Transcript Accounting Update - Government Finance Officers of Arizona

Update on Recent
GASB/SAS Pronouncements
GFOAz Training
Governmental Accounting 101
January 11, 2008
Tucson
Phoenix
Flagstaff
Presented by
Corey Arvizu, CPA
Heinfeld, Meech & Co.
www.heinfeldmeech.com
Communication of Audit Matters
 New audit standard - Communicating Internal
Control Related Matters Identified in an Audit –
SAS No. 112
 New terminology for audit findings
 “Harmonization” of international, public
company, and government audit standards
 Threshold for reporting items has been lowered
 Must be issued within 60 days of report release
date
 Effective for December 31, 2006 and later audits
Communication of Audit Matters
Old Definitions –
SAS N0. 60
New Definitions –
SAS No. 112
Other matters related to internal control
Management letter comment
Significant deficiency
Reportable conditions
Material weakness
Material weakness
Communication of Audit Matters –
Examples of Potential Deficiencies
 Lack of segregation of duties
 The identification by the auditor of a
material adjustment
•In general ledger or supporting schedules
 Lack of controls when the auditor
drafts the financial statements
 Fraud involving cash
 Numerous exceptions noted during
controls test work
Communication of Audit Matters –
Auditor Drafting Financial Statements
 Internal control must extend beyond the
general ledger
 Auditor cannot be part of a client’s internal
control
 Client’s designation of individual to oversee
service is not a control
 Auditor’s drafting of statements does not
cause a control deficiency
 Contracting of accounting services and
statement preparation to a third-party does
not relieve management of its responsibilities
Communication of Audit Matters –
Demonstrating and Documenting Controls when the
Auditor Drafts the Financial Statements
 Agree financial statements to your
general ledger and schedules
 Use a financial statement checklist
 Create a written procedure as to your
review of the draft
 Ask questions
 Remember - client is not expected to
be able to replicate auditor’s work
Communication of Audit Matters –
Discussions with the Governing Body and Other
 Understand the language in the
auditors reports
 Material weakness doesn’t result in a
qualified opinion?
 Cost considerations for any internal
control must be considered
 Have auditors attend a Board meeting
 Develop an audit committee
SAS 112 CASE STUDIES
GASB –
Net Assets Restricted by Enabling Legislation
 Intended to prevent blanket
determinations
 External party can compel the
government to abide by the
restriction
 Matter of professional judgment
 Net assets restricted by enabling
legislation should be disclosed in the
notes
GASB –
Other Postemployment Benefits
 Implementation follows GASB No. 34
format – phase one in fiscal year 2008
 Perform an actuarial study of OPEB prior
to required implementation
•Study may be performed up to two years prior to the
beginning of the implementation year
 Don’t forget about implicit rate subsidy
element of the pronouncement
 Plan and budget for costs of actuarial
study
 Ensure governing body and other parties
are aware of the financial impact of
benefits plans
GASB –
Other Postemployment Benefits
Employment Period
Retirement
$15,000 of future benefits
Benefits Period
Allocate future benefits to service period
GASB –
Sales and Pledges of Receivables
 Assumes all “sales” transactions are
borrowings, or pledges, unless certain
criteria are satisfied
 Control based checklist determines
sale of receivable and revenues
 Revenue from sale should typically be
recognized over duration of agreement
 Note disclosure required for pledged
revenues
 Effective for fiscal year 2008
GASB –
Sales and Pledges of Receivables
 Example disclosure for pledged revenues:
Note 10: Utility Revenues Pledged
The City has pledged future water customer revenues, net of
specified operating expenses, to repay $5.7 million in water
system revenue bonds issued in December 2003. Proceeds
from the bonds provided financing for the construction of the
17th Street filtration plant. The bonds are payable solely from
water customer net revenues and are payable through 2028.
Annual principal and interest payments on the bonds are
expected to require less than 22 percent of net revenues. The
total principal and interest remaining to be paid on the bonds
is $8,849,250. The total principal and interest paid for the
current year and total customer net revenues were $470,250
and $2,612,500.
GASB –
Intangible Assets
 Issues addressed in draft -
•Characteristics
•Classified as capital assets
•When to capitalize
•Internally generated software
•Possible indefinite useful lives for
certain assets
•Retroactive implementation
 New attention and focus on water
rights and reporting as assets
 Effective for fiscal year 2010
GASB –
Fund Balance Reporting
 GASB position and arguments -
•Most utilized element of governmental
financial information
Users want to clearly identify discretionary
resources
Governments report reserved fund balance
that should be unreserved
Provide method to categorize components
of fund balance
•
•
•
 Fiscal year 2010 effective period?
GASB –
Fund Balance Reporting
Transportation
Capital
Capital
General Fund Projects Fund Projects Fund
Resources legally restricted:
Capital projects
Transportation projects
Palm Lane bridge project
Resources intended use:
Capital projects
Transportation projects
Toltec bridge project
Reserved
Reserved
Reserved
Designated
Designated
Designated
Unreserved
Reserved
Reserved
Unreserved
Unreserved
Reserved
Undesignated Undesignated
Designated Undesignated
Designated
Designated
GASB –
Fund Balance Reporting, Definitions
 Expect narrow definition of special
revenue funds
 Enhances definitions of debt service
and capital projects funds
 Encumbrances must be appropriated to
be reported as reserved
 Term “legally limited” will likely appear
as additional guidance
Expenditure Limitation Reports
 Exclusions exceed expenditures at the fund
level
 Not all expenditures/expenses included, in
particular other financing uses
 Interest revenues claimed as both exclusion
and a carryforward
 Special district do not qualify as “political
subdivisions”
 Budget for internal service expenses and
inter-departmental charges if looking to go
“home rule”
Audit Committees
 Growing and increasing emphasis on the
importance of audit committees for
governments
 Sarbanes-Oxley “creep” to governments
 Accounting profession encouraging more
responsibility by auditees
 Practical means for the governing board to
provide oversight of internal controls and the
financial reporting process
 Our firm has begun including the evaluation
of audit committees in management letters
Resources for Audit Committees
 AICPA - Audit Committee Toolkit for Government
Organizations: www.aicpa.org/AudCommCtr/
 GFOA - Recommended Practice – Audit Committees:
www.gfoa.org/services/rp/caafr.shtml
 The Institute of Internal Auditors – model audit
committee charter
 Maricopa County Community College District – Audit
and Finance Committee Resource Guide
Other Topics
 HURF reporting and related requirements
of allowable expenditures
 Street and highways certification
 Electronic submission of CAFR to GFOA
 IRS fringe benefits audits
 Audit committees for governmental
 Federal study of Single Audit quality
 New risk assessment standards for
auditors
Thank You!
Corey Arvizu
(520) 742-2611 ext. 101
[email protected]
Tucson
Phoenix
Flagstaff
www.heinfeldmeech.com