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GAAP Adjustments and Allocations from the Chancellor’s Office Chapters 4 and 5 Presented by Lily Wang CSU, Chancellor’s

GAAP Adjustments and Allocations from the Chancellor’s Office Chapters 4 and 5 Presented by Lily Wang CSU, Chancellor’s Office KPMG LLP. Highlights of Changes Chapter 4 - GAAP Adjustments. Chapter 4-2 Capital Assets and Depreciation (Additions to Library Materials)

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GAAP Adjustments and Allocations from the Chancellor’s Office Chapters 4 and 5 Presented by Lily Wang CSU, Chancellor’s

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  1. GAAP Adjustments and Allocations from the Chancellor’s OfficeChapters 4 and 5Presented by Lily WangCSU, Chancellor’s OfficeKPMG LLP

  2. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-2 Capital Assets and Depreciation (Additions to Library Materials) • Record additions to library materials consistently across campuses • Legal Basis • Additions to the capitalized costs of library materials can be obtained from legal basis accounting record (object code 608001). • GAAP Adjustments • Refer to the annual Library Statistics Reports for GAAP adjustments to additions to library materials. The following is a snapshot of the library material section of the report and what can be capitalized:

  3. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-3 Accounts Payable (Contract Retentions and unrecorded liabilities) • Accrue construction contract retentions • Retentions – represent a percentage that is withheld from payment of each invoice of a construction project to be paid upon completion of that project. • Review construction contracts signed in FY0809 when perform the search of unrecorded liabilities at year end and make sure all retentions are properly accrued. • Search for unrecorded liabilities and non-GAAP policy • Review open invoices received subsequent to legal basis close. • If decides to set a dollar threshold when performing the search, an analysis will be required and documented in the non-GAAP policy to quantify that the impact is immaterial (PBC#8). • Refer to exhibit #30 in chapter 9 for the sample query for the analysis and the instruction.

  4. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-5 Fund Balance Clearing Accounts (Decentralization of Student Union Programs) • Centralized student union campuses have been decentralized • For the 7 centralized student union campuses only (Chico, Fullerton, Northridge, San Diego, San Francisco, San Jose, and San Luis Obispo). • Effective July 1, 2008 per Financing and Treasury Decentralization coded memoranda FT 08-13 posted on the CO website at http://www.calstate.edu/FT/StuUn/StuUnIndex.shtml. • FY 0809 is a transition year of the decentralization, adjusting entry of fund balance clearing may still be needed in legal or GAAP depending on the timing of legal closing. • Possibly no pass down entries for fund 0575.204 from CO but the cash and investment rollforward for this fund will be available for campuses to reconcile their ending cash and investment balance as of 6/30/09.

  5. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-7 Payroll Accruals (Staff Positive Payroll) • Accrue staff positive payroll • Relate to work performed in the month of June but not paid until after July 1st of the subsequent year. • Both salary and benefits need to be accrued for the current year and reversed in the subsequent year.

  6. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-8 Compensated Absences • Accrue absences from employment that will be paid on termination or retirement • Include the followings: • Vacation • The employer's contribution of social security • The employer’s contribution of Medicare taxes • The employer's contribution to employees’ retirement benefit (defined pension plans). • Exclude the following: • Sick Pay (already considered in the calculation of the employer’s contribution to employees’ retirement benefit) • Calculation • Accrual amount = Number of vacation hours x Salary rate per hour + benefits (include employer’s share of social security, Medicare and retirement contributions) calculated at the current rate (percentage of salary) • Source data • For campuses using the California Leave Accounting System (CLAS), use H46 report. • For campuses using the Absence Management System (AMS), run its own query in the AMS to obtain the data for the calculation.

  7. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-9 Deferred Revenues (Sponsored Programs) • Defer resources received prior to applicable eligibility requirements being met relating to voluntary nonexchange transactions (i.e. grant funds received for sponsored programs) • Grant funds received for sponsored programs prior to all applicable eligibility requirements being met are unearned income. Until the requirements are met, the provider does not have a liability, the recipient (i.e. campus) does not have a receivable, and the recognition of expenses or revenues for resources transmitted in advance should be deferred. (GASB Statement No. 33; ¶ 19). • Eligibility requirements comprise one or more of the followings: • Required characteristics of recipients: The recipient has the characteristics specified by the sponsor. • Time requirements: Time requirements specified by enabling legislation or the sponsor have been met. This is the period when the resources are required to be used (sold, disbursed, or consumed) or when use is first permitted has begun, or the resources are being maintained intact, as specified by the sponsor. • Reimbursements: The sponsor offers resources on a reimbursement ("expenditure-driven") basis and the recipient has incurred allowable costs under the applicable program. • Contingencies: The sponsor's offer of resources is contingent upon a specified action of the recipient and that action has occurred.

  8. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-10 Capital Lease Obligation (Energy Conversation Financing) • Classification of energy conservation financing • Energy conservation financing through other financing institutions (i.e. Koch) should be reported as a long term debt instead of capital lease obligation. • Proceeds related to the lease should be reported as other long term investments (restricted).

  9. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-11 Tuition Discounting (Direct method) • If a campus is using the PeopleSoft Student Information System, calculate the discount amount using the “Direct” method. • The followings are steps for using “Direct” method: • Obtain all financial aid payments for student fees. • Exclude all loan payments where the campus is an agent for outside program (sub loans for example). Loans are not recognized as either a revenue or expense. • Exclude payments for ASI fees. The ASI fees are not recognized as revenue or expense either – these fee revenues are collected and remitted to the ASI Auxiliary. CSU has no administrative right and acts as an agent only. • Include only the amount that applied to the fee charges.

  10. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-12 Pollution Remediation Obligation • Accrue pollution remediation obligation (PRO) • A PRO is an obligation to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities. • Triggering events comprise one or more of the followings: • The campus is compelled to take remediation action because of pollution-caused imminent endangerment leaving it little or no discretion to avoid action • The campus is in violation of a pollution prevention related permit or license • The campus is named, or evidence indicates it will be named, as responsible party or potentially responsible party for remediation (or cost sharing) • The campus is named, or evidence indicates it will be named, in a lawsuit to compel the government to participate in remediation • The campus voluntarily commences or obligates itself to commence remediation. • PRO liability should be recognized as components of the obligation become reasonably estimable • Measurements • Measure base on the current cost of future activities (i.e. what remediation activities cost today) • Measure liability using expected cash flows technique

  11. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-12 Pollution Remediation Obligation (Cont……) • Recoveries • If costs associated with the remediation of pollution are recoverable from an insurer or another responsible party, include in the measurement of the PRO expense using expected cash flow technique. • If recovery is not realized or realizable, net expected recovery against PRO liability • When recovery is realized or realizable, accrete PRO liability for expected recovery and separately report recovery assets (cash or receivable) • Capitalization • Generally pollution remediation outlays, including outlays for property, plant, and equipment, should be reported as an expense when a liability is recognized. • Capitalize only in any one of the following circumstances: • To prepare the property in anticipation of a sale. • To prepare property for use when the property was acquired with known or suspected pollution that was expected to be remediated. • To perform pollution remediation that restores a pollution-caused decline in service utility that was recognized as an asset impairment. • To acquire property, plant and equipment that has a future alternative use.

  12. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-12 Pollution Remediation Obligation (Cont……) • For the PowerPoint presentation of PRO, please refer to the below link: http://www.calstate.edu/sfsr/Workshops/2008/GASB_49.pdf • New setups • New object codes were setup: • Object code 660027 “Pollution remediation expenses” • Object code 607043 “Pollution remediation expenses, capital” • Object code 250008 “Pollution remediation obligation – current portion” • Object code 263080 “Pollution remediation obligation, net of current portion” • A new section 12.3 “Pollution Remediation Liabilities” is added to note 12 “commitment and contingency” in YES for campuses to prepare their GAAP financial statements’ footnote disclosure. • If campuses find out that a restatement adjustment to the beginning balance is needed, disclose the adjustment in the separate Excel worksheet “summary of prior year audit adjustments” (note 15.3 / Exhibit#21 of Chapter 9)

  13. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-12 Pollution Remediation Obligation (Cont……) • Audit Requirements • All campuses are required to go through the 5 triggering events analysis. GAAP coordinators should coordinate with their operation or legal departments to track down any pollution remediation that are required to follow GASB No. 49 guidance. If a pollution remediation obligation is identified, campuses should also document the measurement and other required disclosure information. • The 5 triggering events analysis is needed to be documented whether campuses have the pollution remediation obligation or not. • A new PBC item (#16) is requested by KPMG. The documented analysis and/or calculation will be the supports for this PBC item.

  14. Highlights of Changes Chapter 4 - GAAP Adjustments • Chapter 4-13 Other Accounting Issues (Reimbursement of Expenses) • Report resource flows between campus and its discretely presented component units as if they were external transactions—that is, as revenues and expenses. (GASB Statement No. 34; ¶ 61) • Apply to exchange transactions between campus and its’ auxiliary organizations. • Report the reimbursement of most expenses between a campus and its’ auxiliary organizations (or vice versa) on the gross basis in the campus’ combined GAAP financial statements. • No elimination is needed from the total column in the GAAP financial statements. • Does NOT apply to transactions between CSU funds on the campus books. Campus should eliminate all revenues and expenses resulted in resource flows between CSU funds in GAAP to avoid double counting.

  15. Highlights of Changes Chapter 5 – Allocations from CO • Chapter 5-1 and 5-2 Non-Delegated Projects • The ITRP project was completed • The ITRP project was completed in FY 0708. No more CWIP related to this project will be passed down to campuses in FY 0809 • If there are any ITRP project capital expenditures (i.e. hardware) to pass down, they will come as additions to fixed assets. • Other nondelegated projects that are not completed in FY 0809 will be passed down to campuses as CWIP. • The pass down entries will be posted as an ADNOAT by July 7, 2009

  16. Highlights of Changes Chapter 5 – Allocations from CO • Chapter 5-3 and 5-7 Bond Anticipation Notes (BAN), Systemwide Revenue Bonds (SRB) and Capitalized Interest • For the PowerPoint presentation of BAN and SRB passdown entries, please refer to the presentation of “Part 2 - Revenue Bonds Accounting - GAAP Basis” under “Revenue Bonds Accounting Training 12-03-08” link: http://www.calstate.edu/sfo • For the PowerPoint presentation of capitalized interest and examples of calculation, please refer to link: http://www.calstate.edu/sfsr/Workshops/2008/Capitalized_Interest_8_25_08_Rev.ppt

  17. Highlights of Changes Chapter 5 – Allocations from CO • Chapter 5-6 Other Postemployment Benefit (OPEB) Obligation • To allocate to campuses their portion of other postemployment benefit (OPEB) obligation for inclusion in their GAAP financial statements. • CSU’s OPEB includes the employer share of health and dental benefit of retirees, and classified as billable and nonbillable accounts. • Billable accounts are State funds that have special revenue sources such as fees, licenses, penalties, assessments, interest, etc. The following State funds have billable accounts: • 0573 – Continued education revenue Fund • 0580 – Dormitory Revenue Fund • 0583 – Parking Revenue Fund • 0948 – Trust Fund (Partially)

  18. Highlights of Changes Chapter 5 – Allocations from CO • Chapter 5-6 Other Postemployment Benefit (OPEB) Obligation (Cont……) • Understand the Numbers Passed Down From CO • The State performs the OPEB actuarial study and provide the amounts of annual required contribution (ARC), employer contributions, and net OPEB obligation (NOO) to the CO in August. • CO estimates the health benefit portion of NOO based on the percentage of health benefit contributions compared to the total employer contributions. • CO then allocates the estimated health benefit portion of NOO to campuses based on their retirement expenses (object code 603005) for the billable accounts in legal records. • CO will pass down 2 years (FY0708 and FY0809) NOO to campuses. Campuses will record the FY0708 amount as a pass-through current year entry. • Disclose the FY0708 amount in the separate Excel worksheet “summary of prior year audit adjustments” (note 15.3 / Exhibit#21 of Chapter 9) • No reversal of accrual in subsequent year. NOO is passed down in an annual amount.

  19. Highlights of Changes Chapter 5 – Allocations from CO • Chapter 5-6 Other Postemployment Benefit (OPEB) Obligation (Cont……) • New Setups • A new GAAP account (712209) is setup for recording the OPEB obligation. • A separate line for OPEB obligation is setup on the statement of net assets in YES but campuses should determine the materiality and whether it is needed to be presented as a separate line in their stand alone reports. • For campus to record the GAAP adjustment entries, a GASB 45 allocation schedule for each billable state fund (by CSU fund, by program, and by GAAP account) will be available on the link below under the “Passdown Schedules / FY2008-2009” no later than September 18, 2009: http://www.calstate.edu/sfsr/gaap/ • A new footnote (note 19) is setup in YES for campuses to prepare their GAAP financial statements’ footnote disclosure. It will be pre-populated by CO. Campuses need to review the note and make sure it ties to the allocation schedule.

  20. Highlights of Changes Chapter 5 – Allocations from CO • Chapter 5-8 Pass Down Entries and Schedules From the Chancellor’s Office • Schedules for FY 0809 allocations from CO are posted on http://www.calstate.edu/sfsr/gaap/ under Passdown Schedules, by selecting “FY 2008-2009” • Schedules available by August 19: • Capital Outlay Appropriation Summary (Chapter 4-4) • General Fund Appropriation Support Summary (Chapter 4-4) • State Appropriation Revenue, Noncapital Summary (Chapter 4-4) • Energy Lease Schedule (Chapter 5-4) • SRB Sources and Uses Summaries (Chapter 5-3) • Long term Debts Passdown Entries (Chapter 5-3) • Investments Held by CO Rollforward Schedule (Chapter 5-3) • SWIFT (Systemwide Investment Fund Trust) Rollforward (Chapter 4-13) • Backup CO Payments Summary (Chapter 9) • Schedules available by September 18: • CSURMA Allocation Funding Schedule (Chapter 5-5) • GASB 45 Allocation Schedule (Chapter 5-6)

  21. References • To view this recording, please go to the Financial Accounting Services Training, Education & Development portal https://zeta.calstate.edu:8250/portal/page?_pageid=74,1&_dad=portal&_schema=PORTAL • To view the PowerPoint presentation, please go to the Systemwide Financial Services website under “GAAP Workshop 2008-2009” http://www.calstate.edu/SFSR/Workshops/index.shtml

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