SEC

= Standards for Publicly Traded Companies = AS??

• States may prescribe additional standards.

Why have Auditing Standards?

• What about light bulbs?
• What about cell phone chargers?
• What if auditors could perform audits any way they wanted to?
• Many auditing standards are driven by audit failures.
• Following standards can become a crutch that causes auditors

not to think.

It is all about Credibility!

1/23/2017 4

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)

1/23/2017 5

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

1/23/2017 6

SSAE #16, Reporting on Controls at a Service Organization

Peer Review Questions:

• If the entity uses a service organization, did the auditor:
• Obtain an understanding of the nature and significance of the services

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?

• Design and perform audit procedures responsive to those risks?
• The nature of the services provided by the service organization and the

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)

• The nature and materiality of the transactions processed or accounts or

financial reporting processes affected by the service organization

• The degree of interaction between the activities of the service
• rganization and those of the user entity
• The nature of the relationship between the user entity and the service
• rganization, including the relevant contractual terms for the activities

undertaken by the service organization

1/23/2017 7

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)

1/23/2017 8

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

• AT-C Preface
• AT-C Section 105, Concepts Common to All Attestation Engagements
• AT-C Section 205, Examination Engagements
• AT-C Section 210, Review Engagements
• AT-C Section 215, Agreed Upon Procedures
• AT-C Section 305, Prospective Financial Information
• AT-C Section 310, Reporting on Pro Forma Financial Information
• AT-C Section 320, Reporting on a Examination of Controls at a Service Organization
• AT-C Section 395, Management Discussion and Analysis

1/23/2017 9

SSAE #18, Attestation Standards: Clarification and Recodification - Convergence

Oops, Something is missing?

SSAE #18, Attestation Standards: Clarification and Recodification - Convergence

Consideration of standards of the IAASB

• International Standards on Assurance Engagements (ISAE) 3000, “Assurance

Engagements Other than Audits or Reviews of Historical Financial Information”

• ISAE 3410, Assurance Engagements on Greenhouse Gas Emissions
• ISAE 3402, Assurance Reports on Controls at a Service Organization
• ISAE 3420, Assurance Engagements to Report on the Compilation of Pro Forma

Financial Information Included in a Prospectus

1/23/2017 10

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

• r
• r

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

• n Controls at a

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?

1/23/2017 11

SSAE #18: Key Changes

Requires a written assertion from responsible party.

• If the responsible party is not the engaging party, the written assertion is not required

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)

1/23/2017 12

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

• f Financial Statements

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 13

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??

1/23/2017 14

SAS No. 131 - Amendment to SAS No. 122 Section 700, Forming an Opinion and Reporting

• n Financial Statement Audits

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

• “We conducted our audits in accordance with the [auditing] standards of the Public

Company Accounting Oversight Board and in accordance with auditing standards generally accepted in the United States of America”

Auditor Reporting, Including Going Concern

1/23/2017 15

Auditor Reporting

GOAL:

• Enhancing the communicative value and relevance of the

auditor’s report

IAASB Auditor Reporting Project

• New section:
• ISA 701, Communicating Key Audit Matters in the Independent

Auditor’s Report

• Amendments to other auditor reporting sections:
• ISA 700
• ISA 705
• ISA 706
• ISA 260
• ISA 570

IAASB Auditor Reporting Standards

Opinion section mandated first New sections:

• Key Audit Matters
• Applicable to audits of listed entities
• “What keeps the auditor up at night”
• Going Concern
• Other Information
• When presented with the audited financial statements
• Separate project to revise ISA 720

Other proposed improvements to enhance transparency and clarify responsibilities Effective for periods beginning on or after December 15, 2016.

1/23/2017 16

Illustrative ISA Report

Illustrative ISA Report

1/23/2017 17

Illustrative ISA Report

Illustrative ISA Report

• perations, or has no realistic alternative but to do so.

1/23/2017 18

Illustrative ISA Report

• ur opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit

Illustrative 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 19

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

1/23/2017 20

Going Concern – Differences between GAAP and GAAS

Period of time related to the going concern assessment

• GAAS – “reasonable period of time”: not to exceed one

year from date of financial statements.

• GAAP – one year from date of issuance of financial

statements

Going Concern Interpretations

Use applicable financial reporting framework - if GAAP, then FASB or GASB

• Definition of substantial doubt
• Definition of reasonable period of time
• Interim financial statements
• Disclosures & management’s plan

ASB looking to amend AU-C 570 (SAS 126, June 2012)

1/23/2017 21

The ASB believes the following will be the most significant changes if this proposed SAS is issued as final.

• The ASB decided that in audits of special purpose frameworks and audits of single

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.

• If the going concern basis of accounting is applicable in the preparation of financial

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.

• The exposure draft also includes proposed amendments to AU-C section 930, Interim

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.

• The proposed amendments to AU-C section 930 reflect a new requirement for the

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.

1/23/2017 22

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

1/23/2017 23

Auditor Involvement – Exempt Offerings

Exempt Offerings:

• Securities exempt from registration under

the Securities Act of 1933, as amended or

• Franchise offerings regulated by the

Federal Trade Commission.

Auditor Involvement – Exempt Offerings

Triggers for Involvement - Current:

• Assisting the entity in preparing information included in the offering document
• Reading a draft of the offering document at the entity’s request
• Issuing a comfort or similar letter in accordance with AU-C section 920, Letters for

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

• Participating in due diligence discussions with underwriters, placement agents,

broker-dealers, or other financial intermediaries in connection with an offering document

• Issuing an attestation report on information relating to the offering
• Providing written agreement (for example, an inclusion letter) for the use of the

auditor’s report in the offering document

• Signing a copy of the auditor’s report for inclusion in the offering document

1/23/2017 24

Auditor Involvement – Exempt Offerings

Triggers for Involvement:

• Should there be additional triggers?

For exempt offerings on or after June 15, 2018

Other Current and Upcoming Projects

1/23/2017 25

ENHANCING AUDIT QUALITY

A FOCUS ON PROFESSIONAL SKEPTICISM, QUALITY CONTROL AND GROUP AUDITS

KEY PUBLIC INTEREST ISSUES TO ADDRESS

• Auditing standards need to better

address increasing complexity and new technologies in the business and audit environment, and deliver against the public’s heightening expectations of audit quality

• The profile of tomorrow’s auditor

is to continue to be a critical challenger, supported by a regime focused on public interest and quality management, and well observable for stakeholders

1/23/2017 26

PROFESSIONAL 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:

• More easily adaptable to rapidly

changing business environment

• Focus on monitoring and remediation

– investigating root causes of identified deficiencies, reassessment

• f quality risks and implementing

remedial actions

• Emphasis on importance of firm

governance, including leadership responsibilities for quality

• Tone at the top – where is more

emphasis needed?

QUALITY CONTROL‒QUALITY MANAGEMENT APPROACH

1/23/2017 27

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?

1/23/2017 28

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 –

• IAASB developing exposure drafts of changes to the ISAs and ISQC 1 for

Quality Control and Group Audits

• ASB developing exposure drafts of changes to GAAS and SQCS 8 for

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

1/23/2017 29

Current and Upcoming Projects

Sustainability Reporting Direct Engagements (Exposure Proposed 1/2017)

• Non-Yellow Book Performance Audits
• New Attestation section that would not require an assertion from the responsible

party.

Specified Procedures Engagements (Exposure Proposed 1/2017) (No Written Assertions)

Generic Internal Control Attestation Standard (Other than ICFR at AU-C 501)

Related Assurance Services

Data Analytics

• New auditing guide to replace Analytical Procedures Guide
• Address use of data analytics and other analytical procedures

Cyber Security

• What’s the effect on the audit of historical financial statements?
• What types of attestation engagements could be performed?

1/23/2017 30

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

• tline.aspx

Questions

Jerry E. Durham, CPA, CGFM, CFE