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Higher Education Hot Topics
November 7, 2013
Michelle Fowler, CPA
Assurance Principal
Rehmann
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Principal in charge of Higher Education and Nonprofit
Industry
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Email:
michelle.fowler@rehmann.com
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Phone:
1.866.799.9580
Extension 8108
• Website:
www.rehmann.com
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Agenda
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GASB Update
FASB Update
Data Collection Form Filing
Form 990 – Governing Body
Affordable Care Act
Enterprise Risk Management
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GASB Update
• Statement No. 68 - Accounting and Financial
Reporting for Pensions
– Revises and establishes new financial reporting
requirements for most governments that provide their
employees with pension benefits
– Effective for fiscal 2015.
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GASB Update
• Statement No. 68 (continued)
– Multiple-Employer Plan Issues
 Audited financial statements of the plan do not include actuarial
information, nor do they include each employer’s “interest” in the plan
net position.
 Employers need the following elements to record as of the
measurement date:
–
–
–
–
–
Total pension liability less plan net position = net pension liability
Deferred outflows/inflows based on investment experience
Deferred outflows/inflows based on changes in assumptions
Deferred outflows/inflows based on actuarial gains and losses
Pension expense
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GASB Update
• Statement No. 68 (continued)
– Potential Solution to Plan Net Position
 Include supplemental condensed schedule of “changes in plan net
position” by employer in plan financial statements for which plan
auditor engaged to provide opinion.
 Plan auditor engaged to issue SOC 1 (type 2) report on allocation of
inflows (i.e. contributions, investment income, etc.) and outflows
(i.e. benefit payments, administrative expenses, etc.) of plan to
individual employer accounts.
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GASB Update
• Statement No. 68 (continued)
– Potential Solution to Total Pension Liability, Deferred
Outflows/Inflows, and Pension Expense
 Plan auditor engaged to issue SOC 1 (type 2) report on census data
controlled by plan (i.e. retired employees).
– User controls at the plan level – Plan controls most of the information
needed by the actuary (inactives/retirees).
– User controls at the employer level – Employer controls the active
employee information.
 Plan actuary issues separate actuarial report for each participating
employer which includes net pension liability, deferred
outflows/inflows by type and year, pension expense, and discount rate
calculation.
– Employer management and employer auditor rely on actuary as
management specialist for total pension liability for individual
employer.
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GASB Update
• Statement No. 68 (concluded)
– Potential Solution to Total Pension Liability, Deferred
Outflows/Inflows, and Pension Expense (concluded)
 Employer auditor tests census data of active employees and confirms
actuarial information used by actuary.
 Employer and employer auditor responsible for validating deferred
outflows/inflows and pension expense related to individual employer.
– Deferred outflows/inflows resulting from current year can be recalculated
from condensed statement of changes in plan net position (by employer)
included as supplemental information in plan financial statements.
– Rely on actuarial report for deferred outflows/inflows related to actuarial
experience.
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GASB Update
• GASB is considering changes to Other
Postemployment Benefits (OPEB), similar to pension
accounting.
– An exposure draft is still yet to be released.
– Now estimating implementation date 2 ½ to 3 years after
pension accounting.
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GASB Update
• Statement No. 69 – Government Combinations and
Disposals of Government Operations
– Effective for fiscal 2014.
– This standard provides detailed requirements for the accounting
and disclosure of various types of government combinations,
such as mergers, acquisitions, and transfers of operations.
– Previous guidance did not provide practical examples for
situations common in government-specific combinations and
disposals.
– Accounting and disclosure requirements for these events vary
based on whether a significant payment is made, the
continuation or termination of services, and the legal structure of
the new or continuing entity.
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GASB Update
• Statement No. 70 – Nonexchange Financial Guarantees
– Effective for fiscal 2014.
– Addresses the accounting and disclosure of situations in which
one government offers a financial guarantee on behalf of another
government, NFP, private entity, or individual without directly
receiving equal value in exchange.
– Required to recognize a liability when qualitative factors and/or
historical data indicate that it is “more likely than not” that the
government will be required to make a payment on the
guarantee.
– Requires governments to disclose any outstanding financial
guarantees in the notes to the financial statements.
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GASB Update
• Blank Slate Project
– GASB and FASB continue to meet to educate each other, frame
a discussion around a unified reporting model for higher
education, and address the accounting issues that divide the
industry.
– Use the term “balance sheet” instead of “statement of net
position”.
– Replace the term “net assets” with “resources”.
– Pledges/promises to give would be reported as a deferred inflow
of resources. Upon receipt of the cash, the asset would be
reported as a designated resource or endowment resource.
– Natural classification of expenses (i.e., salaries, contracted
services, etc.) would be used instead of functional classifications.
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FASB Update
• ASU 2012-05 - Statements of Cash Flows (Topic 230): Notfor-Profit Entities: Classification of the Sale of Donated
Securities in the Statement of Cash Flows
– Effective for fiscal 2014.
– Addresses the diversity in practice as to how to classify cash
receipts from the sale of unrestricted donated securities.
– Cash receipts resulting from the sales of donated securities that
upon receipt are directed without any NFP-imposed limitations
for sale and were converted nearly immediately into cash are
classified as operating cash flows.
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FASB Update
• ASU 2012-05 - Statements of Cash Flows (Topic 230): Notfor-Profit Entities: Classification of the Sale of Donated
Securities in the Statement of Cash Flows (concluded)
– Restricted donated securities for long-term purposes are
classified as financing cash flows.
– All other receipts from sales of donated securities are classified
as investing cash flows.
– This ASU is required to be applied prospectively.
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FASB Update
• ASU 2013-06 – Services Received from Personnel of an
Affiliate
– Effective for fiscal 2015.
– Addresses the diversity in practice for the recording of operating
expenses related to services received from an affiliated entity.
– This ASU applies to NFP’s that receive personnel services from
an affiliate where compensation is not sought by that affiliate.
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FASB Update
• ASU 2013-06 – Services Received from Personnel of an
Affiliate (concluded)
– A recipient NFP entity recognizes in its stand-alone financial
statements all personnel services received from an affiliate that
directly benefits the recipient NFP at cost. This is a change from
previous guidance whereby contributed services were recorded
at fair value.
– At a minimum, cost should include all direct personnel costs
(payroll and fringe benefits) incurred by the affiliate in providing
services to the recipient NFP.
– The guidance does not prescribe how the receipt (credit) of the
services is required to be presented.
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FASB Update
• Financial Reporting Project
– Financial reporting enhancement matters identified by the FASB
Not-for-Profit Advisory Committee (NAC).
– An exposure document for public comment is expected to be
issued before the fourth quarter of 2014.
– Revisiting current net asset classifications.
 Improve how liquidity is portrayed.
 Clear up current confusion concerning restrictions and the definition of
unrestricted net assets.
 Two classes of net assets: those with donor-imposed restrictions and
those without.
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FASB Update
• Financial Reporting Project (continued)
– Improving the relationship between the statements of activities
and cash flows.
 More clearly communicate financial performance.
 Intermediate measure of operations in the statement of activities
(basis of 2 dimensions: mission or availability).
 Use direct method for the statement of cash flows for operating
activities. A reconciliation using the indirect method will not be
required.
 Similar realignment of classifications of certain elements in the
cash flow statement to those of GASB entities (i.e. interest and
dividends received and interest paid).
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FASB Update
• Financial Reporting Project (concluded)
– Statement of functional expenses may be required of all NFP’s
(not just voluntary health and welfare organizations) that derive
a significant portion of their revenue and support in the form of
contributions from the general public.
– Items still to come
 Reduce extent of fair value disclosures
 MD&A
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Data Collection Form Filing
• OMB has not yet released the 2013 edition of the Data
Collection Form (SF-SAC). This is impacting all entities with
fiscal 2013 year ends.
• Due to delays in getting the new form completed and further
complications caused by the recent federal government shutdown, the new form has not yet been published in the federal
register.
• Once published, it will be another 30 days before the form can
be placed into use. Therefore, it will be sometime in December
2013 at the earliest before the new Data Collection Form is
available for use.
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Data Collection Form Filing
• In response, the OMB has granted a blanket extension of all
2013 Data Collections Forms until 1/31/14 (this may need to
be further extended).
• This is not an extension for completing your audits and filing
them with the State. Same thing for providing your audits to
any pass-through entities.
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Form 990 - Governing Body
• Organization’s board review of Form 990
– Part VI, Section B Policies questions 11a and 11b
– Has the organization provided a complete copy of this Form 990 to all
members of its governing body before filing the form? Describe in
Schedule O the process, if any, used by the organization to review this
Form 990.
– Answer yes if a complete copy of the Form 990 was provided to each
person who was a voting member of the governing body at the time of
filing the 990.
– Answer no if the Form wasn’t distributed or if parts of the Form 990
were removed prior to distribution (i.e. Schedule B).
– It’s OK to answer no, understand the requirements of a yes answer.
Make clear in Schedule O the process if answer no.
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Affordable Care Act (ACA)
• Adjunct professors – no final decision on calculation of hours
worked, but industry is recommending use of a reasonable
estimate of out-of-classroom hours in addition to classroom
time.
• Webinar materials and recording available on Rehmann
website at Industries>Government>Government Publications
& Resources, October 2013 – Addressing the Affordable Care
Act’s Effect on the Public Sector.
• Webinar in January 2014 to address the ACA in more detail as
it relates to the public sector, which will be interactive with
questions.
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Enterprise Risk Management (ERM)
• Definition: Enterprise risk management is a process, effected
by an entity’s board of directors, management and other
personnel, applied in strategy setting and across the enterprise,
designed to identify potential events that may affect the entity,
and manage risk to be within its risk appetite, to provide
reasonable assurance regarding the achievement of entity
objectives.
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Enterprise Risk Management (ERM)
• Enterprise risk management enables management of
an entity to effectively deal with uncertainty and
associated risk and opportunity, enhancing the
capacity to build value.
• Internal controls are only one of the many
components of ERM.
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Enterprise Risk Management (ERM)
• ERM helps:
– Management achieve the entity’s performance and
profitability targets and prevent loss of resources.
– Ensure effective reporting and compliance with laws and
regulations.
– Avoid damage to the entity’s reputation and associated
consequences.
– An entity get to where it wants to go and avoid pitfalls and
surprises along the way.
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