[PDF] - Governmental Accounting Conference April 16, 2018 Objectives PDF Document

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4/12/2018 1 State Accounting Bureau

Governmental Accounting Conference

April 16, 2018

Enhance each attendees knowledge of Governmental Accounting

Standards issued by the Governmental Accounting Standards Board (GASB)

Examine currently issued standards and currently issued exposure drafts
Examine GASB tentative decisions on the Reporting Model project and

Revenue and Expense Recognition ITC

Provide guidance for improving client/customer relationships and

utilizing professional skepticism when performing their assigned functions

Objectives

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What’s Going On – A Current Events Look at the Accounting Profession
Currently Issued GASB Standards
Improving Client Relationships
GASB Exposure Drafts
Reporting Model Update
Revenue and Expense Recognition ITC Update
Professional Skepticism

Topics to Cover

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Je r

r y is an Assistant Dir e c tor for the State of T e nne sse e , Comptr

lle r
f the T

r e asur y, Division of L

c al Gove r

nme nt Audit. T he division has statutor y r e sponsibility for audits of appr

ximate ly 1800 loc al gove r

nme nts and r e late d or ganizations in T e nne sse e . A 34-ye ar ve te r an of the division, Je r r y has se r ve d as an auditor , audit supe r visor , tr aining instr uc tor , te c hnic al manage r , and assistant dir e c tor . Je r r y is a Ce r tifie d Public Ac c ountant (CPA), Ce r tifie d Gove r nme nt F inanc ial Manage r (CGF M), and a Ce r tifie d F r aud E xamine r (CF E ). In his r

le as

assistant dir e c tor , he is r e sponsible for de ve loping pr

fe ssional c omplianc e pr
c e dur

e s and monitor ing the division’s quality pe r for manc e unde r GASB, AICPA, OMB, and GAO ac c ounting and auditing standar

ds. Je r

r y also has r e sponsibility for supe r vising the c ontr ac t r e vie w pr

c e ss within the division. Most r

e c e ntly, Je r r y assiste d the division in imple me nting GASB State me nts 67 and 68. In addition, Je r r y te ac he s tr aining c lasse s for the T e nne sse e De par tme nt of Audit (Ye llow Book and Audit F indings). He has be e n se le c te d as Instr uc tor

f the

Ye ar four time s. Je r r y has made tr aining pr e se ntations for se ve r al othe r pr

fe ssional or

ganizations inc luding the T e nne sse e Soc ie ty of Ce r tifie d Public Ac c ountants; T e nne sse e Gove r nme nt F inanc e Offic e r s Assoc iation; National Assoc iation of State Auditor s, Comptr

lle r

s and T r e asur e r s; Assoc iation of Gove r nme nt Ac c ountants; County T e c hnic al Assistanc e Se r vic e ; Southe aste r n Inte r gove r nme ntal Audit F

r

ums; Nashville Chapte r

f the Assoc iation of Ce r

tifie d F r aud E xamine r s; and var ious c ounty offic ial’s assoc iations. Je r r y c ur r e ntly se r ve s

n GF

OA’s CAAF R Committe e , NASACT ’s F inanc ial Manage me nt and Inte r gove r nme ntal Affair s Committe e , and NSAA’s Audit Standar ds and Re por ting Committe e , Auditor T r aining Committe e , and Pe e r Re vie w Committe e . He has se r ve d the National State Auditor s Assoc iation E xte r nal Pe e r Re vie w pr

gr

am as a r e vie we r , te am le ade r , and c onc ur r ing r e vie we r and se r ve s on the Spe c ial Re vie w Committe e for GF OA’s Ce r tific ate of Ac hie ve me nt for E xc e lle nc e in F inanc ial Re por ting pr

gr
am. Je r

r y has also pr

vide d tr

aining for the Ne w Yor k City Comptr

lle r

’s Offic e and state auditor s in Ar kansas, Idaho, Ke ntuc ky, Minne sota, Mississippi, Nor th Dakota, Montana, Ar kansas, We st Vir ginia, and Nor th Car

lina. In addition to the se dutie s, Je r

r y c ur r e ntly se r ve s on the state ’s Inte r age nc y Cash F low Committe e whic h ope r ate s unde r the author ity of the T e nne sse e State F unding Boar d.

Je r

r y was a par tne r in the ac c ounting fir m of Cr

sthwaite Dur

ham and Assoc iate s. He also se r ve d as c ontr

lle r

for Rur al He althc ar e of Ame r ic a, Inc ., and taught ac c ounting as a me mbe r

f the adjunc t fac ulty for

Columbia State Community Colle ge and Austin Pe ay State Unive r sity.

Je r

r y r e c e ive d his ac c ounting de gr e e fr

m the Unive r

sity of T e nne sse e at Mar

tin. He is a me mbe r
f the Ame r

ic an Institute of Ce r tifie d Public Ac c ountants (AICPA); the Assoc iation of Gove r nme nt Ac c ountants (AGA) and the Nashville Chapte r whe r e he se r ve d as c hair

f

the CGF M c ommitte e ; the Gove r nme nt F inanc e Offic e r ’s Assoc iation (GF OA) and the T e nne sse e Gove r nme nt F inanc e Offic e r s Assoc iation (T GF OA) whe r e he se r ve s as state liaison to the Boar d of Dir e c tor s; the Assoc iation of Ce r tifie d F r aud E xamine r s (ACF E ) and the Nashville Chapte r

f ACF

E . Je r r y is also a gr aduate fr

m the T

e nne sse e Gove r nme nt E xe c utive Institute (T GE I) whic h is a tr aining pr

gr

am for gove r nme nt le ade r s thr

ugh the Unive r

sity of T e nne sse e .

Je r

r y is mar r ie d and has thr e e c hildr e n and four gr andc hildr e n. 6

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7

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GF

OA CAAF R Co mmitte e Me e ting s

Re funding De b t
Priva te a c tivity b o nds a re still he re fo r no w
T

a x Cre dit Bo nds suc h a s BAB a re e limina te d

Munic ipa l De b t is still ta x e xe mpt fo r no w

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F ina nc ia l Ma na g e me nt Ma g a zine

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Mc Do na ld’ s E xa mple

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No mo re a nnua l e va lua tio ns

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Change s to Dodd- F

r ank Ac t?

SE

C Re gulations

GASB F

unding Me c hanism?

Appe ar

s this is not going to be an issue .

26

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27 28

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Ama zo n’ s Wristb a nd

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L

st Va c a tio n T

ime

I nsta g ra m

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34

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Je rry E . Durha m, CPA, CGF M, CF E

35 36

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37

2017
State me nt 73—Pe nsions Ame ndme nts to Ce r

tain Pr

visions of 67 & 68
State me nt 74—F

inanc ial Re por ting – OPE B Plans

State me nt 77—T

ax Abate me nt Disc losur e s

State me nt 78 – Pe nsions Pr
vide d thr
ugh Ce r

tain Multiple -E mploye r De fine d Be ne fit Plans

State me nt 79 – Ce r

tain Inve stme nt Pools and Par tic ipants

State me nt 80 - Ble nding Re quir

e me nts for Ce r tain Compone nt Units

State me nt 82 – Pe nsion Issue s

38

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2018
State me nt 75—Ac c ounting and F

inanc ial Re por ting – OPE B – E mploye r s

State me nt 81 – Ir

r e voc able Split-Inte r e st Agr e e me nts

State me nt 82 – Pe nsion Issue s (Ce r

tain Pr

visions r

e late d to Assumptions)

State me nt 85 – Omnibus 2017
State me nt 86 – Ce r

tain De bt E xtinguishme nt Issue s

2019

State me nt 83 - Ce r

tain Asse t Re tir e me nt Obligations

2020

State me nt 84 – F

iduc iar y Ac tivitie s

2021

State me nt 87 – L

e ase s

2022 T e ntative

F

inal State me nt XX – Re por ting Mode l Due 1st Quar te r

39

I

f yo u put “OPE B” in yo ur c o mpute r, Spe ll Che c k will no t like tha t wo rd.

Yo u will c o me to dislike the wo rd a s we ll.
Onc e

yo u unde rsta nd wha t the Go ve rnme nta l Ac c o unting Sta nda rds Bo a rd (GASB) is a sking yo u to re c o rd fo r Othe r Po ste mplo yme nt Be ne fits (OPE B), tha t ma y b e a n unde rsta te me nt.

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Be c a use we re a lly do ha ve

a lo ng -te rm lia b ility!

GASB, in Co nc e pt Sta te me nt Numb e r 4, Pa ra g ra ph 17-19,

issue d in June o f 2007, de fine d wha t a lia b ility is:

A lia b ility is a pre se nt o b lig a tio n to sa c rific e re so urc e s tha t the

g o ve rnme nt ha s little o r no disc re tio n to a vo id.

An o b lig a tio n is a so c ia l, le g a l, o r mo ra l re q uire me nt, suc h a s a

duty, c o ntra c t, o r pro mise tha t c o mpe ls o ne to fo llo w a pa rtic ula r c o urse o f a c tio n. E xa mple : Ove rtime Pa y.

E

ve n if the a g re e me nt ma y no t b e le g a lly e nfo rc e a b le , the g o ve rnme nt ma y ha ve a lia b ility due to so c ia l, mo ra l, o r e c o no mic c o nse q ue nc e s. E xa mple s: Va c a tio n Pa y, Sic k Pa y, De fe rre d Co mpe nsa tio n, o r Re tire e He a lth Ca re b e ne fits.

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GASB 45, Pa ra g ra ph 7, Sta te s tha t OPE

B a rise s fro m a n e xc ha ng e o f sa la rie s a nd b e ne fits fo r e mplo ye e se rvic e s, a nd it is pa rt o f the c o mpe nsa tio n tha t e mplo ye rs o ffe r fo r se rvic e s re c e ive d.

Simply put, GASB sa ys OPE

B me e ts the de finitio n o f a lia b ility.

GASB wa s e sta b lishe d in 1984.
T

he OPE B Pro je c t b e g a n in 1988 b e c a use

f a g ro wing c o nc e rn a b o ut the

po te ntia l ma g nitude o f e mplo ye ro b lig a tio ns.

Pushe d a lo ng b y F

ASB Sta te me nt 81, Disc lo sure o f Po stre tire me nt He alth Care and L ife I nsuranc e Be ne fits, whic h wa s c o nside re d, L e ve l B GAAP fo r Go ve rnme nts, b e c a use GASB did no t ha ve a sta nda rd.

Mo st Go ve rnme nts did no t a pply the F

ASB sta nda rd.

By 1988, F

ASB ha d issue d a mo re c o mpre he nsive sta nda rd. F ASB 106 wa s title d E mplo ye r’ s Ac c o unting fo r Po stre tire me nt Be ne fits Othe r than Pe nsio ns. T he ne w sta nda rd e sse ntia lly re fle c te d the sa me me a sure me nt fo r OPE B a s wa s re q uire d in F ASB 87, E mplo ye r’ s Ac c o unting fo rPe nsio ns, issue d in De c e mb e r, 1985.

GASB sta te d tha t g o ve rnme nts sho uld no t a pply F

ASB 87, b e c a use GASB wa s ma king pro g re ss o n its o wn sta te me nt tha t wa s a ntic ipa te d in the ne a rfuture .

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GASB issue d a n inte rim Sta te me nt - Sta te me nt 12, Disc lo sure o f I

nfo rmatio n o n Po ste mplo yme nt Be ne fits Othe r than Pe nsio n Be ne fits by S tate and L

c al

Go ve rnme nt E mplo ye rs, in Ma y o f 1990. GASB 12 wa s e ffe c tive fo r 7/ 1/ 90 to 6/ 30/ 91 fina nc ia l sta te me nts.

Sta te me nt 12 spe c ific a lly sta te d tha t g o ve rnme nta l e mplo ye rs we re no t re q uire d

to imple me nt F ASB 106.

Sub se q ue ntly,

GASB pro vide d e mplo ye rs the

ptio n
f a pplying

GASB 27, Ac c o unting fo r Pe nsio ns by S tate and L

c al Go ve rnme ntal E

mplo ye rs, whic h wa s issue d in No ve mb e ro f 1994.

I

n No ve mb e r o f 1994, GASB issue d a se c o nd inte rim Sta te me nt, Sta te me nt 26, F inanc ial Re po rting fo r Po ste mplo yme nt He althc are Plans Administe re d by De fine d Be ne fit Pe nsio n Plans. I t re q uire d se pa ra te re po rting .

De lib e ra tio ns c o ntinue d in 1994 a nd 1995. T

he pro je c t wa s pla c e d o n ho ld in 1997 pe nding c o mple tio n o f GASB 34.

GASB re sume d disc ussio ns in 1999.
GASB issue d two e xpo sure dra fts, o ne fo r OPE

B Pla ns a nd One fo r E mplo ye rs in F e b rua ry o f 2003. A re vise d e xpo sure dra ft wa s issue d in Ja nua ry 2004 re q uiring the c o nc e pt o f a n implic it ra te sub sidy.

And GASB 43, F

inanc ial Re po rting F

r Po ste mplo yme nt Be ne fits Plans Othe r T

han Pe nsio ns, wa s issue d in April, 2004 a nd GASB 45, Ac c o unting and F inanc ial Re po rting by E mplo ye rs fo r Po ste mplo yme nt Be ne fits Othe r T han Pe nsio ns, wa s issue d in June , 2004.

And the r

e st as the y say, is Histor y.

GASB 74 a nd 75 we re issue d in June , 2015.
GASB 74 wa s e ffe c tive fo r June 30, 2017.
GASB 75 is e ffe c tive fo r June 30, 2018.
T

his histor y take s us fr

m 1988 to 2015. Appr
ximate ly 27 ye ar

s.

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47

T

his Sta te me nt supe rse d e s a ll re ma ining re q uire me nts o f:

Sta te me nt

No . 43, F inanc ial Re po rting fo r Po ste mplo yme nt Be ne fit Plans Othe r T han Pe nsio n Plans, a s a me nde d

Sta te me nt No .

57, OPE B Me asure me nts by Ag e nt E mplo ye rs and Ag e nt Multiple -E mplo ye r Plans.

Sta te me nt No . 25, F

inanc ial Re po rting fo r De fine d Be ne fit Pe nsio n Plans and No te Disc lo sure s fo r De fine d Co ntributio n Plans, a s a me nde d

Sta te me nt No . 50, Pe nsio n Disc lo sure s
Vario us o the rparag raphs

48

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I

f yo u do no t ha ve a OPE B T rust F und,

I

f yo u a re no t a c c umula ting a sse ts to pa y fo r OPE B b e ne fits,

T

he n…

GASB 74 do e s no t a pply to yo u!

49

Ac c o unting fo r a sse ts a c c umula te d fo r OPE

B tha t do e s no t me e t the trust c rite ria :

Sing le

e mplo ye r – c o ntinue to b e re po rte d a s a sse ts o f the e mplo ye r

Multiple -e mplo ye r – re po rt the a sse ts in a n Ag e nc y F

und

E

xc e ptio n – e mplo ye r is a me mb e r o f the OPE B pla n (a g e nc y fund sho uld e xc lude the e mplo ye ra mo unts)

50

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Addre sse s b o th OPE

B Pla ns Administe re d thro ug h T rusts & no t a dministe re d thro ug h T rusts

Re q uire s re po rting o f lia b ility in the No te s to the F

ina nc ia l Sta te me nts o r o n the fa c e o f the F ina nc ia l Sta te me nts

T

rust: T

ta l OPE

B L ia b ility minus F iduc ia ry Ne t Po sitio n = Ne t OPE B L ia b ility

No T

r ust: T

ta l OPE

B lia b ility = L ia b ility

Disc o unt Ra te –
T

rust – Sing le Disc o unt ra te = L

T e Ro R a s pro je c te d suffic ie nt

No T

r ust – 20-ye a r, ta x-e xe mpt g e ne ra l o b lig a tio n munic ipa l b o nds

(AA/ Aa o r hig he r)

51

2017 Mo nta na CAF R

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2017 Mo nta na CAF R 2017 Mo nta na CAF R

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2017 Mo nta na CAF R 2017 Mo nta na CAF R

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F

und F ina nc ia l Sta te me nts – Mo difie d Ac c rua l?

Or
Go ve rnme nt-wide F

ina nc ia l Sta te me nts – F ull Ac c rua l?

2017 Mo nta na CAF R

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2017 Mo nta na CAF R

Sta te me nt No . 75, Ac c o unting and F

inanc ial Re po rting fo r Po ste mplo yme nt Be ne fits Othe r T han Pe nsio ns, e sta b lishe s ne w a c c o unting a nd fina nc ia l re po rting re q uire me nts fo r g o ve rnme nts who se e mplo ye e s a re pro vide d with OPE B, a s we ll a s fo r c e rta in no ne mplo ye r g o ve rnme nts tha t ha ve a le g a l

b lig a tio n

to pro vide fina nc ia l suppo rt fo r OPE B pro vide d to the e mplo ye e s

f
the r

e ntitie s.

60

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GASB 75, Ac c o unting and F

inanc ial Re po rting fo r Po ste mplo yme nt Be ne fits

I

s e ffe c tive fo r the ye ar e nde d June 30, 2018.

What sho uld yo u be do ing ? Go o d que stio n.

61

Po st E

mplo yme nt Be ne fits - E mplo ye rs:

T

he Gist o f the E mplo ye r Sta nd a rd is to re q uire re c o rding

f

the Ne t OPE B L ia b ility, OPE B E xpe nse , a nd re la te d De fe rre d Outflo ws a nd I nflo ws.

Curre ntly
nly

a Ne t OPE B Ob lig a tio n is re c o rde d (E xa mple , ma king the minimum pa yme nt o n a c re dit c a rd).

I

nc re a se d No te s Disc lo sure s a nd RSI (Pa g e s a nd Pa g e s).

62

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Po st E

mplo yme nt Be ne fits - E mplo ye rs:

I

n e sse nc e , just like GASB 67 a nd 68.

E

xc e pt, the numb e rs will b e muc h b ig g e r!

Will supe rse de GASB Sta te me nt 45.

63

Yo u ta ke
ut a

ho use mo rtg a g e

f $200,000 (i.e . yo u

pro mise to pa y $200,000)

T

he Mo rtg a g e is Pa ya b le o ve r 20 ye a rs a t $10,000 pe r ye a r

(Assume no inte re st fo r this illustra tio n)
$10,000 is the c a sh disb urse d during a ye a r, b ut this is no t

wha t yo u owe.

Afte r the first ye a r, yo u still owe $190,000 e ve n tho ug h yo u

ha ve funde d yo ur mo rtg a g e pa yme nts fo r the c urre nt ye a r.

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T he Ba sic T hre e -Ste p Appro a c h fo r De fine d Be ne fit Pe nsio ns

25 62 80

1) Project Benefit Payments 2) Discount Future Payments

Present Value of Payments

3) Attribute to Employee Service Periods

65 F

r Ac tive a nd Ina c tive E

mploye e s

T OL

How muc h mone y would I ne e d to inve st today to c ove r all the e xpe c te d OPE B Be ne fits for this e mploye e ?

He a lthc a re T re nd Ra te

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Yo u hire 10 ne w e mplo ye e s a nd pro mise to pa y the ir me dic a l

insura nc e pre miums a fte r re tire me nt. T his is pro je c te d to c o st $200,000 a t so me da te in the future .

Yo u ma ke

c urre nt c o ntrib utio ns to the pla n b y pa ying a a c tua rilly de te rmine d a mo unt during the c urre nt ye a r. (Pa y a s yo u g o )

Ho we ve r, if yo ur a c tua l c o ntrib utio ns a re no t e no ug h to c o ve r

the a c tua ria lly de te rmine d c o ntrib utio ns, yo u ha ve a lia b ility tha t GASB 45 sa ys ne e ds to b e re c o rde d to da y. (b ut 45 ha s b e e n supe rse de d b y 75)

Unde r GASB 75, yo u o we $200,000 fo r the ne w e mplo ye e s. But

wha t if yo u a lre a dy o we d $2,500,000 to c urre nt e mplo ye e s, tha t ha d ne ve r b e e n re c o rde d, wha t ha ppe ns?

We ha ve he ld me e ting s with F

ina nc e a nd Administra tio n (F &A)

We ha ve ta lke d d ire c tly to GASB
F

&A will pro vide the OPE B info rma tio n

Will utilize a va lua tio n a nd me a sure me nt da te o ne ye a r pre vio us to the

fina nc ia l sta te me nt da te .

An Ac tua ria l Study will b e pro vide d (ma y no t b e individua lize d).
I

f it is individua lize d, it ma y no t b e c e rtifie d b y the Ac tua ry.

T

e mpla te No te s disc lo sure s will b e pro vide d.

I

nfo rma tio n fo r Jo urna l E ntrie s will b e supplie d b ut no t the Jo urna l E ntrie s?

Cha rte r Sc ho o ls a re no t se pa ra te d a t this po int?

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Que stio n,
Do sta te a nd lo c a l g o ve rnme nts ha ve to pro vide

OPE B Be ne fits?

Que stio n,
Wha t c a n Ido to re duc e my Ne t OPE

B L ia b ilitie s?

F
r Sta te E

mplo ye e s:

No ne w OPE

B e mplo ye e s a fte r July 1, 2015, so wha t will tha t me a n?

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Still ha ve a n implic it ra te sub sidy c a lc ula tio n
Pre se rve s the a lte rna tive me a sure me nt c a lc ula tio n o ptio n fo r

sma ll e mplo ye rs a nd pla ns tha t ha ve 100 e mplo ye e s o r le ss – a c tive a nd ina c tive e mplo ye e s

Se nsitivity disc lo sure is b ro a de ne d to inc lude He a lthc a re T

re nd Ra te in a dditio n to the Disc o unt Ra te in No te s to F ina nc ia l Sta te me nts

Co nside ra tio ns fo r E

mplo ye rs who do no t ha ve a T rust F und a re inc o rpo ra te d in 75 ra the r tha n b y a n Ame ndme nt (i.e . 73)

72

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Ma y o r ma y no t use “se rvic e c re dits” in the pro je c tio n o f

b e ne fits. T his wo uld a lmo st a lwa ys b e inc lude d in pe nsio n c a lc ula tio ns.

73

Va lua tio n F

re q ue nc y ha s c ha ng e d:

Old - E

mplo ye e s o f 200 o r mo re = b ie nnia lly

Old - E

mplo ye e s o f le ss tha n 200 = trie nnia lly

Old – F

e we r tha n 100 = Alte rna tive Me tho d (Optio n)

Ne w – Me a sure me nt no e a rlie r tha n 1 ye a r
Ne w – Va lua tio n da te o f no mo re tha n 30 mo nths a nd 1 o ne da y

prio r to F YE

Ac tua rie s must fo llo w ASOP
Only o ne Ac tua ria l Me tho d

74

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Ne t OPE

B L ia b ility (75) vs. Ne t OPE B Ob lig a tio n (45)

T

ruste d Pla ns vs. No n-T ruste d Pla ns

De fe rra ls Ca lc ula te d
Co ntrib utio ns a fte r the me a sure me nt da te
Spe c ia l F

unding situa tio ns

E

tc .

Co st Sha ring Pla ns inc lude d
No te s to F

ina nc ia l Sta te me nts (e .g . Se nsitivity Ana lysis)

RSI

75

E

nsure tha t yo ur individua l pa yro ll re c o rds a re c o mple te a nd up to da te :

Hire a ve ry g o o d Ac tua ry
Ma ke sure the c e nsus da ta yo u pre se nt to the Ac tua ry a g re e s with

yo ur e mplo ye e re c o rds

Audito rs a nd the Ac tua ry will ne e d to kno w ho w ma ny a re a c tive a nd

ho w ma ny a re ina c tive

E

sta b lish I nte rna l Co ntro ls o ve r the c e nsus da ta a c c umula tio n pro c e ss

Co rre c t na me a nd ide ntific a tio n suc h a s so c ia l se c urity numb e r
Co rre c t b irth da te
Ma le o r F

e ma le liste d in the re c o rd

Da te o f hire a nd da te o f te rmina tio n

76

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Be pre pa re d to b e ha ssle d b y yo ur Audito rs!

77

So What Should I Be Doing?

Ac c o unting :
T

he b e g inning GASB 45 Ne t OPE B Ob lig a tio n will b e re ve rse d o ff the b o o ks a nd a ne w GASB 75 Ne t Pe nsio n L ia b ility will b e c a lc ula te d a nd re c o rde d.

T

his will b e a “re sta te me nt” o f b e g inning ne t po sitio n. I t is a o ne time “hit” to yo ur fina nc ia l sta te me nts.

78

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I mple me nta tio n Guide No . 2017-2, F ina nc ia l Re po rting fo r Po ste mplo yme nt Be ne fit Pla ns Othe r T ha n Pe nsio n Pla ns

Othe r Guida nc e

T hought Que stion?

I

s it mo re diffic ult to e stima te pe nsio n b e ne fits into the future , o r

Mo re diffic ult to e stima te he a lthc a re c o sts into the future ?

80

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Que stio ns!

81

Je rry E . Durha m, CPA, CGF M, CF E

SLIDE 42

4/12/2018 42

Ne w Sta te me nts E ffe c tive 2018 o r L a te r

81

I rre vo c a b le Split-I nte re st Ag re e me nts - 2018

SLIDE 43

4/12/2018 43

I rre vo c a b le Split-I nte re sts

Pr

ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts:

E

xposur e Dr aft Issue d June 2015

GASB 81 Issue d Mar

c h 2016

E

ffe c tive for Pe r iods be ginning afte r 12/ 15/ 2016 (i.e . c ale ndar ye ar 2017, fisc al ye ar 2018)

De finition of Ir

r e voc able Split- Inte r e sts:

A split-inte r

e st agr e e me nt in whic h the donor has not r e se r ve d, or c onfe r r e d to anothe r pe r son, the r ight to te r minate the agr e e me nt at will and have the donate d asse ts r e tur ne d to the donor

r

thir d par ty.

85

I rre vo c a b le Split-I nte re sts

Pr

ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts:

Ir

r e voc able split-inte r e st agr e e me nts ar e a spe c ific type of giving ar r ange me nt use d by donor s to pr

vide r

e sour c e s to two or mor e be ne fic iar ie s, inc luding gove r nme nts. E xample s inc lude c har itable le ad tr usts, c har itable r e mainde r tr usts, c har itable annuity gifts, and life -inte r e sts in r e al e state .

86

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I rre vo c a b le Split-I nte re sts

Pr

ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts:

Sinc e the r

e ar e diffe r e nt type s of agr e e me nts, a de te r mination has to be made about the type .

Whe n doe s the inte r

e st be gin and te r minate ?

Is the Gove r

nme nt the inte r me diar y or is the inte r me diar y a thir d par ty?

If the donation is c apital pr
pe r

ty (e .g. land), how do I plan to use the pr

pe r

ty? Capital Asse t or Inve stme nt.

Will I use fair

value or ac quisition value ?

87

I rre vo c a b le Split-I nte re sts

Pr

ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts:

Sinc e the r

e ar e diffe r e nt type s of agr e e me nts, a de te r mination has to be made about the type (c ont’d).

Do you have the le ad inte r

e st or the r e mainde r inte r e st?

If the gove r

nme nt is the Inte r me diar y and has a r e mainde r inte r e st nor mally de bit an asse t, c r e dit a liability for the le ad inte r e st, and c r e dit a de fe r r e d inflow for the diffe r e nc e (i.e . the gove r nme nt’s r e mainde r inte r e st).

88

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4/12/2018 45

I rre vo c a b le Split-I nte re sts

Pr

ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts:

Sinc e the r

e ar e diffe r e nt type s of agr e e me nts, a de te r mination has to be made about the type (c ont’d).

If the gove r

nme nt is the Inte r me diar y and has a le ad inte r e st nor mally de bit an asse t, c r e dit a liability for the r e mainde r inte r e st, and c r e dit a de fe r r e d inflow for the diffe r e nc e (i.e . the gove r nme nt’s le ad inte r e st).

89

I rre vo c a b le Split-I nte re sts

Pr

ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts:

Sinc e the r

e ar e diffe r e nt type s of agr e e me nts, a de te r mination has to be made about the type (c ont’d).

If a thir

d par ty is the Inte r me diar y and the gove r nme nt has a be ne fic ial inte r e st, nor mally de bit an asse t and c r e dit a de fe r r e d inflow whe n the gove r nme nt be c ome s awar e of the agr e e me nt and has suffic ie nt infor mation to me asur e the be ne fic ial inte r e st.

90

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I rre vo c a b le Split-I nte re sts

Pr

ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts:

If a third party is the Inte rme diar

y and the gove r nme nt has a be ne fic ial inte r e st, what is suffic ie nt infor mation:

Gove r

nme nt is spe c ifie d by name

Gove r

nme nt has an unc onditional be ne fic ial inte r e st

T

he donation agr e e me nt is ir r e voc able

T

he donor has not gr ante d var ianc e powe r to the inte r me diar y with r e gar d to the donate d r e sour c e s

T

he inte r me diar y is not unde r the c ontr

l of the donor
T

he gove r nme nt’s ability to assign its be ne fic ial inte r e st is not subje c t to appr

val of the inte r

me diar y

T

he gove r nme nt’s atte mpt to assign its be ne fic ial inte r e st doe s not invalidate the gove r nme nt’s be ne fic ial inte r e st and the r e by te r minate the agr e e me nt

91

I rre vo c a b le Split-I nte re sts

Pr

ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts:

F

ASB State me nt 136 T r ansfe r s of Asse ts to a Not-for

Pr
fit Or

ganization or Char itable T r ust T hat R aise s or Holds Contr ibutions for Othe r s, r e quir e s the r e sour c e s he ld in an ir r e voc able tr ust as asse ts and c ontr ibutions into the tr ust to be r e c or de d as asse ts and the c ontr ibutions into the tr ust as r e ve nue s of the be ne fic iar y gove r nme nt (Par a 15).

92

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I rre vo c a b le Split-I nte re sts

Pr

ac tic e Issue – Ac c ounting and Re por ting for Ir r e voc able Split- Inte r e st Agr e e me nts:

Obviously,

the r e ar e many var iations

f

the sc e nar ios we have looke d at that r e quir e diffe r e nt e ntr ie s and c alc ulations.

T

he state me nt doe s not me ntion disc losur e r e quir e me nts!

93

Ce rta in Asse t Re tire me nt Ob lig a tio ns - 2019

SLIDE 48

4/12/2018 48

ARO

Ce r

tain Asse t Re tir e me nt Obligations (ARO):

E

xposur e Dr aft Issue d De c e mbe r 7, 2015

State me nt 83 Issue d Nove mbe r

2016

E

ffe c tive for pe r iods be ginning afte r June 15, 2018

F

ASB State me nt 143, Ac c ounting for Asse t Re tir e me nt Obligations (2001) has be e n followe d.

Should c osts be c apitalize d, what should be disc lose d?

95

ARO

Asse t

r e tir e me nt

bligation—A

le gal

bligation

assoc iate d with the r e tir e me nt of a c apital asse t, the unavoidable c osts of r e tir ing an asse t

R

e tir e me nt

f

a tangible c apital asse t— T he

the r-than- te mpora r

y r e moval

f

a c apita l a sse t fr

m

se r vic e (suc h a s fr

m

sale , abandonme nt, r e c yc ling, or disposal)

Inc lude s:
Nuc le ar powe r plant de c ommissioning
Coal ash pond c losur

e (those that ar e not landfills)

Contr

ac tually r e quir e d land r e stor ation suc h as re moval of wind tur bine s

Se wage T

r e atme nt F ac ilitie s

Othe r similar obligations
But not the pollutions the y c ause !
E

xc lude s:

L

andfills (GASB 18), Howe ve r this is the most c ommon ARO

Pollution r

e me diation obligations fr

m abnor

mal ope r ation (GASB 49)

Conditional obligations to pe rfor

m asse t re tir e me nt ac tivitie s, suc h as most asbe stos re moval

96

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4/12/2018 49

ARO

Asse t Re tir

e me nt Obligations (ARO):

L

e gally e nfor c e able liability

Inte r

nal obligating e ve nt

Assoc iate d with a tangible c apital asse t
Re c ognize a liability whe n inc ur

r e d and r e asonably e stimable

Use

pr

bability we ighing
f all pote ntial outc ome s or if this is not

available at a r e asonable c ost, the n use most like ly amount

Re c or

d a de fe r r e d outflow = to liability

Re me asur

e the liability for e ffe c ts of inflation and de flation annually and

the r r

e le vant fac tor

s. Book if signific ant
Spe c ial r

e c ognition for minor ity inte r e sts c alc ulate d unde r othe r than GASB GAAP

97

ARO

Asse t Re tir

e me nt Obligations (ARO) - Disc losur e s:

Disc lose funding r

e quir e me nts and amounts ac c umulate d and r e str ic te d for payme nt of the liability

Natur

e of gove r nme nt’s AROs

Me thods and assumptions use d for e stimate s of liabilitie s
E

stimate d r e maining use ful life of assoc iate d tangible asse ts

Disc lose the fa c t and re asons why a liability is not re asonably

e stimable

Similar disc losur

e s for minor ity inte r e sts

98

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ARO

84

F iduc ia ry Ac tivitie s - 2020

SLIDE 51

4/12/2018 51

F iduc ia ry Ac tivitie s

Sta te me nt No . 14, T

he F inanc ial Re po rting E ntity, Pa ra g ra ph 19

I

nc lude “if the prima ry g o ve rnme nt ha s a fiduc ia ry re spo nsib ility fo r the m”

Sta te me nt No . 61, T

he F inanc ial Re po rting E ntity: Omnibus

F

iduc ia ry a c tivitie s b ro a de r tha n re po rting e ntity c o nside ra tio ns –so no t a ddre sse d

E

xisting sta nda rds

F

iduc ia ry re spo nsib ilitie s no t de fine d

I

nc o nsiste nt a pplic a tio n

Busine ss-type a c tivitie s
Go ve rnme nta l Ac c o unting Sta nda rds Adviso ry Co unc il (GASAC)
Hig h prio rity to a ddre ss fiduc ia ry a c tivitie s

101

April 2010 –a dde d to Pre -Ag e nda Re se a rc h
Re vie w c urre nt pra c tic e s
Co nduc t surve y o f use rs
Aug ust 2013 –a dde d pro je c t to Curre nt T

e c hnic a l Ag e nda

No ve mb e r 2014 –issue d Pre limina ry Vie ws
36 Re spo nse s
3 Pub lic he a ring s –18 o rg a niza tio ns a nd individua ls te stifie d
F

ie ld te sts c o nduc te d

De c e mb e r2015 –issue d E

xpo sure Dra ft

37 Re spo nse s
Pub lic he a ring –13 o rg a niza tio ns a nd individua ls te stifie d
Oc to b e r2016 –c o nduc te d we b ina ro n te nta tive re visio ns
Ja nua ry 2017 –issue d Sta te me nt No . 84
E

ffe c tive Date , Cale ndar Ye ar 2019, F isc al Ye ar E nde d June 30, 2020

102

F iduc ia ry Ac tivitie s

SLIDE 52

4/12/2018 52

I

mpro ve g uida nc e re g a rding the ide ntific a tio n o f fiduc ia ry a c tivitie s fo r a c c o unting a nd fina nc ia l re po rting

F
c us is o n:
(1) whe the r a g o ve rnme nt is c o ntro lling the a sse ts, a nd
(2) the b e ne fic ia rie s with who m the re la tio nship e xists
Se pa ra te c rite ria fo r fiduc ia ry c o mpo ne nt units a nd

po ste mplo yme nt b e ne fit a rra ng e me nts tha t a re fiduc ia ry a c tivitie s

4 fiduc ia ry funds tha t sho uld b e re po rte d:
Po ste mplo yme nt trust funds
I

nve stme nt trust funds

Priva te -purpo se trust funds
Custo dia l funds

103

F iduc ia ry Ac tivitie s

Ob je c tive :
I

mpro ve c o nsiste nc y a nd c o mpa ra b ility o f fiduc ia ry a c tivitie s re po rting

I

nc re a se use fulne ss o f fiduc ia ry a c tivity info rma tio n fo r a sse ssing a g o ve rnme nt’ s a c c o unta b ility in its ro le a s a fiduc ia ry

Applie s to a ll sta te a nd lo c a l g o ve rnme nts

104

F iduc ia ry Ac tivitie s

SLIDE 53

4/12/2018 53

De fine s a nd c la rifie s fiduc ia ry a c tivitie s
I

ntro duc e s “c usto dia l” funds, e limina te s a g e nc y funds

105

F iduc ia ry Ac tivitie s

F
ur pa ths to ma king this de te rmina tio n:
Co mpo ne nt units tha t pro vide po ste mplo yme nt

b e ne fits

Co mpo ne nt units tha t do no t pro vide po ste mplo yme nt

b e ne fits

Po ste mplo yme nt b e ne fit a rra ng e me nts tha t a re no t

c o mpo ne nt units

All o the r a c tivitie s

F iduc ia ry Ac tivitie s

SLIDE 54

4/12/2018 54

Prima ry g o ve rnme nts (PG) a nd/ o r c o mpo ne nt units (CU)

ma y ha ve fiduc ia ry a c tivitie s

Sta nd a rd g ive s spe c ific g uid a nc e to d e te rmine if a n

a c tivity is a fiduc ia ry a c tivity

Pa ra g ra phs 6-9: Co mpo ne nt units (fiduc ia ry c o mpo ne nt units)
Pa ra g ra phs 10-11: Othe r a c tivitie s

107

F iduc ia ry Ac tivitie s

Still lo o k to c rite ria o f GASB 14, a s a me nde d, fo r CU

d e te rmina tio n

L

e g a l o r a ssume d o b lig a tio n to ma ke c o ntrib utio ns to le g a lly se pa ra te pe nsio n a nd OPE B pla ns is c o nside re d a fina nc ia l b urde n

Co ntro l o f CU a sse ts b y PG is no t a c o nside ra tio n whe n

de te rmining if CU is fiduc ia ry c o mpo ne nt unit

108

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F

iduc ia ry a c tivity if a ny o ne o f the fo llo wing :

Pe nsio n pla n a dministe re d thro ug h a trust tha t me e ts c rite ria o f

pa ra . 3 o f GASB 67

OPE

B pla n a dministe re d thro ug h a trust tha t me e ts c rite ria o f pa ra . 3 o f GASB 74

Asse ts fro m e ntitie s o utside re po rting e ntity a c c umula te d fo r

pe nsio ns (pa ra . 116 o f GASB 73 - i.e . No t in a trust).

Asse ts fro m e ntitie s o utside re po rting e ntity a c c umula te d fo r

OPE B (pa ra . 59 o f GASB 74 – i.e . No t in a trust)

109

I

f CU b ut not pe nsio n/ OPE B a rra ng e me nt a s pre vio usly de sc rib e d, CU is fiduc ia ry a c tivity if re la te d a sse ts a re a ny

ne o f fo llo wing :
1) a ) a dministe re d thro ug h a trust a g re e me nt a nd the

g o ve rnme nt is no t a b e ne fic ia ry, b ) de dic a te d to pro viding b e ne fits a s pe r b e ne fit te rms, AND c ) le g a lly pro te c te d fro m c re dito rs o f the g o ve rnme nt; or

2) fo r the b e ne fit o f individua ls a nd no a dministra tive

invo lve me nt o r dire c t fina nc ia l invo lve me nt b y g o ve rnme nt a nd a sse ts a re no t fro m the g o ve rnme nt pro viding g o o ds o r se rvic e s;

r

110

SLIDE 56

4/12/2018 56

I

f CU b ut no t pe nsio n/ OPE B a rra ng e me nt, CU is fiduc ia ry a c tivity if re la te d a sse ts a re a ny o ne o f fo llo wing (c o ntinue d):

r
3) fo r the b e ne fit o f o rg a niza tio ns o r o the r g o ve rnme nts o utside

the re po rting e ntity a nd a sse ts a re no t de rive d fro m the g o ve rnme nt pro viding g o o ds o r se rvic e s to tho se o rg a niza tio ns

111

F
o tno te 1 - Whe n do e s a g o ve rnme nt ha ve a dministra tive

c o ntro l o r dire c t fina nc ia l invo lve me nt?

E

xa mple s o f a dministra tive invo lve me nt:

I

f it mo nito rs c o mplia nc e with the re q uire me nts o f the a c tivity tha t a re e sta b lishe d b y the g o ve rnme nt o r b y a re so urc e pro vide r tha t do e s no t re c e ive the dire c t b e ne fits o f the a c tivity

I

f it de te rmine s e lig ib le e xpe nditure s tha t a re e sta b lishe d b y the g o ve rnme nt o r b y a re so urc e pro vide r tha t do e s no t re c e ive the dire c t b e ne fits o f the a c tivity

I

f it ha s the a b ility to e xe rc ise disc re tio n in ho w a sse ts a re a llo c a te d

E

xa mple o f dire c t fina nc ia l invo lve me nt:

I

f it pro vide s ma tc hing re so urc e s fo r the a c tivitie s

SLIDE 57

4/12/2018 57

Go ve rnme nt c o ntro ls the a sse ts o f a n a c tivity if tha t

g o ve rnme nt:

Ho lds the a sse ts
Ha s the a b ility to dire c t the use , e xc ha ng e o r e mplo yme nt o f the

a sse ts

Re stric tio ns do no t ne g a te a g o ve rnme nt’ s c o ntro l

113

I

f not CU, pe nsio n a nd OPE B a rra ng e me nts a re fiduc ia ry a c tivitie s if the g o ve rnme nt c o ntro ls:

Pe nsio n pla n a dministe re d thro ug h a trust tha t me e ts

c rite ria o f pa ra . 3 o f GASB 67

OPE

B pla n a dministe re d thro ug h a trust tha t me e ts c rite ria

f pa ra . 3 o f GASB 74
Asse ts fro m e ntitie s o utside o f re po rting e ntity

a c c umula te d fo r pe nsio ns (pa ra . 116 o f GASB 73)

Asse ts fro m e ntitie s o utside o f re po rting e ntity

a c c umula te d fo r OPE B (pa ra . 59 o f GASB 74)

114

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T ypic a l Go ve rnme nt T ypic a l Addre ss T ypic a l Zip Co de T ypic a l T rust Co mpa ny T ypic a l Addre ss T ypic a l Zip Co de

SLIDE 59

4/12/2018 59

Othe r a c tivitie s a re c o nside re d fiduc ia ry a c tivitie s if AL

L

f

the fo llo wing a re me t:

Go ve rnme nt c o ntro ls the a sse ts; and
Asse ts o f the a c tivity a re not:
De rive d so le ly fro m the g o ve rnme nt’ s o wn-so urc e re ve nue , or
F

ro m g o ve rnme nt-ma nda te d no ne xc ha ng e o r vo lunta ry no ne xc ha ng e tra nsa c tio ns, E XCE PT fo r pa ss-thro ug h g ra nts fo r whic h the re is no a dministra tive o r dire c t fina nc ia l invo lve me nt fro m the g o ve rnme nt; and

118

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4/12/2018 60

T

he a sse ts a sso c ia te d with the a c tivity ha ve o ne o r mo re

f the fo llo wing c ha ra c te ristic s:
(a ) a re a dministe re d thro ug h a trust a g re e me nt a nd the

g o ve rnme nt is no t a b e ne fic ia ry, AND (b ) a re de dic a te d to pro viding b e ne fits to re c ipie nts a s pe r b e ne fit te rms, AND (c ) a re le g a lly pro te c te d fro m c re dito rs o f the g o ve rnme nt; or

a re fo r the b e ne fit o f individua ls a nd the g o ve rnme nt do e s no t

ha ve a dministra tive invo lve me nt o r dire c t fina nc ia l invo lve me nt with the a sse ts a nd the a sse ts a re no t de rive d fro m the g o ve rnme nt pro viding g o o ds o r se rvic e s.

119

F
o tno te 2: F
r purpo se s o f this pro visio n, the de sc riptio ns o f a dministra tive

invo lve me nt a nd dire c t fina nc ia l invo lve me nt o f a g o ve rnme nt tha t is a re c ipie nt o f a pa ss-thro ug h g ra nt pro vide d in pa ra g ra ph 5 o f Sta te me nt 24 sho uld b e a pplie d.

T

ha t pa ra g ra ph sta te s, “A re c ipie nt g o ve rnme nt ha s a dministra tive invo lve me nt if, fo r e xa mple , it

(a ) mo nito rs se c o nda ry re c ipie nts fo r c o mplia nc e with pro g ra m-spe c ific

re q uire me nts,

(b ) de te rmine s e lig ib le se c o nda ry re c ipie nts o r pro je c ts, e ve n if using

g ra nto r-e sta b lishe d c rite ria , o r

(c ) ha s the a b ility to e xe rc ise disc re tio n in ho w the funds a re a llo c a te d. A

re c ipie nt g o ve rnme nt ha s dire c t fina nc ia l invo lve me nt if, fo r e xa mple , it fina nc e s so me dire c t pro g ra m c o sts b e c a use o f a g ra nto r-impo se d ma tc hing re q uire me nt o r is lia b le fo r disa llo we d c o sts.”

120

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SLIDE 62

4/12/2018 62

Own-So urc e Re ve nue s

Ge ne ra te d b y a g o ve rnme nt itse lf
I

nc lude s:

E

xc ha ng e a nd e xc ha ng e -like re ve nue s

I

nve stme nt e a rning s

De rive d ta x re ve nue s
I

mpo se d no ne xc ha ng e re ve nue s

123

F iduc ia ry Ac tivitie s – T ype

F
ur fiduc ia ry fund type s -
Pe nsio n (a nd o the r e mplo ye e b e ne fit; OPE

B) trust funds

Pe nsio ns/ OPE

B a dministe re d thro ug h trusts tha t me e t the c rite ria o f pa ra . 3

f GASB 67 o r GASB 74
Othe r e mplo ye e b e ne fit pla ns fo r whic h re so urc e s a re he ld in a trust tha t

me e ts the c rite ria o f pa ra . 11c (1) a nd (2) o f GASB 84 a nd the c o ntrib utio ns a nd re la te d e a rning s a re irre vo c a b le

I

nve stme nt trust funds

E

xte rna l po rtio n o f inve stme nt po o ls a nd individua l inve stme nt a c c o unts a re he ld in a trust tha t me e ts the c rite ria o f pa ra . 11c (1)

124

SLIDE 63

4/12/2018 63

F iduc ia ry Ac tivitie s – T ype

F
ur fiduc ia ry fund type s (c o ntinue d) -
Priva te purpo se trust funds
Ac tivitie s tha t a re no t re q uire d to b e he ld in a pe nsio n/ OPE

B trust b ut a re he ld in a trust tha t me e ts the c rite ria o f pa ra . 11c (1)

Custo dia l funds
No t re q uire d to b e re po rte d in a ny o f the o the r 3 type s o f trust

funds

E

xte rna l po rtio n o f inve stme nt po o ls no t he ld in trust, re po rt in se pa ra te c o lumn unde r c usto dia l funds c la ssific a tio n

So me fle xib ility in re po rting g ive n to b usine ss-type a c tivitie s
E

limina te s e xisting a g e nc y fund type

Will re q uire e xa mina tio n o f c urre nt a g e nc y funds

125

Sta nda lo ne b usine ss type a c tivitie s:
A sta nd a lo ne BT

A’ s fiduc ia ry a c tivitie s sho uld b e re po rte d in se pa ra te fiduc ia ry fund fina nc ia l sta te me nts.

Re so urc e s e xpe c te d to b e he ld 3 mo nths o r le ss c a n b e

re po rte d inste a d in the sta te me nt o f ne t po sitio n, with inflo ws a nd o utflo ws re po rte d a s o pe ra ting c a sh flo ws in the sta te me nt o f c a sh flo ws

F iduc ia ry Ac tivitie s

SLIDE 64

4/12/2018 64

GASB Go ve rnme nts

Overview of Reporting Units and Opinion Units FOR DISCUSSION PURPOSES ONLY Fund Categories Reporting Units

Governmental Activities Business- type Activities Discretely Presented Component Units Each Major Governmenta l Fund Aggregate Nonmajor Governmental Funds Each Major Enterprise Fund Aggregate Nonmajor Enterprise Funds Internal Service Fund Type Pension (and Other Employee Benefit) Trust Funds Investment Trust Funds Private- Purpose Trust Funds Agency Funds Separate unit Separate unit Separate unit for each Separate unit for each Aggregate all as single unit Option to combine Fund Financial Statements

--------------------------------------------------------------------------------------Basic Financial Statements------------------------------------------------------------------------------------
Opinion Units

Financial Statements

Government-wide Financial Statements Governmental Funds Proprietary Funds "Remaining fund information": Aggregate all as a single unit Fiduciary Funds

127

GASB 84
Me mo writte n to CPA’ s da te d Oc to b e r 2016.
Pro po se d So lutio n – Pe nsio n a nd OPE

B T rust F unds:

T

he Divisio n b e lie ve s c urre nt sta nda rds supp o rt the re po rting o f a fiduc ia ry fund in the situa tio ns disc usse d a b o ve a nd we ma y q ue stio n a n e ntity’ s fina nc ia l sta te me nt pre se nta tio n a nd a CPA’ s a udit re spo nse in c e rta in

b vio us situa tio ns.

Ho we ve r, the Divisio n will c o ntinue to a llo w disc re tio n whe n ma king de te rmina tio ns a b o ut fiduc ia ry re spo nsib ility a nd fina nc ia l sta te me nt pre se nta tio n a s it re la te s to Pe nsio n a nd OPE B T rust F unds until the e ffe c tive da te

f the

E xpo sure Dra ft. Our o ffic e will no t re q uire fina nc ia l sta te me nts to b e re sta te d a nd re sub mitte d until the F iduc ia ry Ac tivitie s E xpo sure Dra ft is fina lize d into a n Ac c o unting Sta nda rd a nd tha t Sta nda rd b e c o me s e ffe c tive .

E

ffe c tive Da te (Ca le nda r Ye a r 2019, F isc a l Ye a r July 1, 2019 to June 30, 2020, E a rlie r Applic a tio n E nc o ura g e d.

128

SLIDE 65

4/12/2018 65

85

Omnib us - 2018

De finitio n

a b us.
a vo lume c o nta ining se ve ra l no ve ls o r o the r

ite ms pre vio usly pub lishe d se pa ra te ly.

"a n o mnib us o f he r first trilo g y“
c o mprising se ve ra l ite ms.
"Co ng re ss pa sse d a n o mnib us b udg e t pa c ka g e "
e a rly 19th c e ntury: via F

re nc h fro m L a tin, lite ra lly ‘ fo r a ll,’

Omni me a ns - a ll; o f a ll thing s.
"o mnisc ie nt"

SLIDE 66

4/12/2018 66

Omnib us 2017

State me nt 85 Issue d Mar

c h 2017

E

ffe c tive Date , July 1, 2017 to June 30, 2018

131

Omnib us

Matte r

s to be Conside r e d:

Clar

ific ation to State me nt 14 for single c olumn busine ss type ac tivitie s

Clar

ific ation to State me nt 69 about pr

spe c tive

r e c lassific ation of Goodwill

Contr

adic tion of Re al E state Valuation be twe e n GASB State me nts 48 and 62 vs. GASB State me nt 72. Use 72 de finitions.

132

SLIDE 67

4/12/2018 67

Omnib us

Matte r

s to be Conside r e d:

T

he use of the wor d “should” in Par agr aph 69c of GASB State me nt 72, implie s that use of the “Amor tize d Cost” me thod is “r e quir e d” r athe r than allowe d. (May was use d in GASB State me nt 31 Par agr aph 9)

How to c onside r
n-be half payme nts that ar

e le gally r e quir e d afte r imple me ntation GASB 68, 73, and 75.

133

Omnib us

Matte r

s to be Conside r e d:

T
pr
vide the e xc e ption for

OPE B e mploye r s similar to those pr

vide d to e mploye r

s unde r GASB 78 (i.e . non-gove r nme ntal c ost shar ing pe nsion plans)

T
addr

e ss the issue of c ove r e d-e mploye e payr

ll
vs. c ove r

e d payr

ll for

OPE B.

E

mploye r payme nts made to satisfy me mbe r c ontr ibution r e quir e me nts unde r OPE

B. (i.e . like

GASB State me nt 82 for pe nsions).

134

SLIDE 68

4/12/2018 68

86

Ce rta in De b t E xting uishme nts - 2018

Ce rta in De b t E xting uishme nt I ssue s

I

n Aug ust 2016, the Bo a rd issue d a n E xpo sure Dra ft pro po sing g uida nc e fo r c e rta in issue s re la te d to de b t e xting uishme nts

Re se a rc h

fo und tha t Sta te me nts 7 a nd 23

n

de b t re funding s a nd Sta te me nt 62 o n de b t e xting uishme nts a re wo rking e ffe c tive ly, b ut tha t c e rta in issue s ne e d to b e a ddre sse d

Sta te me nt 86 wa s issue d in Ma y 2017
E

ffe c tive da te wo uld b e pe rio ds b e g inning a fte r June 15, 2017, i.e . July 1, 2017 to June 30, 2018

SLIDE 69

4/12/2018 69

Ce rta in De b t E xting uishme nt I ssue s

I

n-sub sta nc e de fe a sa nc e using o nly e xisting re so urc e s

De b t c o nside re d de fe a se d in sub sta nc e (like re funding s) whe n
nly e xisting re so urc e s a re pla c e d in trust, if trust re stric te d to
nly e sse ntia lly risk-fre e mo ne ta ry a sse ts (like fo r re funding s)
Wo uld re c o g nize the diffe re nc e b e twe e n the ne t c a rrying

a mo unt o f the de b t a nd the re a c q uisitio n pric e a s a g a in o r lo ss in the pe rio d o f de fe a sa nc e (unlike re funding s)

No te s to the fina nc ia l sta te me nts:
Wo uld de sc rib e the tra nsa c tio n in the pe rio d it o c c urs (like re funding s)
Wo uld disc lo se re ma ining o utsta nding b a la nc e in e a c h pe rio d the

de fe a se d de b t re ma ins o utsta nding (ma y c o mb ine with re funde d a mo unt)

Ce rta in De b t E xting uishme nt I ssue s

Pre pa id insura nc e fo r all de b t

e xting uishme nts:

At the time de b t is e xting uishe d/ de fe a se d, a ny re la te d pre pa id

insura nc e tha t re ma ins wo uld b e inc lude d in the ne t c a rrying a mo unt o f the de b t fo r the purpo se o f c a lc ula ting the diffe re nc e b e twe e n its re a c q uisitio n pric e a nd ne t c a rrying a mo unt

SLIDE 70

4/12/2018 70

Ce rta in De b t E xting uishme nt I ssue s

Ne w no te to fina nc ia l sta te me nts fo r all in-sub sta nc e

de fe a sa nc e s (using o nly e xisting re so urc e s and re funding s)

I

f sub stitutio n o f the e sse ntia lly risk-fre e mo ne ta ry a sse ts in e sc ro w with mo ne ta ry a sse ts tha t a re no t e sse ntia lly risk-fre e is no t pro hib ite d, a g o ve rnme nt wo uld disc lo se in the no te s to the fina nc ia l sta te me nts:

I

n the pe rio d o f the de fe a sa nc e : the fa c t tha t sub stitutio n is no t pro hib ite d

I

n sub se q ue nt pe rio ds: the a mo unt o f de b t de fe a se d in sub sta nc e tha t re ma ins o utsta nding fo r whic h tha t risk o f sub stitutio n e xists

E

ffe c tive da te wo uld b e pe rio ds b e g inning a fte r June 15, 2017, i.e . July 1, 2017 to June 30, 2018

87

L e a se s - 2021

SLIDE 71

4/12/2018 71

SLIDE 72

4/12/2018 72

L e a se s - L e sse e

L

e ase s:

PV issue d Nove mbe r

2014

E

xposur e Dr aft Issue d Januar y 25, 2016

F

inal Standar d E xpe c te d May 2017

Pr
pose d E

ffe c tive Date , Cale ndar 2019 or F isc al Ye ar E nde d June 30, 2020

Conve r

ge with F ASB and Inte r national Standar ds

F

ASB still has a dual appr

ac h
GASB and Inte r

national Standar ds ar e using a single appr

ac h

143

L e a se s - L e sse e

L

e ase s:

F
undational Pr

inc iple – All le ase s ar e financ ings of the r ight to use an unde r lying asse t

De finition of a le ase – A c ontr

ac t that c onve ys the r ight to use a nonfinanc ial asse t for a pe r iod of time in an e xc hange or e xc hange -like tr ansac tion

If owne r

ship tr ansfe r s, the n a sale not a le ase

144

SLIDE 73

4/12/2018 73

L e a se s - L e sse e

L

e ase s:

T

he de finitions ar e inte nde d to inc lude what we c ur r e ntly c all “Ope r ating” le ase s.

“Capitalize d” L

e ase s (c ur r e nt guidanc e ) will not be ac c ounte d for unde r le ase s guidanc e , but would be c onside r e d a “pur c hase ” that was financ e d.

Ope r

ating le ase s would be r e c or de d as a liability and an “intangible ” asse t e xc e pt for Shor t- te rm le ase s.

In

gove rnme ntal funds, also r e c or d an “othe r financ ing sour c e ” and “c apital outlay e xpe nditur e ”.

145

L e a se s - L e sse e

L

e ase s:

Shor

t- te r m L e ase

A le ase that at its be ginning has a maximum possible te r

m unde r the c ontr ac t of 12 months or le ss

12 months inc lude s options to e xte nd
Re c or

d the shor t-te r m le ase tr ansac tion like an

pe r

ating le ase unde r old standar d

De bit E

xpe nse s/ E xpe nditur e s

Cr

e dit Cash

146

SLIDE 74

4/12/2018 74

L e a se s - L e sse e L e a se s - L e sse e

Ove r

ne Ye ar

??

SLIDE 75

4/12/2018 75

L e a se s - L e sse e

L

e ase s - Me asur e me nt:

L

iability

Re c ognize

a le ase liability at the be ginning

f a

le ase (unle ss shor t te r m)

Use

the pr e se nt value

f c e r

tain payme nts to be made ove r the le ase te r m

Asse t
Re c ognize an intangible asse t for the r

ight to use the c apital asse t

Value of le ase liability plus payme nts to le ssor at or be for

e the le ase be gins

Initial dir

e c t c ost ne c e ssar y to plac e the asse t into se r vic e

149

L e a se s - L e sse e

L

e ase s:

Also r

e c ognize Inte r e st e xpe nse / e xpe nditur e on the le ase liability

Re c ognize amor

tization e xpe nse for the asse t

Shor

te r of the L e ase T e r m, or

Use ful L

ife of the Unde r lying Asse t

150

SLIDE 76

4/12/2018 76

Sta te me nt o f Ne t Po sitio n - L e sse e

L e a se s - L e sse e

L

e ase s:

L

e ase T e r m:

Pe r

iod dur ing whic h a le sse e has a nonc anc e llable r ight to use a n unde r lying asse t (the nonc anc e llable pe r iod) plus

T

he le sse e ’s optional e xte nsion (if applic able ) of the le ase whe n e xe r c ise

f

that

ption

is r e asonably c e r tain, or

T

he le sse e ’s option to te r minate (if applic able ) the le ase whe n the e xe r c ise

f that option is

r e asonably c e r tain.

Inc lude s fisc al funding c lause s

152

SLIDE 77

4/12/2018 77

L e a se s - L e sse e

L

e ase s:

E

xc lude c e r tain tr ansac tions:

Contr

ac ts that tr ansfe r

wne r

ship

f

the unde r lying asse t

T

his would be c onside r e d a sale

L

e ase s of intangible asse ts

Contr

ac ts for e xplor ation/ e xploitation

f

non- r e ge ne r ative natur al r e sour c e s

L

e ase s of biologic al asse ts, inc luding timbe r

Contr

ac ts that me e t the de finition of a se r vic e c onc e ssion ar r ange me nt (GASB 60)

153

L e a se s - L e sse e

L

e ase s - Disc losur e s:

De sc r

iption of le ase agr e e me nt

Amount of le ase asse ts
Sc he dule of futur

e le ase payme nts

154

SLIDE 78

4/12/2018 78

Summa ry I nitia l Re po rting ?

Asse ts L iability De fe r r e d Inflow L e sse e

I nta ng ib le a sse t (rig ht to use unde rlying a sse t)— va lue o f le a se lia b ility plus pre pa yme nts a nd initia l dire c t c o sts tha t a re a nc illa ry to pla c e a sse t in use Pre se nt va lue o f future le a se pa yme nts (inc l. fixe d pa yme nts, va ria b le pa yme nts b a se d

n inde x o r ra te ,

re a so na b ly c e rta in re sidua l g ua ra nte e s, e tc .) NA

L e ssor

L

e a se re c e iva b le (g e ne ra lly inc luding sa me ite ms a s le sse e lia b ility)

Co ntinue to re po rt

le a se d a sse t NA E q ua l to le a se re c e iva b le plus a ny c a sh re c e ive d up fro nt tha t re la te s to a future pe rio d

Summa ry Sub se q ue nt Re po rting ?

Asse ts L iability De fe r r e d Inflow

L e sse e Amo rtize o ve r sho rte r o f use ful life o r le a se te rm Re duc e b y le a se pa yme nts (le ss a mo unt

f inte re st

e xpe nse ) NA L e sso r

De pre c ia te le a se d a sse t (unle ss

inde finite life o r re q uire d to b e re turne d in its o rig ina l o r e nha nc e d c o nditio n)

Re duc e re c e iva b le b y le a se

pa yme nts (le ss pa yme nt ne e de d to c o ve r a c c rue d inte re st) NA Re c o g nize re ve nue

ve r the

le a se te rm

n a

syste ma tic a nd ra tio na l b a sis

SLIDE 79

4/12/2018 79

L e a se s - L e sso r

L

e ase s - Me asur e me nt:

Re c e ivable
Re c ognize a le ase r

e c e ivable at the be ginning of the le ase te r m

Use the pr

e se nt value of the le ase payme nts ove r the le ase te r m

De fe r

r e d Inflow of Re sour c e s

Re c ognize a de fe r

r e d inflow a t the be ginning of the le ase te r m

Use the pr

e se nt value of the le ase payme nts ove r the le ase te r m plus payme nts r e c e ive d at or be for e the le ase be gins that r e late to futur e pe r iods

Asse t
Continue to r

e por t the unde r lying asse t on L e ssor ’s books

158

SLIDE 80

4/12/2018 80

Sta te me nt o f Ne t Po sitio n - L e sso r

L e a se s - L e sso r

L

e ase s – Subse que nt Re por ting

L

e ase Payme nts

Re duc tion of Re c e ivable
Inte r

e st Inc ome

Re duc tion to De fe r

r e d Inflows – Re ve nue

Ove r the te r

m of the le ase , or

Ove r a syste matic and r

ational manne r

Asse t
Continue to r

e por t the unde r lying asse t on L e ssor ’s books

Continue to de pr

e c iate the asse t

160

SLIDE 81

4/12/2018 81

L e a se s – L e sso r

L

e ase s - Disc losur e s:

De sc r

iption of le ase agr e e me nt

T
tal Amount of le ase Re ve nue

161

SLIDE 82

4/12/2018 82

L e a se s - Ge ne ra l

L

e ase s:

L

e ase s with multiple c ompone nts

Se par

ate the L e ase Compone nt fr

m

the Non-le ase Compone nt

Se par

ate the unde r lying asse ts

May tr

e at multiple le ase c ompone nts as a single le ase unit in some c ase s

163

L e a se s - Ge ne ra l

L

e ase s:

Combining L

e ase s with multiple c ontr ac ts

Cr

ite r ia for c ombine d single c ontr ac t

E

nte r e d into at or ne ar the same time

Same Counte r

par ty

Ce r

tain additional c r ite r ia me t

T

he n e valuate as a c ontr ac t with multiple c ompone nts

164

SLIDE 83

4/12/2018 83

L e a se s - Ge ne ra l

L

e ase s:

Ame ndme nts to le ase c ontr

ac ts

Modific ations
If r

ight to use is r e duc e d = par tial te r mination

Ac c ounting
L

e sse e

Re me asur

e the le ase liability

Adjust le ase asse t ac c or

dingly

L

e ssor

Re me asur

e the le ase r e c e ivable

Adjust de fe r

r e d inflow

165

L e a se s - Ge ne ra l

L

e ase s:

T

e r minations

L

e sse e

Re duc e the le ase liability
Re duc e the le ase asse t
Diffe r

e nc e = a gain or loss

L

e ssor

Re duc e the le ase r

e c e ivable

Re duc e the de fe r

r e d inflow

Diffe r

e nc e = gain or loss

166

SLIDE 84

4/12/2018 84

L e a se s - Ge ne ra l

L

e ase s:

Suble ase s
L

e sse e now be c ome s the le ssor

T

wo se par ate le ase agr e e me nts e xist

167

L e a se s - Ge ne ra l

L

e ase s:

Sale and L

e ase bac k

Must inc lude a qualifying sale
Othe r

wise the tr ansac tion is bor r

wing
Se par

ate tr e atme nt

Sale
L

e ase bac k

Diffe r

e nc e be twe e n c ar r ying value of the asse t sold and ne t pr

c e e ds = de fe r

r e d inflow/ outflow of r e sour c e s

Amor

tize the de fe r r e d amount

ve r

the te r m

f

the le ase bac k

168

SLIDE 85

4/12/2018 85

L e a se s - Ge ne ra l

L

e ase s:

Summar

y of Ke y Change s

No

distinc tion be twe e n a Capital L e ase and Ope r ating L e ase

Distinguish be twe e n long-te r

m and shor t-te r m le ase s

Use le ase ac c ounting only if owne r

ship doe s not tr ansfe r

the r

wise pr e se nt as F inanc ial Sale / Pur c hase of an Asse t

L

e ase s r e por t intangible asse t for r ight to use unde r lying asse t, not the unde r lying asse t itse lf

L

e ssor s c ontinue to r e por t the unde r lying c apital asse t and a le ase r e c e ivable

Se ve r

al ne w Disc losur e s

169

L e a se s - Ge ne ra l

170

SLIDE 86

4/12/2018 86

L e a se s - Ge ne ra l

171

L e a se s - L e sse e

SLIDE 87

4/12/2018 87

L e a se s - L e sse e

Ove r

ne Ye ar

??

Co ming So o n to a

Go ve rnme nt Ne a r Yo u!

SLIDE 88

4/12/2018 88

Que stio ns!

175 176

Apr il 16, 2018

SLIDE 89

4/12/2018 89

177

Audit Suc c e ss vs. F a ilure

E

ve ry a udito r in this ro o m is o ne mista ke a wa y fro m a la wsuit, o r wo rse ye t, the lo ss o f re puta tio n tha t ma y no t b e re sto ra b le .

We a re no t re me mb e re d fo r o ur ma ny a udit suc c e sse s,

we a re re me mb e re d fo r o ur fa ilure s.

Co mptro lle r’ s Po lic y a b o ut le g isla to rs. F

ive minute rule .

Co mptro lle r’ s ne w “no ” F

inding s Pro g ra m.

178

SLIDE 90

4/12/2018 90

L e t’ s b e Ho ne st

If you have n’t:
Had a disagr

e e me nt with an audit c lie nt

Re c e ive d an angr

y phone c all fr

m a c lie nt
He ar

d fr

m a state le gislator

about your findings or ac tions

Be e n e xpose d to r

idic ule in the me dia

Had a lac k of c oope r

ation fr

m a c lie nt
Be e n attac ke d pe r

sonally at some le ve l

Had a le ss than fr

ie ndly e xit c onfe r e nc e

E

tC.

T

he n:

You pr
bably have n’t be e n doing your

job!

179

L e t’ s b e Ho ne st

If you have n’t:
Made an e r

r

r

in judgme nt dur ing an audit

Ove r

looke d an immate r ial fr aud dur ing an audit

L

e ft out some thing in a le tte r

r

note s, e tc .

Misc alc ulate d a numbe r
F

aile d to c atc h a mistake dur ing the supe r visor y r e vie w

F

aile d to inc lude ade quate doc ume ntation whe n you did the wor k

Had numbe r

s that faile d to ar tic ulate

E

tc .

T

he n:

You ar

e not human, and

You pr
bably have n’t be e n doing your

job!

180

SLIDE 91

4/12/2018 91

L e t’ s b e Ho ne st

Its how you handle all the se things that is impor

tant:

Did you follow the auditing standar

ds?

Did you r

e ac t in kind?

Did you make matte r

s wor se ?

Did you le ar

n anything?

Did you ge t additional tr

aining?

Did you c or

r e c t your mistake ?

Do you have a plan for

addr e ssing the se type s of issue s?

How you de al with the se type s of issue s has a lot to do

with the le ve l of pr

fe ssional r

e spe c t your audit

r

ganization will r e c e ive .

181 182

SLIDE 92

4/12/2018 92

Six Dime nsions of c lie nt se r

vic e (aic pa – by bob ve r e s):

Se tting Cle ar

e xpe c tations

Be ing r

e sponsive to c lie nt r e que sts and me ssage s

Making inte r

ac tions with c lie nts an e njoyable / Ple asant e xpe r ie nc e

Pr
viding High-quality pr
fe ssional advise and pr
fe ssional

se r vic e

E

xhibiting e xe mplar y c onduc t and c har ac te r in all busine ss inte r ac tions

Building a c lose , tr

usting, wor king r e lationship with the c lie nt and visibly c ar ing about his/ he r we ll-be ing

183

Audit Se rvic e s – F ive Ove ra rc hing Princ iple s

T he a udit

b je c tive s

a nd re spo nsib ilitie s sho uld b e c le a r. Pro vide hig h- q ua lity pro fe ssio na l se rvic e . Co mmunic a t io n: K e e p the a udite e info rme d. Be ho ne st. Be re spo nsive to c lie nt re q ue sts, q ue stio ns, a nd me ssa g e s. Ma ke inte ra c tio ns with a udite e a s No n- c o nfro nta tio na l a nd No n- de fe nsive a s po ssib le (i.e . no t a n us a g a inst the m a tmo sphe re ) . E xhib it e xe mpla ry c o nduc t a nd c ha ra c te r in a ll a udit inte ra c tio ns.

184

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T

he audit obje c tive s and r e sponsibilitie s should be c le ar .

T

his pro vide s c o ntro l o ve r a udit va ria b le s

Ma na g e s e xpe c ta tio ns
F

irst ste p in Building trust

Pr
vide High-quality pr
fe ssional se r

vic e .

Ac c o mplishe s the sta te d o b je c tive s
Builds trust
Communic ation: Ke e p the audite e infor

me d. Be hone st. Be r e sponsive to c lie nt r e que sts, que stions, and me ssage s.

T

his de mo nstra te s Co o pe ra tio n

Builds trust

185

Make inte r

ac tions with audite e as Non-c onfr

ntational and

Non-de fe nsive as possible (i.e . not an us against the m atmosphe r e ).

We a re o b je c tive a nd fa ir
Wha t Audite e s ha ve he a rd a nd think a b o ut a n a udit is no t true
Builds trust
E

xhibit e xe mplar y c onduc t and c har ac te r in all audit inte r ac tions.

We a re the re a l de a l
We a re wo rthy o f yo ur trust

186

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Wha t wa s the K

e y e le me nt in ma na g ing e xpe c ta tio ns a nd impro ving c lie nt re la tio nships in the la st two slid e s?

187

L e t the m kno w yo u a re c o ming Me e t with c lie nts, a udit c o mmitte e s, inte rna l a udito rs – Who ? Be g o o d a t wha t yo u do - YB Pro vide tra ining Disc uss issue s e a rly

188

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Ope nne ss a nd ho ne sty Ne w a udito rs Re po rts, L e tte rs, finding s (impo rta nt o r pic ky) Sta te le g isla to rs No surprise s

189

Re spe c t the ir sc he dule s Pre pa re lists o f e xpe c ta tio ns o r do c ume nts Ma inta in inde pe nde nc e Dre ss a nd a c t pro fe ssio na lly No c a re le s missta ke s

190

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Answe r q ue stio ns – with a utho rity – no b luffs Be pe rso na b le b ut a vo id pe rso na l re la tio nships Do c ume nt a ll re le va nt c o mmunic a tio ns Do c ume nt fo r ne xt ye a r’ s a udito rs Re me mb e r na me s

191

Audit Se rvic e s – F ive Ove ra rc hing Princ iple s

T he a udit

b je c tive s

a nd re spo nsib ilitie s sho uld b e c le a r. Pro vide hig h- q ua lity pro fe ssio na l se rvic e . Co mmunic a t io n: K e e p the a udite e info rme d. Be ho ne st. Be re spo nsive to c lie nt re q ue sts, q ue stio ns, a nd me ssa g e s. Ma ke inte ra c tio ns with a udite e a s No n- c o nfro nta tio na l a nd No n- de fe nsive a s po ssib le (i.e . no t a n us a g a inst the m a tmo sphe re ) . E xhib it e xe mpla ry c o nduc t a nd c ha ra c te r in a ll a udit inte ra c tio ns.

192

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L

e t the m kno w yo u a re c o ming

Me e t with c lie nts, a udit

c o mmitte e s, inte rna l a udito rs - Who

Be g o o d a t wha t yo u do -

YB

Pro vide tra ining
Disc uss issue s e a rly
Ope nne ss a nd ho ne sty
Ne w a udito rs
Re po rts, L

e tte rs, finding s

Re spe c t the ir sc he dule s
Pre pa re lists o f

e xpe c ta tio ns o r do c ume nts

Ma inta in ind e pe nde nc e
Dre ss/ Ac t pro fe ssio na lly
No c a re le s missta ke s
Answe r q ue stio ns with

a utho rity

Be pe rso na b le a vo id

re la tio nships

Do c ume nt a ll

c o mmunic a tio ns

193

What is the point: We know situations like the se ar e going to ar ise in almost e ve r y audit. Shouldn’t we know the answe r s be for e the audit be gins?

194

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Othe r

c onside r ations:

Ne ve r fig ht stupid b a ttle s.
T

he re a re thre a ts to inde pe nde nc e o n e ve ry a udit.

T

he g re a te st thre a ts to o ur inde pe nde nc e in a ppe a ra nc e a re :

pe rso na l re la tio nships
Gifts
Me ssa g e s, e spe c ia lly tho se tha t use unpro fe ssio na l, vulg a r, o r pro fa ne

la ng ua g e

T

he g re a te st thre a ts to o ur inde pe nde nc e in mind a re :

Bia s
F

a milia rity

No na udit se rvic e s

195

Othe r

c onside r ations (c ont’d):

What is the most impor

tant ingr e die nt in the audit pr

c e ss?
Pe ople . Auditor

s must be able to e nc ounte r and manage pe ople (inc luding the mse lve s).

Auditor

s ne e d to have e xc e ptional pe ople skills. (Do we pr

vide any

tr aining in this ar e a?)

We walk a fine line be twe e n e mpathizing with our

c lie nts and pe r for ming in ac c or danc e with standar ds.

196

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E

xc e ptional pe ople c alle d auditor s:

Auditor

s must:

Have both vision and instinc t
Be able to se e the for

e st for the tr e e s (big pic tur e amongst the tiny de tails)

Not make mountains out of mole hills
Have e xc e ptional pe ople skills while maintaining pr
fe ssional ske ptic ism
Have inte llige nc e , mingle d with c ommon se nse and the ability to make

good de c isions

Be le ade r

s who ar e se lf-motivate d

Have supe r

ior c ommunic ation skills

197

E

xc e ptional pe ople c alle d auditor s (c ont’d):

Ne w Hir

e s: T he inte r vie w pr

c e ss should in some way atte mpt to

gage pe r sonality and c ommunic ation skills.

198

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Why a m I g e tting this finding ?

Ask yo urse lf, I

f I we re in the c lie nt’ s sho e s, wo uld I unde rsta nd Why I wa s g e tting a pa rtic ula r finding ?

F
r e xa mple , Se g re g a tio n o f dutie s finding in a sma ll
ffic e
Unle ss the c lie nt unde rsta nds the why, the c lie nt will

a ssume he / she is b e ing pic ke d o n o r b ullie d b y the g o ve rnme nt

199 200

SLIDE 101

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T he ke y to good c lie nt r e lationships is managing e xpe c tations! T he ke y to managing e xpe c tations is building tr ust! T he ke y to both is managing your se lf! !

201

Ne xt we will look at how we c ommunic ate !

202

SLIDE 102

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203 204

SLIDE 103

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T

he ultimate goal of an audit is c ommunic ation! What type of Re quir e d Communic ations do we nor mally Have ?

E

ngage me nt L e tte r

Re pr

e se ntation L e tte r

Var

ious Auditor Re por ts

Communic ations with Attor

ne ys

Communic ations with Compone nt auditor

s

F

inanc ial State me nts/ pe r for manc e r e por ts

205

Othe r

c ommunic ations?

E

ntr anc e c onfe r e nc e

E

xit Confe r e nc e

Re que sts for

infor mation

Confir

mations

Audit adjustme nts
Pr
fe ssional le tte r

s/ me mos, e mail, e tc .

206

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But,

for e ve r y for mal wr itte n c ommunic ation, we have doze ns of c ommunic ations that ar e c onve r sational (many not wr itte n) that form the basis for our for mal wr itte n c ommunic ations.

We have ve r

y pr e c ise words and te c hnic al formats for our wr itte n re por ts, but we c onc e ntr ate ve ry little (if any) e ffor t

n ve r

bal skills.

Re ad ye llow book r

e quir e me nts (3.72c , page 57)

Re ad ar

tic le fr

m Hassan Khosr

avi

207

Who do we have the c ommunic ations with?
Manage me nt
T

hose c har ge d with gove r nanc e

L

e gislator s

Othe r

r e gulator s, c ontr ac tor s, T hose L e gally r e quir e d, audit c ommitte e s

Ge ne r

al Public

T

hose that have r e lie d on our audits

Ne ws me dia
F

e de r al Pr

gr

am offic ials

Inve stigator

s (e .g. law e nfor c e me nt, pr

se c utor

s)

Othe r

s.

208

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Communic ating with those c har

ge d with gove r nanc E

Re q uire me nts fo r the a udito r to c o mmunic a te with tho se

c ha rg e d with g o ve rna nc e :

Au-c 265 Ge ne ra l re q uire me nts.
Othe r re q uire me nts:
a. par

agr aph .17 of se c tion 210, T e r ms of E ngage me nt

b. par

agr aphs .21, .38c (i), and .39—.41 of se c tion 240, Conside r ation of F r aud in a F inanc ial State me nt Audit

c . par

agr aphs .14, .18, and .21—.23 of se c tion 250, Conside r ation of L aws and Re gulations in an Audit of F inanc ial State me nts

d. par

agr aph .11 of se c tion 265, Communic ating Inte r nal Contr

l

Re late d Matte r s Ide ntifie d in an Audit

209

Communic ating with those c har

ge d with gove r nanc E

Othe r re q uire me nts (c o nt’ d):
e . par

agr aph .27 of se c tion 550, Re late d Par tie s

f. par

agr aphs .10b-c , .12a, .15a, .17a, and .18 of se c tion 560, Subse que nt E ve nts and Subse que ntly Disc ove r e d F ac ts

g. par

agr aph .19 of se c tion 570, T he Auditor 's Conside r ation of an E ntity's Ability to Continue as a Going Conc e r n

h. par

agr aphs .45—.48 of se c tion 600, Spe c ial Conside r ations—Audits of Gr

up

F inanc ial State me nts (Inc luding the Wor k of Compone nt Auditor s)

i. par

agr aphs .12, .14, .20, and .29 of se c tion 705, Modific ations to the Opinion in the Inde pe nde nt Auditor 's Re por t

210

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Communic ating with those c har

ge d with gove r nanc E

Othe r re q uire me nts:
j. par

agr aph .09 of se c tion 706, E mphasis- of- Matte r Par agr aphs and Othe r

Matte r

Par agr aphs in the Inde pe nde nt Auditor 's Re por t

k. par

agr aphs .08, .12, .15, and .18 of se c tion 720, Othe r Infor mation in Doc ume nts Containing Audite d F inanc ial State me nts

l. par

agr aph .06 of se c tion 730, R e quir e d Supple me ntar y Infor mation

m. par

agr aphs .23— .28 of se c tion 930, Inte r im F inanc ial Infor mation

n. par

agr aphs .36— .37 of se c tion 935, Complianc e Audits

211

Auditing standar

d Boar d’s inte nt. T wo way c ommunic ations!!

Ade quac y of the Communic ation pr
c e ss.
T

he auditor should e valuate whe the r the two- way c ommunic ation be twe e n the auditor and those c har ge d with gove r nanc e has be e n ade quate for the pur pose of the audit. If it has not, the auditor should e valuate the e ffe c t, if any, on the auditor ’s asse ssme nt of the r isks of mate r ial misstate me nt and ability to obtain suffic ie nt appr

pr

iate audit e vide nc e and should take appr

pr

iate ac tion. (au- c 265.19)

In wr

iting or

r

al?

T

he matte rs re quire d by AU-C 265 may be c ommunic ate d orally.

Au-c 265.16 and A39-a41,
Chair
f the c ommitte e ?

212

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T

wo way c ommunic ations?

Chair
f c ommitte e (c ont’d)
If the auditor

c ommunic ate s with a subgr

up of those c har

ge d with gove r nanc e , suc h as the audit c ommitte e or an individual, the auditor should de te r mine whe the r the auditor also ne e ds to c ommunic ate with the gove r ning body.

213

T

wo wa y c o mmunic a tio ns?

Wr

itte n Communic ations

E

xpla in wha t e a c h c o mmunic a tio n is fo r.

Re pre se nta tio n L

e tte r

E

xpla in o ur te rmino lo g y (no t in c o nde sc e nding ma nne r).

GAAP, GASB, Auditing Sta nda rds, Ye llo w Bo o k, OMB Unifo rm Guida nc e
Write o n a n 8th Gra De le ve l whe n te rmino lo g y is no t re q uire d b y

sta nda rds

E

xit c o nfe re nc e s

No o ne sho uld sig n a do c ume nt the y ha ve n’ t re a d a nd do n’ t

unde rsta nd.

214

SLIDE 108

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T

wo way c ommunic ations?

Wr

itte n Communic ations

Give a c opy in advanc e whe n possible .
E

xplain why whe ne ve r possible (many time s it will be be c ause of a standar d)

E

spe c ially for immate r ial amounts or nonc omplianc e

Be e xtr

e me ly c autious about fac ts (e spe c ially e stimate s). Ge t it r ight the fir st time .

Auditor

s, ne ve r le t a supe r visor e dit a finding so that it doe s not state the fac ts.

Use an e ditor

for non-te mplate language (e .g. me dia r e le ase s).

At the e nd of any c ommunic ation, ask your

se lf, did I ac hie ve a two-way c ommunic ation?

Re me mbe r

, F indings r e late d to fr aud e xac e r bate all the above !!

215 216

SLIDE 109

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Or

al/ ve r bal c ommunic ation

F
r

some of us, the gr e ate st fe ar we have is public spe aking. He ar ing the sound of our

wn voic e is our

wor st nightmar e . (Glossophobia)

Our

lac k of c onfide nc e in our se lve s and in our ability to spe ak is ne ve r mor e obvious than in me e tings/ c lasse s like this one .

Ce r

tainly this fe ar is e xac e r bate d by the subje c t matte r and the situation.

217

Or

al/ ve r bal c ommunic ation

Obse r

vation in the Gove r nme nt Ac c ountants Jour nal

“F

e de r al, state , and loc al gove r nme nt ac c ountants agr e e d that the most notable de fic ie nc y in ne w ac c ounting gr aduate s was wr itte n and or al c ommunic ation”

218

SLIDE 110

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Or

al/ ve r bal c ommunic ation

Some tips to impr
ve :
Pr

ac tic e

Ac c e pt spe aking c halle nge s like te ac hing and making re ports to supe rvisors (making

a re sponse to an e xposure draft for e xample )

Atte nd e ntr

anc e / e xit c onfe r e nc e s, le gislative c ommitte e me e tings, e tc . se e k out

pportunitie s to spe ak and addre ss c lie nts.
T

ake a c our se in public spe aking

Put yourse lf in se ttings suc h as e xte rnal pe e r

r e vie w whe r e you have to c ommunic ate your profe ssional judgme nt and spe ak out loud

Supe rvisors should provide opportunitie s for auditors to prac tic e
Be pr

e par e d (this is the main way to ove r c ome fe ar )

Ask ope n e nde d que stions, the n don’t inte r

r upt

219

Or

al/ ve r bal c ommunic ation

Some tips to impr
ve (c ont’d):
L

iste n to unde r stand r athe r than to he ar what you want to he ar

r

he ar ing in pr e par ation of your answe r

Spe ak slowly and distinc tly
Sit up
L
ok up
Spe ak up
Shut up
T

hink be for e you spe ak, e spe c ially whe n answe r ing a que stion

Admit you don’t know if you don’t know
Ke e p it simple , don’t te ll e ve r

ything you know, don’t adve r tise your supe r ior knowle dge

220

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Or

al/ ve r bal c ommunic ation

Some tips to impr
ve (c ont’d):
E

xplain any te c hnic al wr itte n c ommunic ation ve r bally in plain and simple language (e .g. the e ngage me nt le tte r , findings). Ne ve r assume the c lie nt unde r stands te c hnic al infor mation

Avoid ac c ountant language suc h as GAAP, GASB, Unifor

m guidanc e , Re p. le tte r, e tc . without e xplaining the te rms

Don’t tr

y to e xplain some thing you don’t unde r stand

Be hone st, do not be de c e ptive with a c lie nt (E

xc e pt for r ar e instanc e s, usually involving fr aud or sur pr ise audit pr

c e dur

e s suc h as c ash c ounts or inve ntor ie s, e tc .)

It is diffic ult to c ommunic ate ve r

bally whe n you don’t be lie ve in what you ar e saying (your nonve r bal c ue s will r e ve al you)

Don’t spe ak to the ne ws me diA

221 222

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223 224

SLIDE 113

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Wha t is no nve rb a l c o mmunic a tio n?

225

Nonve r

bal c ommunic ation

de finition:
T

he pr

c e ss of se nding and r

e c e iving wor dle ss me ssage s by me ans of fac ial e xpr e ssions, gaze , ge stur e s, postur e s, and tone s of voic e (body language ).

It also inc lude s gr
oming habits, body positioning in spac e .
It inc lude s adve r

tising and mar ke ting te c hnique s (c olor s, sme lls, taste s, image s, e tc .)

It inc lude s all e xpr

e ssive signs, signals, and c ue s whic h ar e use d to se nd and r e c e ive me ssage s apar t fr

m ma nual sign language .
T

he first sc ie ntific study of nonve rbal c ommunic ation was publishe d in 1872 by Char le s dar win in his book, T he e xpr e ssion of the e motions in man and animals.

Howe ve r

, the study of nonve r bal c ommunic ation is as old as man himse lf, be c ause r e se ar c he r s have disc ove r e d that wome n are be tte r than me n in de c oding nonve r bal c ue s.

226

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Nonve r

bal c ommunic ation

Some e xample s:
F

ac ial e xpr e ssions (Happy, sad, angr y, sur pr ise , disg ust)

Body move me nts and postur

e (Sitting, pac ing, c r

ss le gs or

ar ms, slouc hing or standing e r e c t)

Ge stur

e s (T humbs up, pointing, hand move me nt)

E

ye c ontac t (Inte r e st, affe c tion, hostility)

T
uc h (handshake , hug, tap on the shoulde r

)

Spac e (Distanc e – aggr

e ssion, intima c y, or dominanc e )

Voic e (Its not just what you sa y, its how you sa y it – loud, soft, tone , and infle c tion)

c an indic ate sa r c asm, ange r , affe c tion, c onfide nc e , inte r e st, e tc .)

227

Nonve r

bal c ommunic ation

Why nonve r

bal c ommunic ation is impor tant

May c ommunic ate mor

e than your wor ds.

May be use d to r

e pe at a ve r bal me ssage (pointing dir e c tions)

May c omple me nt or

c ontr adic t what you ar e saying (a nod, or a wink)

May be a substitute for

the ve r bal me ssage (finge r to lips for quie t, a nod inste ad of a ye s)

Add to the me aning of your

wor ds (tone for spe c ific wor ds, pause be for e answe r ing)

228

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Nonve r

bal c ommunic ation

Some tips:
Your

wor ds will have signific antly le ss impac t than your nonve r bal c ommunic ation.

Its not the nonve r

bal c ue s that you use inte ntionally that should be of the most c onc e r n, it’s the nonve r bal c ue s that you don’t r e alize you ar e using that ma y damage c ommunic ation the most.

229 230

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231

c ommunic ation
T

his disc ussion was not inte nde d to paralyze you with c onc e rn about the ways we c ommunic ate . Most c ommunic ation c ome s natur al and with e xpe r ie nc e .

It is inte nde d to make you think about the ways you c ommunic ate .
Ve r

bal Communic ation T

p F

ive :

Be pr

e par e d

L

iste n

Spe ak up (slowly and distinc tly)
L
ok up
Be Passionate , but ne ve r

de monstr ate ange r

Re me mbe r

, nonve r bal c ue s ar e intimate ly assoc iate d with e ac h one of the se five things ve r bal c ommunic ation skills.

232

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233

Je rry E . Durha m, CPA, CGF M, CF E

234

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E xpo sure Dra ft

SLIDE 119

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De b t Disc lo sure s

De bt Disc losur

e s, inc luding Dir e c t Bor r

wing:
Re e xa mina tio n o f Sta te me nts 34, 38, a nd 62
Re se a rc h a ppro ve d April 2015
Re vie w re sults o f re se a rc h July 2016
E

xpo sure Dra ft issue d in June o f 2017

F

ina l Sta te me nt e xpe c te d b y 1st Q. 2018

De a ls with de b t disc lo sure s in g e ne ra l (to o ma ny?

Co ve na nts? )

Wha t tra nsa c tio ns c o nstitute “de b t”
Co nc e rns a b o ut Dire c t Bo rro wing b y g o ve rnme nts suc h

a s Dire c t Bo rro wing fro m a lo c a l b a nk

237

De b t Disc lo sure s

T

his Sta te me nt de fine s de b t fo r purpo se s o f disc lo sure in no te s to fina nc ia l sta te me nts a nd e sta b lishe s a d ditio na l fina nc ia l sta te me nt no te disc lo sure re q uire me nts re la te d to de b t

b lig a tio ns o f g o ve rnme nts, inc luding

dire c t b o rro wing s (fo r e xa mple , a g o ve rnme nt e nte ring into a lo a n a g re e me nt with a le nde r) a nd dire c t pla c e me nts (fo r e xa mple , a g o ve rnme nt issuing a d e b t se c urity dire c tly to a n inve sto r). T he re q uire me nts o f this Sta te me nt a pply to the fina nc ia l sta te me nts o f a ll sta te a nd lo c a l g o ve rnme nts.

238

SLIDE 120

4/12/2018 120

De b t Disc lo sure s

F
r purpo se s o f disc lo sure in no te s to fina nc ia l

sta te me nts, de b t is de fine d a s a lia b ility tha t a rise s fro m a c o ntra c tua l o b lig a tio n to pa y c a sh (o r o the r a sse ts tha t ma y b e use d in lie u o f pa yme nt o f c a sh) in o ne o r mo re pa yme nts to se ttle a n a mo unt tha t is fixe d a t the da te the c o ntra c tua l o b lig a tio n is e sta b lishe d.

F
r disc lo sure purpo se s, de b t do e s no t inc lude

le ase s or tr ade ac c ounts payable .

239

De b t Disc lo sure s

No te s to F

ina nc ia l Sta te me nts:

I n a d ditio n to

the r re q uire me nts to

disc lo se info rma tio n re la te d to de b t in no te s to fina nc ia l sta te me nts, a g o ve rnme nt sho uld disc lo se in no te s to fina nc ia l sta te me nts summa rize d info rma tio n a b o ut the fo llo wing ite ms: a . Amo unt o f unuse d line s o f c re dit b . Co lla te ra l ple dg e d a s se c urity fo r de b t c . T e rms spe c ifie d in de b t a g re e me nts re la te d to sig nific a nt: (1) E ve nts o f de fa ult with fina nc e -re la te d c o nse q ue nc e s (2) T e rmina tio n e ve nts with fina nc e - re la te d c o nse q ue nc e s (3) Sub je c tive a c c e le ra tio n c la use s. 6. I n no te s to fina nc ia l sta te me nts, a g o ve rnme nt sho uld se pa ra te info rma tio n in de b t disc lo sure s re g a rding (a ) dire c t b o rro wing s a nd dire c t pla c e me nts o f de b t fro m (b ) o the r de b t.

240

SLIDE 121

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De b t Disc lo sure s

No te s to F

ina nc ia l Sta te me nts:

I n no te s to fina nc ia l sta te me nts, a g o ve rnme nt sho uld se pa ra te info rma tio n in de b t disc lo sure s re g a rding (a ) dire c t b o rro wing s a nd dire c t pla c e me nts o f de b t fro m (b ) o the r de b t.

241

De b t Disc lo sure s

T

he re q uire me nts

f

this Sta te me nt a re e ffe c tive fo r re po rting pe rio ds b e g inning a fte r June 15, 2018. E a rlie r a pplic a tio n is e nc o ura g e d . T his Sta te me nt a pplie s to no te s to fina nc ia l sta te me nts

f

a ll pe rio ds pre se nte d. I f a pplic a tio n fo r prio r pe rio ds pre se nte d is no t pra c tic a b le , the re a so n fo r no t a pplying this Sta te me nt to prio r pe rio d s pre se nte d sho uld b e disc lo se d.

242

SLIDE 122

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E xpo sure Dra ft Ma jo rity Owne rship I nte re sts

E

quity Inte re sts Owne rship Issue s:

Re se ar

c h Pr

je c t appr
ve d Apr

il 2016

E

xposur e Dr aft Issue d Nove mbe r 1, 2017

F

inal Standar d E xpe c te d 3rd Q 2018

Obje c tive s:
How ar

e gove r nme nts c ur r e ntly r e por ting e quity inte r e sts in le gally se par ate e ntitie s

Que stion, is the substanc e of an ac quisition of an e quity

inte r e st that r e mains le gally se par ate signific antly diffe r e nt fr

m an ac quisition in whic h the le gal se par

ation c e ase s and the ac quir e d e ntity be c ome s par t of the ac quir e r ’s le gal e ntity

244

SLIDE 123

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E

quity Inte re sts Owne rship Issue s:

Major

ity Inte r e st?

Me e ts the de finition of a c ompone nt unit unde r

GASB 14, be c ause of financ ial ac c ountability.

Que stion, if the pur

pose of holding a major ity e quity inte r e st (i.e . an inve stme nt), doe s the inve stme nt me e ts the de finition of an inve stme nt unde r GASB 72?

Re por

t as an inve stme nt and a c ompone nt unit?

Whic h Standar

d has the hie r ar c hy?

245

Ma jo rity Owne rship I nte re sts

E

quity Inte re sts Owne rship Issue s:

What is the inte nt of owne r

ship

T
e nhanc e its ability to pr
vide se r

vic e s?

Doe s the e quity inte r

e st have pr e se nt se r vic e c apac ity?

246

Ma jo rity Owne rship I nte re sts

SLIDE 124

4/12/2018 124

E

quity Inte r e sts Owne r ship Issue s:

E

xample :

Assume

that Gove r nme nt A a c quir e s 80 pe r c e nt of the voting stoc k

f a

for

pr
fit e nte r

pr ise (the c or por ation). Gove rnme nt A appoints 8

f

the 10 me mbe rs

f

the gove rning body of the c orporation and is able to impose its will on the c or por ation. F ur the r mor e , the c or por ation is e xpe c te d to pr

vide

financ ial be ne fits to, a nd impose financ ial burde ns on, Gove rnme nt A. Unde r State me nt 14, the c orporation me e ts the financ ial ac c ountability c rite r ia for a c ompone nt unit of Gove r nme nt A. Howe ve r , if the sole purpose be hind the ac quisition of the c orporation is to produc e inc ome

r profit for Gove rnme nt A, should

the de finition of an inve stme nt in paragraph 64 of State me nt 72 pre vail, re gardle ss

f

the fac t that Gove rnme nt A is financ ially ac c ountable for the c or por ation?

247

Ma jo rity Owne rship I nte re sts

E

quity Inte re sts Owne rship Issue s:

Doe s State me nt 69, Gove r

nme nt Combinations and Disposals of Gove r nme nt Ope r ations apply?

248

Ma jo rity Owne rship I nte re sts

SLIDE 125

4/12/2018 125

GF OA Summa ry

MEMORANDUM
DATE:

November 13, 2017

TO:

CAAFR

FROM

Michele Mark Levine

Todd Buikema
RE:

GASB ED: Accounting and Financial Reporting for Majority Equity Interests

On November 1, 2017, the Governmental Accounting Standards Board (GASB) issued an Exposure Draft (ED) entitled

Accounting and Financial Reporting for Majority Equity Interests for public comments, which are due by January 19, 2018.

The ED addresses situations where a government owns a majority interest in a legally separate entity, and was issued

because governments were questioning if such interests should be accounted for as Investments in accordance with GASB 72

r as Component Units in accordance with GASB 14, as amended (Cod. Sec. 2100.119-144).
The proposed guidance would distinguish between majority equity interests that are investments, as defined by Statement

72, paragraph 64 (Cod. Sec. I50.103) and those that are not.

Investments:


For majority equity interest Investments held by a special-purpose government engaged only in fiduciary activities, a fiduciary fund, an endowment or a permanent fund, the value of the interest should be determined in accordance with the requirements in paragraph 64 of Statement 72, generally at fair value.



For the majority equity interest Investments of other governments, the ED proposes that they should be accounted for as investments using the Equity Method, as defined in paragraphs 205 – 209 of GASB 62 (Cod Sec. I50.116). In these cases, the entity in which the majority equity investment is held should not be reported as a component unit, even if the entity meets the criteria to be a component unit.

An investment is a security or other asset that (a) a government 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.

249

GF OA Summa ry

Non-Investments:

 Where the majority equity interest does not meet the definition of an investment, the entity should be reported as a component unit and the government or fund that holds the majority interest should also report an asset using the equity method. If the component unit is blended component, the asset and net position of the component unit should be eliminated as part of the blending process.

The ED also proposes special requirements for reporting a component unit in which the

primary government acquires a 100% interest.



Such wholly-owned component units should measure assets, liabilities, deferred items in accordance with paragraphs 29-42 of GASB 69 (Cod. Sec Co10.126-139), generally at acquisition value, at the date of acquisition.   The flows statements of the component unit would then only report activity that took place after the date of acquisition.

The ED proposes to become effective for reporting periods beginning after December 15,

2018 (fiscal years beginning January 1, 2019) and that it should be applied retroactively where possible, restating prior periods with an adjustment to beginning net position in the earliest year.

For such investments held in governmental funds, the reporting of the equity investment would be in accordance with the current financial resources/modified accrual MFBA.

250

SLIDE 126

4/12/2018 126

E xpo sure Dra ft

Constr

uc tion Pe r iod Inte r e st Costs

E

xposur e Dr aft Issue d Nove mbe r 20, 2017

Comme nts We r

e Due by Mar c h 5, 2018

F

inal Standar d E xpe c te d 2nd Q 2018

Obje c tive s:
T
e nhanc e the r

e le vanc e and c ompar ability of infor mation about c apital asse ts and the c ost of bor r

wing

for a r e por ting pe r iod, and to simplify ac c ounting for inte r e st c ost inc ur r e d dur ing the pe r iod of c onstr uc tion.

Should inte r

e st c osts be c apitalize d?

252

Co nstruc tio n Pe rio d I nte re st Co sts

SLIDE 127

4/12/2018 127

Ac c o unting fo r I

nte re st Co st during the Pe rio d o f Co nstruc tio n

I

n fina nc ia l sta te me nts pre pa re d using the e c o no mic re so urc e s me a sure me nt fo c us, inte re st c o st inc urre d during the pe rio d o f c o nstruc tio n sho uld b e re c o g nize d a s a n e xpe nse in the pe rio d in whic h the c o st is inc urre d. Suc h inte re st c o st sho uld no t b e c a pita lize d a s pa rt o f the histo ric a l c o st o f a c a pita l a sse t.

I

n fina nc ia l sta te me nts pre pa re d using the c urre nt fina nc ia l re so urc e s me a sure me nt fo c us, inte re st c o st inc urre d during the pe rio d o f c o nstruc tio n sho uld b e re c o g nize d a s a n e xpe nditure

n a

b a sis c o nsiste nt with g o ve rnme nta l fund a c c o unting princ iple s.

253

Co nstruc tio n Pe rio d I nte re st Co sts Co nstruc tio n Pe rio d I nte re st Co sts

Prio r to the issua nc e o f this Sta te me nt, g o ve rnme nts

c a pita lize d inte re st c o st inc urre d during the pe rio d o f c o nstruc tio n in b usine ss-type a c tivitie s a nd e nte rprise

funds. T

ho se re q uire me nts, a s inc o rpo ra te d into GASB Sta te me nt 62, we re b a se d o n F ina nc ia l Ac c o unting Sta nda rds Bo a rd (F ASB) Sta te me nts No . 34, Ca pita liza tio n

f I

nte re st Co st, a nd No . 62, Ca pita liza tio n o f I nte re st Co st in Situa tio ns I nvo lving Ce rta in T a x-E xe mpt Bo rro wing s a nd Ce rta in Gifts a nd Gra nts, whic h we re issue d in 1979 a nd 1982, re spe c tive ly.

254

SLIDE 128

4/12/2018 128

Co nstruc tio n Pe rio d I nte re st Co sts

T

he a ppro a c h ta ke n with re spe c t to inc o rpo ra ting F ASB lite ra ture into GASB Sta te me nt 62 wa s to a do pt a c c o unting a nd re po rting re q uire me nts e sse ntia lly a s the y e xiste d in the a pplic a b le pre -No ve mb e r 30, 1989 F ASB a nd Ame ric a n I nstitute o f Ce rtifie d Pub lic Ac c o unta nts pro no unc e me nts. T he la ng ua g e o f tho se pro no unc e me nts wa s mo difie d a s a ppro pria te to re c o g nize the e ffe c ts o f the g o ve rnme nta l e nviro nme nt witho ut a ffe c ting the sub sta nc e o f the pro visio ns. As a re sult, a t tha t time , the Bo a rd did no t c o nside r c o nsiste nc y

f the pro visio ns with GASB Co nc e pts Sta te me nts.

255

Co nstruc tio n Pe rio d I nte re st Co sts

GASB’ s Co nc lusio ns in Ac c o rda nc e with Co nc e pts

Sta te me nt Numb e r 4

Do e s no t me e t the de finitio n o f a n Asse t
Do e s no t me e t the de finitio n o f a De fe rre d Outflo w

256

SLIDE 129

4/12/2018 129

Co nstruc tio n Pe rio d I nte re st Co sts

T

he re q uire me nts o f this Sta te me nt a re e ffe c tive fo r re po rting pe rio ds b e g inning a fte r De c e mb e r 15, 2018.

E

a rlie r a pplic a tio n is e nc o ura g e d. Cha ng e s a do pte d to c o nfo rm to the 2 pro visio ns o f this Sta te me nt sho uld b e a pplie d pro spe c tive ly. F

r c o nstruc tio n-in-pro g re ss, inte re st

c o st inc urre d a fte r the b e g inning o f the first re po rting pe rio d to whic h this Sta te me nt is a pplie d sho uld no t b e c a pita lize d.

257

E xpo sure Dra ft

SLIDE 130

4/12/2018 130

E

xposur e Dr aft Issue d Nove mbe r 20, 2017

Comme nts Due by F

e br uar y 16, 2018

F

inal Guide E xpe c te d 2nd Q 2018

Obje c tive s:
T
pr
vide guidanc e that c lar

ifie s, e xplains, or e labor ate s

n GASB State me nts.

259

I mple me nta tio n Guide I mple me nta tio n Guide

Co ve ra g e T
pic s
Pe nsio ns a nd OPE

B

T

he Sta tistic a l Se c tio n

Utility Re g ula to ry Ba sis o f Ac c o unting
T

a x Ab a te me nts

Ame ndme nts:
De po sits, I

nve stme nts, a nd Re purc ha se Ag re e me nts

Ca sh F

lo ws Re po rting

Pe nsio ns
MD&A
Re stric te d Ne t Po sitio n
Sta tistic a l Se c tio n
T

a x Ab a te me nts

260

SLIDE 131

4/12/2018 131

261

I mple me nta tio n Guide I mple me nta tio n Guide

T

he re q uire me nts o f this I mple me nta tio n Guide a re e ffe c tive fo r re po rting pe rio ds b e g inning a fte r June 15, 2018. E a rlie r a pplic a tio n is e nc o ura g e d if the pro no unc e me nt a ddre sse d b y the q ue stio n a nd a nswe r ha s b e e n imple me nte d. Cha ng e s a do pte d to c o nfo rm to the pro visio ns o f this I mple me nta tio n Guide sho uld b e a pplie d re tro a c tive ly b y re sta ting fina nc ia l sta te me nts, if pra c tic a b le , fo r a ll prio r pe rio ds pre se nte d.

I

f re sta te me nt fo r prio r pe rio ds is no t pra c tic a b le , the c umula tive e ffe c t, if a ny, o f a pplying this I mple me nta tio n Guide sho uld b e re po rte d a s a re sta te me nt o f b e g inning ne t po sitio n (o r fund b a la nc e o r fund ne t po sitio n, a s a pplic a b le ) fo r the e a rlie st pe rio d re sta te d. I n the first pe rio d tha t this I mple me nta tio n Guide is a pplie d, the no te s to fina nc ia l sta te me nts sho uld disc lo se the na ture o f the re sta te me nt a nd its e ffe c t. Also , the re a so n fo r no t re sta ting prio r pe rio ds pre se nte d sho uld b e disc lo se d.

262

SLIDE 132

4/12/2018 132

I mple me nta tio n Guide

T he r e quir e me nts in this Imple me ntation Guide ne e d not be applie d to immate r ial ite ms.

263 264

SLIDE 133

4/12/2018 133

Re a lly, T he re ’ s Mo re ?

April 16, 2018

Je rry E . Durha m, CPA, CGF M, CF E

SLIDE 134

4/12/2018 134

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

Re se a rc h a ppro ve d Aug ust 2013.
IT

C Issue d De c e mbe r 2016, PV e xpe c te d July 2018, E D e xpe c te d Apr il 2020, F inal State me nt e xpe c te d 1st Q 2022

Re e xa mine Sta te me nts 34, 35, 37, 41, 46 a nd

I nte rpre ta tio n 6.

Ra nk # 1 Prio rity fo r Re se a rc h b y Go ve rnme nta l

Ac c o unting Sta nda rds Adviso ry Co unc il (GASAC)

Ob je c tive : E

va lua te the c urre nt mo de l a nd issue s to impro ve / e nha nc e the e ffe c tive ne ss o f the o ve ra ll fina nc ia l re po rting mo de l

267

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

MD&A
Gove r

nme nt-wide F / S F

r

mat

Major

F unds – De bt Se r vic e F unds

Gove r

nme ntal F und F / S Me asur e me nt F

c us (Ne ar
T

e r m F

c us?)
BT

A F inanc ial State me nt F

r

mat – Ope r ating vs. Nonope r ating Re ve nue of E xpe nse s

Classific ation/ Me asur

e me nt F

c us for

Pe r mane nt F unds

Budge tar

y Compar isons

Re duc e Comple xity and Pe r

mit mor e time ly F / S

268

SLIDE 135

4/12/2018 135

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

MD&A
E

xplor e

ptions

for e nhanc ing the financ ial state me nt analysis c ompone nt, c onside r the e limination

f

r e quir e me nts that ar e boile r plate and no longe r ne c e ssar y for unde r standing the financ ial r e por ting mode l, and c lar ify guidanc e for pr e se nting c ur r e ntly known fac ts, de c isions,

r c onditions that ar

e e xpe c te d to have a signific ant e ffe c t

n financ ial position or r

e sults of ope r ations.

Mor

e analysis = the Why

269

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

Gove r

nme nt-wide F / S F

r

mat

E

xplo re a lte rna tive s fo r the fo rma t o f the sta te me nt o f a c tivitie s a nd c o nside r whe the r a g o ve rnme nt-wide sta te me nt o f c a sh flo ws sho uld b e re q uire d, a nd if so , ho w tho se c a sh flo ws sho uld b e pre se nte d.

270

SLIDE 136

4/12/2018 136

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

Major

F unds – De bt Se r vic e F unds

E

xplor e options for pr

viding additional infor

mation about de bt se r vic e funds, e ithe r individual or in aggr e gate .

De bt Se r

vic e F unds ar e some time s not e ve n pr e se nte d whe n a CAF R is not pr e se nte d.

271

Ne a r-T

e rm F ina nc ia l Re so urc e s Appro a c h? 60 da ys?

Sho rt-te rm (Wo rking -Ca pita l Appro a c h)? 1 ye a r?
L
ng -te rm (T
ta l F

ina nc ia l Re so urc e s Appro a c h)? No Ca pita l Asse ts o r De b t?

Yo ur c a ll?

E le c tio n T ime – T he Ca ndida te s

SLIDE 137

4/12/2018 137

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

Gove r

nme ntal F und F / S Me asur e me nt F

c us

(Ne ar

T

e r m F

c us?)
Curre nt Guida nc e
Curre nt fina nc ia l re so urc e s me a sure me nt fo c us –

mo difie d a c c rua l b a sis o f a c c o unting

Que stio n:
Do we ne e d a mo re c o nsiste nt a ppro a c h? Ye s!
Sug g e ste d so lutio n:
Ne a r-te rm - F

ina nc ia l Re so urc e s Appro a c h

Sho rt-te rm (fo rme rly Wo rking Ca pita l Appro a c h)
L
ng -te rm (fo rme rly T
ta l F

ina nc ia l Re so urc e s Appro a c h)

273

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

Ne ar
te r

m financ ial r e sour c e s appr

ac h:
Symme tr

ic al r e c ognition using 60 days for Asse ts, L iabilitie s, Re ve nue s, and E xpe nditur e s

Asse ts:
Re c or

d r e c e ivable s that ar e due within 60 days

Othe r

financ ial r e sour c e s that will c onve r t to c ash within the ne ar

te r

m (i.e . 60 days)

L

iabilitie s:

Obligations nor

mally due and payable within 60 days

274

SLIDE 138

4/12/2018 138

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

Ne ar
te r

m appr

ac h – What would c hange ?
Do not r

e por t pr e paids

Do not r

e por t inve ntor y – (no option to use the c onsumption me thod)

Spe c ial asse ssme nt tax r

e c e ivable s would only be r e c ognize d only for the por tion that is due in the ne ar

te r

m

Ac c r

ue d Inte r e st on L

ng-T

e r m De bt

L

iability for the por tion that would be due and payable within the ne ar

te r

m

Shor

t-te r m ope r ational bor r

wings (T

ANs)

Inflow of Re sour

c e s (vs. F und L iability)

275

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

Ne ar
te r

m (Wor king Capital Appr

ac h):
Symme tr

ic al r e c ognition using 1 ye ar for Asse ts, L iabilitie s, Re ve nue s, and E xpe nditur e s

Asse ts:
Re c or

d r e c e ivable s that ar e due within 1 ye ar

Pr

e paids and inve ntor y c onsume d in one ye ar

Othe r

financ ial r e sour c e s that will c onve r t to c ash within the one ye ar

L

iabilitie s:

Obligations nor

mally due and payable within 1 ye ar inc luding ac c r ue d inte r e st on long-te r m de bt and long- te r m de bt

276

SLIDE 139

4/12/2018 139

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

Shor

t-te r m – What would c hange ?

Must r

e por t pr e paids and inve ntor y if c onsume d within one ye ar

Spe c ial asse ssme nt tax r

e c e ivable s would only be r e c ognize d only for the por tion that is due in one ye ar

Ac c r

ue d Inte r e st on L

ng-T

e r m De bt

L

iability for the por tion that would be due and payable within

ne ye ar
L
ng-T

e r m De bt

L

iability for the amount due in the following ye ar

Would r

e quir e a state me nt of Cash F lows!

277

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

L
ng- te r

m (T

tal F

inanc ial Re sour c e s Appr

ac h):
Symme tr

ic al r e c ognition – F ull Ac c r ual e xc e pt for Capital Asse ts and Capital-Re late d L

ng-T

e r m De bt

Asse ts:
F

ull Ac c r ual e xc e pt for Capital Asse ts

L

iabilitie s:

F

ull Ac c r ual e xc e pt for Capital- Re late d L

ng- T

e r m De bt

Re c or

d OPE B and Pe nsions??

278

SLIDE 140

4/12/2018 140

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

L
ng-te r

m Appr

ac h – What would c hange ?
Inc lusion of L
ng-te r

m De bt that is not c apital r e late d

YE

S, Inc lude Ne t Pe nsion and Ne t OPE B L iability!!

Would r

e quir e a state me nt of Cash F lows!

T

his me thod r e pr e se nts a “mate r ial” diffe r e nc e fr

m

pr e se nt ac c ounting. Huge Change !!

279

F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

BT

A F inanc ial State me nt F

r

mat

E

valuate ope r ating indic ator alte r native s in c onjunc tion with e valuating the guidanc e for the se par ate pr e se ntation

f ope r

ating and nonope r ting r e ve nue s and e xpe nse s.

Cur

r e nt Guidanc e

Distinguish be twe e n ope r

ating and nonope r ating

Disc lose polic y use d to distinguish
Que stion?
Do we ne e d mor

e guidanc e on how to distinguish?

280

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F ina nc ia l Re po rting Mo de l

F

inanc ial Re por ting Mode l Re e xamination:

Budge tar

y Compar ison Re por ting – Pr e se ntation of Budge tar y Var ianc e s

Cur

r e nt Guidanc e

E

nc our age r e por ting of budge tar y var ianc e s

Que stion?
Should budge tar

y var ianc e r e por ting be r e quir e d?

If so, whic h var

ianc e ?

F

inal Budge t to Ac tual

Or

iginal Budge t to Ac tual

Othe r

281

Minute s to GASB Bo a rd me e ting s De c e mb e r 12-14, 2017

SLIDE 142

4/12/2018 142

Minute s to GASB Bo a rd me e ting s Oc to b e r 31-No ve mb e r 2, 2017

Ne a r-T

e rm F ina nc ia l Re so urc e s Appro a c h? 60 da ys?

Sho rt-te rm (Wo rking -Ca pita l Appro a c h)? 1 ye a r?
L
ng -te rm (T
ta l F

ina nc ia l Re so urc e s Appro a c h)? No Ca pita l Asse ts o r De b t?

OR
GASB’ s ne w re vise d Sho rt-te rm a ppro a c h
Yo ur c a ll?

E le c tio n T ime – T he Ca ndida te s

SLIDE 143

4/12/2018 143

Re ve nue a nd E xpe nse Re c o g nitio n

Re ve nue and E

xpe nse Re c ognition:

IT

C E xpe c te d 1st Q 2018

Pr

e liminar y Vie ws E xpe c te d 2nd Q 2020

E

xposur e Dr aft E xpe c te d 4th Q 2021

F

inal Standar d E xpe c te d 1st Q 2023

Impr
ve infor

mation r e gar ding r e ve nue s and e xpe nse use r s ne e d to make de c isions

Pr
vide guidanc e r

e gar ding e xc hange and e xc hange -like tr ansac tions that have not be e n spe c ific ally addr e sse d

E

valuate r e ve nue and e xpe nse r e c ognition in the c onte xt of the c onc e ptual fr ame wor k

286

SLIDE 144

4/12/2018 144

Re ve nue a nd E xpe nse Re c o g nitio n

Re ve nue and E

xpe nse Re c ognition:

Should we r

e c ognize e xc hange tr ansac tions whe n the sale

c c ur

s or whe n (or as) the obligation (c ontr ac t) is fulfille d.

Ne w F

ASB guidanc e intr

duc e s a

pe r for manc e

bligation

appr

ac h for r

e ve nue . Is this use ful for Gove r nme nts? Should it be applie d to r e ve nue and e xpe nse s?

GASB 33 was issue d pr

ior to Conc e pt State me nt 4. Should the c onc e pt state me nt be applie d to r e ve nue s?

287

Re ve nue a nd E xpe nse Re c o g nitio n

Re ve nue and E

xpe nse Re c ognition:

GASB pr
vide s guidanc e for c e r

tain e xc hange tr ansac tions suc h as c ompe nsate d abse nc e s and poste mployme nt be ne fits.

Guidanc e

doe s not e xist for othe r type s

f

c ommon e xc hange e xpe nse s, inc luding salar ie s and c irc umstanc e s whe n gove r nme nt is the c ustome r . Should guidanc e be de ve lope d?

Should

additional disc losur e s be made for r e ve nue tr ansac tions?

Should

additional disc losur e s be made for e xpe nse tr ansac tions that ar e not de sc r ibe d in c ur r e nt GASB lite r atur e ?

288

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4/12/2018 145

T e nta tive De c isio ns

SLIDE 146

4/12/2018 146

T e nta tive De c isio ns

SLIDE 147

4/12/2018 147

Je r r y E . Dur ham, CPA, CGF M, CF E

Que stio ns?

293