Transcript Govt Audit Quality - MACPA 12-09 - GFOAz

GASB Update
Presented by
Corey Arvizu
February 17, 2011
Prescott, Arizona
Intangible Assets
• Internally generated software – capitalize only
application development costs
• Water rights may or may not be amortized – see
related agreements
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Planned renewals and/or minimum renewal costs
may result in indefinite life
• Reported as capital assets – may or may not
need separate presentation in note disclosure
• Application not required for immaterial items
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Fund Balance Reporting
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GASB position –
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Most utilized element of governmental financial
information
Extensive research and due process completed on
this standard
Provides criteria for new fund balance
classifications
Clarifies fund type definitions
Effective for fiscal year June 30, 2011
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Effect of Special Revenue Fund Clarifications
New
Standards
Less restrictive
Current
Practice
More restrictive
Current
Standards
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Fund Balance Reporting

Required note disclosures
 Fund balance policies for committed and assigned
 Fund balance classification usage “sequence” or “priority”
 Information about encumbrances
 Detail of balances if not presented on the face of the balance
sheet
 Information on stabilization accounts or “rainy day funds”
 Minimum fund balance policies
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Prior year must be restated if presented
See disclosure checklist attached
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General
Fund
Fund Balances:
Nonspendable:
Long-term receivables,
inventory, and prepaid items $ 225,000
Permanent fund principal
Restricted for:
Social services
240,000
Parks and recreation
80,000
Education
55,000
Highways
Pothole repairs
Debt service revenue
School construction
Law enforcement
60,000
Other capital projects
Other purposes
30,000
Committed to:
Regulatory boards
16,000
Economic stabilization
210,000
Education
50,000
Health and welfare
125,000
Assigned to:
Parks and recreation
50,000
Library acquisitions
50,000
Highway resurfacing
Debt service
Public pool
City Hall renovation
Other capital projects
50,000
Other purposes
80,000
Unassigned:
525,000
Total fund balances
$ 1,846,000
Major
Special Revenue Funds
Highway
School Aid
Fund
Fund
$
108,000
$
16,000
Major
Debt
Service
Fund
$
-
Major
Capital
Projects
Fund
$
-
Other
Funds
$
12,000
152,000
444,000
24,000
206,000
301,000
214,000
51,000
45,000
26,000
258,000
306,000
121,000
60,000
471,000
73,000
390,000
$
192,000
$
361,000
152,000
240,000
80,000
55,000
444,000
24,000
206,000
301,000
274,000
51,000
75,000
16,000
210,000
153,000
125,000
103,000
$
Total
105,000
$
512,000
$ 1,448,000
$
554,000
76,000
50,000
258,000
306,000
121,000
60,000
521,000
258,000
525,000
$ 4,942,000
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General
Fund
Fund Balances:
Nonspendable
Restricted
Committed
Assigned
Unassigned
Total fund balances
$
225,000
465,000
401,000
230,000
525,000
$ 1,846,000
Major
Special Revenue Funds
Highway
School Aid
Fund
Fund
$
108,000
24,000
$
390,000
$
103,000
73,000
258,000
$
16,000
Major
Debt
Service
Fund
$
192,000
$
206,000
Major
Capital
Projects
Fund
$
796,000
306,000
652,000
512,000
$ 1,448,000
Other
Funds
$
164,000
259,000
131,000
$
554,000
Total
$
513,000
1,750,000
504,000
1,650,000
525,000
$ 4,942,000
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Fund Balance Reporting
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Implementation Pointers
 Restricted, committed and assigned take precedent
over nonspendable reporting
 Actions to commit resources needs to occur prior to
year end
 Amount however may be determined after
 Fund balance policies should not be vague
 Stabilization arrangements may not be assigned –
either restricted or committed
 General ledger and financial statements may differ
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Fund Balance Reporting
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Implementation Pointers
 Statutory revenue sources
 “Significant” revenue threshold for special revenue
funds
May be less than 50%
 Investment income on restricted revenues
 No encumbrance classification – incorporate into
other categories
 Modify statistical section template for CAFR
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Fund Balance Reporting
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Fund Balance Policy
 Appropriate level, typically percentage of revenues
or expenditures
 Two months of expenditures
 Circumstances in which fund balance may be spent
 Unanticipated shortfall in excess of ….
 Policy for replenishing deficiencies
 Sales taxes over 5 years
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Codification of FASB Standards
• Issued December 2010
• Guidance to incorporate pre-1989 FASB and
related standards into GASB’s literature
• Exposure draft over 600 pages
• Option to apply post-1989 FASB removed
• Effective for fiscal year June 30, 2013
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Codification of FASB Standards
• Key areas for which guidance is provided –
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Capitalization of Interest Cost
Statement of Net Assets Classification
Accounting Changes and Error Corrections
Contingencies
Leases
Sale of Real Estate
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Crosswalk
provided in
exposure draft –
not in standard
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Service Concession Arrangements
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Issued November 2010
Guidance for certain agreements between
governments and private entities or other
governments
GASB partnered with international standard
setters in development
Flowchart included in standard
Effective fiscal year 2013
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Service Concession Arrangements
Definition –
1) Government conveys to an operator right to
provide services through use of asset/facility in
exchange for significant consideration,
2) The operator collects fees from third parties for
service provided, and
3) The government has input on services provided
by the operator and the fees charged for services.
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Service Concession Arrangements
Examples –
1) State transportation department entering into
arrangement with a transportation authority for
the operation of a tollway
2) City entering into arrangement with a private
company for the operation of City owned golf
courses
3) County entering into an arrangement for a City to
design, build and operate a new jail facility
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Service Concession Arrangements
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Provides guidance on capital asset
recognition and depreciation by the
government
Recognition of liabilities for obligations under
the arrangement
Guidance for govermental operators to
recognize intangible assets (right to use
factilty)
Note disclsoure requirements
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Component Units
• Issued November 2010
• Objective – amend component unit guidance
for specific issues which have arisen
• Modifies certain requirements for inclusion of
component units
• Effective for fiscal year June 30, 2013
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Component Units
• New blending requirement if CU total debt to
be repaid from PG resources
• “Incomplete” removed from misleading
guidance
• Enhanced guidance on “major” component
unit presentation
• Note disclosure should focus on rationale for
inclusion rather than the criteria
 Explain which criteria apply to the component unit
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it
Additional
financial
criteria added
Component unit
flowchart
“Incomplete” removed
from criteria
Debt repayment
requirement added
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Pension Accounting and Reporting
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Governments may be required to report its
pro-rata share of the pension plan’s unfunded
obligations
Will be applicable to nearly all Arizona
governments
Many governments will report liabilities in the
tens of millions of dollars
Numerous comment letters provided to GASB,
including one from ASRS
Exposure draft to be issued this summer
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Other GASB Projects
• In research or deliberation –
• Monitoring or on work plan –
 Conceptual framework
 Statement 34 implementation
 OPEB accounting and
 OPEB implementation
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reporting
Economic condition reporting
– fiscal sustainability
Electronic financial reporting
Fair value measurements
Fiduciary responsibilities
Financial guarantees
Government combinations
 Financial performance
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measurements
Popular reporting
Compensated absences
Debt refunding
Risk financing
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The Future of GASB
• SEC concerns –
 Municipal bonds market and GAAP reporting
• Opposition from GFOA
• Funding sources
• Constituents’ concerns with OPEB and
pension reporting
• International standard setting
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Audit Standards Update
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Internal Control Deficiencies
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Consistency with pubic company definitions
New definition for significant deficiency
Changed guidance on “prudent official test”
Clarified level of work to be performed on
compensating controls
• Effective for fiscal year June 30, 2010
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Internal Control Deficiencies
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New definition of significant deficiency
“…less than severe than material
weakness, yet important enough to
merit the attention of those charged
with governance.”
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Supplementary Information
• Additional guidance for “in-relation”
information
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Examples – combining section of CAFR, schedule
of expenditure of federal awards, other related
schedules
• Very limited guidance in current standards
• Three standards developed to address
• Effective for fiscal year June 30, 2012
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Supplementary Information
• Suggested procedures –
 Information derived from the same underlying
accounting records used for financial statements
 Relates to the same period
 Auditor served as the principal auditor
 Neither adverse or disclaimer of opinion issued on
financial statements
 Inquire as to reporting criteria used
 Obtain representations from management
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New Auditors’ Report Language
The combining and individual fund financial statements
and schedules are the responsibility of management and
were derived from and relate directly to the underlying
accounting and other records used to prepare the
financial statements. The information has been subjected
to the auditing procedures applied in the audit of the
financial statements and certain additional procedures,
including comparing and reconciling such information
directly to the underlying accounting and other
records used to prepare the financial statements or to the
financial statements themselves, and other additional
procedures…
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Governmental Audit Quality Center
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Communication with regulators and other stake
holders
Comment letters to standard setters
Tack force committees in response to single
audit study
Development of practice aids and resources
Development of trainings for webcasts and
conferences
Timely email alerts on governmental audit issues
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Thank You
Corey Arvizu
(520) 742-2611, ext. 101
[email protected]
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