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Michigan Community College Business Officers Association

Higher Education Hot TopicsNovember 7, 2013

Michelle Fowler, CPA

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Assurance PrincipalRehmann

• Principal in charge of Higher Education and Nonprofit Industry

• Email: michelle.fowler@rehmann.com

• Phone: 1.866.799.9580 Extension 8108

• Website: www.rehmann.com

Agenda

• GASB Update• FASB Update• Data Collection Form Filing• Form 990 – Governing Body• Affordable Care Act• Enterprise Risk Management

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GASB Update

• Statement No. 68 - Accounting and Financial Reporting for Pensions – Revises and establishes new financial reporting

requirements for most governments that provide their employees with pension benefits

– Effective for fiscal 2015.

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GASB Update

• Statement No. 68 (continued)– Multiple-Employer Plan Issues

Audited financial statements of the plan do not include actuarial information, nor do they include each employer’s “interest” in the plan net position.

Employers need the following elements to record as of the measurement date:– Total pension liability less plan net position = net pension

liability– Deferred outflows/inflows based on investment experience– Deferred outflows/inflows based on changes in

assumptions– Deferred outflows/inflows based on actuarial gains and

losses– Pension expense

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GASB Update

• Statement No. 68 (continued)– Potential Solution to Plan Net Position

Include supplemental condensed schedule of “changes in plan net position” by employer in plan financial statements for which plan auditor engaged to provide opinion.

Plan auditor engaged to issue SOC 1 (type 2) report on allocation of inflows (i.e. contributions, investment income, etc.) and outflows (i.e. benefit payments, administrative expenses, etc.) of plan to individual employer accounts.

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GASB Update

• Statement No. 68 (continued)– Potential Solution to Total Pension Liability, Deferred

Outflows/Inflows, and Pension Expense Plan auditor engaged to issue SOC 1 (type 2) report on census

data controlled by plan (i.e. retired employees).– User controls at the plan level – Plan controls most of the

information needed by the actuary (inactives/retirees).– User controls at the employer level – Employer controls the

active employee information. Plan actuary issues separate actuarial report for each

participating employer which includes net pension liability, deferred outflows/inflows by type and year, pension expense, and discount rate calculation.– Employer management and employer auditor rely on actuary as

management specialist for total pension liability for individual employer.

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GASB Update

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• Statement No. 68 (concluded)– Potential Solution to Total Pension Liability,

Deferred Outflows/Inflows, and Pension Expense (concluded)

Employer auditor tests census data of active employees and confirms actuarial information used by actuary.

Employer and employer auditor responsible for validating deferred outflows/inflows and pension expense related to individual employer.– Deferred outflows/inflows resulting from current year can be

recalculated from condensed statement of changes in plan net position (by employer) included as supplemental information in plan financial statements.

– Rely on actuarial report for deferred outflows/inflows related to actuarial experience.

GASB Update

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• GASB is considering changes to Other Postemployment Benefits (OPEB), similar to pension accounting. – An exposure draft is still yet to be released. – Now estimating implementation date 2 ½ to 3

years after pension accounting.

GASB Update

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• Statement No. 69 – Government Combinations and Disposals of Government Operations– Effective for fiscal 2014.– This standard provides detailed requirements for the

accounting and disclosure of various types of government combinations, such as mergers, acquisitions, and transfers of operations. 

– Previous guidance did not provide practical examples for situations common in government-specific combinations and disposals.

– Accounting and disclosure requirements for these events vary based on whether a significant payment is made, the continuation or termination of services, and the legal structure of the new or continuing entity.

GASB Update

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• Statement No. 70 – Nonexchange Financial Guarantees– Effective for fiscal 2014.– Addresses the accounting and disclosure of situations in

which one government offers a financial guarantee on behalf of another government, NFP, private entity, or individual without directly receiving equal value in exchange.

– Required to recognize a liability when qualitative factors and/or historical data indicate that it is “more likely than not” that the government will be required to make a payment on the guarantee.

– Requires governments to disclose any outstanding financial guarantees in the notes to the financial statements.

GASB Update

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• Blank Slate Project– GASB and FASB continue to meet to educate each other,

frame a discussion around a unified reporting model for higher education, and address the accounting issues that divide the industry.

– Use the term “balance sheet” instead of “statement of net position”.

– Replace the term “net assets” with “resources”.– Pledges/promises to give would be reported as a deferred

inflow of resources. Upon receipt of the cash, the asset would be reported as a designated resource or endowment resource.

– Natural classification of expenses (i.e., salaries, contracted services, etc.) would be used instead of functional classifications.

FASB Update

• ASU 2012-05 - Statements of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale of Donated Securities in the Statement of Cash Flows– Effective for fiscal 2014.– Addresses the diversity in practice as to how to

classify cash receipts from the sale of unrestricted donated securities.

– Cash receipts resulting from the sales of donated securities that upon receipt are directed without any NFP-imposed limitations for sale and were converted nearly immediately into cash are classified as operating cash flows.

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FASB Update

• ASU 2012-05 - Statements of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale of Donated Securities in the Statement of Cash Flows (concluded)– Restricted donated securities for long-term

purposes are classified as financing cash flows.– All other receipts from sales of donated securities

are classified as investing cash flows.– This ASU is required to be applied prospectively.

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FASB Update

• ASU 2013-06 – Services Received from Personnel of an Affiliate– Effective for fiscal 2015.– Addresses the diversity in practice for the recording

of operating expenses related to services received from an affiliated entity.

– This ASU applies to NFP’s that receive personnel services from an affiliate where compensation is not sought by that affiliate.

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FASB Update

• ASU 2013-06 – Services Received from Personnel of an Affiliate (concluded)– A recipient NFP entity recognizes in its stand-alone

financial statements all personnel services received from an affiliate that directly benefits the recipient NFP at cost. This is a change from previous guidance whereby contributed services were recorded at fair value.

– At a minimum, cost should include all direct personnel costs (payroll and fringe benefits) incurred by the affiliate in providing services to the recipient NFP.

– The guidance does not prescribe how the receipt (credit) of the services is required to be presented.

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FASB Update

• Financial Reporting Project– Financial reporting enhancement matters identified

by the FASB Not-for-Profit Advisory Committee (NAC).

– An exposure document for public comment is expected to be issued before the fourth quarter of 2014.

– Revisiting current net asset classifications. Improve how liquidity is portrayed. Clear up current confusion concerning restrictions and the

definition of unrestricted net assets. Two classes of net assets: those with donor-imposed

restrictions and those without.

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FASB Update

• Financial Reporting Project (continued)– Improving the relationship between the statements

of activities and cash flows. More clearly communicate financial performance. Intermediate measure of operations in the statement

of activities (basis of 2 dimensions: mission or availability).

Use direct method for the statement of cash flows for operating activities. A reconciliation using the indirect method will not be required.

Similar realignment of classifications of certain elements in the cash flow statement to those of GASB entities (i.e. interest and dividends received and interest paid).

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FASB Update

• Financial Reporting Project (concluded)– Statement of functional expenses may be required

of all NFP’s (not just voluntary health and welfare organizations) that derive a significant portion of their revenue and support in the form of contributions from the general public.

– Items still to come Reduce extent of fair value disclosures MD&A

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Data Collection Form Filing

• OMB has not yet released the 2013 edition of the Data Collection Form (SF-SAC). This is impacting all entities with fiscal 2013 year ends.

• Due to delays in getting the new form completed and further complications caused by the recent federal government shut-down, the new form has not yet been published in the federal register.

• Once published, it will be another 30 days before the form can be placed into use. Therefore, it will be sometime in December 2013 at the earliest before the new Data Collection Form is available for use.

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Data Collection Form Filing

• In response, the OMB has granted a blanket extension of all 2013 Data Collections Forms until 1/31/14 (this may need to be further extended).

• This is not an extension for completing your audits and filing them with the State. Same thing for providing your audits to any pass-through entities.

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Form 990 - Governing Body

• Organization’s board review of Form 990– Part VI, Section B Policies questions 11a and 11b– Has the organization provided a complete copy of this

Form 990 to all members of its governing body before filing the form? Describe in Schedule O the process, if any, used by the organization to review this Form 990.

– Answer yes if a complete copy of the Form 990 was provided to each person who was a voting member of the governing body at the time of filing the 990.

– Answer no if the Form wasn’t distributed or if parts of the Form 990 were removed prior to distribution (i.e. Schedule B).

– It’s OK to answer no, understand the requirements of a yes answer. Make clear in Schedule O the process if answer no.

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Affordable Care Act (ACA)

• Adjunct professors – no final decision on calculation of hours worked, but industry is recommending use of a reasonable estimate of out-of-classroom hours in addition to classroom time.

• Webinar materials and recording available on Rehmann website at Industries>Government>Government Publications & Resources, October 2013 – Addressing the Affordable Care Act’s Effect on the Public Sector.

• Webinar in January 2014 to address the ACA in more detail as it relates to the public sector, which will be interactive with questions.

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Enterprise Risk Management (ERM)

• Definition: Enterprise risk management is a process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

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Enterprise Risk Management (ERM)

• Enterprise risk management enables management of an entity to effectively deal with uncertainty and associated risk and opportunity, enhancing the capacity to build value.

• Internal controls are only one of the many components of ERM.

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Enterprise Risk Management (ERM)

• ERM helps:– Management achieve the entity’s performance

and profitability targets and prevent loss of resources.

– Ensure effective reporting and compliance with laws and regulations.

– Avoid damage to the entity’s reputation and associated consequences.

– An entity get to where it wants to go and avoid pitfalls and surprises along the way.

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