April 14, 2016 GAAP MANUAL AND OTHER UPDATES Sheralin Klinthong, Associate Director Fin. Rep. & Review, CO Evajoy Tito, Financial Reporting Manager, CO

Learning Objectives: Know the key GAAP deliverables and due dates Know the GAAP Accounting and Reporting Manual updates and key changes Know the timing and implementation of new GASB Standards Know the key reminders specific to GAAP financial reporting APRIL 2016YEAR-END GAAP TRAINING 2

GAAP Manual Updates – Master Timeline Key GAAP Deliverables and Due Dates:  Reporting Package Submissions 1 st version – August 25 2 nd version – September 12 3 rd version – September 23  Year-End Audit Fieldwork – August 29  Component Units’ Audited FS – September 19  Issuance of CSU FS – October 14 Master timeline is currently available in the SFSR website Available in the SFSR website ml ml APRIL 2016 YEAR-END GAAP TRAINING 3

GAAP Manual Updates And Key Changes In FY APRIL 2016 YEAR-END GAAP TRAINING 4

GAAP Manual Updates: Key Changes Removed discussions on accounting policies and procedures (duplicate of Ch.4). Added GASB No. 68 and 71, Accounting for Pension, to the “History” section. Chapter 1 GAAP Manual Overview Incorporated impact of GASB No. 72, Fair Value Measurement and Application, that requires the disclosure of the fair value hierarchy categories. Chapter Cash, Cash Equivalents, and Investments Revised accounting basis for donated capital assets. GASB No. 72 requires donated assets to be valued using “acquisition value (entry price) vs. fair market value (exit price). Added illustrative example for CWIP additions and completed capital assets. Chapter Capital Assets, Depreciation and Amortization APRIL 2016 YEAR-END GAAP TRAINING 5

GAAP Manual Updates: Key Changes NEW chapter in FY15-16 Covers the different types and levels of eliminations of interfund activities (inter-agency and intra-agency) and nonexchange transactions between Campus/CO and Discretely Presented Component Units. Chapter Elimination Updated the SCF worksheet template numbers to reflect transactions during FY14-15 (e.g., implementation of GASB No. 68). Added a variance column in the SNP tab. Updated cell references. Removed password on the sample worksheet template. Chapter 6 Statement of Cash Flows (SCF) APRIL 2016 YEAR-END GAAP TRAINING 6

GAAP Manual Updates: Key Changes A few changes in the YES (TM1) input sheets (in-progress). Chapter 7 GAAP Reporting in YES (TM1) and FIRMS Updated for the upcoming FY15-16 Financial Statements Audit (i.e. scope, approach, and PBC list) Chapter 9 Preparing for Financial Statements Audit Combined the GAAP Preparation and Reporting Checklists (previously in Chapter 11) More comprehensive checklists to include common errors identified in the past. Rearranged some items to coincide with the actual submission date. Modified the template (in excel) to identify whether the listed item has been performed, not been performed or not applicable. Also added a column for comments. Signatures are at the end of each section. Chapter 10 GAAP Preparation and Reporting Checklists APRIL 2016 YEAR-END GAAP TRAINING 7

GAAP Manual Updates: Key Changes Updated the GAAP Data Integrity Form to include a paragraph about the requirement on legal to GAAP reconciliation. NEW form to be used effective FY Chapter 11 GAAP Data Integrity Form Updated to change the basis for capitalization for donated capital assets in accordance with GASB No. 72. Chapter 13 Capital Assets Guide APRIL 2016 YEAR-END GAAP TRAINING 8

GAAP Manual Updates: Key Changes Includes the discussion of upcoming GASB pronouncements. Chapter 14 GASB Updates and Other Information Updated for the upcoming FY15-16 Single Audit (i.e. scope, approach, and PBC list) Chapter 15 Preparing for Single Audit Updated for the upcoming FY15-16 IT Audit (i.e. scope, approach, and PBC list). Chapter 17 Preparation for IT Audit APRIL 2016 YEAR-END GAAP TRAINING 9

GASB Standards Implementation APRIL 2016 YEAR-END GAAP TRAINING 10

New GASB Standards Implementation Year FY15/16 GASB No. 72 Fair Value Measurement and Application GASB No. 73 Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 GASB No. 76 The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments GASB No. 79 Certain External Investment Pools and Pool Participants FY16/17 GASB No. 74 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans GASB No. 77 Tax Abatement Disclosures GASB No. 78 Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans GASB No. 79 Certain External Investment Pools and Pool Participants GASB No. 80 Blending Requirements for Certain Component Units – An Amendment of GASB Statement No. 14 FY17/18 GASB No. 75 Accounting and Financial Reporting for Postemployment Benefits Other than Pensions APRIL 2016 YEAR-END GAAP TRAINING 11

GASB No. 72 – Fair Value Definition Current GASB The amount at which an investment could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. GASB No. 72 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. APRIL 2016 YEAR-END GAAP TRAINING 12

GASB No. 72 – Investments Valuation Investments generally is measured at fair value except: APRIL 2016 YEAR-END GAAP TRAINING 13 InvestmentsAccounting Investments in nonparticipating interest-earning investment contracts Cost based measure per GASB No. 31 Investments in unallocated insurance contracts Reported as interest-earning investment contracts per GASB No. 31 and 59 Money market inv. and participating interest-earning investment contracts with remaining maturity at time of purchase of one year or less Amortized cost per GASB No. 31 Investments held by 2a7-like external investment pools Amortized cost per GASB No. 31 Investments in 2a7-like external investment pools Net asset value per share determined by the pool per GASB No. 59 Synthetic guaranteed investment contracts (GICs) that are fully benefit responsive Contract value per GASB No. 53 Investments in life insurance contractsCash surrender value

GASB No. 72 – Assets other than Investments Other Measurement Changes Acquisition value is the price that would be paid to acquire an asset with equivalent service potential or the amount for which a liability could be liquidated at the acquisition date. For the assets noted above, an entry- price measurement is more appropriate than an exist- price measurement because the transaction represents the government acquiring the asset. APRIL 2016 YEAR-END GAAP TRAINING 14 AssetCurrent GASBGASB 72 Donated capital assets Estimated fair value at acquisition plus ancillary charges, if any Acquisition value Donated works of art or historical treasures Historical cost or fair value at date of donation Acquisition value Capital assets received in a service concession arrangements Fair valueAcquisition value

GASB No. 72 – Disclosure Requirements APRIL 2016 YEAR-END GAAP TRAINING 15 Current GASBGASB No. 72 Methods and significant assumptions used to estimate the fair value of investments, if fair value is based on other than quoted market prices No change. Disclosure of credit risk, custodial credit risk, and interest rate risk No change. The disclosures generally should be made for the primary government, including its blended component units. Risk disclosures also should be made for governmental and business-type activities, individual major funds, nonmajor funds in the aggregate or fiduciary fund types when the risk exposures are significantly greater than the deposit and investment risks of the primary government. The level of detail and disaggregation, and how much emphasis to place on each disclosure requirement, should take into account the following considerations: Nature, characteristics and risks of the asset or liability Level of the fair value hierarchy within which the fair value measurement is categorized Whether this statement or another statement specifies a type for an asset or a liability Objective or the mission of the government Characteristics of the government Relative significance of assets and liabilities Whether separately issued financial statements are available Line items presented in the statement of net position

GASB No. 72 – Disclosure Requirements APRIL 2016 YEAR-END GAAP TRAINING 16 Current GASBGASB No. 72 None. Fair value measurement at the end of the reporting period. None. Level of fair value hierarchy (excluding any investments measured at NAV. None.A description of the valuation techniques used None. For significant changes in valuation techniques, the changes and the reason for making them. None. Additional disclosures regarding investments measured using net asset value per share (NAV).

GASB No. 72 – Fair Value Hierarchy APRIL 2016 YEAR-END GAAP TRAINING 17 Inputs (other than quoted market prices included within Level 1) that are observable for the asset/liability, either directly or indirectly (e.g. observable prices for similar assets/liabilities in active markets, prices for identical assets or liabilities in non-active markets, direct/indirect observable market inputs) Inputs (other than quoted market prices included within Level 1) that are observable for the asset/liability, either directly or indirectly (e.g. observable prices for similar assets/liabilities in active markets, prices for identical assets or liabilities in non-active markets, direct/indirect observable market inputs) Quoted prices (unadjusted) in active markets for identical assets or liabilities that a government can access at the measurement date. Unobservable inputs for the asset/liability; used to the extent that observable inputs are not available. Unobservable inputs for the asset/liability; used to the extent that observable inputs are not available.

GASB No. 72 – Valuation Approaches APRIL 2016 YEAR-END GAAP TRAINING 18 Market Approach Uses prices and other relevant information generated by market transactions involving identical or similar assets, liabilities, or a groups of assets and liabilities. Cost Approach Reflects the amount that would be required currently to replace or rebuild an asset (e.g., current replacement cost). Income Approach Discounts future amounts (e.g., cash flows) to a single current amount; the discount rate should reflect current market expectations about risks associated with those future cash flows.

GAAP Reporting Reminders For FY APRIL 2016 YEAR-END GAAP TRAINING 19

Reminders: Equipment Financing Agreements Equipment financing agreements must be reviewed carefully to differentiate a “purchase” vs. “lease” of asset. It was determined that a significant amount ($56M) of long-term debt obligations pertain to equipment financing agreements. These agreements are covered by a master financing agreement handled by Financing & Treasury at the CO. APRIL 2016 YEAR-END GAAP TRAINING 20

Reminders: Equipment Financing Agreements Based on the terms of the agreement, this should be accounted for as capitalized lease obligations (rather than long-term debt obligations). Campus should to the following: a. Reclassify the beginning balance in GAAP ledger b. Current activities should be recorded as capitalized lease obligations c. Impacts Notes 6, 7, and 8 of the YES Reporting Package d. Explanation for significant fluctuation would be “due to reclassification of long-term debt obligations to capitalized lease obligations for equipment leases after further review of the terms of the agreement”. APRIL 2016 YEAR-END GAAP TRAINING 21

Reminders: Passdown Schedules APRIL 2016 YEAR-END GAAP TRAINING 22 Passdown schedules will no longer be posted in the SFSR website. Starting FY15-16, the passdown schedules (including prior years) will be available in the PBC SharePoint site under a separate library.

Reminders: Component Units (New/Dissolved) Campus must inform SFSR if there are: A. Newly formed component unit(s) i. Brief description of the component unit(s) ii. Submit GASB No. 61 questionnaire (blended vs. discrete) iii. Submit Auxiliary External Auditor Qualification Questionnaire iv. Contact person(s) to be included in listserv B. Dissolved component unit(s) i. Timing and reason for the dissolution ii. Last fiscal year to be audited The information will be used to update the YES (TM1) structure, disclosures and tracking of stand-alone audits. APRIL 2016 YEAR-END GAAP TRAINING 23

Reminders: Input Sheets–Auxiliaries in TM1 Common errors identified in the “Input Sheets- Auxiliaries” are due to the following: a. Account balances are entered into the wrong F/S line item in TM1. b. Account balances do not agree with the supplementary information of the audited F/S. c. Unreconciled transactions between campus and discretely presented component units (Notes 3.3 and 14 in YES Input Sheets – Campus). APRIL 2016 YEAR-END GAAP TRAINING 24

Reminders: Input Sheets–Auxiliaries in TM1 Unresolved differences within “Notes” input sheet in YES. Note 11 Prior Period Adjustments are not properly completed (also included in Chapter 7) APRIL 2016 YEAR-END GAAP TRAINING 25

Reminders: Input Sheets–FN5.1 Composition of capital assets Do not enter any amount in the prior period adjustment column unless it is a systemwide entry instructed by CO. Any adjustment should be reflected as a current year transaction under additions, reductions or reclassification. APRIL 2016 YEAR-END GAAP TRAINING 26

Reminders: Input Sheets–FN14 Transactions with Related Entities Minimize unreconciled differences with related entities like discretely presented component units. Prior to issuance of the component unit’s audited financial statements, campus should reconcile all account balances with component units. This will prevent potential reissuance of the component units’ financial statements if variances are significant. If possible, get a draft copy of the supplemental schedules of the component unit for advance review. APRIL 2016 YEAR-END GAAP TRAINING 27

Reminders: Input Sheets–FN16 Elimination of Nonexchange Transactions The format of the journal entry to be input in this section should be in the format as referenced in Chapter Elimination. APRIL 2016 YEAR-END GAAP TRAINING 28

Reminders: Input Sheets–FN16 Elimination of Nonexchange Transactions Make sure that the amounts in this input sheet ties to the elimination column in SRECNP. Currently, these are separate input cells and is not linked. Added a new section this year to eliminate nonexchange transactions between campus and a component unit of another campus. APRIL 2016 YEAR-END GAAP TRAINING 29

Reminders: Statement of Cash Flows Ensure that there are no abnormal balances in the cash flows (i.e., receipts should be positive, payments should be negative). Investments transaction should be input in the appropriate label (e.g., investment income reinvested, realized gains, change in unrealized gains/loss) APRIL 2016 YEAR-END GAAP TRAINING 30

Reminders: Statement of Cash Flows A/R State Appropriations in CSU funds 310/322 are related to SPWB and should be placed under the A/R State appropriations – Capital (SPWB) line. Transactions with discretely presented component units in certain accounts should be input under the appropriate cells (e.g., lease receivable, long-term debt obligations, capitalized lease obligations, interest expense, etc.) APRIL 2016 YEAR-END GAAP TRAINING 31

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Question #1 What are the due dates for the submission of the reporting package? APRIL 2016 YEAR-END GAAP TRAINING 33

Question #2 What is the name of the new chapter added in the GAAP Manual this year? APRIL 2016 YEAR-END GAAP TRAINING 34

Question #3 Provide one common error identified in the “input sheets – auxiliaries”. APRIL 2016 YEAR-END GAAP TRAINING 35