Department for the Aging Financial Management Training Workshops Accounting and Auditing Update...

Department for the AgingFinancial Management Training

Workshops

Accounting and Auditing UpdatePresented by: Rich Pontynen, CPA

Goodman & CompanyRichmond June 22, 2004Roanoke June 24, 2004

FASB Financial Accounting Standards Board Statements

SAS Statements on Auditing Standards

GAO General Accounting Office(Issuer of Government Auditing

Standards)

OMB Office of Management & Budget(Established OMB Circular A-133

Financial Accounting Standards Board Statements

There have been 150 statements issued since FASB-1 was released in 1973.

The most significant relating to not-for-profits have been:

FASB-116 – Accounting for Contributions Received and Contributions Made

FASB-117 – Financial Statements of Not-for-Profit Organizations FASB-124 – Accounting for Certain Investments Held by Not-

for-Profit Organizations FASB-136 – Transfer of Assets to a Not-for-Profit Organization

or Charitable Trust That Raises or Holds Contributions for Others


Statements with effective dates/provisions that might be initially applied in financial statements issued on or after June 1, 2003:

FASB-132Employer’s Disclosures About Pensions and Other Postretirement Benefits (revised)• Reduces the amount of disclosure previously

required regarding pension plans and other postretirement benefits for non-public employers


FASB-142Goodwill and Other Intangible AssetsIntangible assets are in two categories• Those with finite lives (whose cost should be

amortized over the useful life) and,• Intangible assets with indefinite lives (whose value

is not amortized, but must be tested for impairment annually)


FASB-143Accounting for Asset Retirement Obligations• Requires a liability to be recognized for disposition

costs in the period in which the liability is incurred if a reasonable estimate can be made

• The liability is initially regarded as a cost of the asset (i.e. capitalized) at its fair (present) value


FASB-146Accounting for Costs Associated with Exit or Disposal Activities• Defines when an organization can recognize the

costs related to exit or disposal activities• Recognition occurs only when a present obligation

to others is incurred, which leaves the entity little or no discretion to avoid future transfer or use of assets to settle the liability (i.e. costs to terminate a contract that is not a capital lease)


FASB-149Amendment of Statement 133 on Derivative Instruments and Hedging Activities• Updates statement 133 for technical

considerations and provides implementation guidance


FASB-150Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity• Clarifies that certain financial instruments are to

be recorded as liabilities instead of equity

Statements on Auditing Standards that will impact your audits

SAS-99Consideration of Fraud in a Financial Statement Audit• This statement broadens the work that auditors must

perform when considering fraud during a financial statement audit. In addition to expanded planning done by the audit staff, the SAS requires auditors to make inquiries of management and others within the organization to obtain their views about the risk of fraud and how fraud risks are assessed.

Statements on Auditing Standards


• “And others” will normally include:• Employees with varying levels of authority

within the organization• Operational personnel not directly involved in

the financial reporting process• Employees involved in initiating, recording, or

processing complex or unusual transactions

SAS-100Interim Financial Statements• Establishes standards and provides guidance on

the nature, timing and extent of procedures to be formed when conducting a review of interim financial statements



SAS-101Auditing Fair Value Measurements and Disclosures• Provides that the auditor obtain an understanding of

the internal controls related to the determination of an organization’s fair value measurement and disclosures in order to plan the appropriate audit procedures

• Application - investment portfolios: active market values, and non-traded debt and equity

securities

Government Accounting Office (GAO)

Government Auditing Standards – “Yellow Book”

2003 Yellow Book revisions – effective for financial audits and attestation engagement for periods ending on or after January 1, 2004

Major Considerations for not-for-profit organizations:• Auditors performance of non-audit services for clients

(independence issue)


QUESTIONS & ANSWERS!


Can an audit organization be involved in preparing a trial balance and draft

financial statements and notes without impairing its independence to audit the

financial statements?Can audit engagement team members

perform these activities?


Can an audit organization assist an audited entity’s management in

preparing depreciation schedules without impairing its independence to perform the financial statement audit?


If the audit organization posts transactions coded by the audited

entity’s management, would the audit organization’s independence be

impaired to perform the financial statement audit?


An audited entity provides its cash receipts and disbursements journals to the audit

organization, which, as part of its financial statement audit, proposes adjusting entries to

convert from a cash basis to an accrual basis of accounting. The audited entity’s management, which has requested the conversion, reviews,

approves, and posts the entries and has sufficient knowledge and ability to take responsibility for them. Would the audit

organization’s independence be considered impaired for the financial statement audit?


A small audited entity’s sole accountant suddenly leaves due to an emergency

situation, and it asks an audit organization to provide a temporary staff person until a new accountant is hired. If the staff person that

the audit organization assigns to provide this assistance is not part of the audit

engagement team and the audit organization complies with all of the required safeguards,

would its independence be considered impaired on a financial statement audit?


If an audit organization arrives at an audited entity to perform a financial statement audit and finds that bank

account reconciliations were not performed during the year, can the

audit organization perform this service without impairing independence?


Is an audit organization’s independence to perform a financial statement audit

impaired if it assists a client in converting its financial statements to address new accounting principles?


An audited entity purchases a commercial accounting package and asks an audit organization to provide

advice on setting up the chart of accounts and the financial statement

format. Would the audit organization’s independence be considered impaired?


Can an audit organization assist its clients in preparing Internal Revenue

Service (IRS) form 990, “Return of Organization Exempt From Income

Tax,” without impairing its independence to audit the entities?

Can audit engagement team members perform this activity?

Office of Management and Budget (OMB)

OMB Circular A-133 “Audits of States, Local Governments

and Non-Profit Organizations”

Revised June 27, 2003 - Effective for years ending after December 31, 2003


Major Changes: Federal agencies with oversight for an

auditee can reassign oversight to another federal agency under special circumstances

Raises to $500,000 the amount expended in a year that would require a single audit• This does not raise the dollar limitation for a program

to be a major program


OMB Circular A-122“Cost Principles for Non-Profit

Organizations”

Revised May 10, 2004 – Effective June 9, 2004

Along with A-21 (educational institutions) and A-87 (state, local government and Indian tribes)


Changes: Intended to improve consistency and clarify language Added to all three circulars cost items, when

appropriate, where they might have been in only one or two before

Other amendments or revisions:• Interest, which now includes applicable dates• Travel costs, which are now consistent in all three circulars• Specialized service facilities, which has been clarified to

specify that periodic rate adjustment reviews be done every two years

Major impact of changes – None

THE END!

QUESTIONS?

Department for the Aging Financial Management Training Workshops Accounting and Auditing Update...

Documents

Transcript of Department for the Aging Financial Management Training Workshops Accounting and Auditing Update...