Governmental Updates - Uniform Guidance and GASB

GOVERNMENTAL UPDATES:

UNIFORM GUIDANCE (UG) AND GASB

Presented by

Brittney Williams, CPA, CGFM

Heinfeld, Meech & Co., P.C.

Agenda

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• Uniform Guidance (UG) Refresher

• GASB Updates

• New GASB Pronouncements

• Major Projects

• Practice Issues

• Pre-Agenda Research

Part 200 – Uniform Administrative Requirement, Cost Principles,

and Audit Requirements for Federal Awards

Subpart A - Acronyms and definitions

Subpart B - General provisions

Subpart C - Pre-Federal Award requirements and Contents of Federal Awards

Subpart D - Post Federal award Requirements

Subpart E – Cost Principles

Subpart F – Audit Requirements

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Objectives

Goals of COFAR based on guidance from Executive Office

• Streamline guidance for Federal awards to ease administrative burden

• Strengthen oversight over Federal funds to reduce risks of waste, fraud and abuse

• Eliminate duplicative and conflicting guidance

• Focus on performance over compliance for accountability

• Use of grant agreements, cooperative agreements and contracts including provisions for fixed amount awards

• Encourage efficient use of information technology and shared resources

• Provide for transparent and consistent treatment of costs

• Limit allowable costs to make the best use of Federal dollars

• Setting standard business processes using data definitions

• Encourage non-Federal entities to have family friendly policies

• Strengthen oversight

• Target audit requirements on risk of fraud, waste and abuse

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Post-Award Requirements

Internal Controls (Section 200.303)

• Moved from audit requirements to post-award requirements

• Organization must establish and maintain effective internal

control over Federal awards to provide reasonable assurance

that awards are being managed in compliance with laws and

regulations

• Internal controls should be in compliance with COSO and the

Standards for Internal Control in the Federal Government (the

“Green Book”)

• Must take prompt action when noncompliance is identified

• Must take reasonable measures to safeguard personally

identifiable information and other information deemed sensitive

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Procurement (Section 200.318)

• “Integrity Rules”

• Must maintain written standards of conduct covering conflicts of

interest with respect to employees engaged in the selection,

award, and administration of contracts, including disciplinary

actions for violations

• No real or apparent conflicts of interest permitted

• Must maintain written standards of conduct covering

organizational conflict of interest for affiliates of subsidiary

organizations

• Mandatory disclosure requirements for violations

• Non-Federal entities may set standards for non-substantial

interests or gifts of nominal value

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Procurement (Section 200.318)

• Must avoid acquisition of unnecessary or duplicative items

• Encourages the use of excess or surplus property

• Encourages the use of inter-entity agreements

• Must maintain records sufficient to detail the history of the

procurement

• Must maintain oversight to ensure contractors perform the

terms and conditions of contract

• “Federal agency will not substitute its judgment for that of

the non-Federal entity unless the matter is primarily a

Federal concern”

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Cost Principles

Indirect Cost Rates (Section 200.414)

• Non-Federal entities that have never had a negotiated

indirect cost rate may use a de minimis rate of 10%

• Must use the 10% de minimis rate on all awards until

negotiated

• Costs must be consistently charged and may not be

double charged in order to utilize the de minimis rate

• The SEFA must include a note as to whether or not the

entity elected to use the 10% de minimis indirect cost rate

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Cost Principles

Other Revisions • Measures to safeguard personal and sensitive information

• Encouragement of family-friendly policies

• Conference hosts must ensure conference costs managed in manner to minimize costs to Federal award

• Definition of supplies clarified to include computer equipment with an acquisition cost of less than $5,000

• Computer equipment may be charged as a direct cost if essential to performance of a Federal award, even if it is not solely dedicated to an award cost objective

• Annual reports and payment requests must include a certification by an authorized official

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Cost Principles

Required Certification

“By signing this report, I certify to the best of my knowledge

and belief that the report is true, complete, and accurate,

and the expenditures, disbursements and cash receipts are

for the purposes and objectives set forth in the terms and

conditions of the Federal award. I am aware that any false,

fictitious, or fraudulent information, or the omission of any

material fact, may subject me to criminal, civil or

administrative penalties for fraud, false statements, false

claims or otherwise. (U.S. Code Title 18, Section 1001 and

Title 31, Sections 3729–3730 and 3801–3812).”

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Audit Requirements

Basic Structure Remains the Same

Single Audit Threshold Changes

Changes in the Type A/B Program Threshold

Changes to the risk assessment of the Type A/B Programs

Percentage of Coverage Rule adjustment

Changes to the risk assessment of the entity

Changes for reporting audit findings

DCF Changes

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Additional Considerations

Uniform Guidance provides for a government-wide audit quality project once every 6 years beginning in 2018

Included language to allow for future combining of the audit reporting and the data collection form

OMB to evaluate implementation of guidance against previously developed metrics

Reduction of compliance requirements may be revisited in the future

Possible new COFAR guidance

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GASB UPDATES

GASB Statements

Major Projects

Practice Issues

Pre-Agenda Research 13

Effective Dates – June 30

• 2016

• Statement 72 – fair value measurement and application

• Statement 76 – GAAP hierarchy

• 2017

• Statement 73 – pensions not within the scope of Statement 68 and

amendments to Statements 67 and 68

• Statement 74 – financial reporting by OPEB plans

• Statement 77 – tax abatement disclosures

• 2018

• Statement 75 – OPEB accounting for employers and nonemployer

contributing entities

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Statement 72: Fair Value Measurement

and Application

Statement Summary

• Defines Fair Value

• Describes measurement techniques, approaches

• Describes what should be reported at fair value

• Describes what should be disclosed for fair value

measurements

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Investment Measurement (Fair Value

Application)

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• Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair Value

Fair Value Hierarchy

The fair value hierarchy categorizes the inputs to valuation

techniques used to measure fair value into three levels.

• Level 1 inputs are quoted prices (unadjusted) for identical

assets or liabilities in active markets that a government

can access at the measurement date.

• Level 2 inputs are inputs-other than quoted prices

included within Level 1-that are observable for an asset or

liability, either directly or indirectly.

• Level 3 inputs are unobservable inputs for an asset or

liability.

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Valuation Approaches

Apply valuation approach(s) that best represent fair value in the circumstances using one of the three approaches:

Market approach:

Uses prices and other relevant data derived from market transactions for identical or similar assets, liabilities, or a group of assets and liabilities.

Cost approach:

Reflects the amount that would be required currently to replace the present service capacity of an asset.

Income approach:

Converts future amounts to a single discounted amount. The fair value measurement would also reflect any current market expectations for future amounts.

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Application)

Assets that meet the definition of an Investment should be

reported at Fair Value

• Alternative investments

• Equity securities, stock warrants, and stock rights that don’t have

readily determinable fair values

• Commingled investment pools that are not government sponsored

• Intangible assets

• Land and land rights

• Real estate If they meet the definition

• Lending assets of an investment

• Natural resource assets

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Application) • Investments Not Reported at Fair Value

• MM investments and participating interest-earning investment

contracts that have a remaining maturity at time of purchase of one

year or less, reported by governments other than external

investment pools

• Investments in 2a7-like pools (LGIP)

• Investments in life insurance

• Investments in common stock that meet the criteria for applying the

equity method

• Non-participating interest earning investment contracts

• Unallocated insurance contracts

• Synthetic guaranteed investment contracts that are fully benefit

responsive

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Required Disclosures

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• The fair value measurement at year end

• The level of the fair value hierarchy (level 1, 2, 3)

• A description of the valuation technique used in the fair value measurement

• If there has been a change in the valuation technique that has a significant impact on the result

Recurring fair value

measurements

• The reason for the measurement

Nonrecurring fair value

measurements

Standard Note Disclosure for Fair Value

Narrative Format

NOTE 2 –Fair Value Measurements

The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs.

The City has the following recurring fair value measurements as of June 30, 20X1:

• U.S. Treasury securities of $45 million are valued using quoted market prices (Level 1 inputs)

• Corporate bonds of $12 million are valued using a matrix pricing model (Level 2 inputs).

The City also has a nonrecurring fair value measurement as of June 30, 20X1, for a closed performing arts hall that will no longer be used by the government and therefore is considered to be impaired. The hall has been written down from $5.6 million to $3.4 million based on an appraisal of the property (Level 3 inputs).

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Standard Note Disclosure for Fair Value

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Tabular Format

NOTE 2 –Fair Value Measurements

The Plan categorizes its fair value

measurements within the fair value

hierarchy established by generally

accepted accounting principles. The Plan

has the following recurring fair value

measurements as of December 31, 20X1:

GAAP Hierarchy: Statement 76

• Effective for periods beginning after June 15, 2015

• Revised Comprehensive Implementation Guide

• Highlights

• The hierarchy of generally accepted accounting principles (GAAP

hierarchy) comprises the types of guidance that state and local

governments follow when preparing financial statements

• The GAAP hierarchy lists the order of priority for pronouncements

to which a government should look for guidance

• Statement 76 reduces the GAAP hierarchy to 2 categories of

authoritative GAAP

• Previously 4 categories under GASB Statement 55

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• 2 Categories of Authoritative Guidance

• Category A

• GASB Statements

• Formerly issued Interpretations

• Category B

• GASB Technical Bulletins

• GASB Implementation Guides (Q&As)

• AICPA literature cleared by the GASB

• Nonauthoritative

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Authoritative GAAP

Category A must meet ALL of the following:

• Formally approved by the Board

• For the purpose of creating, amending, superseding, or interpreting standards

• Exposed for a period of public comment

Category B must meet ALL of the following:

• Restricted to providing limited clarification

• Cleared by the Board

• Specifically made applicable to s&l governmental entities

• Exposed for a period of public comment

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NonAuthoritative

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If no authoritative GAAP exits:

• Consider authoritative GAAP for similar transactions

• If no analogy possible, may consider nonauthoritative literature that does not conflict or contradict authoritative GAAP

Consider all of the following:

• Consistency with the GASB Concepts Statements

• Relevance to particular circumstances

• Specificity of the guidance

• General recognition of the issuer or author as an authority

Sources:

• GASB Concepts, FASB, FASAB, PSASB, IASB

• AICPA literature

• Widely used practices in S&L government

• Literature of other professional associations/regulatory agencies

Accounting and Financial Reporting for

Postemployment Benefits Other Than

Pensions- GASB 75 • What: GASB Issued Statement 74 (plans) and 75 (employers),

making OPEB accounting and financial reporting consistent with the pension standards in GASB Statements 67 and 68

• Why: Pension and OPEB standards were updated subsequent to a review of the effectiveness of the standards- objective was to establish a consistent set of standards for all postemployment benefits, providing more transparent reporting of the liability and more useful information about the liability and costs of benefits.

• When: Effective for periods beginning after June 15, 2016 (plans) and June 15, 2017 (employers)

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Pensions- GASB 75 • Key Points

• Employers will have to report a net OPEB liability (total OPEB

liability less fiduciary net position) on the accrual-based statement

of net position.

• Employer expense recognition will be separated from funding.

• All employers will be required to sue the same actuarial cost

allocation method for measurement, regardless of the actuarial

method used for funding purposes.

• Employers that participate in cost-sharing plans will be required to

report their proportionate share of the net OPEB liability and

expense of all participating employers.

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Pensions- GASB 75 New disclosure requirement for Health-care trend

rates.

1% decrease

(8.5% decreasing

to 4.5%

Health-Care Cost

Trend Rates

(9.5% decreasing

to 5.5%)

1% increase

(10.5%

decreasing to

6.5%)

Net OPEB

Liability (asset)

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1% decrease Discount Rate 1% increase

Net OPEB

Liability (asset)

Tax Abatement Disclosures: Statement 77

• Transaction must meet this definition:

A reduction in tax revenues that results from an agreement

between one or more governments and an individual or entity in

which (a) one or more governments promise to forgo tax revenues to

which they are otherwise entitled and (b) the individual or entity

promises to take a specific action after the agreement has been

entered into that contributes to economic development or otherwise

benefits the governments or the citizens of those governments.

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Key Points:

• A principal distinction between tax abatements and other tax expenditures is the existence of an agreement with an individual or entity

• The agreement generally is in writing but not necessarily

• The agreement may or may not be legally enforceable

• The agreement must precede the reduction of taxes and the recipient’s fulfillment of the promise to act

• The tax reduction may occur before, during or after fulfilment of the promise- as long as it occurs after the agreement has been entered into

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• General Disclosure Principles

• A government should disclose information separately for:

• Its own tax abatements

• Tax abatements that are entered into by other governments that reduce the reporting government’s tax revenues

• Disclosure information may be presented for individual agreements or may be aggregated:

• Its own abatements –organized by major tax abatement program

• Other government abatement- Organized by the government entering into the abatements and the specific taxes being abated

• Disclosure should commence in the period in which a tax abatement agreement is entered into and continue until the tax abatement agreement expires:

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Descriptive

Information

Government’s Own

Abatements

Other Government’s

Abatements

Name of program X

Purpose of program X

Name of government X

Tax being abated X X

Authority to abate

taxes

X

Eligibility criteria X

Abatement mechanism X

Recapture provisions X

Types of recipient

commitments

X


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Other Disclosures Government’s Own

Abatements

Other Government’s

Abatements

Dollar amount of taxes

abated

X X

Amounts received or

receivable from other

governments associated

with abated taxes

X X

Other commitments by

the government

X

Quantitative threshold for

individual disclosure

X X

Information omitted due

to legal prohibitions

X X

Standard Setting Process

• Pre-Agenda Research

• Added to Agenda

• Initial Deliberations

• Preliminary Views (PV)

• Followed by a comment period

• Exposure Draft (ED)

• Followed by a comment period

• Exposure Draft Redeliberations

• Final Pronouncement

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MAJOR PROJECTS

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Asset Retirement Obligations

• What: GASB is considering establishing accounting and

financial reporting standards for legal obligation to retire

certain capital assets such as nuclear power plants.

• Why: Existing standards (Statement 18) address only

municipal landfills but governments have retirement

obligations for other types of capital assets.

• When: Exposure Draft has been issued and the comment

period ends 3/31/16

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Fiduciary Activities

• What: GASB reviewing the standards that clarify when a

government has a fiduciary responsibility and is required

to present fiduciary fund financial statements.

• Why: Existing standards require reporting of fiduciary

responsibilities but to not define what they are; use of

private purpose trust funds and agency funds is

inconsistent; business-type activities are uncertain about

how to report fiduciary activities.

• When: Exposure Draft has been issued, comment period

ends 3/31/16

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Financial Reporting Model-

Reexamination of Statements 34, 35, 37,

41 and 46 and Interpretation 6

• What: In September of 2015, the Board added a project to the agenda to examine the effectiveness of the financial reporting model.

• Why: The GASB is committed to ensuring standards remain effective; most of the requirements of Statement 34 became effective between 2002 and 2004

• When: Currently in initial deliberations. A due process document is expected by the end of 2016. The project is projected to extend into 2020/2021.

• Potential Areas of Improvement • MD&A

• GW

• Major Funds

• Governmental Fund f/s

• Proprietary/BTA f/s

• Extraordinary and special items

• Fiduciary f/s

• Budgetary comparisons

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Leases – Reexamination of NCGA

Statement 5 and GASB statement 13

• What: GASB is redeliberating its proposed revisions to existing standards on lease accounting and financial reporting based on the 2014 preliminary views.

• Why: The existing standards have been in effect for decades without review to determine appropriateness. FASB and IASB have been conducting a joint project to update their lease standards. Opportunity to increase comparability and usefulness of information and reduce complexity for preparers.

• When: ED expected 1st Q of 2016 41

PRACTICE ISSUES

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Blending Requirements for Certain

Component Units

• What: GASB proposed revising the standards regarding

how certain component units should be presented in the

financial statements of the primary government.

• Why: There is diversity in practice, with some component

units.

• Final Pronouncement due Q1 2016

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Certain Debt Extinguishments Using

Existing Resources

• What: The GASB is considering improvement to the

existing guidance related to all types of debt

extinguishments.

• Why: The project is intended to resolve certain issues in

the existing guidance and provide improvements.

• ED is expected in August 2016, currently in initial

deliberations

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Other Practice Issues

• Implementation Guidance- Update

• Currently in ED Rediliberations

• Implementation Guide for Statements 74 and 75 on OPEB

• Initial deliberations

• Irrevocable Split – Interest Agreements

• ED issued in June 2015, currently in rediliberations

• Pension Issues

• ED issued in December 2015, currently in rediliberations

• User Guides- Updates

• Added to agenda

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Pre-Agenda Research

• Debt Disclosures, including Direct Borrowing

• Reexamination of Statements 34, 38 and 62

• Going Concern Disclosures

• Reexamination of Statement 56

• Revenue Recognition for Exchange and Exchange-Like

Transactions

• Reexamination of Specific Statement 62 Provisions

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Questions

Governmental Updates - Uniform Guidance and GASB

Government & Nonprofit

Transcript of Governmental Updates - Uniform Guidance and GASB