Department for the Aging Financial Management Training Workshops

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Department for the AgingFinancial Management
Training Workshops

• Accounting and Auditing Update
• Presented by Rich Pontynen, CPA
• Goodman Company
• Richmond June 22, 2004
• Roanoke June 24, 2004

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• 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

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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

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Financial Accounting Standards Board Statements

• Statements with effective dates/provisions that
  might be initially applied in financial
  statements issued on or after June 1, 2003
• FASB-132
• Employers 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

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Financial Accounting Standards Board Statements

• FASB-142
• Goodwill and Other Intangible Assets
• Intangible 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)

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Financial Accounting Standards Board Statements

• FASB-143
• Accounting 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

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Financial Accounting Standards Board Statements

• FASB-146
• Accounting 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)

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Financial Accounting Standards Board Statements

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

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Financial Accounting Standards Board Statements

• FASB-150
• Accounting 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

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Statements on Auditing Standards

• Statements on Auditing Standards that will impact
  your audits
• SAS-99
• Consideration 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.

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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

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Statements on Auditing Standards

• SAS-100
• Interim 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

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Statements on Auditing Standards

• SAS-101
• Auditing Fair Value Measurements and Disclosures
• Provides that the auditor obtain an understanding
  of the internal controls related to the
  determination of an organizations 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

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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)

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Government Accounting Office (GAO)

• QUESTIONS ANSWERS!

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Government Accounting Office (GAO)

• 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?

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Government Accounting Office (GAO)

• Can an audit organization assist an audited
  entitys management in preparing depreciation
  schedules without impairing its independence to
  perform the financial statement audit?

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Government Accounting Office (GAO)

• If the audit organization posts transactions
  coded by the audited entitys management, would
  the audit organizations independence be impaired
  to perform the financial statement audit?

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Government Accounting Office (GAO)

• 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 entitys 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
  organizations independence be considered
  impaired for the financial statement audit?

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Government Accounting Office (GAO)

• A small audited entitys 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?

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Government Accounting Office (GAO)

• 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?

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Government Accounting Office (GAO)

• Is an audit organizations independence to
  perform a financial statement audit impaired if
  it assists a client in converting its financial
  statements to address new accounting principles?

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Government Accounting Office (GAO)

• 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 organizations independence be
  considered impaired?

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Government Accounting Office (GAO)

• 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?

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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

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Office of Management and Budget (OMB)

• 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

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Office of Management and Budget (OMB)

• 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)

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Office of Management and Budget (OMB)

• 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

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THE END!

• QUESTIONS?