Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses.
He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events.
Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
Recently I listened to the AICPA Governmental Audit Quality Center (GAQC) webcast titled: Uniform Guidance for Federal Awards: Auditor Planning Considerations for the New Single Audit Rules.
The presenters, Diane Edelstein, Mandy Nelson, and Mary Foelster, did a great job in providing helpful information. I made a few summary notes that are presented below; the notes are not intended to be comprehensive. The GAQC archived the presentation on their website.
Applicability of Uniform Guidance
Here’s a summary of when the new guidance is applicable.
Type of Entity
Must implement policies and procedures by issuing regulations to be effective December 26, 2014 (accomplished with the issuance of the Joint Interim Final Rule)
Implement the new administrative requirements and cost principles for all new Federal awards made after December 26, 2014, and to additional funding related to existing awards ("increments") made after that date
Audit requirements are effective for fiscal years beginning on or after December 26, 2014 (early implementation not permitted)
GASB 63 and 65 provide guidance regarding deferred outflows and inflows in governments. This article provides an overview of those standards.
Statement No. 63 – Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position
Statement No. 65 – Items Previously Reported as Assets and Liabilities
What are the effective dates for Statements 63 and 65?
GASBS 63 is effective for periods beginning after December 15, 2011; earlier application encouraged
GASBS 65 is effective for periods beginning after December 15, 2012; earlier application encouraged
It is best to implement GASBS 63 and 65 at the same time.
What is the purpose of these changes?
To put it succinctly, GASB is using one of its conceptual statements (specifically Concepts Statement 4) to make revisions to reporting requirements (to include deferred outflows and deferred inflows).
Prior to GASBS 63 and 65, debit balances were reported on the statement of net position (balance sheet) as assets; similarly, all non-equity credits were reported as liabilities. The new standards add deferred outflows and deferred inflows to the mix.
All debit balances in the statement of net position will be reported as:
Assets represent present service capacity to the government; deferred outflows (e.g., prepaid bond insurance) represent the consumption of net position applicable to future reporting periods.
Liabilities represent amounts to be paid; however, some amounts previously reported as liabilities (e.g., deferred property taxes) involve no future payment. Consequently, with the implementation of GASB 63, all non-equity credits in the statement of net position will be reported as:
The difference in liabilities and deferred inflows is primarily resources that are going out and resources that are coming in. Liabilities normally represent a future surrender of resources; deferred inflows do not.
What are the main points of GASB 63?
This statement distinguishes assets from deferred outflows of resources and liabilities from deferred inflows of resources.
Additionally, many of your financial statement titles (e.g., Statement of Net Position), categories (e.g., Assets and Deferred Outflows of Resources), and notes will change. Net Assets will now be labeled Net Position.
The five elements of the statement of net position are:
Deferred Outflows of Resources
Deferred Inflows of Resources
The three categories of net position are:
Net Investment in Capital Assets
Note – The requirement to change to a statement of net position (rather than a statement of net assets) – a GASBS 63 change – occurs one year earlier than the requirements of GASBS 65; you are required to change the term net assets to net position even though you may not have any deferred outflows or inflows until GASBS 65 is implemented – possibly a year later. Again it is easier to simply implement both GASBS 63 and 65 at the same time (both can be early adopted).
What are the main points of GASB 65?
It identifies the specific items to be categorized as deferred inflows and deferred outflows.
It clarifies the effect of deferred inflows and deferred outflows on the major fund determination.
It limits the use of the term deferred in financial statements.
What are some examples of specific items to be categorized as deferred inflows and deferred outflows?
The gain or loss from current or advance refundings of debt (the gain or loss will no longer be netted with the related debt but will be shown separately as a deferred outflow or a deferred inflow)
Prepaid insurance related to the issuance of debt
Property taxes received or accrued prior to the period in which they will be used
How should debt issuance costs be treated?
Debt issuance costs should be expensed when incurred. GASB concluded that debt issuance costs do not relate to future periods, and, therefore, should be expensed.
If your government has debt issuance costs (recorded as assets), you will need to remove them as you implement these standards (using a prior period adjustment).
How should cash advances related to expenditure-driven grants be recorded?
Cash advances from expenditure-driven grants should be recorded as unearned revenue (a liability). The key eligibility requirement for an expenditure-driven grant is the use of funds (which does not occur until funds are spent). Any grant funds received prior to meeting eligibility requirements will be shown as a liability. It is improper to use the word deferred for this line item; for example, deferred revenue is not appropriate. The more appropriate title is unearned revenue.
How do these standards affect the determination of major funds?
Assets should be combined with deferred outflows of resources and liabilities should be combined with deferred inflows of resources for purposes of determining which elements meet the criteria for major fund determination.