gaap update and more · gaap update and more ... statement on auditing standards (sas) no. 112...
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GAAP Update and MoreWhat are the latest and greatest accounting standards from GASB!What do you do to prepare for your audit!
On the AgendaCommon Audit Findings
Guidance GAAP (GASB Update)
The Highway Accountant’s Guide to governmental accounting standards?
Preparing for an audit
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Common Audit FindingsAuditing Standard #112, now 115
Trend has been more findingsAudit AdjustmentsCapital Asset RecordsInventoryDebt Service Levy
Audit AdjustmentsA control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements of the financial statements on a timely basis. Statement on Auditing Standards (SAS) No. 112 states that one control deficiency that shall be regarded asat least a significant deficiency is identification by the auditor of a material misstatement in the financial statements that was not initially identified by the entity’s internal controls, even if management subsequently corrects the misstatement.
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Audit AdjustmentsDuring our audit, we identified several material adjustments in the Road and Bridge Special Revenue Fund. An adjustment was made in the amount of $612,252 to recognize state-aid highway allotments and National Forest aid. Advances of highway allotment funds received in previous years were reduced by an audit adjustment of $723,760 to its current balance. Revenues not available during the recognition period were deferred through an audit adjustment of $672,242. During our audit, we identified material adjustments in the Road and Bridge Special Revenue Fund. Receivables were increased by $373,458 for state-aid highway project allotments. At the fund level, revenue was offset by deferred revenue of $490,303 for receivables not available during the revenue recognition period. During our audit, we identified a material adjustment in the Road and Bridge Special Revenue Fund. At the fund level, revenues for state-aid allotments were decreased by $282,955 due to a reduction in receivables of $29,494 and an increase in deferred revenue of $253,461 for receivables not available during the revenue recognition period.During our audit, we identified material adjustments in the Road and Bridge Special Revenue Fund. Receivables were increased by $783,998, revenues were increased by $425,182, and expenses were decreased by $358,816 to properly reflect Road and Bridge projects activity. At the fund level, the additional revenue was offset by deferred revenue of $63,615 for receivables not available during the revenue recognition period. Contracts payable for construction expenses were increased by $570,959. An adjustment was made to the Human Services Special Revenue Fund to recognize $56,343 in additional receivables and revenue for MMIS billings. An adjustment was made to the County Homes Special Revenue Fund to recognize $40,995 in additional payables and expenditures for federal community development block grant funds passed through to subrecipients.
Capital Asset RecordsA physical inventory of the County’s capital assets has not been performed in several years, and several items of road and bridge equipment do not have tags properly identifying them as County property.
We recommend the County Board review and update its capital asset policies and procedures and the means of enforcement in order to strengthen internal control over capital assets. Written policies and procedures should, at a minimum, address the following guidelines to be consistent with generally accepted accounting principles.
The County’s administration should establish an ongoing system for identifying acquisitions and disposals of capital assets that meets the County’s capitalization policy. Information on the County’s system should be communicated to department heads who should be held responsible for the accuracy of additions, deletions, and changes in capital assets.
An authorizing signature of a department head or designee should be required for any change in the capital asset records. Transfers of capital assets between departments should be evidenced by authorizing signatures from both departments involved. Additions, deletions, and changes to capital assets should be reported to a County official given the responsibility and authority to maintain and summarize the information on a timely basis throughout the year.
Supporting documentation should accompany capital asset change forms. Invoices should support the additions to capital assets. Bills of sale, trade-in evidence, or auction summaries should support deletions of capital assets.
All capital asset documentation should be filed in an orderly fashion by department, transaction type, or capital asset number for ease of access to the information. This measure will also assist the County with insurance-related activities.
To maintain adequate accountability, assets should be tagged as County property with a specific identifying number, and the County should conduct a periodic physical inventory of capital assets and adjust its records accordingly.
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InventoryThe Road and Bridge inventory at MN County is on a perpetual inventory system. Inventory purchases are entered to the inventory system from vendor invoices, and usage slips are used to enter usage into the system. However, the perpetual inventory system has not been updated on a monthly basis. At the time of our audit, MN County was five months behind in updating the perpetual inventory system.Access to inventory is generally limited to two garage mechanics who are in charge of inventory distribution. However, inventory is not locked up; and sometimes access to inventory is uncontrolled when the garage mechanics are not present.We recommend the County update the perpetual inventory system on a monthly basis for purchases and usage to better control management of inventory stock. Access to inventory should be limited, if possible. When one person is in charge of issuing inventory, usage is more likely to be recorded, and the perpetual inventory system will be more accurate.
Debt Service LevyThe amount of gross tax levied by the County for the Road Bond Debt Service Fund for 2007 was $653,240. The amount of scheduled principal retirement and interest payments that should have been covered by the levy for 2007 was $628,179. The debt levy is $6,348 less than an amount to satisfy the 105 percent requirement of Minn. Stat. § 475.61, subd. 1. Minn. Stat. § 475.61, subd. 1, requires counties issuing general obligation debt to levy an ad valorem tax on all taxable property in the county for each year of the term of the obligations. The tax levies for all years, together with other revenues pledged for the payment of the obligations, must produce at least five percent in excess of the amount needed to meet, when due, the principal and interest payments on the obligations.We recommend that the County levy 105 percent to satisfy the requirement of Minn. Stat. § 475.61, subd. 1.
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The auditor said we should report WHAT!!!
Remind them: “Don’t shoot the messenger.”“It’s GAAP”
WHERE IS THAT CRAZY AUDITOR?!?!
GASBS 35 — Basic Financial Statements—and Management's Discussion and Analysis—for Public Colleges and Universities
No Impact
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GASBS 36 — Recipient Reporting for Certain Shared Nonexchange Revenues
Issued to clarify GASBS 33Matched provider/recipient financial reportingCurrently effectiveHas impact on accounting and reporting of State Aid Highway Allotments.
GASBS 37 — Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments: Omnibus
List of items.Fixed or clarified items in GASB 34Effective with 34Very minor impact
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GASBS 38 — Certain Financial Statement Note Disclosures
Disclosure in the notesGeneral Disclosure Principle Summary of Significant Accounting PoliciesViolations of Finance-related Legal or Contractual Provisions Debt and Lease ObligationsShort-term DebtDisaggregation of Receivable and Payable BalancesInterfund Balances and Transfers
Effective with 34May have to provide info to county
GASBS 39 — Determining Whether Certain Organizations Are Component Units
Currently effectiveFund-raising organizations—amends Statement 14 to add specific criteria for those legally separate, tax-exempt fund-raising organizations that are misleading to excludeNo impact on highways
Statement No. 39 of theGovernmental Accounting
Standards Board
Determining WhetherCertain Organizations Are
Component Units
an amendment of GASB Statement No. 14
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GASBS 40 — Deposit and Investment Risk Disclosures
Note Disclosures for deposits and investments
Investment risksCredit risk
Custodial creditConcentrations of credit
Interest rate riskForeign currency risk
Deposit risksCustodial credit riskForeign currency risk
Currently effectiveNo impact on highway accountants
GASBS 41 — Budgetary Comparison Schedules—Perspective Differences
Reporting unusual budget perspectives
Multi-fund budget
Currently effectiveNo Minnesota County impact
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GASBS 42 — Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries
Statement established accounting and financial reporting standards for impairment of capital assets.
A capital asset is considered impaired when its service utility has declined significantly and unexpectedly.
The Statement also clarifies and establishes accounting requirements for insurance recoveries.Currently effectiveImpact if capital assets impaired or if receiving insurance recovery
Example
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GASBS 43 — Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans
Refers to accounting and reporting for plan assetsGASB 43 will apply if decide to advance fund plan and set up trust agreement – refers to plan assetsCurrently effectiveOnly an impact if contributing to trust
GASBS 44 — Economic Condition Reporting: The Statistical Section an amendment of NCGA Statement 1
First guidance on statistical information since NCGA Statement 1 (1979)Only applicable if preparing a comprehensive annual financial report (CAFR)
About 10 countiesCurrently effectiveMay have to provide some information to County for statistical tables
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GASBS 45 — Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions
Refers to accounting and financial reporting for OPEB plans at the local government levelEveryone providing OPEB needs to be concerned about GASB 45 –employer reportingMinor impact at highway level
GASBS 46 — Net Assets Restricted by Enabling Legislation an amendment of GASB Statement No. 34
Difficulty interpreting the requirement that those restrictions be "legally enforceable". Party external to a government (such as citizens, public interest groups, or the judiciary) can compel a government to honor.Generally, determined by professional judgment.Currently effectivePossible note disclosure
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GASBS 47 — Accounting for Termination BenefitsThe early retirement incentive accounting standard
VoluntaryInvoluntary
IncludeEarly-retirement incentivesSeverance benefitsOther termination-related benefits
Situations where providing benefits in exchange for early termination of servicesCurrently effectiveMinor impact if county is providing termination benefits
GASBS 48 — Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues
Government receives proceeds in exchange for the rights to future cash flows from:
Receivables:Delinquent property taxesMortgages Student loans
Future RevenuesNot likely to impactCurrently effectiveNot expected to occur with most counties
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GASBS 49 — Accounting and Financial Reporting for Pollution Remediation Obligations
Pollution REMEDIATIONObligations
Excludes prevention or control obligationsExcludes asset retirement obligations—including landfills (Statement 18)Excludes fines, penalties, toxic torts, product or process safety outlays (NCGA Statement 4)
Currently effectiveMaybe some impact, but not common
Obligating Eventsa. Compelled to take remediation action because of pollution-
caused imminent endangermentb. Violate pollution-prevention permit—for example, RCRA
permitc. Named, or evidence indicates govt. will be named, as
responsible party or PRP for remediation (or cost sharing)d. Named, or evidence indicates govt. will be named, in
lawsuit to participate in remediationExcludes lawsuits having no merit
e. Govt. commences, or legally obligates self to commence Limited to portion legally required to complete
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GASBS 50 — Pension Disclosures-an amendment of GASB Statements No. 25 and No. 27
Goal is to conform the pension disclosures with the OPEB disclosuresNotes to financial statements would disclose the funded status of the plan as of the most recent actuarial valuation date.
Defined benefit pension plans also would disclose actuarial methods and significant assumptions used in the most recent actuarial valuation in notes to financial statements instead of in notes to RSI.
Currently EffectiveNote disclosure
GASBS 51 — Accounting and Financial Reporting for Intangible Assets
An intangible asset is an asset that possesses all of the following characteristics:
Lack of physical substanceNonfinancial natureInitial useful life extending beyond a single reporting period
Effective for year ending December 31, 2010Phase 1 and 2 governments apply retroactive
Some impact – Account for as capital assets
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Common Types of Intangible Assets
Right-of-way easementsOther types of easementsPatents, copyrights, trademarksLand use rightsWater rightsLicenses and permitsComputer software
Purchased or licensedInternally generated
GASBS 52 — Land and Other Real Estate Held as Investments by Endowments
Establish financial reporting standards for land and other real estate held as investments by endowmentsEndowments include:
Permanent and term endowmentsPrincipal generally maintained in perpetuity or for a stated period of time or until the occurrence of an event
Permanent funds
No impact
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GASBS 53 — Accounting and Financial Reporting for Derivative Instruments
Not likely to impact highway
GASBS 54 — Fund Balance Reporting and Governmental Fund Type Definitions
New presentation hierarchy based primarily on spending constraints placed upon use of resources versus availability for appropriationNew fund balance presentation classifications:
Non-spendable—Inventory, long-term receivablesRestricted—Statement 34/46 definitionCommitted—Formal action of governing bodyAssigned—Similar to designations expressing intentUnassigned
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What Do You Need to Know About Statement 54?Governmental Fund Type Definitions
Special revenue fund—used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects.Capital projects fund—used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays including the acquisition or construction of capital facilities and other capital assets.
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The Latest From GASB
GASBS 55 — The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments
GASBS 56 —Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards
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What Do You Need to Know About Statements 55 and 56?
Accounting and financial reporting guidance currently found in the AICPA’s Statements on Auditing Standards brought into the GASB literature “as is.”Statement 55—GAAP Hierarchy
First step in the potential reexamination of current multi-level hierarchy
Statement 56—AICPA OmnibusRelated party transactions, subsequent events, and going concern considerations
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Bridging the GAAPPreparing for an auditGuidance
Revenues/ReceivablesAvoiding the pitfalls
eupdates
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Preparing for the AuditRecords in orderTrial balance/financial statementsSupporting documentation
Worksheets/schedulesAudit preparation checklistBe available for questions
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Guidance-Calculating Revenues/Receivables
Guidance-Calculating Revenues/Receivables
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Avoiding the PitfallsItems included in weekly State Auditor’s e-updates. Sign up at:
http://www.auditor.state.mn.us/default.aspx?page=eupdate
