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The Florida Auditor General has released a draft of their proposed 2014 rules (Chapter 10.850 – Audits of Charter Schools and Similar Entities, Florida Virtual School and Virtual Instruction Program Providers) which will be effective for the 6-30-2014 fiscal year audits.

Two significant changes are as follows:

1. The auditors must now include procedures to determine whether or not the charter school met one or more of the conditions described in Section 218.503(1), Florida Statutes. These conditions are as follows:

2. The auditors must now include procedures to determine whether or not the charter school maintains on its website the information specified in Section 1002.33(9)(p), Florida Statutes as follows.

1002.33(9)(p) Each charter school shall maintain a website that enables the public to obtain information regarding the school; the school’s academic performance; the names of the governing board members; the programs at the school; any management companies, service providers, or education management corporations associated with the school; the school’s annual budget and its annual independent fiscal audit; the school’s grade pursuant to s. 1008.34; and, on a quarterly basis, the minutes of governing board meetings.

The rules are open for comment until June 16, 2014. The draft rules can be found here: http://www.myflorida.com/audgen/pages/whatsnew.html

The Florida Auditor General has released a draft of their proposed 2014 rules (Chapter 10.550 – Local Governmental Entity Audits) which will be effective for the 9-30-2014 fiscal year audits.

While there are many changes, the one proposed change that will significantly effect the annual financial statement audits of local governments removes the requirement of the auditor to simply issue a statement regarding the local government’s compliance with Section 218.415, Florida Statutes regarding the investment of public funds as part of the management letter. The proposed rule replaces this requirement with a separate examination report performed pursuant to AICPA Professional Standards, AT Section 601. This separate report will require we perform an examination in accordance with AT Section 601 whose objective is to express an opinion on the local government’s compliance with Section 218.415, Florida Statutes.

This is a significant step-up in assurance as to compliance with the applicable provision of Section 218.415 and will require additional provision within the audit engagement letter and the issuance of an examination report to be included with the annual audited financial statements.

In summary, the proposed rules will require an entirely separate examination report that will include the issuance of an opinion as to the local government’s compliance.

The rules are open for comment until June 16, 2014. The draft rules can be found here: http://www.myflorida.com/audgen/pages/whatsnew.html

GASBS 68 – Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27 is effective for financial statements beginning after June 15, 2014. Local governments in Florida will be required to implement the provision of GASBS 68 in their financial statements for the fiscal year ending September 30, 2015.

If a governmental entity participates in a cost-sharing multiple-employer pension plan (the ‘Plan’) then they are required by GASBS 68 to present certain pension amounts in their financial statements that are calculated by the Plan or its actuary.  The Florida Retirement System is a cost-sharing multiple-employer pension plan and participants will be required to implement the provision of GASBS 68. The components required to be presented include the participating entity’s proportionate share of the Plan’s:

1. Collective net pension liability
2. Collective pension expense
3. Collective deferred outflows of resources and deferred inflows of resources related to pensions.

As noted above, these components are calculated by the Plan and not the participating entity. The AICPA recently issued an auditing interpretation that is intended to assist both auditors of governmental plans and participating employers in their audits of entities that are implementing the new standards.

In summary, if the Plan only provides participants with unaudited data regarding the collective pension liability, expense and deferred inflows and outflows then the auditor would be unable to accumulate sufficient appropriate audit evidence to support the pension amounts and disclosures in the participant’s financial statements. If the amounts are material then this would result in a modified audit opinion.

Based upon the auditing interpretation, if the Plan engages its auditor to report on a schedule of employer allocations and the key elements including the net pension liability, total deferred inflows and outflows of resources and total pension expenses, the participating employer’s auditor may use the plan auditor’s report on the schedules as evidence that the pension amounts allocated to the employer and included in the employer’s financial statements are not materially misstated and therefore, would avoid a modified audit report.

Here are a few new disclosures required under GASB 67…

Regarding investment policies:
1) Procedures and authority for establishing and amending investment policy decisions.

2) Policies pertaining to asset allocation.
3) Description of significant investment policy changes during the reporting period.
4) The annual money-weighted rate of return on pension plan investments calculated as the internal rate of return on pension plan investments, net of pension plan investment expense, and an explanation that a money-weighted rate of return expresses investment performance, net of pension plan investment expense, adjusted for the changing amounts actually invested. Pension plan investment expense should be measured on the accrual basis of accounting. Inputs to the internal rate of return calculation should be determined at least monthly. The use of more frequently determined inputs is encouraged.

New DROP disclosures: Deferred retirement option program (DROP) balances—If a pension plan includes terms that permit a plan member to be credited for benefit payments into an individual member account within the pension plan while continuing to provide services to the employer and to be paid a salary:
(1) A description of the DROP terms
(2) The balance of the amounts held by the pension plan pursuant to the DROP.

Regarding components of the net pension liability:

(1) The total pension liability

(2) The pension plan’s fiduciary net position

(3) The net pension liability

(4) The pension plan’s fiduciary net position as a percentage of the total pension liability.

Regarding the discount rate:
1) The discount rate applied in the measurement of the total pension liability and the change in the discount rate since the pension plan’s prior fiscal year-end, if any

2) Assumptions made about projected cash flows into and out of the pension plan, such as contributions from employers, nonemployer contributing entities, and plan members.

3) The long-term expected rate of return on pension plan investments and a description of how it was determined, including significant methods and assumptions used for that purpose.

4) If the discount rate incorporates a municipal bond rate, the municipal bond rate used and the source of that rate.

5) The periods of projected benefit payments to which the long-term expected rate of return and, if used, the municipal bond rate applied to determine the discount rate.

6) The assumed asset allocation of the pension plan’s portfolio, the long-term expected real rate of return for each major asset class, and whether the expected rates of return are presented as arithmetic or geometric means, if not otherwise disclosed.

7) Measures of the net pension liability calculated using (i) a discount rate that is 1-percentage-point higher than that required by paragraph 40 and (ii) a discount rate that is 1-percentage-point lower than that required by paragraph 40 of GASB 67.

Required Supplementary Information:
1) A 10-year schedule of changes in the net pension liability, presenting for each year (1) the beginning and ending balances of the total pension liability, the pension plan’s fiduciary net position, and the net pension liability, and (2) the effects on those items during the year of the following, as applicable:
(1) Service cost
(2) Interest on the total pension liability
(3) Changes of benefit terms
(4) Differences between expected and actual experience with regard to economic or demographic factors in the measurement of the total pension liability
(5) Changes of assumptions about future economic or demographic factors or of other inputs
(6) Contributions from employers
(7) Contributions from nonemployer contributing entities
(8) Contributions from plan members
(9) Pension plan net investment income
(10) Benefit payments, including refunds of plan member contributions
(11) Pension plan administrative expense
(12) Other changes, separately identified if individually significant.

2) A 10-year schedule presenting the following for each year:
(1) The total pension liability
(2) The pension plan’s fiduciary net position
(3) The net pension liability
(4) The pension plan’s fiduciary net position as a percentage of the total pension liability
(5) The covered-employee payroll
(6) The net pension liability as a percentage of covered-employee payroll.

3) A 10-year schedule presenting for each year the information indicated below if an actuarially determined contribution is calculated for employers or nonemployer contributing entities. The schedule should identify whether the information relates to the employers, nonemployer contributing entities, or both.

(1) The actuarially determined contributions of employers or nonemployer contributing entities.

(2) For cost-sharing pension plans, the contractually required contribution of employers or nonemployer contributing entities, if different from (1). For purposes of this schedule, contractually required contributions should exclude amounts, if any, to separately finance specific liabilities of an individual employer or nonemployer contributing entity to the pension plan.

(3) The amount of contributions recognized during the fiscal year by the pension plan in relation to the actuarially determined contribution in (1). For purposes of this schedule, contributions should include only amounts recognized as additions to the pension plan’s fiduciary net position resulting from cash contributions and from contributions recognized by the pension plan as current receivables.

(4) The difference between the actuarially determined contribution in (1) and the amount of contributions recognized by the pension plan in relation to the actuarially determined contribution in (3).

(5) The covered-employee payroll.

(6) The amounts of contributions recognized by the pension plan in relation to the actuarially determined contribution in (3) as a percentage of covered-employee payroll in (5).

4) A 10-year schedule presenting for each fiscal year the annual money-weighted rate of return on pension plan investments.

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GASB Statement No. 67, Financial Reporting for Pension Plans, revises existing guidance for the financial reports of most pension plans for state and local governments.

• Implementation Toolkit
• Statement No. 67 will take effect for pension plans in fiscal years beginning after June 15, 2013 (that is, for years ended June 30, 2014 or later).

GASB Statement No. 68, Accounting and Financial Reporting for Pensions, revises and establishes new financial reporting requirements for most state and local governments that provide their employees with pension benefits.

• Implementation Toolkit
• Statement No.68 will take effect for governments in fiscal years beginning after June 15, 2014 (that is, for years ended June 30, 2015 or later).