What's New From Norwalk?

1. What's New From Norwalk? Presented by Corey Arvizu, CPA, Partner Heinfeld, Meech & Co. 2014 GFOAz Winter ConferencePrescott Resort & Conference CenterPrescott, AZFebruary 21, 2014

2. Agenda • New Pension Reporting • GASB Update • Single Audit Update • AICPA Code of Conduct

3. New Pension Reporting

4. GASB 68 – Accounting and Financial Reporting for Pensions These proposed pension expense reporting changes will have the biggest effect on governments of any GASB pronouncement issued since the inception of the GASB. David R. Bean, GASB Director of Research and Technical Activities

5. GASB 68 – Accounting and Financial Reporting for Pensions • Governments will be required to report its pro-rata share of the pension plan’s unfunded obligations on the financial statements • Many governments will report liabilities in the tens of millions of dollars • Measurement is accounting-based rather than funding-based • Effective for fiscal year end 2015 for the government employers

6. GASB 68 – Accounting and Financial Reporting for Pensions • ASRS/PSPRS to assist with required disclosure and schedules • GASB issued implementation guidance for pension plans in June 2013 • Guidance for employers to be issued early 2014 • Additional note disclosures and supplemental schedules will be required

9. GASB 68 – Accounting and Financial Reporting for Pensions • The numbers… • ASRS had $9.5 billion unfunded liability at June 30, 2013 • Approximately 75% funded status at June 30, 2013 • Approximately 200,000 active employee participants • Rough calculation of over $47,500 liability per employee • Crunch the numbers for your government… Disclaimer: The above is provided for entertainment purposes only. Actual employer liability amounts to be provided by ASRS actuaries and auditors.

10. GASB 68 – Accounting and Financial Reporting for Pensions • Determining the employer numbers… • ASRS and PSPRS will provide the participating government employers with the following: • Proportionate percentage and the basis used, such as covered payroll or actual contributions • Net pension liability (or net pension assets) • Deferred inflows and outflows of resources components • Pension expense components • Note and RSI disclosures, for example: NPL share with discount rate +/- 1 point

11. GASB 68 – Accounting and Financial Reporting for Pensions • Auditing the numbers… • Potential alternatives • Participating government employer auditor contracts with an actuary to help audit the numbers provided by ASRS/PSPRS • Participating government employer auditor gains an understating of pension elements and independently audits the information provided by ASRS/PSPRS • ASRS/PSPRS contract a special audit of amounts then provide to all participating government employers and their auditors • Final determination to be made in spring 2014

12. GASB 68 – Accounting and Financial Reporting for Pensions • Managing the implementation… • Obligation reported on the government-wide and proprietary fund statements • Prepare to report deferred outflow/inflows • Plans will need to provide required information to ensure timely financial reporting • No requirement to accumulate resources to fund obligations • Be prepared to discuss the financial health of the pension plans • Unfunded obligations only one element of financial health • Initiate discussions with the governing body

13. GASB Update

14. Pronouncement Timeline

15. GASB 60 – Service Concession Arrangements • Examples – • State transportation department enters into arrangement with a transportation authority for the operation of a tollway. Authority to receive and retain revenues for a period of 75 years. • A City enters into arrangement with a private company for the operation of City owned golf courses. The private company agrees to pay the City 10% of revenues for 10 years. • County entering into an arrangement for a City to design, build, and operate a new jail facility. The County will collect and retain all fees for a period of 40 years.

16. GASB 60 – Service Concession Arrangements • Not within the scope of an SCA • Third party designs and builds a capital asset • Concessions or other ancillary services operated in conjunction with a government facility • Service and management arrangement services the government would otherwise perform

17. GASB 62 – Codification of FASB Standards The following disclosure may be deleted: Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the optionof following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The Town has elected not to follow subsequent private-sector guidance.

18. GASB 65 – Items Previously Reported as Assets and Liabilities • Expands the use of deferred inflows and outflows of resources to other items • Certain elements apply to governmental fund statements • Use of term “deferred” limited to deferred outflows/inflows of resources • Note disclosure required if deferred items are aggregated on the face of the financial statements • Does not impact fund balance reporting • Effective for fiscal year end 2014

19. GASB 65 – Items Previously Reported as Assets and Liabilities • Application items common to local governments • Deferred outflow – difference between carrying value of debt and the amount to refunded debt (if debit) • Deferred inflow – “unavailable” related to the application of modified accrual accounting • Neither an asset or deferred outflow – debt issuance costs to be reported as an expense • Certain items related to pension reporting upon future implementation

21. CITY OF GIACONDA BALANCE SHEET - GOVERNMENTAL FUNDS JUNE 30, 2014 Non-Major Total Governmental Governmental General Fund HURF Funds Funds ASSETS Cash and cash equivalents $ 12,562,684 $ 3,887,479 $ 4,138,674 $ 20,588,837 Taxes receivable 718,368 718,368 Accounts receivable 354,602 7,551 362,153 Intergovernmental receivable 577,804 248,074 14,993 840,871 Special assessments - Prepaid items 11,180 11,180 Total assets $ 14,224,638 $ 4,143,104 $ 4,153,667 $ 22,521,409 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES Liabilities: Accounts payable $ 1,944,997 $ 414,236 $ 324,735 $ 2,683,968 Accrued wages and benefits 687,168 73,920 16,204 777,292 Intergovernmental payable 361,283 361,283 Unearned revenue 128,180 230,256 358,436 Deposits payable 95,872 95,872 Total liabilities 3,217,500 488,156 571,195 4,276,851 Deferred inflows of resources: Unavailable revenues – property taxes 75,215 15,777 55,889 146,881 Total deferred inflows of resources 75,215 15,777 55,889 146,881 Fund balances: Restricted 3,639,171 2,685,879 6,325,050 Committed 840,704 840,704 Assigned 1,769,333 1,769,333 Unassigned 9,162,590 9,162,590 Total fund balances 10,931,923 3,639,171 3,526,583 18,097,677 Total liabilities, deferred inflows and fund balances $ 14,224,638 $ 4,143,104 $ 4,153,667 $ 27,989,306 Receipt of grant revenues in advance of meeting eligibility requirements Revenues received after the period of availability

22. GASB 70 – Accounting and Financial Reporting for Nonexchange Financial Guarantees • Guidance for when a government guarantees the obligations of another entity • Government does not receive equal value in exchange • Disclosure required when such a guarantee extended • Guidance for recognizing a liability when certain factors and data indicate the government will be required to satisfy the guarantee • Effective for fiscal year end June 30, 2014

23. GASB 70 – Accounting and Financial Reporting for Nonexchange Financial Guarantees Note 12 – Financial Guarantee In November 2010, Dale County guaranteed the 10-year, $10 million December 2010 general obligation bond issuance of the Rio Civic Center, a legally separate district located within Dale County, in accordance with the State Civic Center Act. The bonds mature annually through December 1, 2020, with semiannual interest payments. In the event that the Rio Civic Center is unable to make a payment, Dale County will be required to make that payment.

24. GASB 69 – Government Combinations and Disposals of Operations • Guidance for government combinations that are accomplished through mergers, acquisitions, and transfers of operations • Governments previously used guidance intended for the private sector • Operations is an integrated set of activities conducted and managed for the purpose of providing identifiable services with associated assets • Effective for fiscal year end June 30, 2015

25. GASB 69 – Government Combinations and Disposals of Operations Note 15: Disposal of Operations On March 15, 2015, the City transferred the assets and liabilities comprising its fire service operations to the Mountain Region Fire Authority (MRFA) for the purpose of enhancing emergency fire services. As a result of the transfer, the City recognized a loss of $2.9 million on the disposal of its fire service operations as a special item. The City's 2015 expense related to its fire service operations totaled approximately $11.2 million. 2015 revenues associated with the City's fire service operations, consisting of both program and general revenues, totaled approximately $9.6 million. Expenditures and revenues of the fire services operations reported in the general fund were $10.9 million and $9.7 million, respectively.

26. Economic Condition Reporting: Financial Projections • Propose presentation of certain economic condition information as required supplementary information • Format of information presented similar to statistical schedules of a CAFR • Appropriateness as RSI, impact on timeliness of reporting, and cost-benefits among factors considered • Project currently on hold pending resolution of GASB scope

27. Economic Condition Reporting: Financial Projections • Components of fiscal sustainability information • Projections of cash inflows • Projections of cash outflows • Projections of financial obligations (bonds, pensions, long-term contracts, etc.) • Projections of annual debt service payments (principal and interest) • Narrative discussion of major intergovernmental service interdependencies

30. GASB Projects in Deliberation • Fair Value Measurement and Application • Fiduciary Responsibilities • GAAP Hierarchy • Lease Accounting • Other Postemployment Benefit Accounting and Financial Reporting • Tax Abatement Issues

31. GASB Technical Plan • Research – • Asset retirement obligations • Financial reporting model • Irrevocable charitable trusts • Blending requirements for BTAs • Monitoring – • Electronic financial reporting • Emerging accounting issues • Pension implementation • Potential projects – • Interim reporting • Popular reporting • Reporting unit presentations • Emissions trading (carbon credits) • In-kind contributions

32. Single Audit Update

33. Single Audit Update • Changes based on recent guidance - • Consolidation of several OMB Circulars, including A-87 and A-133 • Focus on outcomes rather than prescribed practices • Time and effort • No proposed changes to compliance supplement or number of compliance requirements tested • GAQC likely to provide webinars open to the public • Effective for fiscal year end June 30, 2016

34. Single Audit Update • Changes based on recent guidance - • Change in single audit threshold to $750,000 • Change in type A program threshold from $300,000 to $750,000 • Change in type B program threshold from $100,000 to $187,500 • Threshold for findings raised from $10,000 to $25,000 • Minimum amount of awards tested revised from 25% to 20%

35. Single Audit Update • New Process for Data Collection Form • New Federal Audit Clearinghouse system recently launched • Final data collection form released for use on January 7th • Revised form includes a new federal awards finding page with more detail findings information • the finding reference number • type(s) of compliance requirement(s) to which the finding relates • types of deficiencies (e.g., opinion modification, material weakness, etc.) • a "yes" or "no" response as to whether questioned costs are being reported

36. AICPA Code of Conduct

37. AICPA Code of Conduct • Code applicable to members of the AICPA and used by the State Board on licensing matters • Code reformatted to enhance navigation • Separate section added for members in business • Conceptual framework added for when a specific guidance is not in place • Expected effective date of December 14, 2014 • See Professional Ethics page of the AICPA website for additional information

38. Thank youCorey Arvizu, CPAHeinfeld, Meech & Co.520-742-2611, Ext. 101 carvizu@heinfeldmeech.com