GASB and Federal Compliance Update

Transcription

1 GASB and Federal Compliance Update Matthew Geerdes, CPA Crowe Horwath LLP James White, CPA Baker Tilly Virchow Krause LLP Agenda Changes to OMB Circular A-133 GASB 67 GASB 68 GASB 71 GASB 69 GASB 70 GASB 72 Changes to OMB Circular A-133 OMB Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards Super Circular Omni Circular UGG Document link: Q&A link: 1

2 Overview Published in Federal Register on December 26, The federal government, through the OMB, issued new guidance for federal grant compliance at the end of this past year. Commonly referred as Uniform Grant Guidance, it consolidated a number of previously issued circulars (including A-133) into one complete document. It requires OMB and federal agencies to work in unison to issue additional regulations or guidance which will be effective one year from publication of this guidance (December 26, 2014) Administrative and cost principal changes are applicable for new awards and additional funding to existing awards made after December 26, 2014 Single audit changes are effective for years ending December 31, 2015 and after (i.e., June 30, 2016 for Illinois school districts). Why the Change? Reduce administrative burden for those receiving federal awards, while also reducing risk of waste, fraud and abuse Improve the integrity of financial management and operation of federal programs Strengthen accountability for federal dollars by improving policies that protect against waste, fraud, and abuse Increase impact and accessibility of programs by minimizing time spent complying with unnecessarily burdensome administrative requirements Reorient recipients toward achieving program objectives Grants awarded based on merit Increased management focus on performance outcomes Streamlining of related circulars and guidance that govern federal funds Single audit oversight tool is better focused to reduce waste, fraud, and abuse How will this impact your single audit? The OMB compliance supplement for 2015 will be issued in late spring/early summer. It, along with subsequent compliance supplements, will have individual federal departments incorporate the Uniform Grant Guidance for specific programs. It is not expected that significant cost principle or administrative changes will affect common educational programs (IDEA, Title I, etc.), but that cannot be determined until the supplements are issued. There will be potentially more impact from the changes being made that govern how single audits are conducted. 2

3 Single Audit Changes Effective for years ending on and after December 31, 2015 (no early implementation) Single audit threshold raised from $500,000 to $750,000 (5,000 audits eliminated, 1% of federal awards previously audited) Low risk auditee criteria updated going concern incorporate inability for cognizant/oversight agency to approve exceptions Type A program threshold raised to $750,000 (or still 3%, $3 million,.3% for larger entities) Not required to identify more high risk Type B programs than at least 25% low risk type As Type B floor changed to 25% of Type A threshold Criteria for high risk type A changed (significant deficiency in prior year no longer prevents auditor from deeming program low risk) Single Audit Changes None of the fourteen compliance requirements were removed or consolidated. Actual testing of major programs should be unchanged as a result of these changes. Questioned costs threshold raised to $25,000 (known or likely) Questioned costs section requires description of how calculated Findings require perspective section (isolated, prevalent, type of sampling used) Repeat findings require identification as repeat and the prior finding reference number Single Audit Changes Coverage requirements for major programs tested changed to 20% for low risk auditees and 40% for non-low risk auditees Online publication of reports (Clearinghouse) Intended to be the sole point of submission and access moving forward Next business day due date provision Auditee certification that no protected personally identified information included in reporting package SEFA requires payments to subrecipients (language on extent practical is removed) Federal agencies must indicate in CFDA whether program is subject to single audit. Federal due date remains nine months after fiscal year end 3

4 Single Audit Reporting The single audit reporting package includes the following: Yellow Book opinion A-133 opinion Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings Corrective Action Plans The single audit package is filed with all state agencies from whom pass-through grants are obtained. The package is also filed with the Federal Audit Clearinghouse along with the federal data collection form. Single Audit Reporting The 2015 AFR form will likely be released in late May and will include all single audit reporting forms. No significant changes are expected to the single audit section A training seminar is typically conducted in June through IASBO for districts and/or auditors to get more detailed information about changes to the form. As the ARRA funding winds down, emphasis on this schedule will lessen and may finally be eliminated this year as reference to ARRA will be removed from the 2015 OMB compliance supplement. Focus on the status of corrective action plans will continue. This includes findings related to internal control over financial statements as well as single audit control/compliance findings. Always review the single audit reporting package with your auditor before it is issued. In particular, ensure the corrective action plans for both yellow book and A-133 findings are appropriate and attainable. GASB 67 and 68 Financial Reporting for Pension Plans and Accounting and Reporting for Pensions GASB 67 offers guidance for pension plans themselves Effective for fiscal year ended June 30, 2014 GASB 68 applies to governmental entities that provide their employees with a pension plan, which will encompass all school districts. Effective for fiscal year ended June 30, 2015 Both standards work in tandem and will drastically change the accounting and financial reporting requirements for state and local governments that provide their employees with pensions. 4

5 GASB 67 and 68 Financial Reporting for Pension Plans and Accounting and Reporting for Pensions GASB 68 applies when the government s contributions to the trust used to administer a defined benefit pension plan are (1) irrevocable, (2) restricted to paying pension benefits, and (3) beyond the reach of creditors. Government employers that provide their employees with a defined benefit pension are classified as either (1) Single Employer (e.g., municipal police pension fund), (2) Agent Employer (e.g., IMRF), or (3) Cost-Sharing Employer (e.g., TRS). GASB 67 and 68 Financial Reporting for Pension Plans and Accounting and Reporting for Pensions Under the new standards, in financial statements prepared using the economic resources measurement focus (accrual basis of accounting), the single or agent employer is required to recognize a liability equal to the net pension liability. The net pension liability is defined as: The present value of projected benefit payments to be provided through the pension plan, to current and inactive employees, that is attributed to those employees past periods of service (total pension liability), less the amount of the pension plan s net position. GASB 67 and 68 Financial Reporting for Pension Plans and Accounting and Reporting for Pensions A cost-sharing employer is required to recognize its proportionate share of the net pension liability. The new Statement contains requirements related to the actuarial cost method and certain other assumptions used in the preparation of an actuarial valuation. Requires that an actuarial valuation of the total pension liability be performed at least every two years, with more frequent valuations encouraged. Requires disclosing certain information in the notes to the financial statements, as well as presenting certain required supplementary information (RSI) for the ten most recent fiscal years. 5

6 GASB 67 and 68 Financial Reporting for Pension Plans and Accounting and Reporting for Pensions While single employer plans will be rare for school districts, all will need to apply the provisions of agent employer (IMRF) and cost-sharing (TRS) plans. Actuarial information noted on the previous slide will need to be provided by both plans. Early implementation of Statement 68 will likely not be practical due to the dependence of IMRF and TRS for information; changes in pension law will also have an impact yet to be determined GASB 67 and 68 Financial Reporting for Pension Plans and Accounting and Reporting for Pensions Current Terminology New Terminology Definition Actuarial Accrued Liability (AAL) Total Pension Liability (TPL) Usually close to same number Unfunded AAL (UAAL) Net Pension Liability (NPL) Close to same number, but now reported on B/S and based on market value Normal Cost Service Cost Same, annual benefit cost Annual Required Contribution (ARC) N/A Was contribution and reported expense, now obsolete N/A Pension Expense Annual change in NPL Net Pension Obligation (NPO) N/A Was running total of underfunding vs. ARC, now obsolete GASB 71 Pension Transition for Contributions Made Subsequent to the Measurement Date To be implemented simultaneously with GASB 68 Effective for Fiscal Years Beginning after December 15, 2013 Statement 68 requires A state or local government employer (or nonemployer contributing entity in a special funding situation) should recognize a net pension liability measured as of a date (the measurement date) no earlier than the end of its prior fiscal year. Requires recognition of deferred outflows of resources and deferred inflows of resources for changes in the net pension liability of a state or local government employer or nonemployer contributing entity that arise from other types of events. 6

7 GASB 71 Pension Transition for Contributions Made Subsequent to the Measurement Date If it is not practical to determine the amounts of all deferred outflows of resources and deferred inflows of resources related to pensions, contributions made after the measurement date of the beginning net pension liability could not have been reported as deferred outflows of resources at transition. Amends paragraph 137 of Statement 68 to require that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. Continues to require that beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions be reported at transition only if it is practical to determine all such amounts. GASB 67, 68 and 71 Impact on the Financial Statements, Footnotes and RSI IMRF IMRF is an agent multiple employer plan Fiscal year ended December Financial Statements IMRF s auditor is planning to opine on the IMRF financial statements and employer schedules to be used by Districts 2015 Financial Statements IMRF s auditor is planning on preparing an SSAE 16 report District auditors can rely on the data District auditors would be responsible for auditing the information sent to IMRF during the fiscal year GASB 67, 68 and 71 Impact on the Financial Statements, Footnotes and RSI TRS TRS is a cost-sharing multiple employer plan Fiscal year ended June 30 Unknown regarding if TRS is going to have auditor provide assurance on schedules to be used by District auditors or have an SSAE 16 report 7

8 GASB 67, 68 and 71 Impact on the Financial Statements, Footnotes and RSI IMRF/TRS Information to be included in the Financial Statements Net Pension Liability Beginning balance Change in activity pension expense Ending balance Related Deferred Inflows/Outflows of Resources Effects of actuarial differences and changes in assumptions such as: Payroll increases, Retirements, Turnover, Discount rate, Mortality tables, Future payroll increases, Future inflation rate Differences between actual and project earnings on plan investments Differences between actual and expected experience with economic and demographic factors Presented at the full accrual level No presentation on regulatory basis financial statements GASB 67, 68 and 71 Impact on the Financial Statements, Footnotes and RSI IMRF/TRS Information to be included in the Footnotes GASB 68 mandated disclosures required to be disclosed regardless of basis of reporting Descriptive information Name, Plan type and administrator Benefit terms types, key elements of benefit formulas, classes of employees covered, legal authority Contributions basis, authority, rates ($ of % of pay), contributions in reporting period Availability of plan report Significant assumptions/inputs in TPL Inflation Salary changes and postemployment benefit changes Mortality assumptions, date of experience studies Discount rate rate, assumptions regarding cash flows, how long term rate of return was determined, municipal bond rate (if applicable), periods to which each rate applied, assumed asset allocation/expected real rates of return, NPL at discount rate +/- 1% GASB 67, 68 and 71 Impact on the Financial Statements, Footnotes and RSI IMRF/TRS Information to be included in the Footnotes GASB 68 mandated disclosures required to be disclosed regardless of basis of reporting Information regarding pension plan s fiduciary net position or reference to plan report Measurement date and the actuarial valuation date Changes in assumptions/other inputs and change of benefit terms Changes subsequent to measurement date Pension expense in the current reporting period Deferred outflows/inflows of resources (balances by source) Schedule presenting net amount of the employer s balances of deferred outflows/inflows or resources that will be recognized in pension expense in each of the subsequent five years and aggregate thereafter Schedule of changes in NPL by source in current period Service Cost, interest, benefit changes, contributions by source, plan investment income, etc. Number of employees covered Allocated insurance contracts TRS employers proportion of total plan, basis for proportion, change in proportion 8

9 GASB 67, 68 and 71 Impact on the Financial Statements, Footnotes and RSI IMRF/TRS Information to be included in the RSI IMRF 10 year schedule of changes in net pension liability (assets) as of the employer s fiscal year end (same component as the footnote disclosure) 10 year schedule of TPL, pension plan fiduciary net position, NPL, plan net position as % of TPL, covered employee payroll, NPL as % of covered employee payroll May be presented with schedule of changes in NPL 10 year schedule of contributions (since employer contributions are actuarially determined and there is a statutory contribution requirement) Notes to RSI include factors that significantly affect the identification of trends in the amounts reported and methods and assumptions for actuarially determined employer contribution changes GASB 67, 68 and 71 Impact on the Financial Statements, Footnotes and RSI IMRF/TRS Information to be included in the RSI TRS Similar to IMRF but also includes: Employer s proportion (%), proportionate share (amount) of collective NPL, covered employee payroll, proportionate share as % of covered employee payroll, pension plan s net position as % of total pension liability Required contribution, contributions in relation to required difference, difference, covered employee payroll, contributions as % of covered-employee payroll GASB 69 Government Combinations and Disposals of Government Operations Establishes accounting and financial reporting standards related to government combinations and disposals of government operations Term government combinations includes a variety of transactions referred to as mergers, acquisitions, and transfers of operations 9

10 GASB 69 Government Combinations and Disposals of Government Operations Distinction between a government merger and a government acquisition Based upon whether an exchange of significant consideration is present within the combination transaction Government mergers include combinations of legally separate entities without the exchange of significant consideration Requires the use of carrying values to measure the assets and liabilities in a government merger Government acquisitions are transactions in which a government acquires another entity, or its operations, in exchange for significant consideration Requires measurements of assets acquired and liabilities assumed generally to be based upon their acquisition values GASB 69 Government Combinations and Disposals of Government Operations Provides guidance for transfers of operations that do not constitute entire legally separate entities and in which no significant consideration is exchanged Defines the term operations for purposes of determining the applicability of this Statement and requires the use of carrying values to measure the assets and liabilities in a transfer of operations GASB 69 Government Combinations and Disposals of Government Operations A disposal of a government s operations results in the removal of specific activities of a government Provides accounting and financial reporting guidance for disposals of government operations that have been transferred or sold Statement requires disclosures to be made about government combinations and disposals of government operations Enables financial statement users to evaluate the nature and financial effects of transactions 10

11 GASB 69 Government Combinations and Disposals of Government Operations Effective for government combinations and disposals of government operations occurring in fiscal years ending June 30, 2015 Should be applied on a prospective basis Earlier application is encouraged GASB 70 Accounting and Financial Reporting for Nonexchange Financial Guarantees Amends GASB Statement 10, GASB Statement 33 and GASB Statement 62. Effective for periods beginning after June 15, Earlier application is encouraged. Some governments extend financial guarantees for the obligations of another government, a not-for-profit organization, a private entity, or individual without directly receiving equal or approximately equal value in exchange (a nonexchange transaction). A government commits to indemnify the holder of the obligation if the entity or individual that issued the obligation does not fulfill its payment requirements. Some governments issue obligations that are guaranteed by other entities in a nonexchange transaction. GASB 70 Accounting and Financial Reporting for Nonexchange Financial Guarantees A government that extends a nonexchange financial guarantee should recognize a liability when qualitative factors and historical data, if any, indicate that it is more likely than not that the government will be required to make a payment on the guarantee. Amount of the liability to be recognized should be the discounted present value of the best estimate of the future outflows expected to be incurred as a result of the guarantee When there is no best estimate but a range of the estimated future outflows can be established, the amount of the liability to be recognized should be the discounted present value of the minimum amount within the range. 11

12 GASB 70 Accounting and Financial Reporting for Nonexchange Financial Guarantees A government that has issued an obligation guaranteed in a nonexchange transaction should report the obligation until legally released as an obligor. A government that is required to repay a guarantor for making a payment on a guaranteed obligation or legally assuming the guaranteed obligation should continue to recognize a liability until legally released as an obligor. When a government is released as an obligor, the government should recognize revenue as a result of being relieved of the obligation. GASB 72 Fair Value Measurement and Application Addresses accounting and financial reporting issues related to fair value measurements. Definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Provides guidance for determining a fair value measurement for financial reporting purposes. Provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. Requirements of this Statement are effective for financial statements for periods beginning after June 15, Earlier application is encouraged GASB 72 Fair Value Measurement and Application Fair Value Measurement Described as an exit price Assume a transaction takes place in a District s principal market, or a government s most advantageous market in the absence of a principal market Measured assuming that general market participants would act in their economic best interest Fair value should not be adjusted for transaction costs. To determine a fair value measurement, a District should consider the unit of account of the asset or liability. Refers to the level at which an asset or a liability is aggregated or disaggregated for measurement, recognition, or disclosure purposes as provided by the accounting standards. Unit of account for investments held in a brokerage account is each individual security Unit of account for an investment in a mutual fund is each share in the mutual fund held by a District 12

13 GASB 72 Fair Value Measurement and Application Fair Value Measurement Requires a District to use valuation techniques that are appropriate under the circumstances and for which sufficient data are available to measure fair value Techniques should be consistent with one or more of the following approaches: the market approach, the cost approach, or the income approach Market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities, or a group of assets and liabilities Cost approach reflects the amount that would be required to replace the present service capacity of an asset Income approach converts future amounts (such as cash flows or income and expenses) to a single current (discounted) amount Valuation techniques should be applied consistently, though a change may be appropriate in certain circumstances Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs GASB 72 Fair Value Measurement and Application Fair Value Measurement Establishes a hierarchy of inputs to valuation techniques used to measure fair value using three levels Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3 inputs are unobservable inputs, such as management s assumption of the default rate among underlying mortgages of a mortgage-backed security A fair value measurement takes into account the highest and best use for a nonfinancial asset A fair value measurement of a liability assumes that the liability would be transferred to a market participant and not settled with the counterparty In the absence of a quoted price for the transfer of an identical or similar liability and if another party holds an identical item as an asset, a District should be able to use the fair value of that asset to measure the fair value of the liability Requires additional analysis of fair value if the volume or level of activity for an asset or liability has significantly decreased Requires identification of transactions that are not orderly Quoted prices provided by third parties are permitted, as long as a District determines that those quoted prices are developed in accordance with the provisions of the Statement GASB 72 Fair Value Measurement and Application Fair Value Application Generally requires investments to be measured at fair value An investment is defined as a security or other asset that (a) a District holds primarily for the purpose of income or profit and (b) has a present service capacity based solely on its ability to generate cash or to be sold to generate cash Investments not measured at fair value continue to include, for example, money market investments, 2a7-like external investment pools, investments in life insurance contracts, common stock meeting the criteria for applying the equity method, unallocated insurance contracts, and synthetic guaranteed investment contracts A District is permitted in certain circumstances to establish the fair value of an investment that does not have a readily determinable fair value by using the net asset value per share (or its equivalent) of the investment Requires measurement at acquisition value (an entry price) for donated capital assets, donated works of art, historical treasures, and similar assets and capital assets received in a service concession arrangement Previously required to be measured at fair value. 13

14 GASB 72 Fair Value Measurement and Application Fair Value Disclosures Requires disclosures to be made about fair value measurements, the level of fair value hierarchy, and valuation techniques. Districts should organize these disclosures by type of asset or liability reported at fair value Requires additional disclosures regarding investments in certain entities that calculate net asset value per share (or its equivalent) Questions? Contact Information Matthew Geerdes, CPA Direct Jim White, Senior Manager, CPA Direct