22 nd Annual Governmental GAAP Update #GFOA

Transcription

1 22 nd Annual Governmental GAAP Update #GFOA Government Finance Officers Association November 2, 2017 December 7, 2017 January 18, 2018 Speakers 2 Chris Morrill, Executive Director/CEO, GFOA Todd Buikema, Acting Director, Technical Services, GFOA Peg Hartnett, Senior Manager, Technical Services, GFOA David Vaudt, Chairman, GASB Bob Scott, CFO, City of Carrollton, Carrollton, TX Melinda Gildart, Controller, Chicago Public Schools, Chicago, IL Ted Williamson, Partner, RubinBrown LLP, St. Louis, MO 1

2 Program Overview Topics 4 I. GASB Projects and Pre-Agenda Research Activities Update II. Final GASB Statements GASB Statement No. 83, Certain Asset Retirement Obligations GASB Statement No. 84, Fiduciary Activities GASB Statement No. 85, Omnibus 2017 GASB Statement No. 86, Certain Debt Extinguishment Issues GASB Statement No. 87, Leases 2

3 Topics (cont.) 5 III. GASB Implementation Guidance Guide No , Implementation Guidance Update-2017 Guide No , Financial Reporting for Postemployment Benefits Other Than Pension Plans Topics (cont.) 6 IV. GASB Exposure Drafts Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements, an amendment of GASB Statements No. 34 and No. 38 Implementation Guide No. 201X-Z, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and Certain Issues Related to OPEB Plan Reporting) 3

4 Topics (cont.) 7 V. Yellow Book Exposure Draft Update VI. Uniform Grant Guidance Update VII. Common Reporting Deficiencies CAFR Program VIII. Invitation to Comment Financial Reporting Model Improvements - Governmental Funds GASB Projects and Pre- Agenda Research Activities 4

5 Financial Reporting Model Reexamination Invitation to comment issued December 2016 Governmental funds what should they convey? Role of cash flows statements in governmental funds Approaches Considered Near-term financial resources Short-term financial resources Long-term financial resources 9 Financial Reporting Model Reexamination 10 5

6 What Did We Hear from Due Process Participants? 11 Feedback was diverse not only among the preparer, auditor, and user communities, but also within each stakeholder community Participants Feedback on: What the Focus of Governmental Funds Should Be Many supported continuing to present a shorter time perspective than the information presented in the governmentwide financial statements Challenge: conceptual foundation 12 6

7 Participants Voiced Some Support for: 13 Current financial resources with modifications Near-term approach as presented in the ITC Near-term approach with modifications Short-term approach as presented in the ITC Short-term approach with modifications Long-term approach as presented in the ITC Long-term approach with modifications Economic resources approach Additional Topics to Be Addressed in Preliminary Views: 14 Format of the government-wide statement of activities Proposal Retain current format Separate presentation of operating and nonoperating revenues and expenses in proprietary fund and business-type activity (BTA) financial statements Proposal Retain distinction Proposal Operating: derived from nonoperating Proposal Nonoperating: subsidizes received and provided; revenues and expenses of financing; disposals of capital assets; and investment income and expense Budgetary comparisons Proposal Required supplementary information Permanent funds to be deliberated 7

8 Additional Topics Expected to Be Addressed in the Exposure Draft: 15 Extraordinary and special items Management s discussion and analysis Debt service funds Revenue and Expense Recognition 16 What: Development of a comprehensive application model for recognition of revenues and expenses from nonexchange, exchange, and exchange-like transactions Why: Questions on how to account for revenues from transactions that are neither fully exchange or nonexchange; governmental revenue recognition standards not revised for many years; current literature does not provide comprehensive guidance When: Project added April

9 Topics to Be Considered 17 Should a performance obligation approach be used for transactions of a government? If so, for which transactions? Should guidance for nonexchange transactions be revised in light of GASB Concepts Statements? Should guidance be developed for exchange revenues and expenses not in the scope of existing concept-based guidance? Pre-Agenda Research Activities 18 Going Concern Disclosures Reexamination IT Arrangements including Cloud Computing Note Disclosures Reexamination Public-Private Partnerships 9

10 Going Concern Disclosures 19 What: A review of existing standards related to going concern considerations, which were incorporated into GASB literature mostly as-is from the AICPA literature in Statement 56 Why: As it is currently defined, going concern may not be meaningful for governments, which hardly ever go out of business; AICPA and others have asked the GASB to examine the issue When: Added April 2015 Information Technology Arrangements 20 What: Research current practices with respect to reporting cloud computing contracts and similar information technology (IT) arrangements and identify whether there is a need for specific guidance Why: Stakeholders are concerned that these transactions may not be covered by the guidance in Statement 51 or the new leases standards. When: The Board added the pre-agenda research in April

11 Note Disclosures 21 What: A review of existing standards related to note disclosures except for those (1) required by pronouncements that have not been effective for at least three years, and (2) related to leases, debt extinguishments, outstanding debt, conduit debt, and going concern (which are the subjects of separate projects or research) Why: A comprehensive review of note disclosures has not been conducted since 1997 When: Added April 2016 Public-Private Partnerships 22 What: Research to identify public-private partnerships (P3s) that may not be subject to Statement 60 on service concession arrangements or the new leases standards and to evaluate the effectiveness of Statement 60 Why: The GASB routinely reviews whether existing standards are meeting their intended objectives. In addition, stakeholders are concerned that some P3 transactions outside the scope of Statement 60 also not covered by leasing standards. When: Added April

12 Final GASB Statements GASB Statement No. 83 Certain Asset Retirement Obligations Issued November 2016 Effective Date: Periods beginning after June 15,

13 Background 25 Asset retirement obligation (ARO) Legally enforceable liability associated with the retirement of a tangible capital asset o Retirement = sale, abandonment, recycling, other types of disposal Results from the normal operations of capital assets Examples Costs associated with o Decommissioning nuclear reactors o Dismantling and removing sewage treatment plants o Removal and disposal of wind turbines Recognition 26 Three criteria Liability incurred and reasonably estimable Occurrence of external obligating event o Source of (potential) obligation Occurrence of internal obligating event o Circumstances that trigger the obligation 13

14 External obligating events 27 Existing laws and regulations Legally binding contracts Court judgments Internal obligating events 28 Occurrence of contamination from normal use Events other than contamination Obligation based on use? oplacing the asset into operation and consumption (mine) Obligation not based on use? oplacing the asset into operation (wind turbine) Permanent abandonment before ready for use? oabandonment (sewage treatment plant) Acquiring an asset that has an existing ARO Acquisition 14

15 Elements recognized 29 Credit - ARO liability Debit Deferred outflow of resources o Recognize as expense in a systematic and rational manner over useful life Expense o Abandonment before asset is ready for use Initial measurement 30 Best estimate of current value (not present value) of outlays expected to occur Probability weighting of potential outcomes should be used if sufficient evidence is available or can be obtained at reasonable cost o Otherwise, use most likely amount in range of possible outcomes 15

16 Initial measurement exception for minority owner Government has minority share (<50%) in a joint operation Government and one or more entities jointly own a tangible capital asset Each owner is liable for their share of the ARO Nongovernmental entity is majority owner None of owners have majority ownership of jointly owned capital asset Nongovernmental entity has operational responsibility Use nongovernmental entity s measurement of ARO using that entity's accounting standards (FASB) Measurement date no more than one year and one day prior to the government s financial reporting date 31 Remeasurement 32 Annual adjustment for effects of inflation/deflation Annual evaluation of effect of all other relevant factors Adjustment if effects on estimated asset retirement outlays are significant Examples o Change in price not attributable to inflation or deflation o Change in technology o Change in legal requirements o Change in type of equipment, facilities, or service Exception for minority ownership Use nongovernmental entity s measurement of ARO using that entity's accounting standards Measurement date no more than one year and one day prior to the government s financial reporting date 16

17 Treatment of changes in estimate 33 Prior to retirement of capital asset Prospective change in amortization After retirement of capital asset Immediate recognition Governmental funds 34 Recognize liabilities for goods and services when received to the extent due and payable 17

18 Financial assurance requirements 35 Disclose How those requirements are being met Amounts of assets restricted for payment (if not displayed separately) o Cannot offset restricted assets against the ARO Other note disclosures 36 Descriptive information about the nature and timing of AROs Methods and assumptions used to estimate AROs Estimated remaining useful life of associated assets Any liability for an ARO has not been recognized only because it is not yet reasonably estimable (and the reason) 18

19 GASB Statement No. 84 Fiduciary Activities Issued January 2017 Effective Date: Periods beginning after December 15, 2018 Fiduciary Activities 38 What: The Board issued Statement 84 in January 2017 to clarify when a government has a fiduciary responsibility and is required to present fiduciary fund financial statements Why: Existing standards require reporting of fiduciary activities but do not define what they are; use of privatepurpose trust funds and agency funds is inconsistent; and business-type activities are uncertain about how to report fiduciary activities When: Effective for reporting periods beginning after December 15, Earlier application is encouraged. 19

20 Identifying fiduciary activities 39 Fiduciary Component Units GASB 84 Pension and OPEB Arrangements That Are Not Component Units Other Fiduciary Activities Control of assets Two possibilities The primary government holds the assets, or Has the ability to direct the use, exchange, or employment of the assets Clarifications Use expends or consumes an asset for benefit of individuals, organizations, or other governments Direct designate a third party to perform a government s fiduciary duties without assuming them o Does not alter government's ability to direct the use, exchange, or employment of the assets Unaffected by restrictions on use 40 20

21 Fiduciary component units 41 Meets component unit (CU) criteria of GASB 14 Fiduciary if it is one of the following arrangements: Pension plan administered through a trust (GASB 67 paragraph 3) OPEB plan administered through a trust (GASB 74 paragraph 3) Assets accumulated for pensions not in a trust from entities not part of the reporting entity (GASB 73 paragraph 116) Assets accumulated for OPEB not in a trust from entities not part of the reporting entity (GASB 74 paragraph 59) Fiduciary component units 42 Component unit (CU) criteria of GASB 14 Fiscal accountability Board appointment Fiscal dependence Financial benefit or burden Ability to impose will Financial benefit or burden Normally, Pension and OPEB plans that are in GASB 67 and 74 compliant trusts are separate legal entities Primary government considered to have financial burden if it makes contributions to the plan Legally required or assumed the obligation 21

22 Fiduciary component units (cont.) 43 If not a pension or OPEB arrangement Considered fiduciary CU if the assets have one or more of following characteristics: Administered through a trust or equivalent, government not beneficiary Dedicated to provide benefits to recipients per the benefit terms Legally protected from the government s creditors Benefit of individuals and government does not have administrative or direct financial involvement with the assets Not derived from provision of goods and services to those individuals Benefit of organizations or other governments not part of reporting entity Not derived from provision of goods and services to those organizations or other governments Control of assets not a factor for determining if fiduciary Pension and OPEB that are not CUs 44 The government controls the assets of the pension or OPEB arrangement Pension plan administered through a trust (GASB 67 paragraph 3) OPEB plan administered through a trust (GASB 74 paragraph 3) Assets accumulated for pensions not in a trust from entities not part of the reporting entity (GASB 73 paragraph 116) Assets accumulated for OPEB not in a trust from entities not part of the reporting entity (GASB 74 paragraph 59) 22

23 Other fiduciary activities 45 Fiduciary if all three criteria met 1 Assets controlled by the government 2 3 Assets not derived from either: Own-source revenue Government-mandated nonexchange or voluntary nonexchange transactions Except pass-through grants where government has no administrative or direct financial involvement Assets have one or more characteristics: Administered through a trust, government not a beneficiary; dedicated to provide benefits to recipients per benefit terms; legally protected from creditors of government [paragraph 11c(1)] Benefit of individuals and government does not have administrative or direct financial involvement with the assets. Not derived from the government providing goods or services to those individuals Benefit of organizations or other governments not part of reporting entity. Not derived from the government providing goods or services to those organizations or other governments Fiduciary Fund Types 46 Four types of fiduciary funds Current Fiduciary Funds Pension (and other employee benefit) trust funds Investment trust funds Private-purpose trust funds Agency funds GASB 87 Fiduciary Funds Pension (and other employee benefit) trust funds Investment trust funds Private-purpose trust funds Custodial funds Agency funds replaced with custodial funds 23

24 Fiduciary Fund Types - Trusts 47 Pension (and other employee benefit) trust funds Pension and OPEB trusts compliant with GASBs 67 or 74, respectively Other employee benefit plans Trust complies with paragraph 11c(1) Contributions and earnings are irrevocable Investment trust funds External portion of investment pools and individual investment accounts Trust complies with paragraph 11c(1) Private-purpose trust funds All other trust activities Trust complies with paragraph 11c(1) Fiduciary Fund Types - Custodial 48 Custodial funds All other fiduciary activities not in a trust fund External portion of investment pool not in a trust Reported as a separate column in financial statements Have a measurement focus Reports all applicable financial statement elements Assets, deferred outflows, liabilities, deferred inflows, net position, additions, and deductions 24

25 Business-type activities 49 May report asset and liability (rather than in a fiduciary fund) for assets held for 3 months or less Statement of Cash Flows report additions and deductions in operating activities section Liability recognition 50 Compelled to disburse resources Demand for the resources has been made, or No further action or condition is required to be met to be entitled to receive the resources o Example, tax collections on behalf of other governments Applicable to investment trust funds, privatepurpose trust funds, and custodial funds Pension (and other employee benefit) trust funds follow GASBs 67 and 74 25

26 Statement of change in net position additions and deductions trust funds Additions by source Separately report o Investment income o Investment costs (that is, costs that are separable from both investment income and administrative expense) o Net investment income Deductions by type Report administrative costs Applicable to investment trust funds and privatepurpose trust funds Pension (and other employee benefit) trust funds follow GASBs 67 and Statement of change in net position additions and deductions custodial funds If resources held for three months or less Option to report single aggregated totals for o Additions o Deductions Example County collects and remits property taxes to other taxing bodies o Addition Property taxes collected for other governments o Deduction Property taxes remitted to other governments 52 26

27 GASB Statement No. 85 Omnibus 2017 Issued March 2017 Effective Date: Periods beginning after June15, 2017 (can early implement single topics) Blending component units Primary government is a business-type activity, uses single column for financial statements. Two options for reporting a blended component unit (CU): Include in single column reported for the primary government, or Present separate blended CU column within the primary government Can only use blending for CUs that meet the criteria for blending GASB 14, paragraph 53, as amended If CUs do not meet criteria for blending discretely presented must be used 54 27

28 Goodwill 55 GASB 69 guidance for goodwill: Goodwill: Difference between price paid and net position acquired o Positive amount ($ paid > net position acquired) - deferred outflow of resources o Negative amount ($ paid < net position acquired) - reduction in value of nonfinancial assets acquired Acquisitions prior to GASB 69 need to eliminate goodwill from statements of net position o Positive goodwill = reclassify as deferred outflow of resources o Negative goodwill = eliminate by an adjustment to net position Fair value measurement and application Real estate held by insurance entities Investment vs. capital asset o Old guidance = classify based on predominant use o New guidance = classify based on GASB 72 definition of investment Money market investments and interestearning investment contracts Clarify that amortized cost is an option rather than a requirement 56 28

29 Postemployment benefits Measurement of Pension/OPEB liabilities and expenditures in governmental funds Liabilities to employees measured as of the end of the reporting period Expenditures measured as of the end of the reporting period o Amounts payable to Pension/OPEB plan o Employer administrative costs for Pension/OPEB On-behalf benefit payments for postemployment benefits in governmental funds Issue GASBs 68,73, and 75 did not explicitly say onbehalf revenues/expenditures to be recorded in governmental funds Contributions made on employer s behalf +/- Adjustments to nonemployer payable + Benefits paid on employer s behalf On-behalf Expenditures/revenues 57 Postemployment benefits (cont.) 58 Payroll-Related Measures in RSI by OPEB Plans and Employers that provide OPEB OPEB Plan Statements o Contributions to OPEB Plan based on pay covered payroll o Contributions to OPEB Plan NOT based on pay no payroll measure disclosed Employers that offer OPEB o Trust used Contributions to OPEB Plan based on pay covered payroll Contributions to OPEB Plan NOT based on pay coveredemployee payroll o Trust not used - covered-employee payroll, regardless of how benefit payments are based 29

30 Employer-paid member contributions for OPEB 59 OPEB Plan should treat as employee contributions Employer should record as salaries, wages, or fringe benefits Alternative measurement method for OPEB 60 Increase in the number of simplified assumptions permitted Expected point in time when employees will exit from active service Employee turnover 30

31 OPEB provided through privatesector plans Same approach as for pension plans participating in cost-sharing private-sector plans Expense Required contributions for the reporting period Liability unpaid required contributions at end of reporting period Note disclosures Information about the plan Description of benefits and contribution requirements RSI 10 year schedule of employer s required contributions to OPEB plan 61 Effective Date 62 All topics are effective for periods beginning after June 15, 2017 Can early implement all topics or single topics Blending Goodwill Fair value measurement Timing of the measurement of Pension/OPEB Measurement of Pension/OPEB liabilities and expenditures in governmental funds and on-behalf payments OPEB plan financial statements payroll measure reported in RSI All other OPEB employer accounting and financial reporting topics 31

32 PAYMENT GASB Statement No. 86 Certain Debt Extinguishment Issues Issued May 2017 Effective Date: Periods beginning after June15, 2017 Focus on debt extinguishments using existing resources 64 SOURCE OF PAYMENT PROCEEDS OF REFUNDING DEBT EXISTING RESOURCES TO DEBT HOLDERS CURRENT REFUNDING TO TRUST WITH LEGAL DEFEASANCE TO TRUST WITH IN-SUBSTANCE DEFEASANCE ADVANCE REFUNDING FOCUS OF GASB 86 32

33 65 In-substance defeasance of debt using only existing resources Debt defeased in substance Cash and other monetary assets (not proceeds of refunding debt) with an escrow agent in a trust o Only for principal & interest payments of defeased debt o Possibility of government make future payments is remote o Essentially risk-free monetary assets (U.S. government obligations/securities): amount, timing, and collection of interest and principal o Cash flows for the monetary assets coincide to debt service payments If securities in escrow pay before scheduled maturities (i.e. callable securities) then not risk-free as to timing. Does not qualify for defeasance Defeased debt no longer a liability Recognition in financial statements 66 Economic resources (no deferral of recognition) Reacquisition price - Net carrying value of debt (loss)/gain (reported separately) Current financial resources Reacquisition price = debt service expenditures 33

34 Note disclosure 67 Period of defeasance General description of the transaction (examples) o Amount of debt extinguished o Amount placed in trust o Reasons for defeasance o Cash flows required to service the defeased debt Later periods Amount of in-substance defeased debt that remains outstanding o May be combined with amount reported in connection with other in-substance refundings Prepaid insurance on extinguished debt Include amount of remaining prepaid insurance in calculating net carrying amount of extinguished debt Applies to legal and in-substance defeasance 68 34

35 Note disclosure for debt defeased in substance If nothing prohibits the substitution of essentially risk-free monetary assets with monetary assets that are not essentially risk free In the period o Disclose that fact In all periods the defeased debt remains outstanding o Disclose the amount of outstanding defeased debt for which the risk of substitution remains 69 GASB Statement No. 87 Leases Issued June 2017 Effective Date: Periods beginning after December 15,

36 Leases 71 What: In June 2017, the GASB issued Statement 87, which establishes revised standards on lease accounting and financial reporting. Why: The previous standards had been in effect for decades without review; FASB/IASB joint project updated their lease standards; opportunity to increase comparability, usefulness of information, and reduce complexity When: New standards are effective for reporting periods beginning after December 15, Earlier application is encouraged. Current lease accounting 72 Lessee - determines type of lease Capital or Operating Transfer of ownership at conclusion Bargain purchase option Capital Lease if one criteria met, otherwise Operating Lease Lease term >= 75% of economic life of asset PV of future minimum lease payments >= 90% of FMV Lease Type Accounting accrual basis Disclosure Capital Debit: capital assets Credit: long-term debt for PV of future minimum payments Disclose future minimum payments Operating Expense payments as made Disclose future minimum payments (if noncancelable) 36

37 Scope 73 Definition of a lease A contract that conveys the right to use another entity s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction Contract legally enforceable (written or verbal) Right to use underlying asset Obtain present service capacity Determine nature and manner of use Nonfinancial asset (i.e. Land, buildings, vehicles) Not securities lending (financial asset) Scope (cont.) 74 No more capital or operating leases Excluded from scope of GASB 87 Leases for intangibles (including computer software) o Exception - Sublease of intangible right-to-use leased tangible asset Leases for biological assets Leases for inventory Leases where underlying asset financed with conduit debt o Exception - underlying asset and conduit debt reported by lessor Service concession agreements Supply contracts power purchase agreements Other exclusions Short-term leases Contracts that ultimately transfer ownership of the underlying asset to the lessee 37

38 Lease term 75 Period during which lessee has Noncancelable right to use underlying asset Plus periods where olessee or Lessor option to extend (if exercise is reasonably certain) olessee or Lessor option to terminate (if not exercising is reasonably certain) Includes fiscal funding clauses Lessee accounting economic resources measurement Initial recognition Lease asset intangible right-to-use capital asset Lease liability 76 Subsequent accounting Amortization of lease asset o Shorter of lease term or useful life of underlying asset Lease payments o Reduction of liability o Interest expense 38

39 Measurement lessee 77 Lease liability Present value (PV) of payments over lease term o Interest rate charged by lessor, or o Lessee s borrowing rate Lease asset PV of payments over lease term (lease liability) Add: Payments made at or before the beginning of the term to lessor Less: Lease incentives received from lessor beginning of the term Add: Certain direct costs to put asset into service Lessee accounting current financial resources measurement Initial recognition (same as current guidance) Expenditure capital outlay Other financing source 78 Subsequent accounting (same as current guidance) Lease payments debt service expenditures 39

40 Note disclosure lessee 79 Description of leasing arrangements Amount of lease assets Schedule of future lease payments Principal and interest listed separately 80 Lessor accounting economic resources measurement Initial recognition Lease receivable o Continue to report underlying asset Deferred inflow of resources Subsequent reporting Lease payments o Reduction of receivable o Interest revenue Reduction of deferred inflow of resources revenue o Over term of the lease o Systematic and rational manner o Governmental funds if available 40

41 Measurement lessor 81 Lease receivable PV of lease payments over lease term Deferred inflow of resources PV of lease payments over lease term Add: Payments received at or prior to the beginning of the lease that relate to future periods Lessor accounting current financial resources measurement Initial recognition Lease receivable at PV of payments Deferred inflow of resources Subsequent reporting Lease payments o Reduction of receivable o Interest revenue Reduction of deferred inflow of resources revenue o Over term of the lease o Systematic and rational manner, if available 82 41

42 Note disclosure - lessor 83 Description of leasing arrangements Total amount of lease revenue for current year Leases excluded from GASB 87 Short-term leases Definition - A lease that, at its beginning, has a maximum possible term under the contract of 12 months or less Includes options to extend Accounting Lessee o Expense based on the payment provisions of the contract o No expense for rent holidays Lessor o Revenue based on the payment provisions of the contract o No revenue for rent holidays 84 42

43 Leases excluded from GASB 87 Contracts that transfer ownership 85 Defined as contract that: Transfers ownership of the underlying asset to the lessee at end of contract, and Contains no termination options o Fiscal funding clause not applicable if reasonably certain it will not be exercised Treat as financed purchase of asset Lease incentives 86 Payment to or on-behalf of the lessee from lessor Lessee has right of offset payments are reduced A rebate or discount Lessee reduces the amount of the underlying asset and liability at beginning lease term 43

44 Contracts with multiple components 87 Contract with lease and nonlease components Separate lease component from nonlease component Treat as separate contracts Multiple underlying assets in same lease and assets have different lease terms Each underlying asset treated as separate component (lessee and lessor) Allocate contract price to each component using reasonableness and professional judgment o Prices for each component in the contract o Stand-alone prices for similar assets If cannot determine allocation, treat as a single-lease unit Contract combinations 88 Criteria for treating as a single contract Entered into at or near the same time with the same counterparty and one of the following: o Negotiated as a package with a single objective o Consideration paid in one contract depends on the price or performance of the other contract Then, evaluate as a contract with multiple components 44

45 Lease modifications 89 Amendments to lease contracts Normally a modification o If right to use reduced = partial termination Treatment of modification Separate lease or Remeasurement of existing lease Treat as separate lease if both exist: Lessee receives one or more underlying assets not part of original lease Increased payments for additional asset are not unreasonable If both not met, then remeasurement Lease modifications (cont.) 90 Remeasurement Lessee o Remeasure lease liability o Adjust lease asset difference between remeasured liability and liability before lease modification Lessor o Remeasure lease receivable o Adjust deferred inflow of resources difference between remeasured receivable and receivable before remeasurement 45

46 Terminations 91 Lessee s right to use asset is reduced Lease term shortened Number of assets reduced Treatment Lessee o Reduce lease liability and asset o Difference = gain/loss Lessor o Reduce lease receivable and deferred inflow o Difference = gain/loss Subleases 92 Treated as a separate transaction Lessee now also the lessor No offset of transactions o Original lessee Right to use asset and liability (original lease) Receivable and deferred inflow of resources (sublease) 46

47 Effective date 93 Periods beginning after December 15, 2019 Apply retroactively Facts and circumstance of the lease in period of implementation GASB 87 (not inception of the lease) o Use remaining lease payments at beginning of period Restate beginning net position in period of implementation Begin analysis now Need to accumulate all lease contracts Potential issues with debt limits, compliance with debt covenants, and statutes Question 1 94 Which of the following is a criteria for recognizing an asset retirement obligation? A. Liability reasonably estimable B. Occurrence of external obligating event C. Occurrence of internal obligating event D. All of the above 47

48 Question 2 95 Which of the following is not a fiduciary fund type under GASB Statement 84? A. Pension (and other employee benefit) trust funds B. Investment trust funds C. Agency funds D. Private-purpose trust funds Question 3 96 City A administers an investment pool for its investments and other external local governments. The investment pool is not held in a trust that meets the criteria of GASB 84. How should the external portion of the investment pool be reported in City A s financial statements? A. Investment trust fund B. Private-purpose trust fund C. Custodial fund D. Permanent Fund 48

49 Question 4 City A has negative goodwill on its statement of net position as a result of an acquisition that occurred prior to the issuance of GASB 69, Government Combinations and Disposals of Government Operations. How should City A report the goodwill after it implements GASB 85, Omnibus? 97 A. Eliminate by an adjustment to net position B. Reclassify to a deferred inflow of resources C. Reduce the amount of the asset acquired D. Do nothing; continue to report the unamortized balance Question 5 98 GASB 86, Certain Debt Extinguishment Issues, requires which of the following to be disclosed in the notes to the financial statements for all in-substance defeasances? A. Amount of in-substance defeased debt that remains outstanding B. Ability to substitute essentially risk-free monetary assets with not essentially risk free monetary assets C. General description of the defeasance D. Both A and B E. All of the above 49

50 Question 6 99 Under GASB 87, Leases, which elements will a lessee report in its government-wide statement of net position? A. Tangible capital asset B. Intangible asset right-to-use C. Lease liability D. None of the above E. B and C Question Under GASB 87, Leases, which elements will a lessor report in its government-wide statement of net position? A. Capital asset (asset being leased to lessee) B. Lease Receivable C. Deferred inflow of resources D. All of the above E. B and C 50

51 Question Under GASB 84, Fiduciary Activities, all pension trust funds that meet the definition of a trust in GASB 67 should be reported in the government employer s fiduciary fund financial statement? A. True B. False GASB Implementation Guidance 51

52 GASB Implementation Guide No , Implementation Guidance Update Issued April 2017 Effective Date: Periods beginning after June 15, 2017 Scope new questions Pension plan and employer accounting and reporting Cash flow reporting, reporting entity, certain investments and external investment pools, fund balance reporting, and tax abatements 33 amended questions 52

53 Financial reporting entity [4.2] 105 Use blending method for separate legal LLC in which a government is sole corporate member, no separate board for the LLC, the government is responsible for managing the operations of the LLC including approval of budgets Blending test - substantially same governing body and financial benefit/burden or management of primary government has operational responsibility for the component unit Since the LLC does not have its own board, the sole corporate member s board (the government) is equivalent to the component unit having the same board as the government More than one trust [4.3] 106 Multiple trusts that meet criteria of GASB 67 established for a single employer pension plan Assets can be used interchangeably for benefit payments Considered in the aggregate, the fiduciary net position of the pension plan Unless a legal restriction that limits the use of the assets for a specific subset of plan members, the arrangement is one pension plan administered using multiple trusts 53

54 Stabilization trusts [ ] 107 Facts Two trusts for one pension plan (single employer, agent-multiple employer, or cost-sharing multiple-employer plan) Trust A complies with GASB 67/68 Trust B o Contributions are irrevocable o Contributions are protected from creditors of the employer government o Contributions can only be used for benefit payments, government must transfer monies to Trust A Can both trusts be treated as the pension plan (GASB 67) and reduce employer s pension liability (GASB 68)? Stabilization trusts [ ] (cont.) Only Trust A is part of the pension plan and used to offset employer s pension liability Trust B does not meet all three tests to be a trust The government has to move the monies from Trust B to Trust A no present service capacity to Trust A o Assets are legally restricted for benefit payments o Not accessible to the pension plan Employer government should report the assets of Trust B in its financial statements as restricted assets

55 109 Pension and OPEB in same trust [4.16] Employer makes contributions to a trust that administers pension and OPEB benefits Complies with GASB 67 for pension plan Complies with GASB 74 for OPEB plan Need to separate pension assets from OPEB assets for financial reporting Two separate plans reported Employer should establish policy for how to allocate contributions Employer paid benefits [4.17] 110 GASB 67 trust provides pension benefits Employer makes contributions to trust Employer paid benefits to inactive employees using employer assets Trust should report all activity of the pension plan, not just the trust Include payments made by employer to beneficiaries as additions and deductions for the amount paid by employer o If not reimbursed by trust 55

56 No stand-alone report [4.18] 111 Pension plan does not issue a standalone report Government required to make all necessary GASB 67 disclosures and RSI in government's financial statements 112 Subsequent changes to benefits [4.21] Significant changes made to a pension plan after the plan s fiscal year-end, but before issuance of financial statements Disclose as a subsequent event Not reflected in the employer s measurement of net pension liability as of fiscal year-end 56

57 No trust [4.25] 113 No pension plan reporting required if there is no trust that complies with GASB 67 paragraph 3 Assets accumulated for defined benefit pension reported as assets of the employer Component units [ ] 114 Primary government (PG) and its component unit (CU) provide pensions through same cost-sharing plan PG and CU are classified as one employer Recognition and measurement each a separate employer Apply cost-sharing requirements of GASB 68 CU follow GASB 68 for note disclosure and RSI in its financial statements Reporting entity statements need to distinguish between PG and discretely presented CU in notes and RSI 57

58 Investment in external pool measurement and reporting [4.36] Local government has investment in an external investment pool If external pool can use amortized cost and does so, local government reports its position at amortized cost o Not categorized as part of fair value hierarchy levels 1, 2, or 3 If external pool uses fair value, local government reports its position at fair value o Not required to be categorized as part of fair value hierarchy levels 1, 2, or Fund balance reporting [4.38] 116 Required to disclose purposes for restricted, committed, and assigned fund balance Face of balance sheet or in notes Minimum level of detail equal to requirement for expenditures function level General government, public safety, highways and streets, etc. Can provide more detail for fund balance than expenditures 58

59 Tax abatement disclosure [4.39] 117 Government agrees to not levy property tax for a company s office moving into the government s jurisdiction All other property not part of agreement is levied the maximum amount Overall property taxes for the government will remain the same as previous year Since the government is forgoing property taxes from the company, this qualifies as a tax abatement Net effect on overall revenue not relevant to determine if there is a tax abatement GASB Implementation Guide No , Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans Issued April 2017 Effective Date: Periods beginning after December 15, 2016; except questions 4.80, 4.144, and effective periods beginning after June 15,

60 Scope questions regarding GASB 74 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans Scope and applicability of GASB 74 Types of OPEB and OPEB plans Defined benefit OPEB plans administered through trusts, including financial statement reporting Measurement of the net OPEB liability Several questions same as Comprehensive Guide and Guide Replace pension with OPEB Scope (cont.) 120 Several questions same as Guide - Replace pension with OPEB. Guide [5.60.1] Q Does Statement 67, as amended, require that stand-alone financial reports be issued for defined benefit pension plans? Guide [4.1] Q Does Statement 74 require that stand-alone financial reports be issued for defined benefit OPEB plans? [5.60.2] Q A city reports a singleemployer defined benefit pension plan as a pension trust fund in its basic financial statements. The plan issues a stand-alone financial report prepared in conformity with the requirements of Statement 67, as amended. Does the city have to apply all the requirements of Statement 67, as amended, for the pension trust fund? [4.2] Q A city reports a singleemployer defined benefit OPEB plan as a trust fund in its basic financial statements. The plan issues a standalone financial report prepared in accordance with the requirements of Statement 74. Does the city have to apply all the requirements of Statement 74 for purposes of reporting the trust fund in its financial report? 60

61 Scope (cont.) 121 Several questions same as Guide - Replace pension with OPEB. Guide [4.3] Q If more than one trust that meets the criteria in paragraph 3 of Statement No. 67, Financial Reporting for Pension Plans, has been established to accumulate assets for purposes of providing pensions through a single-employer pension plan and assets in any of the trusts may be used interchangeably to make benefit payments to any plan member, does Statement 67 apply to the separate reporting of each trust? Guide [4.38] Q If more than one trust that meets the criteria in paragraph 3 of Statement 74 has been established to accumulate assets for purposes of providing OPEB through a singleemployer OPEB plan and assets in any of the trusts may be used interchangeably to make benefit payments to any plan member, does Statement 74 apply to the separate reporting of each trust? Number of entities [4.6] 122 Can have multiple entities responsible for handling the functions of OPEB plan Investing of the funds Payment of benefits to beneficiaries GASB 74 still applicable if functions of OPEB plan handled by different entities If plan is a trust entities should consult GASB 14, paragraph 19 to determine who reports the trust If not a trust reported as employer or nonemployer contributing entity s assets 61

62 123 Reimbursements to employer [4.11] Employer pays beneficiaries OPEB benefits OPEB trust reimburses the employer for benefits paid Reimbursements do not violate the trust criteria of paragraph 3a Contributions from employers and nonemployer contributing entities to the OPEB plan and earnings on those contributions are irrevocable Payments for benefits that are due and reimbursed to employer are deductions from OPEB trust OPEB and other benefits in trust [4.12] 124 Single trust administers OPEB and pensions Can qualify as a GASB 74 OPEB trust Assets are allocated to OPEB (OPEB partition) Ensure that assets are dedicated to paying OPEB 62

63 OPEB vs. pension [4.13] 125 Pension plan provides postemployment health insurance subsidy to retirees and beneficiaries Monthly cash payment No limitations on use of payment The subsidy is retirement income Not limited to healthcare costs Retirement income is pension, not OPEB OPEB vs. pension [4.14] 126 Postemployment benefit plan provides an amount to retirees and beneficiaries Defined in dollars or a formula Limited to: o Offset retiree s healthcare premium costs, or o Reimbursement of healthcare costs provide proof of payment The benefit is OPEB Does not matter if a fixed dollar amount or formula Payment is limited to postemployment healthcare cost 63

64 Termination benefits [4.19] 127 Postemployment healthcare provided to retirees over a certain age Government offers early retirement incentive to get healthcare benefits at an earlier age Termination benefit that enhances an existing postemployment benefit = OPEB Included as part of the net OPEB liability 128 Defined benefit or contribution [4.27] Employer pays OPEB plan members a specified dollar amount during retirement Only can be used for healthcare Defined benefit plan Must be paid to an active plan member to qualify as defined contribution plan Payments being made after termination of employment 64

65 129 OPEB plan deductions [4.64] A self-insured OPEB plan with inactive plan members (retirees) that contribute to the plan Benefit payments to be reported by OPEB plan Claim costs for inactive plan members Amounts required to be paid by inactive plan members Benefit Payments Question City A has a single-employer pension plan for its employees that is not administered through a trust that complies with paragraph 3 of GASB Statement 67. How should City A report the assets accumulated for pension purposes? A. Not at all B. As assets of the employer C. In an Agency Fund 65

66 Question What is the minimum level of disclosure for restricted, committed, and assigned fund balance (face of statements or notes)? A. Legal level of budgetary control B. Object level (salaries, benefits, etc.) C. Program level (police, fire, etc.) D. Function level (general government, public safety, etc.) Question A pension plan provides a monthly postemployment cash subsidy payment to retirees, no restrictions on how the payment can be used. How should the payment be classified? A. OPEB B. Pension C. Either A or B D. None of the above 66

67 Question 12 City A offers an early retirement incentive to employees in the form of five additional years of healthcare insurance in the City s preexisting postemployment healthcare program. How should City A classify the early retirement incentive? A. Termination benefits B. Pension C. OPEB D. B or C 133 GASB Exposure Drafts 67

68 Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements an amendment of GASB Statements No. 34 and No. 38 Issued June 29, 2017 Proposed Effective Date: Periods beginning after June 15, 2018 Issues 136 Definition of debt Additional note disclosures for debt Separate information for direct borrowings and direct placement of debt Exposure Draft Final wording may change 68

69 Proposed definition of debt 137 A liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of payment of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established. Exposure Draft Final wording may change Definition of debt (cont.) 138 Interest that accrues or is variable does not preclude the liability from being considered debt Capital appreciation bonds Variable rate debt Does not include Leases (GASB 87) or Trade accounts payable 69

70 Debt note disclosures 139 If applicable, following debt related items to be included in notes to financial statements (in addition to other required debt disclosures) Amount of unused lines of credit Collateral pledged as security for debt Terms specified in debt agreements related to significant: o Events of default with finance-related consequences o Termination events with finance-related consequences o Subjective acceleration clauses Debt note disclosures (cont.) 140 Information about direct borrowings and direct placements should be separate from other debt Changes in long-term debt Repayment schedules Collateral secured for debt Significant of events of default with finance-related consequences Termination events with finance-related consequences Subjective acceleration clauses Exposure Draft Final wording may change 70

71 Implementation Guide No. 201X-Z, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and Certain Issues Related to OPEB Plan Reporting) Issued June 28, 2017 Proposed Effective Date: Periods beginning after June 15, 2017 (certain questions effective periods beginning after June 15, 2018) Scope questions regarding GASB 75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions Scope and applicability of GASB 75 Types of OPEB Defined benefit OPEB, including financial statement reporting Measurement of the net OPEB liability Special funding situations OPEB not administered through a trust Alternative measurement method Four questions deal with the GASB 74 All but 32 have not been addressed by previous implementation guidance as related to pensions and OPEB Replace pension with OPEB Exposure Draft Final wording may change 71

72 Scope (cont.) 143 Several questions same as Guide - Replace pension with OPEB. Guide [ ] Q - A single or agent employer provides pensions to its employees through a defined benefit pension plan that is administered through a trust that has the characteristics identified in paragraph 4 of Statement 68. The employer does not have a special funding situation (as defined by paragraph 15 of Statement 68) and does not have a payable to the pension plan. If there is no requirement that the employer make contributions to the plan, does Statement 68, as amended, apply to the employer? Guide 201X-Z [4.1] Q - A single or agent employer provides OPEB to its employees through a defined benefit OPEB plan that is administered through a trust that has the characteristics identified in paragraph 4 of Statement 75. The employer does not have a special funding situation (as defined by paragraph 18 of Statement 75) and does not have a payable to the OPEB plan. If there is no requirement that the employer make contributions to the plan, does Statement 75, as amended, apply to the employer? Exposure Draft Final wording may change GASB 10 for postemployment benefits [4.7] An employer accounts for active-employee healthcare benefits in accordance with the requirements of GASB Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues The employer may not use the requirements of GASB 10 to account for postemployment healthcare GASB 10 excludes postemployment benefits Follow GASB 75 for postemployment benefits Exposure Draft Final wording may change

73 OPEB or pension [4.14] 145 An employer provides pensions through a GASB Statement 67 trust. In addition to pension benefits, the employer also provides life insurance and long-term care benefits through the same trust Life insurance and long-term care benefits should be treated as pension benefits Employer to follow the guidance of GASB Statement 68, as amended Exposure Draft Final wording may change Administrative costs [4.86/4.226/4.375/5.1] A government uses a third-party to administer its postemployment healthcare program Should the administrative fee assessed by the thirdparty be classified as administrative cost or a benefit payment? If the fee is classified as an administrative cost, it would not be included in the projection of benefits for determining the OPEB liability If the third-party administration fee is directly related to the payment of medical claims, it should be classified as benefit payments, not administrative costs Exposure Draft Final wording may change

74 147 Administrative costs [4.104/4.240/5.2] A government is required to project the OPEB plan s fiduciary net position in order to determine the discount rate As part of the projection, a government should include administrative expenses as deductions from the OPEB plan s fiduciary net position Exposure Draft Final wording may change Attribution period [4.109/4.245/4.387/5.3] A government provides OPEB and the plan documents specify that employees will become ineligible for OPEB when they attain a specified age The government expects that employees will be employed past the specified age The ineligible years are not included as part of the attribution period Last day of active service = day of ineligibility 148 Exposure Draft Final wording may change 74

75 Employer fund balance [4.348] 149 A government provides OPEB through a plan that is not administered through a trust that meets the criteria in paragraph 4 of GASB Statement 75 A portion of fund balance of one of its governmental funds is for OPEB purposes Report the fund balance as assigned or committed to OPEB Exposure Draft Final wording may change Experience-rated claims [4.379] A government provides postemployment healthcare to retirees Retirees are experience-rated separately from active employees Retiree premiums reflect the retiree projected claim costs Retirees pay the full amount of the retiree premiums The government would not have an OPEB liability to be measured and reported under GASB Statement No. 75 Exposure Draft Final wording may change 150 Total claim costs or ageadjusted premiums approximating claims costs - Amounts required to be paid by retirees OPEB Liability 75

76 Question Which of the following are not included within the scope of the proposed debt disclosures exposure draft? A. Fixed rate bonds B. Leases C. Variable rate bonds D. Capital appreciation bonds Question The proposed disclosures in the exposure draft Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements, does which of the following? A. Replaces all previous existing required debt disclosures B. Only applies to Direct Borrowings and Direct Placements C. Requires additional debt disclosures 76

77 Question If a government provides postemployment healthcare through the GASB 67 pension trust, how should the government measure and report the postemployment healthcare? A. Pension liability, GASB 68 B. OPEB liability, GASB 75 C. None of the above Yellow Book Exposure Draft Update 77

78 Background 155 Government Auditing Standards/ Generally Accepted Government Auditing Standards (GAGAS)/ Yellow Book Issued by United States Government Accountability Office Provides standards and requirements for auditor and audit organizations o Independence o Continuing professional education o Quality control o Peer reviews o Reporting State and local governments who require a single audit are subject to the requirements of the Yellow Book Background (cont.) 156 Yellow Book last updated in 2011 Exposure draft of proposed changes issued in April 2017 New format that differentiates requirements from application guidance Updated internal control requirements and guidance Revised CPE requirements to ensure greater auditor proficiency in GAGAS Revised peer review and independence requirements New requirements for reporting waste that is detected during an audit 78

79 Proposed changes Independence Auditors need to be independent of the governmental agencies that they audit Yellow Book identifies three nonaudit services that impair auditor independence [3.88] Independence impaired 157 Determining or changing journal entries, account codes or classifications for transactions, or other accounting records for the entity without obtaining management s approval Authorizing or approving the entity s transactions Preparing or making changes to source documents without management approval 158 Proposed changes Independence (cont.) Significant threats to auditor independence [3.89] Not prohibited, but auditors need to document why independence is not impaired if these services are provided Significant threats Recording transactions for which management has determined or approved the appropriate account classification, or posting coded transactions to an audited entity s general ledger Posting entries that have been approved by an audited entity s management to the entity s trial balance Preparing account reconciliations that identify reconciling items for the audited entity management s evaluation Preparing financial statements based on information in the trial balance 79

80 159 Proposed changes waste and abuse Auditors would be required to report waste or abuse material to financial statements [6.16] If they become aware, perform additional procedures Also would apply to entity's operations Waste and abuse reporting requirements applicable to: o Attestation engagements and reviews of financial statements [7.41] o Performance audits [9.33] If performed under Yellow Book standards Proposed changes waste and abuse (cont.) Waste Definition The act of using or expending resources carelessly, extravagantly, or to no purpose Involves the taxpayers not receiving reasonable value for money in connection with any government-funded activities because of an inappropriate act or omission by parties with control over or access to government resources Can include activities that do not include abuse and does not necessarily involve a violation of law Relates primarily to mismanagement, inappropriate actions, and inadequate oversight 80

81 Proposed changes waste and abuse (cont.) Abuse Definition A behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and circumstances Excludes fraud and noncompliance with provisions of laws, regulations, contracts, and grant agreements Includes misuse of authority or position for personal financial interests or those of an immediate or close family member or business associate Because the determination of abuse is subjective, auditors are not required to perform procedures to detect abuse in financial audits Auditors may discover that abuse is indicative of fraud or noncompliance with provisions of laws, regulations, contracts, and grant agreements Proposed changes findings [6.20] If a finding, auditors required to report: Criteria Condition Cause Effect Auditors would have to consider potential internal control deficiencies when developing the cause of the finding

82 Uniform Grant Guidance Update OMB Uniform Guidance 164 December 26, 2013 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards issued Codified into Title 2, Part 200 of the Code of Federal Regulations Supersedes Circular A-133 and prior cost circulars Referred to as the Uniform Guidance or UG 82

83 Effective Dates 165 Federal agencies were required to implement the requirements by December 26, 2014 Non-Federal entities were required to implement the new administrative requirements and cost principles beginning December 26, 2014 Applied to new and incrementally funded awards issued on or after December 26, 2014 The effective date of the UG to subawards was the same as the effective date of the federal award from which the subaward is made Effective Dates (cont.) 166 New Single Audit requirements were effective for fiscal years beginning on or after December 26, 2014 First effective for December 31, 2015, fiscal year ends All 2016 and later single audits should be performed under the Uniform Guidance only There is no circumstance where the auditor would perform the audit under both Circular A-133 and UG Should be in year 2 of the audit requirements 83

84 Single Audit Compliance Supplement Effective for fiscal years ending June 30 or later in the year issued 2017 Compliance Supplement issued August 16 /files/omb/circulars/a133/2017/compliance_supp lement_2017.pdf 2016 Compliance Supplement can be found at The former OMB website was relocated during transition to Trump administration Procurement Requirements 168 The UG defines five methods of procurement to be used: Micro purchases less than $3,500 ($10,000 for institutions of higher-education, not-for-profits related to higher ed, not-for-profit research organizations, independent research institutes) Small purchases $3,500 to $150,000 (the Simplified Acquisition Threshold) Sealed bid purchases Over $150,000; preferred for construction Competitive proposal purchases Over $150,000; used when a sealed bid is not appropriate Noncompetitive purchases Special circumstances applicable to all levels 84

85 Procurement Grace Period 169 The Federal government is providing a grace period after the effective date for non- Federal entities to comply with the procurement standards Grace period is three full fiscal years after the effective date of the UG, which was December 26, 2014 (implementation for fiscal years beginning on or after December 26, 2017) o The non-federal entity must document whether it is in compliance with the old or new standard, and must meet the documented standard Procurement Grace Period (cont.) 170 For example, for a non-federal entity with a June 30 year end, implementation would be required during the year ending June 30, The Single Audit Compliance Supplement will instruct auditors to review procurement policies and procedures based on the documented standard. For future fiscal years, all non-federal entities will be required to comply fully with UG. 85

86 Other Single Audit Developments 171 June 15, 2017, COFAR (Council on Financial Assistance Reform) was rescinded Existing FAQs remain in force, and new FAQs were added in July Possible change to format of CFDA # s effective October 1, 2018 Change from ##.### format to ###.#### format Prefix will align with 3-digit Common Governmentwide Accounting Classification (CGAC) agency code used in the Treasury Account Symbol (TAS) listed in Circular A-11, Appendix C Other Single Audit Developments (cont.) Pilot project ongoing to evaluate using Data Collection Form to replace SEFA OMB single audit quality study Required by UG Section to be conducted every 6 years and the results made public Will cover submissions to clearinghouse in 2018 Study likely to take place in 2019 or 2020 Ongoing AICPA peer review oversight for single audit engagements

87 Single Audit Resources 173 Single Audit Compliance Supplement Code of Federal Regulations (CFR) Available at Also can simply enter relevant CFR section into Google Council on Financial Assistance Reform (COFAR) Frequently asked questions are available at COFAR/COFAR resources UniformGuidanceFrequentlyAskedQuestions.pdf Question Under the proposed Yellow Book changes, which of the following would not impair an auditor s independence? A. Posting journal entries to a government s general ledger without management s approval B. Preparing the government's financial statements C. Authorizing transactions D. Making changes to the capital assets subledger without management s approval E. All of the above 87

88 Question How many years is allowed by the UG for non- Federal entities to implement the procurement requirements? A. 1 B. 2 C. 3 D. 5 E. None Common Reporting Deficiencies CAFR Program 88

89 Letter of Transmittal 177 Government is transmitting the audited financial statements Cannot transmit something you do not have Date of transmittal letter cannot be before the date of the independent auditor s report Dated on or after independent auditor s report date [GAAFR, 592] MD&A 178 GASB 34 requires An analysis of balances and transactions of individual major funds. Reasons for significant changes in fund balance/fund net position not just dollar amount or percentage of changes Any restrictions, commitments, or other limitations significantly affect fund resources for future use Missing the analysis Not addressing all major funds with significant changes in fund balance/net position 89

90 MD&A 179 Deferred outflows and inflows are separate elements Governments combining deferred outflows with assets and deferred inflows with liabilities in condensed statement of net position. Governmental Activities Assets Current and other assets $ 100 $ 85 Capital asset, net Total Assets $ 190 $ 173 Deferred outflows of resources $ 50 $ 48 Liabilities Current and other liabilities $ 45 $ 46 Long-term liabilities Total Liabilities $ 105 $ 101 Deferred inflows of resources $ 44 $ 40 MD&A 180 Condensed statement of activities Need to include the ending net position Amounts in MD&A should agree with amounts reported in financial statements 90

91 181 Calculation of net investment in capital assets Should include All the capital assets (e.g., land and construction in progress, intangibles) Capital related debt (e.g., retainage payable) Deferred amounts from refundings in the calculation Should exclude unspent debt proceeds The liability related to the unspent portion of a debt issuance should be included in the same component of net position as the unspent proceeds Calculation of net investment in capital assets Debt used to acquire, construct or improve capital assets Capital Assets, net of accumulated depreciation $ 100,000 Less outstanding amounts of: Bonds (50,000) Mortgages (10,000) Notes (15,000) Other borrowings/liabilities (20,000) Deferred inflows of resources related to refunding capital debt (450) Add deferred outflows of resources related to refunding capital debt 250 Net investment in capital assets $ 4,

92 Major Funds 183 Funds that meet the 10% and 5% test are not being reported as major funds Governments are excluding deferred outflows and inflows of resources from the calculation Other financing sources and uses 184 Only items defined by GASB can be other financing sources and uses Governments including other items in the governmental funds statement of revenues, expenditures, and changes in fund balances Other Financing Sources 1. Issuance of long-term debt 2. Inception of a capital lease 3. Sales of capital assets 4. Insurance recoveries 5. Transfers in Other Financing Uses 1. Original issue discount on debt 2. Payments to advance refunding escrow agent 3. Transfers out 92

93 Other financing sources and uses 185 Amounts of long-term debt issuances in the governmental funds statement of revenues, expenditures, and changes in fund balances Amounts of the related additions to longterm debt disclosed in the notes to the financial statements = Fund balance 186 Only the general fund should report nonspendable fund balance for long-term loans and notes receivable long-term interfund receivables property held for resale Only the general fund should report positive unassigned fund balance 93

94 187 Proprietary funds capital contributions Capital contributions should be reported on the statement of revenues, expenses, and changes in net position if they are reported as capital grants and contributions on the statement of activities Proprietary funds statement of cash flows 188 Cash receipts and cash disbursements generally should be reported gross rather than net Transfers in and out Investment purchases and sales The noncash portion of the capital contributions should be included in the schedule of noncash investing and financing activities 94

95 Proprietary funds statement of cash flows Cash flows not properly reported in some other category should be included as part of cash flows from operating activities 189 Noncapital Financing Capital and Related Financing Investing Grants Taxes Transfers/Interfunds Borrowings Capital outlays Sale/Disposition of capital assets Grants and Taxes (must be restricted for capital items) Capital borrowings Investment income Purchases and Sales of Investments Component unit disclosures 190 Need to describe why a component unit is discretely presented both factors need to be disclosed Fiscal dependence + Financial benefit or burden relationship Board appointment + Financial benefit or burden relationship Board appointment + Ability to impose will 95

96 Component unit disclosures 191 Need to describe why a component unit is blended Substantively the same governing body + financial benefit or burden Substantively the same governing body + operational responsibility Service or benefit (almost) exclusively to the primary government Total debt repayable (almost) entirely from resources of the primary government Primary government is sole corporate member of not-forprofit corporation Governments will not report the second factor for same governing body Pension disclosures 192 Need to disclose the primary government s pension note disclosures separately from the discretely presented component units notes disclosures Description of the plan: disclose whether the pension plan is a single-employer, agent multiple-employer, or cost-sharing multipleemployer defined benefit plan Separate disclosures for each plan 96

97 Pension disclosures 193 Disclose the amounts of the of deferred outflows and inflows of resources Deferred Deferred for each plan outflows inflows Totals should equal amounts of resources of resources Difference between expected and in basic statements Schedule of the net amount of deferred outflows and inflows of resources separately for each plan that will be recognized in the employer's pension expense for each of the subsequent five years, and, at a minimum, in the aggregate for subsequent years. Should not include amount of contributions made subsequent to measurement date actual experience $ - $ 152,300 Changes in assumptions 130,251 - Earnings on pension plan investments 2,450,100 - Contributions made subsequent to the measurement date 458,622 - Total $ 3,038,973 $ 152, $ 458, , , , ,510 Thereafter 755,811 Total $ 2,428,051 Pension disclosures 194 Contributions made subsequent to measurement date Need to disclose the amount It is not part of expense in subsequent years Disclose that it will be recognized as a reduction of the net pension liability in the subsequent fiscal year 97

98 Other note disclosures 195 Donated capital assets are reported at acquisition value, not fair value. Need to update the Summary of Significant Accounting Policies The government should disclose information for each type of asset measured at fair value Not required for positions in external investment pools Required Supplementary Information 196 GASB 68 requires schedule of employer contributions Information should be as of the most recent fiscal year end, not measurement date Actuarially determined contribution $ 79,713 $ 86,607 $ 89,828 $ 91,963 Contributions in relation to the actuarially determined contribution $ 79,713 $ 86,607 $ 89,828 $ 91,963 Contribution deficiency (excess) $ - $ - $ - $ - Covered payroll $ 449,293 $ 436,424 $ 416,243 $ 407,812 Contributions as a percentage of covered payroll 17.74% 19.84% 21.58% 22.55% 98

99 Combining and individual fund statements and schedules 197 Budgetary reporting CAFR Program Include budgetary comparisons for nonmajor special revenue funds, debt service funds, capital projects funds, and permanent funds that have legally adopted annual budgets Report at the legal level of budgetary control Including general fund & major special revenue funds if not presented in basic statements or RSI Statistical section 198 The amounts presented in the debt capacity schedules should be the same amounts reported in the basic financial statements Include premiums and discounts on bonds Include all the governmental activities debt for the direct debt in the direct and overlapping debt statistical table 99

100 Statistical section 199 The ratio of debt service as a percentage of noncapital expenditures is not calculated correctly Principal + Interest Total Expenditures - Capital Outlay Capital outlay is the amount from the reconciliation of the statement of revenues, expenditures, and changes in fund balances to the statement of activities Invitation to Comment Financial Reporting Model Improvements Governmental Funds 100

101 Financial Reporting Model 201 In December 2016, GASB issued Invitation to Comment (ITC) on Financial Reporting Model Improvements Governmental Funds The ITC provides options for: Recognition approaches measurement focus and basis of accounting o What to measure and when to measure it Format of the governmental funds statement of resource flows Specific terminology Reconciliation to the government-wide statements For certain recognition approaches, a statement of cash flows Recognition approaches 202 Three approaches presented in ITC to replace current financial resources/modified accrual Near-term financial resources Short-term financial resources Long-term financial resources 101

102 Recognition approaches: Near-term approach 203 Governmental funds focus on balances and flows of resources relevant to near-term spending near-term = collected or normally paid within 60 to 90 days of the end of the fiscal year Financial resources resources that are expected to be converted into cash Recognition approaches: Nearterm approach 204 Changes to governmental funds balance sheet No longer report on balance sheet Inventories and prepaids (the use of the consumption method would no longer be permitted). Receivables that are not collectible within 60 to 90 days. Revenue anticipation notes (RANs) and tax anticipation notes (TANs) that are not due within 60 to 90 days. Begin to report on balance sheet Accrued interest (if payable at fiscal year end and due within 60 to 90 days). Compensated absences (if payable at fiscal year end and due within 60 to 90 days). Postemployment benefits (if payable at fiscal year end and due within 60 to 90 days). No capital assets and long-term debt 102