2011 Fall Focus
APA Update
Andy Powell, CPA, MBA
Introduction
t oduct o
Agenda
•
•
•
•
•
•
•
•
Introduction
Changes on the Team
Strategic Planning (I2A)
Audit Schedule and Assignments
What we are Finding
Ob
Observations
ti
on C
Comparability
bilit
New and Upcoming Standards
What do you want to know?
Changes
C
a ges on
o the
t e Team
ea
Higher Education Team
New Higher Education Team
Recruiting
Resumed concerted recruiting efforts for Fall
and Spring graduates this year.
Looking to add 15-20 staff to replace
previously lost staff through attrition.
Looking for two to three
specifically for
Higher Education Programs.
FOCUS going forward
• Improve the Efficiency and Effectiveness of
HE Audits to accomplish some primary Goals
–
–
–
–
Faster Financial Statement Audits
Broader Coverage with
i Automated Control Tests
Broaden Experience of Auditors at a Faster Pace
Increase Degree
g
of Continuous Auditing
g
We want your input!
Strategic
St
ateg c Planning
a
g ((I2A))
Insight to Action (I2A) Strategic Planning
• Take p
place in
December
• Will examine the way
we organize, schedule
and complete
p
HE audits
• Will examine ways to
retain experience on
engagements – staff
cycles
Strategic Planning
• Includes Stakeholder considerations – both
internal and external
• Promote a plan with buy-in
• IIncrease consistency
it
iin application
li ti
off audit
dit
tests between engagements
• Improve timing of engagements to smooth
work plan
p
Audit
ud t Schedule
Sc edu e & Assignments
ss g e ts
FY 2011 Fall/Winter Audits – Complete or
Wrapping Up
Engagement
Project Manager
University of Virginia & Medical Center
Joe Stepp
Virginia Tech
Karen Helderman
Virginia Commonwealth
Andy Powell
Old Dominion
Andy Powell
Radford
Andy Powell
FY 2011 Winter/Spring Audits
Engagement
Project Manager
Christopher Newport
George Strudgeon
Community College System
Andy Powell
George Mason
Andy Powell
James Madison
Andy
y Powell
Longwood
Andy Powell
Mary Washington
DeAnn Compton
Norfolk State
George Strudgeon
VA Military Institute
Jennifer Schreck
Virginia State
Jennifer Schreck
William and Mary
Laurie Hicks
What
W
at we aaree Finding
d g
Student Financial Aid – Compliance
• Report loan disbursements to Direct Loan
Servicing System (DLSS) through Common
Origination Disbursement system timely.
• Reconcile Institution loan records to DLSS to
ensure completeness
l t
off DLSS records.
d
Student Financial Aid – Return of Title IV
Return appropriate amount of Title IV funds
and return them timely (you have 45 days
from the determination of non-eligibility – both
f
formal
l and
d iinformal
f
l withdrawal)
ithd
l)
-34 CFR 668.172(c)
Student Financial Aid – Cash Management
• Disburse federal funds shortly after receipt
and do not let federal funds accumulate in
State/Local bank accounts
• Return proceeds to Federal Government or
lender for unclaimed checks older than 240
d
days
- 34 CFR 668.164
668 164 (h)
Student Financial Aid – Maintain Audit
Trail
• Maintain an audit trail for control activities
such as reconciliations between financial
system and G5 federal reporting system
• Maintain an audit trail for compliance
activities
ti iti such
h as income
i
verification
ifi ti
for
f
eligibility determinations
Information Security
• Use Database password controls and
audit/monitoring functions
– Note that upgrades to Oracle Database
software
f
generally reset many off the controls
established in the prior implementation
– Change
g management
g
plan
p
should anticipate
p
this
• Maintain audit evidence that security
awareness ttraining
i i
iis provided
id d tto allll
employees (e.g. attendance roster)
Information Security – Configuration
Settings
• Updated Configurations for
–
–
–
–
–
–
Firewalls
Virtual Private Networks
Ro ters
Routers
Servers
Databases
Operating Systems
Purchase Cards
• Purchase cards are widely used
• History tells us that supervisory review alone is
not sufficient control
• SSome fform off central
t l monitoring
it i
is
i
instrumental in ensuring compliance
Strengthening Employee Separation
Procedures and Monitoring
• Ensure all assets are collected from
separated employees and access to
relevant systems is deactivated or deleted
timely
• Human Resources generally exercises
separation
ti
procedures
d
• Asset and system owners have a
responsibility for periodic monitoring in the
event something is missed in the separation
p
process
Part Time and Overtime Authorization
• IF the University has a policy for overtime or
part-time hours exceeding a predetermined limit:
– We look for controls in place to monitor
enforcement of that policy
Monitor Application Controls
Decentralized
Monitoring and Review
is Necessary for
Departmental Insight,
Insight
BUT…
Some level of
centralized oversight
helps ensure
departments fulfill their
review.
Deposit Security for Departmental
Collections
• Deposit cash and checks timely after
receipt.
• Particularly a risk with departmental
collections
Security Controls for Historical Artifacts &
Works of Art
Ensure inventory control and physical security
of historical valuables – similar to capital or
controllable equipment assets
Allowance for Doubtful Accounts
Methodology and Write-Offs
Allowances should be realistic – Examine
aging of accounts receivable
What is the likelihood of collection?
Write-off
W
it
ff policies
li i should
h ld b
be d
documented
t d and
d
followed.
Observations
Obse
vat o s on
o Comparability
Co pa ab ty
Build America Bonds
Statement of Revenues Expenses and
Changes in Net Assets
Build America Bond Interest Expense should be
reported at Gross Not Netted Against the
I t
Interest
t SSubsidy
b id from
f
the
th Federal
F d
l Govt.
G t
Footnote presentation should be consistent
but the subsidy may be reflected in a
separate
p
column.
Build America Bonds
Statement of Net Assets
Receivables related to the subsidy may be
combined with other receivables.
IInterest
t
tP
Payable
bl ffor these
th
bonds
b d should
h ld also
l
be accrued like any other future interest
payable and may be combined with other
accrued interest expense.
Capital Appropriations
Equipment Trust Fund Presentation
• Is it State Appropriations?
• Is it Capital Appropriations?
• Is it Capital Grants and Gifts?
New aand
d Upco
Upcoming
g Standards
Sta da ds
Standards Summary
Standard
Effective for…
GASB 62
FY 2013
GASB 63
FY 2013
GASB 64
FY 2013
GASB Pension ED
unknown
SAS 118
FY 2012
SAS 119
FY 2012
SAS 120
FY 2012
SAS 121
FY 2013
SAS 122-124
122 124
FY 2013
SSAE 16
FY 2011
GAGAS (Yellow book)
R ii
Revision
FY 2013
GASB 62:
62 C
Codification
difi ti off P
Pre
November 30, 1989 FASB and AICPA
Standards
Effective
Eff
ti ffor periods
i d
beginning after
December 15,
15 2011.
2011
GASB 62: Changes
No longer have to refer to FASB for uncovered
items such as:
 Capitalization of Interest Cost
 Special
i and Extraordinary
i
Items
 Prior-Period Adjustments
 Leases
 Contingencies
 Accounting Changes and Error Corrections
 Comparative Financial Statements
 Revenue Recognition for Exchange Transactions
 And more…
GASB 62: Changes
No longer have to refer to FASB for uncovered
items such as:
 Capitalization of Interest Cost
 Special
i and Extraordinary
i
Items
 Prior-Period Adjustments
 Leases
 Contingencies
 Accounting Changes and Error Corrections
 Comparative Financial Statements
 Revenue Recognition for Exchange Transactions
 And more…
GASB 62: Accounting Changes and Error
Correction
• Change in Accounting Principle – Maybe
Restatement
• Change in Accounting Estimate – No
Restatement
• Correction of an Error – Definitely
Restatement
GASB 62: Change in Accounting Principle
• Changes
g in Accounting
g Principles
p
must be
Justified
• Nature and Justification must be disclosed
• Prior period Statements presented as-is
• Cumulative effect of the change should be
reported as an adjustment to Beginning Net
Assets
• Iff the cumulative
i effect
ff
cannot be determined
i
then no Beginning Net Asset Adjustment
needed – but disclosure required
q
GASB 63: Financial Reporting of Deferred
Outflows of Resources, Deferred Inflows of
Resources,, and Net Position
Deferred In/Out Flow of Resources
• Deferred Outflows –
– Decrease in FV of derivatives
• Deferred Inflows –
– Increase in
i FV off derivatives
i
i
– Deferred service concession
g
receipts
p
arrangement
GASB 63
Statement of Net Position
Total Assets
Total deferred outflows of resources
Total liabilities
Total deferred inflows of resources
T t l nett position
Total
iti
Net investment in capital assets
Restricted ((expendable
p
and nonexpendable)
p
)
Unrestricted
Statement of Revenues Expenses and
Changes in Fund Net Position
Everything remains the same except the
Bottom Line
GASB 64: Derivative Instruments:
A li i off Hedge
Application
H d Accounting
A
i
Termination Provisions
Exposure Draft: Financial Reporting for
P i Plans:
Pension
Pl
an amendment
d
off GASB
Statement No. 25
Public Hearings earlier in October
SAS 118: Other Information in
D
Documents
t C
Containing
t i i A
Audited
dit d
Financial Statements
Effective for Fiscal Year 2012 Audits
(Periods beginning on/after December 15,
15
2010)
SAS 118: Auditor’s Responsibility
• Auditors have responsibility to read reports
containing audited financial statements for
“material inconsistencies”
SAS 118: Discovery of “Material
Inconsistencies” (prior to release)
• Discovery prior to report release date that
requires revision which management refuses to
make:
– Communicate to those charged with Governance
AND
EITHER
– Modify the opinion to include explanatory paragraph
OR
– Withhold auditor’s report
OR
– Withdraw from Engagement
g g
(not
(
likely)
y)
SAS 118: Discovery of “Material
Inconsistencies” (after release)
• If Material Inconsistencies are discovered
after release of audited financial
statements:
• Implore management to make necessary
revisions
• If managementt refuses;
f
communicate
i t
concerns to Governing body and take
further appropriate action which could
include issuing a revised opinion
SAS 118: Discovery of Misstatement of Fact
• First: Discuss with management concerns
• Second: Request management consult with
a qualified third party, such as legal counsel,
and consider advise from third party
• Third: Inform Governing body
SAS 119: Supplementary
pp
y Information in
Relation to the Financial Statements as
a Whole
When auditor is engaged to consider
supplemental information not required (Not
MD&A) and not part of basic financial
statements
t t
t
Generally not Applicable to Higher Education
Audits
SAS 120: Required Supplementary
Information
Auditor’s Opinion does not Cover Required
Supplementary Information, however auditor
h the
has
th following
f ll i
responsibilities:
ibiliti
SAS 120: Inquire of management about
methods of preparing information
• Information measured and p
presented in
accordance with prescribed guidelines
• Methods of measurement or presentation
changed from prior years
• Any significant assumptions/interpretations
underlying measurements or presentation
SAS 120: Compare Information for
Consistency with…
• Management’s
Management s responses to inquiries
• The basic financial statements
• Other knowledge obtained during the audit
of financial statements
SAS 120: Obtain Written Management
Representations…
• That they acknowledge responsibility for RSI
• Whether RSI is measured and presented in
accordance with prescribed guidelines
• Whether methods of
measurement/presentation changed from
prior
i period
i d
• About any significant assumptions or
interpretations underlying
measurement/presentation of RSI
SAS 121-124
• SAS
S S 121: Interim Financial Information Generally not Applicable to Higher
Education Engagements
• SAS 122: Clarification and Recodification –
No significant changes
• SAS 123: Omnibus Statement on Auditing
g
Standards-2011
• SAS 124: Financial Statements Prepared in
Accordance with a Financial Reporting
Framework Generally Accepted in Another
Country
SAS 122-124: Clarity Standards
• Comprehensive Restructuring of Audit
Standards including a number of re-written
standards
• Changes the layout/format of all existing
standards and future standards
SAS 122-124 Changes
• No substantive changes to requirements for
–
–
–
–
–
–
–
–
–
–
Audit Documentation
Auditor’s Communication With Those Charged With Governance
Risk Assessment Standards
E t
External
lC
Confirmations
fi
ti
Analytical Procedures
Audit Sampling
Auditing Accounting Estimates
Written Representations
Subsequent Events
Consideration of Omitted Procedures After the Report Release Date
• The 10 Generally Accepted Auditing Standards
(GAAS) are no longer authoritative but are
considered a framework
Group Audit Standard Changes
• Affects our reliance on Component Unit
Audits
• We must gain an understanding of
component units operations
• All misstatements discovered by the CU
A dit
Auditors
mustt be
b communicated
i t d to
t us
• We can either include Component Unit
Findings in the Business Unit Report or
reference the CU report
Audit Report Changes
• Opinion Letter will have some changes and
be slightly reorganized
– No reference to auditor or management
responsibility
i i i iin the iintroduction
i
paragraph
– New Section: “Management’s Responsibility for
the Financial Statements”
– New Section: “Auditor’s Responsibility”
– Opinion Paragraph will be preceded with
heading: “Opinion”
Opinion
– If it’s a modified opinion: an additional heading is
required (e.g. – “Basis for Qualified Opinion”)
SSAE 16: Service Organization Control
Reporting
Replaces SAS 70 Reporting on Outsourced
Services
Two types:
Type I (SOC1)
T
Type
II (SOC2)
Relevant to those Relying on Campus Partners
or other outsourced service providers
p
SOC I vs. SOC II
Report Contents
Type I Type II
Independent service auditor’s report
((opinion)
p
)


Service organization’s description of
its system and controls


provided by
y
Information p
independent service auditor;
includes description of service
auditor’s tests of operating
effectiveness and results

Other information provided by the
service organization

Revised GAGAS (Yellow-book)
• Changes to more closely
align with AICPA Auditing
Standards
• Most changes provide for
i
increased
d auditor
dit jjudgment
d
t
• Independence Determination
Questions?
Andy
A
d Powell,
P
ll CPA,
CPA MBA
[email protected]