1. GASB Update Presented by Corey Arvizu February 17, 2011 Prescott, Arizona

2. 2 Intangible Assets Internally generated software – capitalize only application development costs Water rights may or may not be amortized – see related agreements  Planned renewals and/or minimum renewal costs may result in indefinite life Reported as capital assets – may or may not need separate presentation in note disclosure Application not required for immaterial items

3. 3 Fund Balance Reporting GASB position –  Most utilized element of governmental financial information Extensive research and due process completed on this standard Provides criteria for new fund balance classifications Clarifies fund type definitions Effective for fiscal year June 30, 2011

4. 4 Less restrictive More restrictive Current Standards New Standards Current Practice Effect of Special Revenue Fund Clarifications

5. 5 Fund Balance Reporting Required note disclosures  Fund balance policies for committed and assigned  Fund balance classification usage “sequence” or “priority”  Information about encumbrances  Detail of balances if not presented on the face of the balance sheet  Information on stabilization accounts or “rainy day funds”  Minimum fund balance policies Prior year must be restated if presented See disclosure checklist attached

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8. 8 Fund Balance Reporting Implementation Pointers  Restricted, committed and assigned take precedent over nonspendable reporting  Actions to commit resources needs to occur prior to year end Amount however may be determined after  Fund balance policies should not be vague  Stabilization arrangements may not be assigned – either restricted or committed  General ledger and financial statements may differ

9. 9 Fund Balance Reporting Implementation Pointers  Statutory revenue sources  “Significant” revenue threshold for special revenue funds May be less than 50%  Investment income on restricted revenues  No encumbrance classification – incorporate into other categories  Modify statistical section template for CAFR

10. 10 Fund Balance Reporting Fund Balance Policy  Appropriate level, typically percentage of revenues or expenditures Two months of expenditures  Circumstances in which fund balance may be spent Unanticipated shortfall in excess of ….  Policy for replenishing deficiencies Sales taxes over 5 years

11. 11 Codification of FASB Standards Issued December 2010 Guidance to incorporate pre-1989 FASB and related standards into GASB’s literature Exposure draft over 600 pages Option to apply post-1989 FASB removed Effective for fiscal year June 30, 2013

12. 12 Codification of FASB Standards Key areas for which guidance is provided – Capitalization of Interest Cost Statement of Net Assets Classification Accounting Changes and Error Corrections Contingencies Leases Sale of Real Estate

13. 13 Crosswalk provided in exposure draft – not in standard

14. 14 Service Concession Arrangements Issued November 2010 Guidance for certain agreements between governments and private entities or other governments GASB partnered with international standard setters in development Flowchart included in standard Effective fiscal year 2013

15. 15 Service Concession Arrangements Definition – 1) Government conveys to an operator right to provide services through use of asset/facility in exchange for significant consideration, 2) The operator collects fees from third parties for service provided, and 3) The government has input on services provided by the operator and the fees charged for services.

16. 16 Service Concession Arrangements Examples – 1) State transportation department entering into arrangement with a transportation authority for the operation of a tollway 2) City entering into arrangement with a private company for the operation of City owned golf courses 3) County entering into an arrangement for a City to design, build and operate a new jail facility

17. 17 Service Concession Arrangements Provides guidance on capital asset recognition and depreciation by the government Recognition of liabilities for obligations under the arrangement Guidance for govermental operators to recognize intangible assets (right to use factilty) Note disclsoure requirements

18. 18 Component Units Issued November 2010 Objective – amend component unit guidance for specific issues which have arisen Modifies certain requirements for inclusion of component units Effective for fiscal year June 30, 2013

19. 19 Component Units New blending requirement if CU total debt to be repaid from PG resources “Incomplete” removed from misleading guidance Enhanced guidance on “major” component unit presentation Note disclosure should focus on rationale for inclusion rather than the criteria  Explain which criteria apply to the component unit

20. 20 it Component unit flowchart “Incomplete” removed from criteria Debt repayment requirement added Additional financial criteria added

21. 21 Pension Accounting and Reporting Governments may be required to report its pro-rata share of the pension plan’s unfunded obligations Will be applicable to nearly all Arizona governments Many governments will report liabilities in the tens of millions of dollars Numerous comment letters provided to GASB, including one from ASRS Exposure draft to be issued this summer

22. 22 Other GASB Projects In research or deliberation –  Conceptual framework  OPEB accounting and reporting  Economic condition reporting – fiscal sustainability  Electronic financial reporting  Fair value measurements  Fiduciary responsibilities  Financial guarantees  Government combinations Monitoring or on work plan –  Statement 34 implementation  OPEB implementation  Financial performance measurements  Popular reporting  Compensated absences  Debt refunding  Risk financing

23. 23 The Future of GASB SEC concerns –  Municipal bonds market and GAAP reporting Opposition from GFOA Funding sources Constituents’ concerns with OPEB and pension reporting International standard setting

24. 24 Audit Standards Update

25. 25 Internal Control Deficiencies Consistency with pubic company definitions New definition for significant deficiency Changed guidance on “prudent official test” Clarified level of work to be performed on compensating controls Effective for fiscal year June 30, 2010

26. 26 Internal Control Deficiencies New definition of significant deficiency “…less than severe than material weakness, yet important enough to merit the attention of those charged with governance.”

27. 27 Supplementary Information Additional guidance for “in-relation” information  Examples – combining section of CAFR, schedule of expenditure of federal awards, other related schedules Very limited guidance in current standards Three standards developed to address Effective for fiscal year June 30, 2012

28. 28 Supplementary Information Suggested procedures – Information derived from the same underlying accounting records used for financial statements Relates to the same period Auditor served as the principal auditor Neither adverse or disclaimer of opinion issued on financial statements Inquire as to reporting criteria used Obtain representations from management

29. 29 New Auditors’ Report Language The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures…

30. 30 Governmental Audit Quality Center Communication with regulators and other stake holders Comment letters to standard setters Tack force committees in response to single audit study Development of practice aids and resources Development of trainings for webcasts and conferences Timely email alerts on governmental audit issues

31. 31 Thank You C orey Arvizu (520) 742-2611, ext. 101 carvizu@heinfeldmeech.com