Understanding Your Financial Statements

Transcription

1 Understanding Your Financial Statements NHSAA & NHASBO BEST PRACTICES CONFERENCE & PLODZIK & SANDERSON, PA SCOTT EAGEN, CFE SENIOR MANAGER

2 What s In Your Annual Financial Report * Independent Auditor s Report * Managements Discussion and Analysis (MD&A) * Government-wide Financial Statements * Fund Financial Statements * Notes to the Basic Financial Statements * Required Supplementary Information (RSI) * Combining and Individual Fund Schedules * Management Letter

3 The Independent Auditor s Report

4 Introductory Paragraph * We have audited the accompanying financial statements of the governmental activities, each major fund, and aggregate remaining fund information of the NH School District as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the School District s basic financial statements.

5 Management s Responsibility for the Financial Statements * Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

6 Auditor s Responsibility * Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

7 Auditor s Responsibility cont. * An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

8 Auditor s Responsibility cont. * In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion.

9 Auditor s Responsibility cont. * An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. * We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

10 Opinions * In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and aggregate remaining fund information of the NH School District, as of June 30, 2017, and the respective changes in financial position, the respective budgetary comparison for the general fund for the year then ended in accordance with accounting principles generally accepted in the United States of America.

11 Different Types of Opinions * Unmodified * Financial Statement Issues Departures from GAAP * Qualified Opinion * Adverse Opinion * Audit Issues Scope Limitations * Qualified Opinion * Disclaimer of Opinion

12 Modifications to the Auditor s Report for Opinion Other Than Unmodified * An additional paragraph needs to be added in the event of a qualified, adverse or disclaimer of opinion. * Paragraph is located before the Opinion paragraph and is titled Basis for Qualified Opinion, substitute adverse or disclaimer of opinion as appropriate. * Additional modifications for disclaimer of opinion to the introductory paragraph. * Summary of Opinions not required but helpful.

13 Common Reasons for Modifications * Financial Statements Issues Departures from GAAP * Qualified Opinion Material (not pervasive) * Failure to estimate an allowance for uncollectible receivables as required by GAAP. * Adverse Opinion Material and pervasive * Failure to report OPEB and related disclosures. * Failure to record capital assets and related disclosures.

14 Common Reasons for Modifications cont. * Audit Issues Scope Limitations * Qualified Opinion Material (not pervasive) * Unable to obtain sufficient and appropriate audit evidence. * Unable to observe material inventory.

15 Common Reasons for Modifications cont. * Audit Issues Scope Limitations * Disclaimer of Opinion Material and pervasive * Unable to obtain sufficient and appropriate audit evidence. * Client imposed restrictions that significantly limit the scope of the audit. * Unaudited component unit. * Initial audit beginning balances. * Auditor is not expressing an opinion on one or more opinion units or the financial statements as a whole.

16 Emphasis of Matter Paragraph * Draw users' attention to a matter or matters presented or disclosed in the financial statements that are of such importance that they are fundamental to users' understanding of the financial statements. (emphasis-of-matter paragraph) AU-C 706

17 Other Matter Paragraph * Draw users' attention to any matter or matters other than those presented or disclosed in the financial statements that are relevant to users' understanding of the audit, the auditor's responsibilities, or the auditor's report. (other-matter paragraph) AU-C 706

18 Management s Discussion and Analysis (MD&A)

19 Management s Discussion and Analysis (MD&A) * The MD&A is Required Supplementary Information (RSI) that introduces the basic financial statements by presenting certain financial information as well as management s analytical insights on that information. * Confined to certain topics as outlined in GASB Statement No. 34.

20 MD&A Topics * A brief discussion of the basic financial statements, including the relationships of the statements to each other, and the significant differences in the information they provide. * Condensed financial information from the government-wide financial statements comparing the current and prior year.

21 MD&A Topics cont. * An analysis of the government s overall financial position and results of operations to assist readers in determining whether financial position has deteriorated or improved based on operations. * An analysis of balances and transactions of individual funds.

22 MD&A Topics cont. * An analysis of significant variations between original and final budgets and between the final budget and actual amounts for the general fund. * A description of significant capital asset and longterm debt activity during the year.

23 MD&A Topics cont. * A description of currently known facts, decisions, or conditions that are expected to have a significant effect of the financial position of the or results of operations. * As of the date of the auditor s report.

24 Common Issues With the MD&A * No meaningful analysis or insights beyond what is already on the face of the financial statements. * Spend a little time coming up with meaningful comments. * Don t just state that a department was under budget by x amount, explain specific reasoning. * North Carolina State Treasurer is a great resource for financial reporting in addition to GASB, ASBO, and GFOA resources.

25 Government-wide Financial Statements

26 Government-wide Financial Statements * Statement of Net Position (Balance Sheet) * Statement of Activities (Income Statement)

27 Government-wide Financial Statements * Economic resources measurement focus and the full accrual basis of accounting. * Include all assets, deferred outflows of resources, liabilities, and deferred inflows of resources that the government has control over. * Fiduciary Funds excluded * Component Units included

28 Government-wide Financial Statements * Operational accountability * Report the extent to which the government has met its operating objectives efficiently and effectively, using all resources available for that purpose, and the extent to which it can continue to meet its objectives for the future. * Long term

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31 GASB Statement No. 68 * Accounting and Financial Reporting for Pensions * GASB Statement No. 68 requires employers to recognize a liability as employees earn their pension benefits. * Employers now record a net pension liability, deferred outflows related to pensions and deferred inflows related to pensions on their Statement of Net Position.

32 GASB Statement No. 68 Financial Statement Impact * Addition of the net pension liability has put many governments in a deficit unrestricted net position. * Does this imply a poor operational performance?

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34 GASB Statement No. 68 Talking Points * Net pension liability is an estimate, that is subject to significant volatility * Review sensitivity analysis * There isn t a bill or amortization schedule to pay the liability down, the liability is paid through existing NHRS contributions that are appropriated in each year s budget.

35 GASB Statement No. 68 Talking Points * NHRS has a plan to pay down the liability, majority of existing contributions are being used to pay down the liability, not to pay current benefits. * This didn t happen overnight. The liability was the result of many years of poor legislative decisions and budgeting. * This wasn t being hidden, it was an accounting standards change.

36 GASB Statement No. 75 * Accounting and Financial Reporting for Postemployment Benefits Other than Pensions (OPEB) * Replacing GASB Statement No. 45 * Effective June 30, 2018 * Similar impact as net pension liability, but on a much smaller scale

37 Evolution of OPEB Accounting and Reporting Current (45) * GASB Statement No. 45 * Established liability for OPEB Net OPEB Obligation (NOO) * Implicit rate subsidy * The subsidy of retirees by permitting them to pay lower than age-adjusted premiums through the use of a singlecommon or blended premium for both retirees and active employees * Even if retirees pay 100% of premiums

38 Evolution of OPEB Accounting and Reporting Current (45) cont. * Net OPEB Obligation * Actuary calculates the Annual Required Contribution (ARC) * Estimate of current OPEB costs * Employer makes pay- as-you-go contributions * Pays bills as they com due * Net OPEB obligation is created when the employer does not fully fund the ARC

39 Evolution of OPEB Accounting and Reporting New (75) * Under GASB Statement No. 75 * Total OPEB Liability - Present Value of benefits accrued to date by employees * Plan Fiduciary Net Position trust only (amount available to make benefit payments) * If there is no trust the Total OPEB Liability = Net OPEB liability

40 Evolution of OPEB Accounting and Reporting New (75) cont. * Under GASB Statements No. 74 and No. 75 * OPEB Expense is no longer tied to funding * Similar inputs and changes to OPEB cost as you experienced with pension costs in GASB Statement No. 68

41 Additional OPEB Reporting * Under GASB Statement No. 45 no liability or expense was calculated for individual employer s financial reporting for cost sharing multiple employer plans * There will be an additional OPEB liability for the proportionate share of the NHRS OPEB related to the medical subsidy

42 Fund Financial Statements

43 Fund Financial Statements * Three fund categories that use different measurement focuses and bases of accounting to demonstrate fiscal accountability for the governmental funds and operational accountability for the proprietary and fiduciary funds.

44 Fund Financial Statements * Governmental Funds * Balance Sheet * Statement of Revenues, Expenditures, and Changes in Fund Balances * Proprietary Funds * Statement of Net Position * Statement of Revenues, Expenses, and Changes in Net Position * Statement of Cash Flows * Fiduciary Funds * Statement of Fiduciary Net Position * Statement of Changes in Fiduciary Net Position

45 Governmental Funds * Current financial resources measurement focus and the modified accrual basis of accounting. * General Fund * Special Revenue Funds * Capital Project Funds * Permanent Funds

46 Governmental Funds * Fiscal accountability * The government s actions in the current period have complied with public decisions regarding the raising and spending of public funds in the short term. * Budget

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49 Quick Word on Major Funds * General Fund is always a major fund. * Other individual governmental and enterprise funds should be reported as major funds if total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, expenses or expenditures are: * At least 10% of category total for that fund type (G or E). * At least 5% of category total for all fund types (G and E).

50 What are Deferred Outflows of Resources? * A consumption of net position in one period that is applicable to future reporting period. * Consumption is a net decrease in an asset or net increase in a liability. * Debt issuance costs. * Changes in actuarial assumptions related to the net pension liability.

51 What are Deferred Inflows of Resources? * An acquisition of net position that is related to a future reporting period. * Consumption is a net increase in assets or decrease in liabilities. * Property taxes levied in the current year to finance the subsequent years budget. * Changes in actuarial assumptions related to the net pension liability.

52 Reconciling Statements * Summary reconciliations to the government-wide financial statements. * Intended to help users understand how the fund financial statements relate to the government-wide financial statements.

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55 Budgetary Comparison Information * Presents original and final amended budgets. * Actual amounts on budgetary basis (encumbrance accounting). * Variance column. * Additional supplemental budgetary schedules can be presented later in the audit report at a more detailed level, but they are not required.

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58 Proprietary Funds * Economic resources measurement focus and full accrual basis of accounting. * Enterprise funds * Internal service funds * Focuses on operating income, changes in net position (cost recovery), net position and cash flows.

59 Fiduciary Funds * Economic resources measurement focus and full accrual basis of accounting * Except agency funds (purely custodial no measurement focus) * Private purpose trust funds * Agency funds

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62 Notes to the Financial Statements * Summary of Significant Accounting Policies * Good overview of the basic statements, basis of accounting used and funds. Explanation of what s in your financial statements. * Stewardship, Compliance and Accountability * Budgetary information, reconciliation to GAAP basis, deficit fund balance disclosures. * Detailed Notes on All Funds * Cash, Investments, Capital Assets, Long-term Liabilities, etc.

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64 Required Supplementary Information (RSI) * Schedule of Funding Progress for Other Postemployment Benefit Plan. * Schedule of School District s Proportionate Share of Net Pension Liability. * Schedule of School District Contributions.

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68 Combining and Individual Fund Schedules * Individual fund schedules - may present additional detailed schedules on: * General fund estimated and actual revenues * General fund schedule of appropriations, expenditures and encumbrances * Schedule of changes in fund balance * Combining schedules non-major governmental funds Combining Balance Sheet and Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances

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72 Management Letter * Communication of Significant Deficiencies and Material Weaknesses * Material Weakness A deficiency (or combination of deficiencies) in internal control that creates a reasonable possibility tat a material misstatement of an entity s financial statements could occur and that would not be detected in a timely manner. * Significant Deficiency less severe than a material weakness, but significant enough to merit attention by those charged with governance.

73 GASB Project on Financial Reporting Model * Financial Reporting Model Reexamination of Statements 34, 35, 37, 41, and 46 and Interpretation 6 * Various draft, hearings, meeting and comment periods from 2017 through 2021 (anticipated). * Goal is to improve current financial reporting model.

74 Accounting and Financial Reporting Issues Being Reviewed * Management s Discussion and Analysis (MD&A) Explore options for enhancing the financial statement analysis component, consider the elimination of 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. * Government-Wide Financial Statements 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. Source GASB website

75 Accounting and Financial Reporting Issues Being Reviewed * Major Funds Explore options for providing additional information about debt service funds, either individual or in aggregate. * Governmental Fund Financial Statements Explore a conceptually consistent measurement focus and basis of accounting and 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 on recognition of element of financial statements would be recommenced. Source GASB website

76 Accounting and Financial Reporting Issues Being Reviewed * Proprietary Fund and Business-Type Activity Financial Statements Evaluate operating indicator alternatives in conjunction with evaluating the guidance for the separate presentation of operating and nonoperating revenues and expenses. * Fiduciary Fund Financial Statements Explore where the fiduciary fund financial statements should be presented in the basic financial statements. Source GASB website

77 Accounting and Financial Reporting Issues Being Reviewed * Budgetary Comparisons Explore the appropriate method of communication (either as basic financial statements or required supplementary information) for budgetary comparison information and consider whether and, if so, which budget variances should be required to be presented. * Other Issues As appropriate and in conjunction with other topics, explore options that would permit more timely financial reporting or that would reduce complexity overall. Source GASB website

78 Questions and Comments Thank You! Please feel free to contact me with any questions: