cpas and advisors let’s thrive together cpas and advisors let’s thrive together
TRANSCRIPT
CPAs AND ADVISORS
LET’S THRIVE TOGETHER
CPAs AND ADVISORS
LET’S THRIVE TOGETHER
What’s Happening with Standard
Setters?
1. GASB 632. GASB 65 3. OVERVIEW OF PENSION STANDARDS4. OTHER GASB ITEMS5. AICPA HOT TOPICS6. FLORIDA AUDITOR GENERAL UPDATE7. QUESTIONS
Presented by: Angela D. Balent, CPA Kristen McAllister,
CPA, CGFM
GASB Statement No. 63“Financial Reporting of Deferred
Outflows ofResources, Deferred Inflows of
Resources,and Net Position”
Objective To provide guidance for reporting ‐deferred outflows of resources, deferred inflows of resources, and net position in a statement of financial position and related disclosures.
Applicability Applies to all state and local ‐governments.
Effective For all periods beginning after December ‐15, 2011.
GASB 63
What is a deferred outflow of resources?A consumption of net position by the government
that is applicable to a future reporting period.
Has a positive effect on net position, similar to assets.
GASB 63
What is a deferred inflow of resources?An acquisition of net position by the government
that is applicable to a future reporting period.
Has a negative impact on net position, similar to liabilities.
GASB 63
Statement of Net Position GASB 63 changes the entity wide “Statement of Net ‐
Assets” to the “Statement of Net Position.”
Governments are encouraged to have a format that shows: Assets + Deferred Outflows of Resources – Liabilities-Deferred Inflows of Resources = Net Position
GASB 63
Statement of Net Position A balance sheet format may be used instead
Assets + Deferred Outflows of Resources = Liabilities + Deferred Inflows of Resources + Net Position
The net position represents the difference between all of the other categories and should be displayed in 3 components: Net Investment in Capital Assets, Restricted, and Unrestricted
GASB 63
Economic Resources Measurement Focus
Preferred reporting format is: assets + deferred outflows – liabilities – deferred inflows = net position
Traditional balance sheet format is permitted: assets + deferred outflows = liabilities + deferred inflows + net position
Governmental Fund Financial Statements
Required reporting format is: assets + deferred outflows = liabilities + deferred inflows + fund balance
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GASB 63
Disclosures Balances of deferred inflows and outflows may be
presented as aggregations of different types of deferred amounts.
Governments should provide details of the different types of deferred amounts in the footnotes if significant components are obscured by aggregation.
Disclosure of the details in the notes is only required if the information is not displayed on the face of the financial statements.
GASB 63
What types of transactions are considered deferred inflows and outflows of resources under GASB 63? Changes in fair value of hedging derivatives Service concession arrangement receipts
GASB 63
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Statement of Net Position
Primary GovernmentGovernmental Business-type Component
Activities Activities Total UnitsASSETSCash and cash equivalents 11,712,829$ 10,516,820$ 22,229,649$ 303,935$ Investments 29,250,291 64,575 29,314,866 7,428,952Derivative instrument--rate swap 1,040,482 1,040,482Receivables (net) 11,792,650 3,609,615 15,402,265 4,042,290Internal balances 313,768 (313,768) —
Inventories 322,149 126,674 448,823 83,697Equity interest in joint venture 2,303,256 — 2,303,256 —
Capital assets: Land, improvements, and construction in progress 28,435,025 6,408,150 34,843,175 751,239 Other capital assets, net of depreciation 141,587,735 146,513,065 288,100,800 36,993,547 Total capital assets 170,022,760 152,921,215 322,943,975 37,744,786 Total assets 226,758,185 166,925,131 393,683,316 49,603,660
DEFERRED OUTFLOWSAccumulated decrease in fair value of hedging derivatives — 127,520 127,520 —
LIABILITIESAccounts payable and accrued expenses 7,538,543 659,592 8,198,135 1,803,332Advances from grantors 1,435,599 1,435,599 38,911Forward contract 127,520 127,520Long-term liabilities: Due within one year 9,236,000 4,426,286 13,662,286 1,426,639 Due in more than one year 83,302,378 74,482,273 157,784,651 27,106,151 Total liabilities 101,512,520 79,695,671 181,208,191 30,375,033
DEFERRED INFLOWSAccumulated increase in fair value of hedging derivatives 1,040,482 — 1,040,482 —
NET POSITION Net investment in capital assets 103,711,386 79,088,574 182,799,960 15,906,392 Amounts Restricted for: Transportation and public works 10,655,737 — 10,655,737 —
Debt service 3,076,829 1,451,996 4,528,825 —
Housing and community redevelopment 6,845,629 — 6,845,629 —
Other purposes 1,483,387 — 1,483,387 492,445 Unrestricted Amounts (deficit) (1,567,785) 6,816,410 5,248,625 2,829,790 Total net position 124,205,183$ 87,356,980$ 211,562,163$ 19,228,627$
GASB Statement No. 65“Items Previously Reported as
Assets and Liabilities”
Objective: To properly classify/recognize certain items that
were previously reported as assets and liabilities as deferred outflows or deferred inflows of resources.
Applicability: Applies to all state and local governments
Effective: For all periods beginning after December 15, 2012.
GASB 65
Refundings of Debt The difference between the reacquisition price and the
net carrying amount of the old debt should be reported as a deferred outflow (loss) or deferred inflow (gain) and recognized as a component of interest expenses over the remaining life of the old or new debt, whichever is shorter.
GASB 65
Debt Issuance Costs Debt Issuance Costs, except any portion related to
prepaid insurance costs, should be recognized as an expense in the period incurred.
Prepaid insurance costs should be reported as an asset and recognized as an expense over the duration of the related debt.
GASB 65
Imposed Non exchange Revenue Transactions‐ Imposed non exchange revenue transactions that ‐
are reported as receivable prior to their formal levy (such as property taxes recorded in June but not fully levied until July) or transactions recorded as receivable prior to the period when resources are required to be used (such as license fees billed in June for licenses valid the following year beginning in July) should be reported as deferred inflows.
GASB 65
Government Mandated Non Exchange ‐ ‐Transactions and Voluntary Non Exchange ‐Transactions
Providers of resources in such transactions frequently establish eligibility requirements. Resources transmitted before the eligibility requirements are met (excluding time requirements) should be reported as assets by the provided and liabilities by the recipient.
GASB 65
Government Mandated Non Exchange ‐ ‐Transactions and Voluntary Non Exchange ‐Transactions
Resources received before time requirements are met, but after all other eligibility requirements have been met should be reported as a deferred outflow of resources by the provider and a deferred inflow of resources by the recipient.
GASB 65
Leases Initial direct costs of an operating lease should be
treated as an expenditure in the period incurred. Gains or losses arising from sale and leaseback
transactions result in a deferred inflow or deferred outflow of resources that are recognized systematically over the life of the lease.
GASB 65
Other Items Acquisition Costs Related to Insurance Activities Lending Activities Loan Origination Fees and Costs Commitment Fees Purchase of a Loan or Group of Loans Mortgage Banking Activities Loan Origination Fees and Costs Fees Relating to Loans Held for Sale Regulated Operations
GASB 65
Examples
Deferred Charge on Refunding
Unavailable Revenues
Examples
Revenue Recognition in Governmental Funds When an asset is recorded in governmental fund
financial statements but the revenue is not available, the government should report a deferred inflow of resources until the revenue becomes available.
Examples: Property Taxes and other receivables not available to finance expenditures of the current period that are currently reflected as Deferred Revenue in the Liability section of the balance sheet will now be called Deferred Inflows of Resources instead.
GASB 65
Use of the Term Deferred Paragraph 31 states that the use of the term “deferred” should be
limited to items reported as deferred outflows of resources or deferred inflows of resources.
Paragraph 111 indicates that the GASB Board concluded the statement should not prescribe new terminology for liabilities that were previously called “deferred revenue” and that the terminology used should be left to professional judgment.
Paragraph 109 provides an example of a liability that was formerly known as “deferred revenue” – receipt of an expenditure driven grant in advance of the incurrence of eligible costs. This will remain a liability but will need a new name.
GASB 65
Items that are still AssetsPer paragraph 48, the following items are still
considered assets: Prepayments Resources advanced to another government when
eligibility requirements, other than time requirements, have not been met.
The purchase or future revenues from a government outside the financial reporting entity.
Initial Subscriber Installation Costs in relation to cable TV systems
Capitalized incurred costs related to regulated activities.
GASB 65
Items that are still Liabilities Per paragraph 53, the following items are still
considered liabilities: Resources received in advance when eligibility
requirements other than time requirements have not been met
Resources received in advance of an exchange transaction
GASB 65
Questions?
How does GASB 65 affect the Major Fund classification?
I have debt service costs that will no longer be recorded under GASB 65, what do I need to
consider?
I have an advance on a grant, but I have not incurred eligible charges, is this a deferred
inflow?
GASB Statement 67 – Financial Reporting for Pension Plans an amendment of GASB 25 Applies to the pension plan
GASB Statement 68 – Accounting and Financial Reporting for Pensions an amendment of GASB 27 Applies to employers that use GAAP reporting
New Pension Standards
Currently: Accounting liabilities are generally identical to the
funding liabilities
A municipality records as a liability on their books the cumulative difference between what the actuary says is the required contribution (ARC) versus what the municipality actually contributes For actuarially determined contribution plans, it is likely that
the municipality currently records a $0 liability
Actuarial valuation numbers are used for accounting and funding purposes
Overview of Changes
New Standards: More prominent disclosure
Funded status moves from the footnotes to the balance sheet
Additional footnote and RSI disclosures
Move from income statement focus to balance sheet focus Was “Are we making adequate ARC contributions?” Now “How big is our Net Pension Liability?”
Overview of Changes
New Standards: Funding measures still valid and essential but no
longer reported in financial reports
Accounting and funding are no longer linked
Strictly accounting/reporting changes Underlying economic activity will stay the same
Overview of Changes
What is the Impact? Accounting liabilities will likely be higher than
funding liabilities Accounting liability may need to be recorded for the
first time Might cause employer to rethink defined benefit plan May impact credit ratings
We have new terminology
Overview of Changes
What is the Impact? Will not increase contribution rates
Will increase complexity to a complex topic
Might bring increased scrutiny to the plan
Most trend information won’t carry over
Most likely increased third party fees
Overview of Changes
When does this go into effect?
GASB 67 Plan Reporting Effective for fiscal years beginning after June 15, 2013 For plans with a September 30 Year End, October 1, 2013
financial statements
GASB 68 Employer Reporting Effective for fiscal years beginning after June 15, 2014 For plans with a September 30 Year End, October 1, 2014
financial statements
Overview of Changes
Basic Terminology Changes Total Pension Liability (TPL)
Actuarial present value of projected benefit payments allocated during past periods of employee service
Net Pension Liability (NPL) Total pension liability minus the pension plan’s fiduciary
net position Fiduciary net position = market value of assets
Overview of Changes
Basic Terminology Changes (cont.) Pension Expense (PE)
The difference between the NPL from the prior fiscal year to the current fiscal year, with some adjustments
Overview of Changes
Old – GASB 25 / 27
Calculations based upon methods and assumptions blessed by GASB Six (6) allowable actuarial cost methods Long term expected rate of return on assets is the discount
rate Amortizations of any kind (gains/losses, assumption changes,
benefit changes, etc.) over a maximum of thirty (30) years
Overview of Changes
New – GASB 67 / 68
Total Pension Liability (TPL) – like the Actuarial Accrued Liability (AAL) except: Must use Entry Age Normal Cost Method May require use of a blended discount rate (between long-
term expected rate of return and municipal bond rate)
Overview of Changes
New – GASB 67 / 68 (cont.) Net Pension Liability (NPL) – equals the TPL less the
plan’s fiduciary net position: Must also report NPL using a discount rate +/- 1% Cost sharing plans are on the hook for “proportionate share”
Overview of Changes
New – GASB 67 / 68 (cont.) Pension Expense (PE) Also based upon blended
discount rate and Entry Age Normal actuarial cost method
Shorter amortization periods (no longer up to 30 years) Five (5) years for investment gains/losses Average future working lifetime for other gains/losses or
assumption changes
Cost sharing plans are on the hook for “proportionate share”
Overview of Changes
Questions?
What else is going on with GASB?
Distinction between government merger and a government acquisition is based upon whether an exchange of significant consideration is present
Government mergers include combinations of legally separate entities without exchange of significant consideration. Assets and liabilities measured at carrying value in a merger.
Government acquisitions are transactions in which a government acquires another entity, or its operations, in exchange for significant consideration. Assets and liabilities measured at acquisition values.
Effective for combinations and disposals occurring in financial reporting periods beginning after 12/15/2013 –for us 10/1/2014.
GASB Statement 69 – Government Combinations and Disposals of Government Operations
Some governments extend financial guarantees for obligations of another government, a not for profit entity, or a private entity without directly receiving equal value in exchange.
Recognize a liability when qualitative factors and historical data, if any, indicate if it is more likely than not that the government will be required to make a payment on the guarantee.
Also requires a government that has issued an obligation guaranteed in a non-exchange transaction to recognize revenue to the extent of reduction in its guaranteed liabilities.
Effective for reporting beginning after 06/15/2013-for us 10/1/2013 (now)
GASB Statement 70 – Accounting and Financial Reporting Non-exchange Financial Guarantees
The transition provisions in paragraph 137 of Statement 68 require that, to the extent practical, changes made to comply with the Statement be reported as an adjustment of prior periods in the first period that the Statement is applied.
At transition to Statement 68, if it is not practical for an employer or nonemployer contributing entity to determine the amounts of all deferred outflows of resources and deferred inflows of resources related to pensions, paragraph 137 required that no beginning balances for deferred outflows of resources and deferred inflows of resources be reported.
Effective with GASB 68
GASB Statement 71 – Pension Transition for Contributions Made Subsequent to Measurement Date
This proposed Statement would require governments that are subject to tax abatement agreements to disclose the following: General descriptive information, such as the tax being abated, the
authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients
The number of tax abatement agreements entered into during the reporting period and the total number in effect as of the end of the period
The dollar amount of taxes abated during the period Commitments made by a government, other than to abate taxes, as part
of a tax abatement agreement. Comment Deadline is January 30, 2015
Exposure Drafts – Tax Abatement Disclosure
As of June 30, 20X7, the Village has property tax abatement agreements with five local businesses under the state Economic Development Opportunity Act of 20X1. Under the Act, localities may grant property tax abatements of up to 50 percent of the taxpayer’s property tax bill, for the purpose of attracting or retaining businesses within their jurisdictions. The abatements may be granted to any business located within or promising to relocate to the Village.
During the fiscal year, the Village granted a 40 percent property tax abatement to a grocery store chain for purchasing and opening a store in an empty storefront in the business district. The abatement amounted to $97,500 for the fiscal year ended June 30, 20X7. The other four tax abatement agreements in effect as of the end of the fiscal year were as follows (all amounts are for the fiscal year ended June 30, 20X7): A 40 percent property tax reduction to a hardware store for moving into the Village ($13,225) A 30 percent property tax reduction to retain a health and fitness facility in the Village ($5,100) A 50 percent property tax reduction for a local restaurant increasing the size of its restaurant and catering facility and increasing employment ($21,750) A 40 percent property tax reduction for a business opening a new gas station and convenience store in the Village ($8,905).
Exposure Drafts – Tax Abatement Disclosures – Sample Small Government
Asset Retirement Obligations – Initial Deliberations Economic Condition Reporting – Financial Projections – Placed on Hold Fair Value Measurement and Application – Exposure Draft Re-deliberations Fiduciary Responsibilities – Initial Deliberations Leases – Initial Deliberations OPEB Benefit Accounting and Financial Reporting – Exposure Draft Re-
deliberations Blending Requirements for Certain Business Type Activities – Initial
Deliberations Comprehensive Implementation Guide – Annual Update – Expected
completion 12/31/2014 GAAP Hierarchy – Reexamination – Estimated Completion 12/31/2014 Irrevocable Charitable Trusts – Initial Deliberations
Major Projects
Debt Refundings and Extinguishments External Investment Pools Financial Reporting Model
Pre-Agenda Research
New practice aids issued to assist audit firms in documenting work performed relating to understanding and testing internal control and compliance in Single Audit Engagements.
In response to deficiencies that were noted in a federal study on the quality of audits performed under OMB Circular A-133.
Audit documentation did not contain adequate evidence of auditor’s understanding of the five elements of internal control and testing of internal controls for many or all applicable compliance requirements.
Audit documentation did not contain evidence of internal control testing and/or compliance testing for more than a few compliance requirements, or did not explain why they were not applicable.
AICPA Hot Topics
Government Audit Quality Center
Auditor General Update
Significant changes to Rules of Auditor General Chapter 10.550 - Local Government Entities
Recent Audits Findings and Trends
Management Letter Changes
Auditor’s new responsibilities for reporting on compliance with Section 218.415 FS (Investment law) Sections 28.35 and 28.36, FS (budget and
performance measures/standards – Clerks) Deepwater Horizon Oil Spill receipts and
expenditures
Overview of Changes
PRESENTATION CHANGES
Transparency (For water management districts only): (NEW) Section 10.554(1)(i)6.b., Rules of the Auditor General, requires that we report the results of our determination as to whether the District provided a link on its Web site to the Florida Department of Financial Service’s Web site to view the District’s annual financial report submitted to the Department. In connection with our audit, we determined that the District provided a link on its Web site to the Florida Department of Financial Service’s Web site. (If the District did not comply with this requirement, revise the language as appropriate.)
Water Management Districts
Chapter 10.550 Changes
Scope of financial audit must now include an examination pursuant to AICPA Professional Standards, AT Section 601 Section 218.415 FS (Investment law) Sections 28.35 and 28.36, FS (budget and
performance measures/standards – Clerks) Deepwater Horizon Oil Spill receipts and
expenditures
New Compliance Reporting
82 local government entities submitted met one or more of the conditions which could result in those entities being in a state of financial emergency
87 local government entities were experiencing deteriorating financial conditions
61% of local government local pension plans were funded at under 80%, 13% funded at below 60%
Significant Financial Trends
12% reported significant deficiency (185) 14% reported material weakness (222) Many audit report findings did not include all
required elements as described in Chapter 10.550, Rules of the Auditor General.
40% of the 1,638 findings were repeated in the prior 2 audit reports
Significant Financial Findings
Questions?