TECHNICAL UPDATE
(Auxiliary Organizations)
Mark Thomas
KPMG LLP
Year-End GAAP Training
May 28, 2014
GASB 65: Items Previously Reported as
Assets and Liabilities
• Effective June 30, 2014
• Moves certain items on the balance sheet to Deferred
Inflows/Outflows of Resources.
• Debt refundings: moves the gain/loss on refundings to
deferred inflows/outflow.
• Debt issuance costs (except prepaid insurance) is
written off - no longer reflected on the balance sheet.
May 2014
Year-End GAAP Training
2
GASB Standards on Pensions
• GASB Statement No. 67, Financial Reporting for
Pension Plans, Effective 6/30/14 [PLAN]
• GASB Statement No. 68, Accounting and Financial
Reporting for Pensions, Effective 6/30/15
[EMPLOYER]
• GASB Statement No. 71, Pension Transition for
Contributions Made Subsequent to the Measurement
Date (amendment of GASB Statement No. 68),
Effective 6/30/15
May 2014
Year-End GAAP Training
3
Knowledge Check #1
We have discussed thus far four new GASB
pronouncements. Which two are effective this fiscal
year-end?
a.
b.
c.
d.
GASBs 65 and 67
GASBs 67 and 68
GASBs 67 and 71
GASBs 65 and 71
May 2014
Year-End GAAP Training
4
Other GASB Statements:
• Statement No. 69 Government Combinations and
Disposals of Government Operations
• Statement No. 70 Accounting and Financial
Reporting for Nonexchange Financial
Guarantees
May 2014
Year-End GAAP Training
5
GASB Statement No. 67
• Replaces the requirements of Statement No. 25,
Financial Reporting for Defined Benefit Pension Plans
and Note Disclosures for Defined Contribution Plans and
No. 50, Pension Disclosures
• Defined Benefit Pension Plans –
are pensions for which the income or other benefits that
the plan member will receive at or after separation from
employment are defined by the benefit terms.
May 2014
Year-End GAAP Training
6
Statement No. 67 (continued)
• Defined Benefit Pension Plans –
a.Single-employer – pensions are provided to the
employees of one employer
b.Agent multiple-employer –plan assets are pooled
for investment purposes but separate accounts
are maintained for each individual employer
c.Cost-sharing multiple-employer – pension assets
and obligations are pooled
May 2014
Year-End GAAP Training
7
Knowledge check #2
Which of the following is not a defined subcategory of a Defined Benefit Plan:
a.
b.
c.
d.
Defined Contribution Plan
Single Employer Plan
Agent Multiple Employer Plan
Cost Sharing Multiple Employer Plan
May 2014
Year-End GAAP Training
8
Statement No. 67 (continued)
• Defined Contribution Pension Plans – are
pensions having terms that:
Provide that the pensions a plan member will
receive will depend only on the contributions to
the plan member’s account, and actual earnings
on investments of those contributions.
May 2014
Year-End GAAP Training
9
Statement No. 67 (continued)
• A defined benefit pension plan should present the following, prepared
on the accrual basis of accounting:
a. A statement of fiduciary net position
b. A statement of changes in fiduciary net position
• Recognition, measurement and presentation of financial statement
amounts generally similar to current guidance with exception of
receivables for contributions.
• Note disclosures - similar to nature of disclosures for employers with
the addition of information on investment policies and actual rates of
return on plan assets
May 2014
Year-End GAAP Training
10
GASB Statement No. 68
Replaces the requirements of Statement No. 27,
Accounting for Pensions by State and Local
Government Employers and No. 50, Pension
Disclosures
Moving from a funding approach to an earned
approach
May 2014
Year-End GAAP Training
11
Statement No. 68 (continued)
• Addresses accounting and financial reporting for
pensions that are provided to the employees of
state and local governmental employers
• Employers should report in their financial
statements a net unfunded pension liability
May 2014
Year-End GAAP Training
12
Pension Liability
• Employers participating in single-employer or
agent multiple-employer plans recognize 100
percent of the pension liability for each plan
• Employers participating in cost-sharing multipleemployer plans recognize their proportionate
share of the collective liability for the plan as a
whole.
May 2014
Year-End GAAP Training
13
Net Pension Liability
• Net Pension Liability = Total pension liability
less fiduciary net position (assets)
• Total pension liability is the actuarial present
value of projected benefit payments attributed to
past employee service.
• Required actuarial valuations at least every two
years (strict actuarial parameters)
May 2014
Year-End GAAP Training
14
Deferred Outflows/Inflows of
Resources
• Changes in resulting in deferred inflows/outflows
of resources:
• Effects of actuarial differences and changes in
assumptions related to economic or demographic
factors
• Differences between actual and projected earnings
on plan investments
• Employer contributions made directly by the
employer subsequent to the measurement date
May 2014
Year-End GAAP Training
15
Participation in Cost-Sharing MultipleEmployer Plans
Cost-sharing Multiple-Employer plans – those in which the
pension obligations to the employees of more than one
employer are pooled (plan assets can be used to pay the
benefit of the employees of any employer)
• An employer should recognize its proportionate
share of the collective net pension liability,
pension expense, and deferred inflows/outflows
of a cost-sharing plan
May 2014
Year-End GAAP Training
16
Participation in Cost-Sharing MultipleEmployer Plans (continued)
• Basis for proportion should be consistent with
manner in which required contributions are
determined
As a practical matter, it is anticipated the calculation of
proportion will be performed based on either required
contributions or covered payroll
May 2014
Year-End GAAP Training
17
Participation in Cost-Sharing MultipleEmployer Plans
Proportionate share concept results in two types of
potential changes in pension liability:
• effect of a change in the employer’s proportion of the
plan’s collective net pension liability - recognized as
deferred inflow/outflow in the period of change
• difference during the measurement period between
actual plan contributions and the amount of the
employer’s proportionate share of collective contributions
May 2014
Year-End GAAP Training
18
Relevant Employer Note Disclosures
• Balances of deferred pension outflows/inflows of
resources as of employer’s fiscal year-end
• Schedule for each of subsequent five years
amount of deferred pension outflows/inflows that
will be recognized in pension expense
May 2014
Year-End GAAP Training
19
Relevant Employer Note Disclosures
• The employers’ proportionate share ($ and %) of
the net pension liability
• Basis on which its proportion was determined
• Changes in proportion since prior measurement
date
May 2014
Year-End GAAP Training
20
Statement No. 71
• GASB Statement No. 71, Pension Transition for
Contributions Made Subsequent to the
Measurement Date (amendment of GASB
Statement No. 68)
• Issued November 2013
• Effective date: Simultaneously with Statement
No. 68 (effective June 30, 2015)
May 2014
Year-End GAAP Training
21
Statement No. 71 (continued)
• Amendment of Statement No. 68:
• par. 137 (prior to amendment)……It may not be practical for
some governments to determine the amounts of all deferred
inflows of resources and deferred outflows of resources related
to pensions, as applicable, at the beginning of the period when
the provisions of this Statement are adopted. In such
circumstances, beginning balances for deferred inflows of
resources and deferred outflows of resources related to
pensions should not be reported.”
May 2014
Year-End GAAP Training
22
Statement No. 71 (continued)
• Amendment to Statement No. 68 (par. 137)
• Recognize a beginning deferred outflow of resources
only for its pension contributions, if any, made
subsequent to the measurement date of the
beginning net pension liability, but before the start of
the government’s fiscal year.
• No beginning balances for other deferred outflows of
resources and deferred inflows of resources related to
pensions should be recognized
May 2014
Year-End GAAP Training
23
Issues Related to Cost-Sharing
Multiple-Employer Plans
Cost-Sharing Multiple-Employer Plans
(AICPA Proposed Recommendations)
Issues
Information for Employer
Reporting
Census Data
May 2014
AICPA White Papers
• Government Employer Participation in
Cost-Sharing Multiple Employer Plans: Issues
Related to Information for Employer Reporting
• Single-Employer and Cost-Sharing Multiple-Employer
Plans: Issues Associated with Testing Census Data
• Substantially finalized
Year-End GAAP Training
25
Cost-Sharing Multiple-Employer Plans
Issues
• Audited financial statements of the plan only
include disclosure of the collective net pension
liability for the plan as a whole. They do NOT
include:
• Deferred outflows/inflows of resources by category
• Pension expense
• Each participating employer’s share of collective
pension amounts
May 2014
Year-End GAAP Training
26
Cost-Sharing Multiple-Employer Plans
Issues (continued)
• Issues over allocations:
• Standard is silent on who (plan or each individual
participating employer) should calculate allocation
percentages
• Audited financial statements of the plan may not
include necessary information to calculate
allocation percentages
May 2014
Year-End GAAP Training
27
Cost-Sharing Multiple-Employer Plans
Issues (continued)
• Standard provides flexibility in approach to
determine allocations
• Standard encourages an allocation method would
be extremely difficult to audit as it is based on
projected future contributions
May 2014
Year-End GAAP Training
28
Cost-Sharing Multiple-Employer Plans Issues
(AICPA Proposed Recommendations) (continued)
Information for Employer Reporting
• Plan prepares the following for which plan auditor is engaged to provide opinion:
1. Schedule of employer allocations
• Use allocation method based on covered payroll or required (actual)
contributions depending on whether resulting allocations are expected to
be representative of future contributions
• Projected future contributions could be used if necessary
2.
Schedule of pension amounts by employer
• Includes the following elements: net pension liability, deferred outflows of
resources by category, deferred inflows of resources by category and
pension expense
• Alternative: Prepare a “schedule of collective pension amounts”
(excluding employer specific deferrals) for the plan as a whole
May 2014
Year-End GAAP Training
29
Cost-Sharing Multiple-Employer Plans Issues
(AICPA Proposed Recommendations) (continued)
May 2014
Year-End GAAP Training
30
Cost-Sharing Multiple-Employer Plans Issues
(AICPA Proposed Recommendations) (continued)
May 2014
Year-End GAAP Training
31
Cost-Sharing Multiple-Employer Plans Issues
(AICPA Proposed Recommendations) (continued)
Information for Employer Reporting (Plan Auditor)
• Plan auditor issues opinion on the employer allocations and on the total of each of
the four “elements”:
•
Net pension liability
•
Total deferred outflows of resources
•
Total deferred inflows of resources
•
Total pension expense for the sum of all participating entities
Plan auditor needs to consider the appropriateness of the materiality (precision)
used in the audit of plan financial statements
May 2014
Year-End GAAP Training
32
Cost-Sharing Multiple-Employer Plans
Issues (Employer Responsibilities)
• Complete and accurate data to plan
Report
• Appropriateness of information used to record financial statement amounts
Evaluate
• Whether plan auditor’s report on schedules are adequate and appropriate for
employer purposes
• Amounts in schedules specific to employer
Verify and
recalculate
May 2014
•
Employer amount used in allocation percentage (numerator)
•
Recalculate allocation percentage of employer
•
Recalculate allocation of pension amounts based on allocation percentage
of employer
Year-End GAAP Training
33
Cost-Sharing Multiple-Employer Plans Issues
(Employer Auditor Responsibilities)
Report
•
Sufficiency and appropriateness of audit evidence
•
Whether plan auditor’s report on schedules are adequate and appropriate for auditor purposes
(i.e. evidence)
•
Review plan auditor’s report and any related modifications
•
Evaluate whether the plan auditor has necessary competence and independence
•
Determine whether named as specified user
•
Amounts in schedules specific to employer
•
Employer amount used in allocation percentage (numerator)
•
Recalculate allocation percentage of employer
•
Recalculate allocation of pension amounts based on allocation percentage of employer
•
Census data submitted to plan
Evaluate
Verify and
recalculate
Test
May 2014
Year-End GAAP Training
34
Cost-Sharing Multiple-Employer Plans
Issues (Census Data)
Testing Underlying Census Data for Active Employees
• Responsibility of the Plan auditor to test census data
• Employer auditor may perform agreed-upon procedures over census data for
purposes of the Plan audit
• Census data tested should coincide with the data used in the preparation of the
actuarial report (measurement date)
May 2014
Year-End GAAP Training
35
Future GASB Standards:
• Expect New Standards for Other Post-Employment
Benefits (OPEB) similar to the new Pension
Standards
May 2014
Year-End GAAP Training
36
GASB Project:
• Re-examination of the Financial Reporting Model
•
•
•
•
15 years old
Just getting started
11 Focus Groups (incl. Business Type Activities)
Reviewing financial statements and MD&A from entities
across the country
• Surveys – separate surveys for
• Preparers (May/June 2014)
• Auditors (July/August 2014)
• Users (September/October 2014)
May 2014
Year-End GAAP Training
37
GASB Project:
• Re-examination of the Financial Reporting Model
(con’t)
• Expect to issue a Research report by June 2015
• One objective is to gain more alignment between
GASB and FASB reporting models
May 2014
Year-End GAAP Training
38
Expected FASB Standards:
• Refresh the NFP Reporting Model (20 years old)
• Moving from 3 Net Asset classes to 2:
• With and Without Donor-Imposed Restrictions
• Further discussion in Notes on nature of restrictions
• Disclosure of the nature of Board designations
• Cash Flow Statement:
• Require the Direct Method of preparation
• Interest and dividend income is now investing activities
• Interest paid is now financing activities
May 2014
Year-End GAAP Training
39
Expected FASB Standards:
• Requiring Expenses reported by nature and by function:
• Retain flexibility on which is reported on the face of the financial
statements
• Require a Statement of Functional Expenses (matrix)
• Disclosure of the method of expense allocation to function
• Remove requirement to functionalize non-operating expenses
• Format of Operating Statement:
• One Statement or Two? (incl. Statement of Changes in Net Assets)
May 2014
Year-End GAAP Training
40
Expected FASB Standards:
• Liquidity and Financial Flexibility:
• Require a classified balance sheet?
• Define an intermediate operating measure (operating income)
• Other Disclosures?
• Research Project on MD&A
• Various Note Enhancements
May 2014
Year-End GAAP Training
41
Knowledge Check #3
Which of the following is NOT an expected project
of the FASB relating to NFP reporting?
a.
b.
c.
d.
e.
Net Asset Classifications
Liquidity and Financial Flexibility
Reporting Expenses by Nature and Function
Statement of Cash Flows Reporting
IFRS Convergence
May 2014
Year-End GAAP Training
42
NACUBO “Blank Slate Project”
• “Reporting Reimagined” January 2014 Business Officer
Magazine
• Project that sets out to start from scratch and completely rethink the financial reporting model – for both private and public
• Effort to provide meaningful enhancements to the current
reporting models
• Approached the project from the User Perspective – what
would best tell Higher Education’s Story
May 2014
Year-End GAAP Training
43
www.calstate.edu