GASB 68: Unforeseen Modified Audit Reports for Employers Participating in a cost-sharing multiple-employer Pension Plan

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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.