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The Unique Alternative to the Big Four®
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GASB 67 and GASB 68 Implementation Questions – Part 2
October 28, 2015
The webinar will begin promptly at noon eastern.
WebEx technical support can be reached at 800.508.8758.
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Today’s Speakers
Christine Torres, CPAPartner
Kevin Smith, CPAPartner
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Agenda
Highlights from AICPA Audit Guide
Journal Entries
AICPA Released Guidance
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Polling Question
GASB 68 Implementation:
a) Makes me jump up and down with excitement.b) Liked the challenge of implementation.c) Gave me an overall headache.d) Was like being in a torture chamber.
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AICPA Audit Guide
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Procedures – Cost Sharing Plans
Obtain the actuarial valuation report used to measure the collective total pension liability for the plan as of the measurement date based on GASB #68. Evaluate the professional qualifications of the actuary, including his or
her competence, capabilities, and objectivity. Read the actuarial certification for potential exclusions from the scope
of the actuary’s work or qualifications on the actuary’s certification relating to actuarial methods, actuarial assumptions, or census data. Determine whether the actuarial valuation was performed as of a date
no more than 30 months and 1 day of the employer’s fiscal year-end. Evaluate whether the methods and assumptions used in determining
the total pension liability are in accordance with GASB #68 and Actuarial Standards of Practice and are the same as those used by the plan.
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Procedures – Cost Sharing Plans
Obtain the audited schedule of employer allocations and compare and recalculate amounts specific to the employer to the employer’s records.Obtain the audited schedule of pension amounts and recalculate the
allocated pension amounts for the employer by multiplying the collective pension amounts for the plan by the employer’s proportionate share (allocation percentage). Evaluate whether the plan auditor’s report on the schedule of employer
allocations and the schedule of pension amounts is adequate and appropriate for the employer auditor’s purposes. Evaluate whether the plan auditor has the necessary competence and
objectivity for the employer auditor’s purposes.
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Procedures – Cost Sharing Plans
Obtain the audited plan financial statements and perform the following: Agree or reconcile net pension liability reported in the schedule of pension amounts to
the net pension liability disclosed in the notes to the plan financial statements Agree the fiduciary net position component of the net pension liability disclosed in the
notes to the plan financial statements to that reported in the plan statement of fiduciary net position
Obtain a detailed schedule of employer-specific deferred outflows of resources and deferred inflows of resources by type and by period and perform the following: Test contributions made after the measurement and before the employer’s year-end
and compare to amount reported as deferred outflows of resources Agree amortization schedules and amortization periods for prior period deferral
amounts to prior year working papers and audited financial statements Recalculate the current year gross incremental deferrals for changes in proportion and
differences between the employer’s actual contributions and its proportionate share of total employer contributions
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Procedures – Cost Sharing Plans
Obtain a detailed schedule of employer-specific deferred outflows of resources and deferred inflows of resources by type and by period and perform the following: Recalculate the amortization amount for the current period incremental deferrals for
changes in proportion and differences between the employer’s actual contributions and its proportionate share of total employer contributions
Recalculate the mathematical accuracy of the total deferred outflows of resources and deferred inflows of resource by type as of the measurement date and the total amortization for the measurement period based on the components tested. Recalculate pension expense based on the employer’s specific pension
expense in the schedule of pension amounts plus the amortization amount of employer-specific deferred outflows of resources and deferred inflows of resources.
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Census Data Procedures – Cost Sharing Plans
Identify the payroll registers and payroll cycles for all reporting units of the governmentObtain the population of employer (payroll) transmission reports
submitted to the plan during the year and performing the following: Evaluate whether the population of employer (payroll) transmission reports received is
complete based on an understanding of the employer’s payroll registers and cycles Select a sample of employer (payroll) transmission reports to verify the mathematical
accuracy of reports and whether the correct contribution rates were used
Obtain a list of new employees hired during the year from the employer and perform the following procedures: Select a sample to determine that eligible new employees were appropriately enrolled
in the plan and properly included in the employer (payroll) transmission reports For each employee selected, verify accuracy of the significant elements of census data
reported to the plan upon enrollment to the payroll and personnel records (for example, name, Social Security number, date of birth, gender, date of hire, marital status, and position or job code)
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Census Data Procedures – Cost Sharing Plans
Obtain a list of status changes reported to the plan during the year (other than those reported through the employer [payroll] transmission reports) and select a sample to determine that they were appropriate based on the relevant plan criteria and underlying payroll and personnel records Select a sample of active members and performing the following
procedures: Agree details included in the applicable employer (payroll) transmission report (for
example, name, position or job code, periods of time worked, pensionable wages for the period, employer contribution for period, and employee contribution for the period) to the payroll register (or vice versa), and agree the underlying information to the payroll and personnel records Evaluate whether the selected employee is eligible to participate in the plan based on
the eligibility criteria included in the plan document (state statutes) Recalculate service credits
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Polling Question
For my participants in the plan, information is submitted to the plan:
a) With each pay period.b) Monthly.c) Quarterly.d) Annually.
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Journal Entries
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Cost Sharing Plans
Key Dates: Actuarial Valuation Date – June 30, 2013 Measurement Date – June 30, 2014 Year End of Entity – June 30, 2015
Beginning Net Pension Liability $22,200,000Ending Net Pension Liability $18,700,000Ending Deferred Outflow – Experience $10,000Ending Deferred Inflows – Investment Returns $950,000Ending Deferred Inflows – Change in Employer Proportion $2,400,000Total Pension Expense $940,000July 1, 2013 – June 30, 2014 Contributions $1,100,000July 1, 2014 – June 30, 2015 Contributions $1,000,000
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Cost Sharing Plans
1. Record prior period adjustment to record beginning balances for Net Pension Liability and Deferred Outflows – Employer Contributions
Account Debit CreditNet Position $21,100,000Net Pension Liability $22,200,000Deferred Outflow – Employer Contributions
$1,100,000
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Cost Sharing Plans
2. Record entry to adjust Net Pension Liability, Deferred Inflows and Deferred Outflows
Account Debit CreditNet Position Liability $3,500,000Deferred Outflow – Employer Contributions
$100,000
Deferred Outflow – Experience $10,000Ending Deferred Inflows –Investment Returns
$950,000
Ending Deferred Inflows – Change in Employer Proportion
$2,400,000
Pension Expense $60,000
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Cost Sharing Plans
3. Verify Pension Expense
CY Contributions $1,000,000Amount identified in JE $(60,000)Net Expense $940,000
Expense per Allocation $940,000
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Multiple Agent/Single Employer
Key Dates: Actuarial Valuation Date – December 31, 2014 Measurement Date – December 31, 2014 Year End of Entity – June 30, 2015
Beginning Net Pension Liability $2,400,000Ending Net Pension Liability $6,300,000Ending Deferred Outflow – Experience, Assumption,Investment Earnings
$3,400,000
January 1, 2014 – June 30, 2014 Contributions $1,100,000January 1, 2015 – June 30, 2015 Contributions $1,000,000July 1, 2014 – December 31, 2014 Contributions $1,100,000
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Multiple Agent/Single Employer
1. Record prior period adjustment to record beginning balances for Net Pension Liability and Deferred Outflows – Employer Contributions
Account Debit CreditNet Position $1,300,000Net Pension Liability $2,400,000Deferred Outflow – Employer Contributions
$1,100,000
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Multiple Agent/Single Employer
2. Record entry to adjust Net Pension Liability, Deferred Inflows and Deferred Outflows
Account Debit CreditNet Position Liability $3,900,000Deferred Outflow – Employer Contributions
$100,000
Deferred Outflow – Outflow –Experience, Assumption, Investment Earnings
$3,400,000
Pension Expense $600,000
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Multiple Agent/Single Employer
3. Verify Pension Expense
July 1, 2014 – December 31, 2014 Contributions $1,100,000January 1, 2015 – June 30, 2015 Contributions $1,000,000Total Contributions $2,100,000Adjustment per AJE $600,000Total Pension Expense $2,700,000
Pension Expense $2,700,000
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Polling Question
When recording my Net Pension Liability, the effect on Net Position was:
a) Unassigned is still positiveb) Unassigned is close to $0c) Unassigned is negatived) I have not yet recorded the liability
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Various – Agent Multiple Employer Plan (from AICPA Whitepapers) How the auditor can gain comfort on the Census Data – Items that are needed: Plan actuary issues a separate actuarial valuation report specific to each employer
which includes an actuarial certification letter addressed to employer management; AND The plan engages its auditor to issue either: A service organization controls 1 (SOC 1) Type 2 report on controls over census data maintained
by the plan OR An examination engagement over selected management’s assertions related to census data
maintained by the plan.
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Various – Agent Multiple Employer Plan (from AICPA Whitepapers) How the auditor can gain comfort on the Census Data – Items that are needed: Plan actuary issues a separate actuarial valuation report specific to each employer
which includes an actuarial certification letter addressed to employer management; AND The plan engages its auditor to issue either: A service organization controls 1 (SOC 1) Type 2 report on controls over census data maintained
by the plan OR An examination engagement over selected management’s assertions related to census data
maintained by the plan.
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Various – Agent Multiple Employer Plan (from AICPA Whitepapers) How the auditor can gain comfort on the fiduciary net position component of the
net pension liability – Items that are needed: Plan prepares a schedule of changes in fiduciary net position by employer and related
notes to the schedule; AND The plan engages its auditor to opine on the schedule of fiduciary net position by
employer by either: An opinion on the schedule as a whole combined with SOC 1 Type 2 report on the controls over
the calculation and allocation of additions and deductions to employer accounts OR An opinion on each employer column in the schedule.
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Various – Agent Multiple Employer Plan (from AICPA Whitepapers) If Best Practice Solutions Not Adopted: If an agent plan issues audited financial statements, but does not implement
the best practice solutions, it is unlikely that employer auditors will be able to accumulate sufficient appropriate audit evidence necessary to provide unmodified opinions on the opinion units of the government financial reporting entity that have material pension amounts. Unaudited information provided by the plan to its employers to support
specific pension amounts that have not been subjected to further audit procedures would not constitute sufficient appropriate audit evidence upon which employer auditors could base their opinions.
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Various – Cost Sharing Multiple Employer Plan (from AICPA Whitepapers) Methods of allocation: Basis of an employer’s allocation of the collective pension amounts should be
consistent with the manner in which contributions to the plan are determined. GASB 68 does not specify which party (plan or employer) is responsible for calculating
the allocation percentage, it is recommended that the plan calculate each employer’s allocation percentage and collective pension amounts. Items that are needed: An opinion on the schedule of employer allocations and related notes to the schedule (not in-
relation) An opinion on the schedule of pension amounts by employer and related notes to the schedule
(not in-relation). This includes Total Pension Liability, Total Deferred Outflows of Resources, Total Deferred Inflows of Resources and Total Pension Expense
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Various – Cost Sharing Multiple Employer Plan (from AICPA Whitepapers) If Best Practice Solutions Not Adopted: If a cost sharing plan issues audited financial statements, but does not
implement the best practice solutions, it is unlikely that employer auditorswill be able to accumulate sufficient appropriate audit evidence necessary to provide unmodified opinions on the opinion units of the government financial reporting entity that have material pension amounts. Unaudited information provided by the plan to its employers to support
specific pension amounts that have not been subjected to further audit procedures would not constitute sufficient appropriate audit evidence upon which employer auditors could base their opinions.
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Various – Audit Evidence on Beginning Net Pension Liability in the Implementation Year – AICPA Article Requires cost sharing employers, for the first time, to report net pension liability Plans prepare an additional schedule of employer allocations and a schedule of
net pension liability as of the plan’s prior year end. Deferred inflows, deferred outflows and pension expense would not need to be
included. Plan can add an additional column to the current year schedule of pension amounts
that includes the net pension liability as of the end of the prior year.
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Various – Effect of Employer Paid Member Contributions –AICPA Article Employer-paid member contributions may affect the classification of
contributions by the plan in the statement of changes in fiduciary net position. If the employer-paid member contribution is recognized by an employer as
salary expense, the contributions relative to that employer should be classified as member contributions. If the employer-paid member contribution is treated by the employer as salary
expense, the contributions would be reported as salary expense and excluded from the employer’s pension expense. If the employer-paid member contribution is recognized by an employer as
other than salary expense, the contributions relative to that employer should be classified as employer contributions. If the employer-paid member contribution is treated by the employer as other
than salary expense, the contributions would be considered additional employer pension expense.
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Various – Effect of Employer Paid Member Contributions –AICPA Article In situations in which the employer-paid member contributions meet the criteria
to be classified as pension expense : Employer-paid member contributions made to the plan during the measurement
period should be reflected in pension expense. Employer-paid member contributions made to the plan subsequent to the
measurement date and before the employer year end should be reported by the employer as deferred outflows of resources.
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Various – Audit Evidence on Intra-Entity Allocations – AICPA Article In situations where a primary government allocates pension amounts to
components (i.e., funds, departments, or component units) that issue separate financial statements that are audited by other auditors, component auditors are advised that additional audit evidence may be needed to support the allocations. Cost Sharing: If the allocation basis used by the plan for the schedule of employer allocations
is the same that was used for the intra-entity allocation, component auditors would likely not need additional assurance from the auditor of the primary government on the intra-entity allocations. If the allocation basis used by the plan for the schedule of employer allocations
is different that was used for the intra-entity allocation, component auditors would likely need additional assurance (i.e., an opinion) from the auditor of the primary government on the intra-entity allocations.
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Various – Audit Evidence on Intra-Entity Allocations – AICPA Article Single Employers and Agent Employers: If other auditors are not involved in component audits, additional assurance from
the auditor of the primary government on the intra-entity allocations would not be necessary as the auditor of the primary government is the auditor of the financial reporting entity and would have access to the books and records of the components suitable for testing the various allocations. If other auditors are involved in component audits, component auditors would likely
need additional assurance (i.e., an opinion) from the auditor of the primary government on the intra-entity allocations and on the pension amounts to which the allocation is applied. It is recommended that either the primary government or plan prepare a schedule of pension amounts and engage the auditor of the primary government or plan to obtain reasonable assurance and report on total net pension liability, total deferred outflows of resources, total deferred inflows of resources, and total pension expense for the sum of all participating components included in this schedule.
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Polling Question
Which best describes your organization:
a) I have a component unit that will be allocated part of the NPLb) I don’t have any component units that will be allocated part of the NPLc) I don’t have any component units
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Common Questions
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Can I still Present Comparative Financial Statements?
Yes!
Changes made to comply with the standards should be treated as an adjustment of prior periods if “practical”, resulting in restatement of those periods Employers should not report beginning balances of deferred
outflows/inflows of resources if not practical to determine Not required to restate comparative information in MD&A
Need to explain why prior periods are not restated in the Notes.
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My Financial Statements are on a Cash Basis, what do I need to do?
Liability is not reported on the Financial Statements
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How does my Organization Pay-Off the Liability?
The Pension Liability is not expected to be paid off on a current basis. The liability is reduced over time through the contribution rates. If part of a cost-sharing plan, since the liability itself is a shared liability,
individual reporting units can’t “pay off” their proportionate share.
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Can the Pension Liability be Allocated?
No specific requirements for allocation of the net pension liability or other pension-related amounts to individual funds or departments in GASB 68 Question 36 of GASB Guide to Implementation of GASB Statement 68 states For proprietary and fiduciary funds, consideration should be given to National Council
on Governmental Accounting (NCGA) Statement 1, Governmental Accounting and Financial Reporting Principles, paragraph 42, as amended, which requires that long-term liabilities that are "directly related to, and expected to be paid from" those funds be reported in the statement of net position or statement of fiduciary net position, respectively.
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Questions?
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For more information, contact:
Christine TorresDirect [email protected]
Kevin W. SmithDirect [email protected]
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