1. TECHNICAL UPDATE (Auxiliary Organizations) Mark Thomas KPMG LLP Year-End GAAP Training May 28, 2014

2. GASB 65: Items Previously Reported as Assets and Liabilities Effective June 30, 2014 Moves certain items on the balance sheet to Deferred Inflows/Outflows of Resources. Debt refundings: moves the gain/loss on refundings to deferred inflows/outflow. Debt issuance costs (except prepaid insurance) is written off - no longer reflected on the balance sheet. 2May 2014Year-End GAAP Training

3. GASB Standards on Pensions GASB Statement No. 67, Financial Reporting for Pension Plans, Effective 6/30/14 [PLAN] GASB Statement No. 68, Accounting and Financial Reporting for Pensions, Effective 6/30/15 [EMPLOYER] GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date (amendment of GASB Statement No. 68), Effective 6/30/15 3May 2014Year-End GAAP Training

4. Knowledge Check #1 We have discussed thus far four new GASB pronouncements. Which two are effective this fiscal year-end? a.GASBs 65 and 67 b.GASBs 67 and 68 c.GASBs 67 and 71 d.GASBs 65 and 71 4May 2014Year-End GAAP Training

5. Other GASB Statements: Statement No. 69 Government Combinations and Disposals of Government Operations Statement No. 70 Accounting and Financial Reporting for Nonexchange Financial Guarantees 5May 2014Year-End GAAP Training

6. GASB Statement No. 67 Replaces the requirements of Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans and No. 50, Pension Disclosures Defined Benefit Pension Plans – are pensions for which the income or other benefits that the plan member will receive at or after separation from employment are defined by the benefit terms. 6May 2014Year-End GAAP Training

7. Statement No. 67 (continued) Defined Benefit Pension Plans – a.Single-employer – pensions are provided to the employees of one employer b.Agent multiple-employer –plan assets are pooled for investment purposes but separate accounts are maintained for each individual employer c.Cost-sharing multiple-employer – pension assets and obligations are pooled 7May 2014Year-End GAAP Training

8. Knowledge check #2 Which of the following is not a defined sub- category of a Defined Benefit Plan: a.Defined Contribution Plan b.Single Employer Plan c.Agent Multiple Employer Plan d.Cost Sharing Multiple Employer Plan 8May 2014Year-End GAAP Training

9. Statement No. 67 (continued) Defined Contribution Pension Plans – are pensions having terms that: Provide that the pensions a plan member will receive will depend only on the contributions to the plan member’s account, and actual earnings on investments of those contributions. 9May 2014Year-End GAAP Training

10. Statement No. 67 (continued) A defined benefit pension plan should present the following, prepared on the accrual basis of accounting: a.A statement of fiduciary net position b.A statement of changes in fiduciary net position Recognition, measurement and presentation of financial statement amounts generally similar to current guidance with exception of receivables for contributions. Note disclosures - similar to nature of disclosures for employers with the addition of information on investment policies and actual rates of return on plan assets 10May 2014Year-End GAAP Training

11. GASB Statement No. 68 Replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Government Employers and No. 50, Pension Disclosures Moving from a funding approach to an earned approach 11May 2014Year-End GAAP Training

12. Statement No. 68 (continued) Addresses accounting and financial reporting for pensions that are provided to the employees of state and local governmental employers Employers should report in their financial statements a net unfunded pension liability 12May 2014Year-End GAAP Training

13. Pension Liability Employers participating in single-employer or agent multiple-employer plans recognize 100 percent of the pension liability for each plan Employers participating in cost-sharing multiple- employer plans recognize their proportionate share of the collective liability for the plan as a whole. 13May 2014Year-End GAAP Training

14. Net Pension Liability Net Pension Liability = Total pension liability less fiduciary net position (assets) Total pension liability is the actuarial present value of projected benefit payments attributed to past employee service. Required actuarial valuations at least every two years (strict actuarial parameters) 14May 2014Year-End GAAP Training

15. Deferred Outflows/Inflows of Resources Changes in resulting in deferred inflows/outflows of resources: Effects of actuarial differences and changes in assumptions related to economic or demographic factors Differences between actual and projected earnings on plan investments Employer contributions made directly by the employer subsequent to the measurement date 15May 2014Year-End GAAP Training

16. Participation in Cost-Sharing Multiple- Employer Plans An employer should recognize its proportionate share of the collective net pension liability, pension expense, and deferred inflows/outflows of a cost-sharing plan Cost-sharing Multiple-Employer plans – those in which the pension obligations to the employees of more than one employer are pooled (plan assets can be used to pay the benefit of the employees of any employer) 16May 2014Year-End GAAP Training

17. Participation in Cost-Sharing Multiple- Employer Plans (continued) Basis for proportion should be consistent with manner in which required contributions are determined 17 As a practical matter, it is anticipated the calculation of proportion will be performed based on either required contributions or covered payroll May 2014Year-End GAAP Training

18. Participation in Cost-Sharing Multiple- Employer Plans Proportionate share concept results in two types of potential changes in pension liability: effect of a change in the employer’s proportion of the plan’s collective net pension liability - recognized as deferred inflow/outflow in the period of change difference during the measurement period between actual plan contributions and the amount of the employer’s proportionate share of collective contributions 18May 2014Year-End GAAP Training

19. Relevant Employer Note Disclosures Balances of deferred pension outflows/inflows of resources as of employer’s fiscal year-end Schedule for each of subsequent five years amount of deferred pension outflows/inflows that will be recognized in pension expense 19May 2014Year-End GAAP Training

20. Relevant Employer Note Disclosures The employers’ proportionate share ($ and %) of the net pension liability Basis on which its proportion was determined Changes in proportion since prior measurement date 20May 2014Year-End GAAP Training

21. Statement No. 71 GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date (amendment of GASB Statement No. 68) Issued November 2013 Effective date: Simultaneously with Statement No. 68 (effective June 30, 2015) 21May 2014Year-End GAAP Training

22. Statement No. 71 (continued) Amendment of Statement No. 68: par. 137 (prior to amendment)……It may not be practical for some governments to determine the amounts of all deferred inflows of resources and deferred outflows of resources related to pensions, as applicable, at the beginning of the period when the provisions of this Statement are adopted. In such circumstances, beginning balances for deferred inflows of resources and deferred outflows of resources related to pensions should not be reported.” 22May 2014Year-End GAAP Training

23. Statement No. 71 (continued) Amendment to Statement No. 68 (par. 137) Recognize a beginning deferred outflow of resources only for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability, but before the start of the government’s fiscal year. No beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions should be recognized 23May 2014Year-End GAAP Training

24. Issues Related to Cost-Sharing Multiple-Employer Plans

25. Cost-Sharing Multiple-Employer Plans (AICPA Proposed Recommendations) IssuesAICPA White Papers Government Employer Participation in Cost-Sharing Multiple Employer Plans: Issues Related to Information for Employer Reporting Information for Employer Reporting Single-Employer and Cost-Sharing Multiple-Employer Plans: Issues Associated with Testing Census Data Substantially finalized Census Data 25May 2014Year-End GAAP Training

26. Cost-Sharing Multiple-Employer Plans Issues Audited financial statements of the plan only include disclosure of the collective net pension liability for the plan as a whole. They do NOT include: Deferred outflows/inflows of resources by category Pension expense Each participating employer’s share of collective pension amounts 26May 2014Year-End GAAP Training

27. Cost-Sharing Multiple-Employer Plans Issues (continued) Issues over allocations: Standard is silent on who (plan or each individual participating employer) should calculate allocation percentages Audited financial statements of the plan may not include necessary information to calculate allocation percentages 27May 2014Year-End GAAP Training

28. Cost-Sharing Multiple-Employer Plans Issues (continued) Standard provides flexibility in approach to determine allocations Standard encourages an allocation method would be extremely difficult to audit as it is based on projected future contributions 28May 2014Year-End GAAP Training

29. Cost-Sharing Multiple-Employer Plans Issues (AICPA Proposed Recommendations) (continued) 29 Plan prepares the following for which plan auditor is engaged to provide opinion: 1.Schedule of employer allocations Use allocation method based on covered payroll or required (actual) contributions depending on whether resulting allocations are expected to be representative of future contributions Projected future contributions could be used if necessary 2.Schedule of pension amounts by employer Includes the following elements: net pension liability, deferred outflows of resources by category, deferred inflows of resources by category and pension expense Alternative: Prepare a “schedule of collective pension amounts” (excluding employer specific deferrals) for the plan as a whole Information for Employer Reporting May 2014Year-End GAAP Training

30. Cost-Sharing Multiple-Employer Plans Issues (AICPA Proposed Recommendations) (continued) 30May 2014Year-End GAAP Training

31. Cost-Sharing Multiple-Employer Plans Issues (AICPA Proposed Recommendations) (continued) 31May 2014Year-End GAAP Training

32. Cost-Sharing Multiple-Employer Plans Issues (AICPA Proposed Recommendations) (continued) Plan auditor issues opinion on the employer allocations and on the total of each of the four “elements”: Net pension liability Total deferred outflows of resources Total deferred inflows of resources Total pension expense for the sum of all participating entities Plan auditor needs to consider the appropriateness of the materiality (precision) used in the audit of plan financial statements Information for Employer Reporting (Plan Auditor) 32May 2014Year-End GAAP Training

33. Cost-Sharing Multiple-Employer Plans Issues (Employer Responsibilities) Complete and accurate data to plan Appropriateness of information used to record financial statement amounts Whether plan auditor’s report on schedules are adequate and appropriate for employer purposes Amounts in schedules specific to employer Employer amount used in allocation percentage (numerator) Recalculate allocation percentage of employer Recalculate allocation of pension amounts based on allocation percentage of employer Report Evaluate Verify and recalculate 33May 2014Year-End GAAP Training

34. Cost-Sharing Multiple-Employer Plans Issues (Employer Auditor Responsibilities) Sufficiency and appropriateness of audit evidence Report Whether plan auditor’s report on schedules are adequate and appropriate for auditor purposes (i.e. evidence) Review plan auditor’s report and any related modifications Evaluate whether the plan auditor has necessary competence and independence Determine whether named as specified user Evaluate Amounts in schedules specific to employer Employer amount used in allocation percentage (numerator) Recalculate allocation percentage of employer Recalculate allocation of pension amounts based on allocation percentage of employer Verify and recalculate Census data submitted to plan Test 34May 2014Year-End GAAP Training

35. Cost-Sharing Multiple-Employer Plans Issues (Census Data) Responsibility of the Plan auditor to test census data Employer auditor may perform agreed-upon procedures over census data for purposes of the Plan audit Census data tested should coincide with the data used in the preparation of the actuarial report (measurement date) Testing Underlying Census Data for Active Employees 35May 2014Year-End GAAP Training

36. Future GASB Standards: Expect New Standards for Other Post-Employment Benefits (OPEB) similar to the new Pension Standards 36May 2014Year-End GAAP Training

37. GASB Project: Re-examination of the Financial Reporting Model 15 years old Just getting started 11 Focus Groups (incl. Business Type Activities) Reviewing financial statements and MD&A from entities across the country Surveys – separate surveys for Preparers (May/June 2014) Auditors (July/August 2014) Users (September/October 2014) 37May 2014Year-End GAAP Training

38. Re-examination of the Financial Reporting Model (con’t) Expect to issue a Research report by June 2015 One objective is to gain more alignment between GASB and FASB reporting models 38 GASB Project: May 2014Year-End GAAP Training

39. Expected FASB Standards: Refresh the NFP Reporting Model (20 years old) Moving from 3 Net Asset classes to 2: With and Without Donor-Imposed Restrictions Further discussion in Notes on nature of restrictions Disclosure of the nature of Board designations Cash Flow Statement: Require the Direct Method of preparation Interest and dividend income is now investing activities Interest paid is now financing activities 39May 2014Year-End GAAP Training

40. Expected FASB Standards: Requiring Expenses reported by nature and by function: Retain flexibility on which is reported on the face of the financial statements Require a Statement of Functional Expenses (matrix) Disclosure of the method of expense allocation to function Remove requirement to functionalize non-operating expenses Format of Operating Statement: One Statement or Two? (incl. Statement of Changes in Net Assets) 40May 2014Year-End GAAP Training

41. Expected FASB Standards: Liquidity and Financial Flexibility: Require a classified balance sheet? Define an intermediate operating measure (operating income) Other Disclosures? Research Project on MD&A Various Note Enhancements 41May 2014Year-End GAAP Training

42. Knowledge Check #3 Which of the following is NOT an expected project of the FASB relating to NFP reporting? a.Net Asset Classifications b.Liquidity and Financial Flexibility c.Reporting Expenses by Nature and Function d.Statement of Cash Flows Reporting e.IFRS Convergence 42May 2014Year-End GAAP Training

43. NACUBO “Blank Slate Project” “Reporting Reimagined” January 2014 Business Officer Magazine Project that sets out to start from scratch and completely re- think the financial reporting model – for both private and public Effort to provide meaningful enhancements to the current reporting models Approached the project from the User Perspective – what would best tell Higher Education’s Story 43May 2014Year-End GAAP Training

44. www.calstate.edu