Transcript Slide 1

GASB
Topics for Discussion
• Recent GASB Pronouncements
• Current Projects
• Research Projects
1
Effective Dates—FYE June 30
• June 30, 2009
– Statement 43—OPEB Plans Phase III
– Statement 45—OPEB Employers Phase II
– Statement 49—Pollution Remediation
– Statement 52—Land Held by Endowments
• June 30, 2010
– Statement 45—OPEB Employers Phase III
– Statement 51—Intangibles
– Statement 53—Derivatives
• June 30, 2011
– Statement 54—Fund Balance Reporting
2
Recent GASB Pronouncements
• Statement 53 – Accounting and Financial
Reporting for Derivative Instruments
• Statement 54 - Fund Balance Reporting and
Governmental Fund Type Definitions
• Statement 55 - The Hierarchy of Generally
Accepted Accounting Principles for State and
Local Governments
3
Recent GASB Pronouncements
(Continued)
• Statement 56 - Codification of Accounting and
Financial Reporting Guidance Contained in the
AICPA Statements on Auditing Standards
• Concepts Statement No. 5 - Amendment of
Concepts Statement No. 2 – SEA Reporting
• Comprehensive Implementation Guide
4
Statement No. 53
Accounting and
Financial Reporting
for Derivative
Instruments
5
Examples of Derivatives
• Interest rate swap
– Variable-rate to fixed-rate
– Fixed-rate to variable-rate
• Basis swap
– Exchange payments based on the changes of two variable rates
• Swaption
– Gives the purchaser of the option the right, but not the obligation,
to enter into an interest rate swap
• Commodity swap
– Reduce exposure to a commodity’s price risk
6
Basic Approach
Fair value with hedge accounting
•
•
•
Derivative instruments are measured on the statement
of net assets at fair value
Fair value changes are reported on the statement of
resource flows as investment income
Exception: Effective Hedges
– Changes in fair value of derivative instruments would be
reported on the statement of net assets as deferrals—
either deferred charges or deferred credits
•
Scope Exclusion: Measurement of derivatives in
government funds
7
Hedges and Hedge Accounting
•
Two Requirements:
– 1. Association. Derivative instrument is associated with a
hedgeable item
– 2. Substantial offsets. The derivative instrument is
effective in providing changes in cash flows or fair values
that substantially offset the cash flow or fair value
changes of the hedgeable item
•
•
If the above requirements are met, hedge
accounting must be applied
Accounting is not dependent on documentation
8
Methods of Evaluating Effectiveness
Effectiveness is determined by using a
specified method of evaluating hedges
• Qualitative method
– Consistent critical terms
•
Quantitative methods
–
–
–
–
Synthetic instrument
Linear regression
Dollar offset
Other method – see characteristics
9
Note Disclosures
• Summary of derivative instruments activity
• Disclosures for HEDGING derivatives
– Application of TB-2003 disclosures
– Significant terms
– Risks: Credit, Interest Rate, Basis, Termination, Rollover, Marketaccess, Foreign Currency
– If an “other evaluation method” is used, the identity of that
method and its critical values
• Disclosures for INVESTMENT derivatives
– Risks: Credit, Interest Rate, Foreign Currency
• Contingencies (e.g., collateral postings)
10
Statement No. 54
• Approved by the
Board in February
• Released March 11,
2009
• Effective for periods
beginning after June
15, 2010
11
Statement No. 54
• Approved by the
Board in February
• Released March 11,
2009
• Effective for periods
beginning after June
15, 2010
12
Origins of the Project
• Significant variation in how standards are
applied, leading to significant divergence in
practice
• Widespread confusion about terminology
• Mismatch between what governments are
reporting about fund balance and what users
of financial statements actually need
• Invitation to Comment issued 10-06
• Exposure Draft issued 2-08
13
Interaction of
Fund Reporting in General
with Fund Balance Reporting
• Consider a government that has
– $100 earmarked for capital projects by the
government itself
– $100 in property tax revenue restricted to paying
debt service
– $100 of cash available for any purpose
14
Under the current standards
If the amounts constrained to specific
purposes are reported in the general fund,
they are shown as reserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
Debt service
$100
$100
$100
$100
$100
$100
Unreserved
But…
15
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
Debt service
Unreserved
$100
$100
$100
16
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
$100
Unreserved
$100
17
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
$100
Unreserved
$100
18
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
$100
Unreserved
$100
19
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
$100
Unreserved
$100
20
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
$100
Unreserved
$100
21
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
$100
Unreserved
$100
22
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
$100
Unreserved
$100
23
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
$100
Unreserved
$100
24
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
Unreserved
$100
$100
25
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
$100
Unreserved
$100
26
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
Unreserved
$100
$100
27
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
Unreserved
$100
$100
28
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
Unreserved
$100
$100
29
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
Unreserved
$100
$100
30
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
$100
Debt service
Unreserved
$100
$100
31
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
Debt service
Unreserved
$100
$100
$100
32
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
Debt service
Unreserved
$100
$100
$100
33
Under the current standards
If the amounts constrained to specific
purposes are reported outside the general
fund, they are shown as unreserved
GF
SRF
DSF
CPF
Non-major
Funds
Total
Reserved for:
Capital projects
Debt service
Unreserved
$100
$100
$100
This will change…
$300
34
New Fund Balance Classifications
The classification hierarchy is “based primarily on the extent to
which the government is bound to honor constraints on the
specific purposes for which amounts…can be spent”
Essentially
what is now
reserved
Essentially
what is now
unreserved
•
•
•
•
•
Nonspendable
Restricted
Committed
Assigned
Unassigned
Essentially
what is now
designated
35
Nonspendable Fund Balance
• Not in spendable form, such as
– Inventory
– Long-term amounts of loans and notes receivable
– Property held for resale
• Corpus of a permanent fund
36
Restricted Fund Balance
• Same definition as for net assets in Statement
34 (as amended by Statement 46)—amounts
constrained to being used for a specific
purpose by
– External parties
– Constitutional provisions
– Enabling legislation
37
Committed Fund Balance
• Constraint on use imposed by the government
itself, using its highest level of decision making
authority
• Constraint can be removed or changed only by
taking the same highest-level action
• Action to constrain resources should occur
prior to end of fiscal year, though the exact
amount may be determined subsequently
38
Assigned Fund Balance
• Amounts intended to be used for specific
purposes
• Required, not optional
• Intent is expressed by
– The governing body
– High-level body or individual authorized by the
governing body
39
Assigned Fund Balance
• Amounts in governmental funds other than
the general fund that are not restricted or
committed are reported as assigned
– The act of transferring resources to another
governmental fund is considered an assignment of
those resources to the purpose of that fund
40
Assigned Fund Balance
• Appropriation of existing fund balance to
eliminate a projected budgetary deficit in the
next year’s budget is an assignment of fund
balance
– Limited to an amount no greater than the
projected excess of expenditures over revenues
41
Unassigned Fund Balance
• Available for any purpose
• Reported only in the general fund, except in
cases of negative fund balance
– Negative balances in other governmental funds
are reported as unassigned
42
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
SRF
DSF
CPF
Non-major
Funds
Total
Restricted for:
Debt service
$100
$100
Committed for:
Capital projects
$100
$100
Unassigned
$100
$100
Or…
43
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
SRF
DSF
CPF
Non-major
Funds
Total
Restricted for:
Debt service
$100
$100
Committed for:
Capital projects
$100
$100
Unassigned
$100
$100
44
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
SRF
DSF
CPF
Non-major
Funds
Total
Restricted for:
Debt service
$100
$100
Committed for:
Capital projects
$100
$100
Unassigned
$100
$100
45
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
SRF
DSF
CPF
Non-major
Funds
Total
Restricted for:
Debt service
$100
$100
Committed for:
Capital projects
$100
$100
Unassigned
$100
$100
46
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
SRF
DSF
CPF
Non-major
Funds
Total
Restricted for:
Debt service
$100
$100
Committed for:
Capital projects
$100
$100
Unassigned
$100
$100
47
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
SRF
DSF
CPF
Non-major
Funds
Total
Restricted for:
Debt service
$100
$100
Committed for:
Capital projects
$100
$100
Unassigned
$100
$100
48
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
SRF
DSF
CPF
Non-major
Funds
Total
Restricted for:
Debt service
$100
$100
Committed for:
Capital projects
$100
$100
Unassigned
$100
$100
49
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
SRF
DSF
CPF
Non-major
Funds
Total
Restricted for:
Debt service
$100
$100
Committed for:
Capital projects
$100
$100
Unassigned
$100
$100
50
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
SRF
DSF
CPF
Non-major
Funds
Total
Restricted for:
Debt service
$100
$100
Committed for:
Capital projects
$100
$100
Unassigned
$100
$100
51
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
SRF
DSF
CPF
Non-major
Funds
Total
Restricted for:
Debt service
$100
$100
Committed for:
Capital projects
$100
$100
Unassigned
$100
$100
52
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
Restricted for:
Debt service
DSF
$100
Committed for:
Capital projects
Unassigned
SRF
$100
$100
CPF
Non-major
Funds
Total
$100
$100
$100
53
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
Restricted for:
Debt service
DSF
$100
Committed for:
Capital projects
Unassigned
SRF
$100
$100
CPF
Non-major
Funds
Total
$100
$100
$100
54
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
Restricted for:
Debt service
DSF
CPF
$100
$100
Total
$100
$100
Committed for:
Capital projects
Unassigned
SRF
Non-major
Funds
$100
$100
55
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
Restricted for:
Debt service
DSF
CPF
$100
$100
Total
$100
$100
Committed for:
Capital projects
Unassigned
SRF
Non-major
Funds
$100
$100
56
Under the new standards
The amounts constrained to specific purposes
are reported in the same classifications
regardless of the fund they are in
GF
Restricted for:
Debt service
DSF
CPF
Total
$100
$100
Committed for:
Capital projects
Unassigned
SRF
Non-major
Funds
$100
$100
The funds have changed, but the fund
balance classifications have not
$100
$100
57
Rainy-Day Amounts: Before 54
• Under existing standards, rainy-day or
“stabilization” amounts generally should be
reported as unreserved–undesignated, not as
reserved
– Many stabilization amounts are not constrained in
a manner that qualifies as reserved
– More importantly, stabilization was not previously
considered a specific purpose—it is a
circumstance
58
Rainy-Day Amounts: Before 54
• Under almost no circumstances should
stabilization amounts be reported in special
revenue funds under the existing standards
– Stabilization amounts generally are not restricted
– Stabilization amounts generally do not derive from
a specific revenue source
59
Rainy-Day Amounts: Under 54
• Stabilization can be considered a specific
purpose if:
– Constraints on stabilization amounts meet the
criteria to be reported as restricted or committed
– The formal action imposing the constraint on
spending identifies and describes in sufficient
detail the specific circumstances under which a
need for stabilization arises
– The circumstances are not expected to occur
routinely
60
Stabilization Note Disclosures
It is possible that many amounts previously reported as
reserved for stabilization or in a separate rainy-day
fund will now be reported as unassigned fund balance
in the general fund. But Statement 54 requires these
disclosures:
• Stabilization arrangements
– Authority for establishing
– Requirements for additions
– Conditions under which amounts may be used
• Minimum fund balance policies
61
Encumbrances
• Encumbrances should not be displayed
separately within the restricted, committed, and
assigned categories
• Amounts are classified as restricted, committed,
and assigned based on the source and strength
of the constraints placed on them—encumbering
those amounts does not further affect them
• Encumbrances, if significant, should be disclosed
in conjunction with other disclosures of
significant commitments
62
Level of Detail
• Level of detail requirements may be met by
display or a combination of display and
disclosure
– Nonspendable by type
– Restrictions by purpose
– Commitments and assignments in sufficient detail
that major purposes are evident to reader
63
Note Disclosures
• Description of authority and actions that lead
to committed and assigned fund balance
• Government’s policy regarding order of
spending
– Restricted and unrestricted fund balance
– Committed, assigned, and unassigned
64
Note Disclosures
• Spending prioritization policies (the flow
assumption)
– Restricted vs. unrestricted
– Committed, assigned, unassigned
– Multiple policies
– The “default” policy
65
Classifying Residual Balances
Example: The flow assumption for a special revenue fund
is to use restricted amounts before unrestricted
amounts and to use the default policy for its
unrestricted fund balance.
If expenditures incurred exceed the amounts that have
been restricted, committed, and assigned to a specific
purpose, resulting in a negative residual amount for
that specific purpose, then amounts assigned to other
purposes in that fund are reduced to eliminate the
deficit.
66
What were the balances at the beginning of the year?
Purpose A
Beginning Balances
Additions
Expenditures Incurred
Ending Balances
Purpose B
Beginning Balances
Additions
Expenditures Incurred
Ending Balances
Purpose C
Beginning Balances
Additions
Expenditures Incurred
Ending Balances
Total
5,696
Restricted
2,000
Committed
2,616
Assigned
1,080
8,871
8,871
0
0
8,040
0
0
8,040
67
Were additional amounts restricted, committed, or
assigned?
Purpose A
Beginning Balances
Additions
Expenditures Incurred
Ending Balances
Purpose B
Beginning Balances
Additions
Expenditures Incurred
Ending Balances
Purpose C
Beginning Balances
Additions
Expenditures Incurred
Ending Balances
Total
5,696
Restricted
2,000
Committed
2,616
Assigned
1,080
8,871
1,500
8,871
0
0
1,500
8,040
120,000
0
0
120,000
8,040
68
How much was spent for each purpose?
Purpose A
Beginning Balances
Additions
Expenditures Incurred
Ending Balances
Total
5,696
Restricted
2,000
Committed
2,616
Assigned
1,080
(2,616)
0
(1,080)
0
(7,654)
(1,958)
(2,000)
0
Purpose B
Beginning Balances
Additions
Expenditures Incurred
Ending Balances
8,871
1,500
(10,000)
371
8,871
0
(8,871)
0
0
Purpose C
Beginning Balances
Additions
Expenditures Incurred
Ending Balances
8,040
120,000
(11,223)
116,817
0
0
0
120,000
(11,223)
108,777
Unassigned
(1,958)
(1,958)
0
1,500
(1,129)
371
8,040
8,040
69
What happens to a negative balance?
Purpose A
Beginning Balances
Additions
Expenditures Incurred
Ending Balances
Total
5,696
Restricted
2,000
Committed
2,616
Assigned
1,080
(2,616)
0
(1,080)
0
(7,654)
(1,958)
(2,000)
0
Purpose B
Beginning Balances
Additions
Expenditures Incurred
Ending Balances
8,871
1,500
(10,000)
371
8,871
0
(8,871)
0
0
Purpose C
Beginning Balances
Additions
Expenditures Incurred
Ending Balances
8,040
120,000
(11,223)
116,817
0
0
0
120,000
(11,223)
108,777
Unassigned
(1,958)
(1,958)
0
1,500
(1,129)
371
8,040
8,040
70
Current Definition
Special Revenue Funds
Special Revenue Funds —To account for the
proceeds of specific revenue sources (other than
trusts for individuals, private organizations, or
other governments or for major capital projects)
that are legally restricted to expenditure for
specified purposes.
71
Statement 54 Definition
Special Revenue Funds
Special revenue funds are used to account for and
report the proceeds of specific revenue sources
that are restricted or committed to expenditure
for specified purposes other than debt service or
capital projects.
The term “proceeds of specific revenue sources”
establishes that one or more specific restricted or
committed revenues should be the foundation
for a special revenue fund.
72
Special Revenue Funds
• Restricted or committed specific revenue sources
should comprise substantial portion of fund’s
resources on an ongoing basis
– But fund also may include other restricted,
committed, and assigned resources
• Disclosure: purpose of each major special
revenue fund and each revenue source or other
resources authorized to be reported in each
73
Effect of SRF Clarifications
Current
Standards
Less restrictive
Current
Practice
More restrictive
New
Standards
74
Debt Service & Capital Projects Funds
• Text made consistent with other definitions
• Capital projects funds broadened from “major
capital facilities” to “capital outlays”
• Should be clearer that debt service funds are
required when
– Legally mandated
– Financial resources are being accumulated for
principal and interest payments maturing in future
years
75
Effective Date and Transition
• Periods beginning after June 15, 2010—earlier
application is encouraged
• Fund balance classifications should be applied
retroactively by restating fund balance for all
prior periods presented
• Changes to information in the statistical section
may be made prospectively, though retroactive
application is encouraged; if prior years are not
restated, difference in information should be
explained
76
Statements 55 and 56
GAAP Hierarchy
and
AICPA Omnibus
77
What Do You Need to Know About
Statements 55 and 56?
• Accounting and financial reporting guidance
currently found in the AICPA’s Statements on
Auditing Standards brought into the GASB
literature “as is.”
• Statement 55—GAAP Hierarchy
– First step in the potential reexamination of current
multi-level hierarchy
• Statement 56—AICPA Omnibus
– Related party transactions, subsequent events,
and going concern considerations
78
Concepts Statement No. 5
An amendment of Concepts Statement No. 2,
Service Efforts and Accomplishments
Reporting that updates the conceptual
framework by:
• focusing on voluntary reporting
• clarifying the role of GASB
• incorporating information from more recent
research and reporting experience
79
Comprehensive Implementation Guide
2009–2010 edition
• Includes, updates, and supplements all prior guides issued
through June 30, 2009
– More than 1,800 questions and answers
• Adds more than 100 new questions and answers including
the material from the Implementation Guide to Statement
53 on Derivative Instruments
– Also includes appendices to provide Q&As without the
effects of Statement 53 for those governments for
which the Statement is not yet effective
80
Current Projects
• Pension Accounting and Financial Reporting
• Service Concession Arrangements (formerly known as
•
•
•
•
•
•
Public Private Partnerships)
Chapter 9 Bankruptcies
Financial Instruments Omnibus
Certain OPEB Measurement Issues
Service Efforts and Accomplishments Reporting
Statement 14 Reexamination (Reporting Entity)
Codification of Certain FASB and AICPA
Pronouncements (pre-November 1989)
• Recognition and Measurement Attributes – Concepts
Statement
81
Pension Accounting
and Financial Reporting
Invitation to Comment
Response Date:
July 31,2009
82
Scope of the
Postemployment Benefits Project
• Includes reexamination of Pension Statements
No. 25 (Plans) and 27 (Employers) to assess
effectiveness and consider potential
improvements in financial reporting
• More than 115 responses received to the ITC
83
Scope of the
Postemployment Benefits Project
• Basic approach
– Funding base with parameters
– Liability driven
– Something in between
• Liability and expense recognition
• Use of actuarial methods
• How the actuarial liability should be measured
– Salary projections
– Discount rate
• Cost sharing allocations for employers
• Plan reporting
84
Accounting and Financial Reporting
For Service Concession Arrangements
• Exposure Draft issued in June 2009 with a comment
deadline of September 30, 2009
What is a Service Concession Arrangement?
An arrangement between a transferor (a government) and an
operator (governmental or nongovernmental) in which:
1) the transferor conveys to an operator the right and
related obligation to provide services through the use of
infrastructure or another public asset (facility) AND
2) the operator collects fees from third parties
85
Service Concession Arrangements
• Who should report the capital asset in a service
concession arrangement—transferor versus the
operator? Who “controls” the asset?
– The transferor determines or regulates what services the
operator is required to provide, to whom the operator is
required to provide them, and the price ranges or rates that
can be charged for services;
– The transferor is entitled to—through ownership, beneficial
entitlement, or otherwise—significant residual interest in the
property at the end of the arrangement.
• When should up-front payments be recognized?
– Generally, over the life of the agreement if “control” is
maintained by the transferor.
86
SCA Up-front Payments
When the transferor DOES NOT MEET all the control
criteria, upfront payments or present value of
installment payments:
• View 1─ be recognized currently as revenue or
gain, rather than deferred and amortized over the
term of the SCA, as would be required if the
transferor does meet the control criteria
• View 2─initially be deferred and amortized as a
revenue over the term of the agreement
87
Chapter 9 Bankruptcies
• Exposure Draft issued on June 26, 2009 with a
comment period deadline of August 28, 2009
• Not a signal that GASB knows that more
bankruptcies are coming
• Proposes guidance on recognition and
measurement of liability restructuring and
other changes approved by the bankruptcy
court, and required disclosures
88
Financial Instruments Omnibus
• Exposure Draft issued in June 2009 with a
comment deadline of October 30, 2009
• Proposes revisions of existing financial
reporting requirements to address issues that
have arisen since the release of:
Statement 31 Investments and External
Investment Pools
Statement 40 Deposit and Investment Risk
Disclosures
Statement 53 Derivative Instruments
89
Certain OPEB Measurement Issues
• Exposure Draft issued in June 2009 with a
response deadline of August 28, 2009
• Addresses measurement of OPEB obligations
and timing of required valuations for certain
small employers participating in agent multipleemployer plans.
• Proposes changes to existing requirements to
address complexity and cost benefit
considerations
90
Guidelines For Voluntary Reporting,
SEA Performance Information
• Proposal issued in June 2009 with a comment
deadline of October 30, 2009
• What the project does:
– Focus on voluntary reporting
– Focus on suggested guidelines
• What the project is not:
– Establishing performance measures
– Establishing performance benchmarks
– Requiring SEA Reporting
91
Performance Management System
Strategic Planning
Program or
Activity Planning
EXTERNAL
REPORTING
Internal Reporting
Government
Performance
Management
System
Selecting
Performance
Measures
Performance- Based
Budgeting
Evaluating
Performance
Managing Work
Processes
1
92
Reporting SEA Performance Information
Suggested Guidelines for Voluntary Reporting,
SEA Performance Information is composed of
three parts:
• Four essential components of an effective SEA
report
• Six qualitative characteristics that are
appropriate for reporting SEA performance
information
• A discussion of how to effectively communicate
SEA performance information
93
Suggested Guidelines For Voluntary
Reporting, SEA Performance Information
• Suggested guidelines, although voluntary, will assist
governments in improving the quality of their reported
SEA performance information
• Traditional financial statements provide information about
fiscal and operational accountability but not the degree to
which the government was successful in helping to
maintain or improve the well-being of its citizens by
providing services
94
Proposed Essential Components of
Effective SEA Reports
•
•
•
•
Purpose and Scope
Major Goals and Objectives
Key Measures of SEA Performance
Discussion and Analysis of Results and
Changes
95
Proposed Qualitative Characteristics
of SEA Performance Information
•
•
•
•
•
•
Relevance
Understandability
Comparability
Timeliness
Consistency
Reliability
96
Effectively Communicating
SEA Performance Information
Provides guidance on the effective
communication of SEA performance
information focusing on
• Intended Audiences
• Forms of Communication
• Multiple Levels of Reporting
97
Statement 14 Reexamination
(Financial Reporting Entity)
•
•
•
•
•
•
Fiscal dependency—is it enough?
Misleading to exclude criteria for inclusion
Blending versus discrete presentation
Criteria for major component units
Fiduciary activities
Disclosures
98
Codification of Certain FASB and
AICPA Pronouncements
• Identify provisions of FASB pronouncements,
APBs, and ARBs issued before 11/30/89 that are
potentially applicable to S&L governments
• Identify provisions to exclude that conflict with or
contradict GASB pronouncements
• Which applicable provisions should be:
– Incorporated “as is” into GASB literature, or
– Modified and incorporated
99
Recognition and Measurement
Attributes Concepts Statement
• Develop recognition criteria for whether
information should be reported in state and
local government financial statements and
when that information should be reported
• Consider the measurement attribute or
measurement attributes (for example, historical
cost or fair value) that conceptually should be
used
100
Research Agenda
•
•
•
•
•
Demand Bonds
Economic Condition Reporting
Electronic Financial Reporting
Fair Value Measurement
Government Combinations
101
Single Audits
&
The Recovery Act
102
Topics
• Recovery Act and Its Impact & Coverage in Single
Audits
• 2009 Compliance Supplement
– Appendix VII
– Addendum # 1
• Single Audit Internal Control Project
$787,000,000,000
103
The $787 Billion is funding the following:
[Source: Recovery.gov 9/11/2009]
Category
Tax Relief*
State and Local Fiscal Relief
Infrastructure and science
Protecting the Vulnerable
Health Care
Education and Training
Energy
Other
Amount($ Billions)
$288
$144
$111
$ 81
$ 59
$ 53
$ 43
$ 8
104
Who audits these $787 Billion of funds?
• GAO
• The Federal Inspectors General ( +IRS)
• State Auditors
• Independent Public Accountants (CPAs
and Governmental Auditors) via Single Audits
105
Recovery Act Funding
The Recovery Act provides a total of:
• $25 M - GAO
• $252.75 M - Inspectors General for 22
funded Federal Departments and
Agencies; and
• $84 Million to the Recovery Act
Accountability and Transparency Board.
106
Costs of Single Audits
• Required single audit costs are an allowable
administrative cost
• OMB has issued guidance, “Payments to State
Grantees for Administrative Costs of Recovery
Act Activities,” (May11, 2009) and “Payments to
State Grantees for their Administrative Costs
for Recovery Act Funding – Alternative
Allocation Methodologies,” (October 13, 2009)
http://www.whitehouse.gov/omb/recovery_default/
107
 OMB Guidance -- 02/18, 04/03, 06/22
 Agency use SA for program risk assessment
 Agency use SA for program monitor
 Separate ARRA CFDA, separate reporting on SEFA and DCF
(including subrecipients)
 Federal Audit Clearinghouse to display all single audits
 New Appendix VII of 2009 Compliance Supplement 05/06 highlights audit requirements for ARRA programs
 Addendum to the CS -- 08/05
 More detail requirements on ARRA programs
 Guidance on Internal Control Review
 New Cluster Listing
 ARRA program compliance requirements in Part 4
108
 New Appendix VII of 2009 Compliance Supplement 05/06 highlights audit requirements for ARRA programs
• Require that a type A program receiving Recovery
dollars should be listed as a “high risk” program for
single audit purpose and should be included as a major
program to be reviewed
• Require that any cluster with a new Recovery program
should be considered as a new program and would not
qualify as “a low risk Type A program.”
• Include a guide to auditors performing single audits to
highlight the new requirements for Recovery funds.
109
Key Guidance in Appendix VII relates to:
• CFDA Numbers / Identifying Recovery Act programs
• Effect of Expenditures of Recovery Act Awards on
Major Program Determination
• Award Terms and Conditions and Compliance
Requirements
• Schedule of Expenditures of Federal Awards
(SEFA)
110
Effect of Expenditures of Recovery Act
Awards on Major Program Determination
Background:
The Federal programs audited in a single audit
are “Major programs.”
These are selected by the auditor applying rules
contained in OMB Circular A-133 that give
weight to programs based on:
• level of expenditures (relative to all entity
Federal awards); and
• risk factors
111
Award Terms and Conditions and Compliance Requirements
• Federal agencies are responsible for identifying ARRA
awards and the applicable requirements to the recipient.
• Recipients are responsible for identifying ARRA
awards and applicable requirements to their subrecipients.
• For compliance requirements unique to Recovery Act
awards not included in the Compliance Supplement,
auditors should:
(1) review the award documents, including the terms and
conditions;
(2) check the OMB Management website under Grants
Management for any addenda to this Supplement, and
(3) use the framework provided by the Compliance
Supplement (e.g., in Parts 3, 4, 5, and 7) as guidance to
identify ARRA compliance requirements material to the
Federal program and determine the appropriate audit
procedures
112
Schedule of Expenditures of Federal Awards
(SEFA)
• Expenditures of Federal awards must be
separately identified and reported
- On the SEFA
- On SF-SAC (Data Collection Form)
• As separate rows under Item 9 of Part III by CFDA
number
• Inclusion of the prefix “ARRA-”
− Identifying name of Federal program
− First characters in Item 9d of Part III
• Recipients must require their subrecipients to do
the same
113
114
Addendum #1 to CS -- 08/05
•
Overview—Purpose of the addendum
•
Part 2 matrix for added programs (41 new ARRA programs)
•
Part 3 additions to-- (A) Allowable Activities, (D)Davis-Bacon, (I) Procurement, (L)
Reporting , (M) Subrecipient Monitoring, (N) Special Tests and Provisions
•
Part 4- Program additions (43 programs including 14 clusters)
– CFDA 84.394, 84.397
– HHS Programs
•
Part 5- Updated and New clusters
•
Part 6- Internal Control
115
Part 3
Revised to Provide Coverage as follows:
•
A. Activities Allowed and Disallowed
ARRA prohibition for expending costs for any casino or
gambling establishment, aquarium, zoo, golf course, or
swimming pool
D. Davis Bacon Act
Recovery Act Section 1606 Davis-Bacon requirements
I. Procurement and Suspension and Debarment
Recovery Act Section 1605 Buy American Act Requirements
L. Reporting
Says Section 1512 Reporting Requirements will be covered
in a subsequent addendum
116
Part 3
Revised to Provide Coverage as follows (cont’d):
M. Subrecipient Monitoring
Recovery Act Section 1512(h) requirements for Central
Contractor Registration requirements
N. Special tests and Provisions
− Requirement for Separate Accountability for Recovery Act
Funding
− Proper Presentation on the Schedule of Expenditures of Federal
Awards (SEFA) and Data Collection Form of Recovery Act Awards
− Fulfillment by pass-through entities of requirements that they
properly identify subawards of Recovery Act awards to
subrecipients, and require subrecipients to properly present
them on their SEFA and Data Collection Form
117
An Example - Part 5 - re: Student Financial Aid
Cluster Added to “Other Information”:
Provisions of Appendix VII of the 2009 Compliance
Supplement in the section entitled, Effect of
Expenditures of ARRA Awards on Major Program
Determination, do not apply to the SFA cluster. On the
Schedule of Expenditures of Federal Awards
(SEFA), all expenditures for the Federal Pell Grant
and College Work Study Programs should be reported
as part of the SFA cluster under CFDAs 84.063 and
84.033, respectively.
118
Part 6
Adds guidance for covering internal controls of Recovery
Act Awards to:
•Stresses the importance of internal controls and properly
performing required work relating to them.
•Encourages early interim reporting by the auditor to
management and those charged with governance of
significant deficiencies and material weaknesses in internal
controls relating to ARRA funding; and
•Provides guidance to – when evaluating internal controls –
consider the “capacity” of the auditee to manage Recovery
Act awards that result in material funding increases.
119
Single Audit Pilot Project
• Early Communication on Internal Controls of
ARRA programs
• Timely & useful information for management
and Federal agencies on ARRA Programs
• Early corrections & Resolution of deficiencies
• Volunteer States and selected ARRA Programs
• Selected areas of internal controls
• Timeframe and Status
120
A New Age Of
Transparency
And
Accountability
121
Objectives
•
•
•
•
•
Review A-133 audit finding requirements
Explain HHS audit resolution process
Describe Federal agency perspective
Recovery Act implications
A look to the future
122
A-133 Audit Finding Requirements
Using Audit to Improve Grant Accountability
1.
2.
3.
4.
5.
Audit finding
Management’s response to audit finding
Management’s corrective action plan
Grantor management decision
Management’s follow-up and preparing
summary schedule of prior audit finding
6. Auditor’s follow-up and review of summary
schedule
123
Audit Resolution vs.
Corrective Action
• Audit resolution – Agreement between
Grantor and Grantee on appropriate planned
corrective action to be taken.
• Corrective action – Actually correcting the
condition identified in the audit finding.
124
Audit Finding (§___.510)
• Who are the users?
– Grantee
• Management (1st line to top)
• Those charged with governance
• Public
– Federal agency & Pass-through entity
• Audit resolution officials
• Grants management officials
• Offices of Inspectors General
125
Audit Finding (§___.510)
• Finding reference numbers (e.g., 09-01)
• Program identification
– CFDA title & number,
– Award number and year
– Federal agency name
– Pass through entity name
– Grant numbers (Federal & Pass-through Entity
(PTE))
126
Audit Finding (§___.510)
•
•
•
•
•
Condition
Criteria
Cause
Effect
Recommendation
127
Considerations
• Likely questioned costs
• Deviation from the expected results, e.g.,
expect no deviations and find some
• Likelihood controls could fail
• Magnitude & multiple control deficiencies
• Compensating controls
• Prudent official test
128
Audit Finding (§___.510)
• Proper Perspective
– Isolated or systemic
– Sampling information – universe tested and
number of cases examined
• Questioned costs
– Known QC
– Likely QC
129
Management’s
Response to Audit Finding
• Agree or disagree
• Planned corrective action
• Auditor’s response to management’s response
130
Management’s
Corrective Action Plan (§___.315)
•
•
•
•
•
Applies to current year audit findings
Who – Name of contact person
Will do what – Corrective action planned
By when – Date
If not agree – Explanation & specifics
131
Grantor Management Decision (§___.405)
• Issued by Federal agency or pass-through entity
• May request additional information:
– Grantee
– Auditor - audit working papers (§___.515(b))
•
•
•
•
•
Whether audit finding sustained
Reasons for decision
Expected grantee action
Timetable for follow-up
6 month clock & reference numbers
132
Management’s
Summary Schedule of Prior Audit
Findings (§___.315)
• Prepared by grantee management
• Audit findings relative to Federal awards:
– Prior year audit
– Prior year Summary Schedule
• Fully corrected
• Not corrected or partially corrected
• Corrective action differs from CAP or Management
Decision
133
Summary Schedule of Prior Audit Findings
(Not Fully Corrected)
• Describe partial corrective action taken
• Commit to planned action to correct
– Who will do what by when
• Explain if corrective action taken differs
significantly from:
– Previous corrective action plan
– Grantor management decision
134
Summary Schedule of Prior Audit Findings
Example of “Needs Improvement”
• XYZ Entity - Federal Awards Findings
– 09-01 Single audit filed late – Not implemented
– 09-02 Grant management and financial controls – Not
implemented
– 09-03 Internal controls over Federal awards – Not
Implemented
– 09-04 Payroll allocation – Not Implemented
135
HHS Audit Resolution Process
OIG National External Audit Resources
• Downloads reports with HHS direct awards and findings from
direct awards by HHS from Clearinghouse
• Performs initial review to determine whether audit met
Federal requirements
• Codes findings for resolution to various HHS Operating
Divisions (e.g., ACF, CDC, CMS)
– May add findings not listed in audit report
• Sends opening letter to grantee requesting:
– Additional comments or information;
– Update on comments in audit report; or
– Confirmation previous comments and CAP stand
136
HHS Audit Resolution Process
Operating Divisions (OpDivs)
• Decentralized approach
– Each OpDiv resolves their own findings
– Findings affecting multiple OpDivs resolved by
central unit
137
What Does Audit Resolution Official
Consider?
•
•
•
•
•
Original finding & management response
Corrective action plan
Subsequent year’s findings and summary schedule
Responses to NEAR opening letter
Additional inquiries and correspondence with
grantee and their auditor
• Harm to Federal government
• Prior pattern of corrective action
138
Management Decision Letter
• Addressed to grantee with cc to auditor
• State whether agree with:
– Audit finding
– Grantee planned corrective action
• Describe areas of concern
• Require recovery of sustained questioned
costs
• Provide resolution official contact info
139
How Can Auditor & Grantee Help?
•
•
•
•
Write clearly and concisely
Use the CCCER & MR format
Put finding in perspective
Write to “cold” reader who has only the audit in
hand
• Management responses need to respond directly to
audit finding
– State who, will do what, by when
– Directly respond to the audit finding
– Take credit for action already taken
140
Recovery Act Implications
FY 2010 Audit Findings – “A Perfect Storm”
• ARRA programs
–
–
–
–
Increased spending
New programs, fast award, limited guidance, new grantees
New requirements, e.g., reporting
Subrecipient issues
• Standards changes
– SAS 74 update effective for FY 6/30/10
– Revised AICPA guide for A-133 audits
– Revised audit sampling guidance
141
Recovery Act Implications
FY 2010 Audit Findings – “A Perfect Storm”
• Increased Federal oversight
– Residual from National Single Audit Sampling
project
– Recovery Act Transparency Board
– Additional OIG oversight
– Federal agency summary reporting of findings
• Public interest in how ARRA funds spent
142
Current Events
AGA Research Project
• Use automated tools to search and analyze
single audit reports.
– Create searchable data-base from audit reports.
– Sophisticated tools to analyze content of audit
findings.
• Grants management, single audit, and audit
resolution are a continuous process
– Need feedback loop from the audit process to the
grants management process
143