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GASB
Statement 34: An Audit Reviewer’s Point of View By Dan Horan The statement of net assets typically presents the most difficult implementation area for governments preparing financial statements that are compliant with GASB Statement 34, a KPMG senior manager said recently. According to the manager, Greg Driscoll, who performs compliance reviews of GASB 34 financial statements, the difficulties arise in identifying infrastructure assets and their historical cost, and in establishing depreciation policies. Driscoll was the invited guest speaker at the March meeting of the New York State Society of CPAs’ Government Accounting and Auditing Committee, chaired by David Hasso. During the one-hour CPE session, Driscoll, a member of the committee, said his reviews of financial statements of state and local governments showed differing levels of quality. The size of the government did not necessarily correlate with the quality of the report. But he also pointed out that the quality improved as governments had more examples to draw from and auditors gained more experience. Other required areas of GASB 34 compliance include management’s discussion and analysis (MD&A), statement of activities, fund-based financial statements for governmental funds, proprietary funds, fiduciary funds and component funds, and notes to the financial statements and required supplementary information (RSI). Driscoll said the MD&A varies the most in style and quality. Governments omitting the MD&A tend to be reporting on extremely small funds, departments or small component units of general governments. For those that prepare the MD&A, the trend, he said, is to use the Government Finance Officers Association’s (GFOA) Blue Book examples for the required framework. Driscoll reminded the committee that auditors cannot prepare the MD&A for the client because of independence impairment concerns. Unlike the statement of net assets, Driscoll noted that the statement of activities is relatively clear. Governmental functions, he said, generally match fund statements, business type functions match enterprise funds, indirect cost allocation is rarely used and special extraordinary items are rarely found. Common inquiries in the statement of activities include determining which activity reports program revenue, and classifying program revenues as well as general revenue. Driscoll said that the activity that generates the revenue should report the revenue. Regarding fund-based financial statements for governmental funds, proprietary funds, federal funds and component units, Driscoll said they generally are consistent with the prior model, with most governments keeping to quantitative results. Common reporting problems include misapplication of GASB interpretation No. 6. Proprietary funds, both enterprise funds and internal service funds, had no real change in treatment. Among other items, common proprietary fund issues include determination of the classification of restricted assets, reporting of the provision for uncollectible accounts as 100 percent offset to revenue, and reporting of capital contributions or nonoperating revenue. Other, more limited reporting issues relate to fiduciary funds, including reporting individual fiduciary funds directly in the base financial statements rather than by fund type, and not disclosing in the financial statements notes the results of individual pension plans when separate GASB financial statements have not been issued. Other than required information, there has been limited note disclosure on discretely presenting component units, Driscoll said. The most prevalent presentation is individual columns in the government-wide financial statements. GASB 34 and 38 provide for additions and modification to note disclosures. Notes should focus on governmental business-type activities, major funds and non-major funds in aggregate. Many general governments use the GFOA Blue Book for language and format, Driscoll said. In addition, audit issues involve transitioning from rendering an audit opinion by fund type to a more discrete opinion unit level. Moving forward, the auditors will have to assess their level of work and the materiality at the level of the opinion unit rather than the fund type, he said. Dan Horan, managing partner with Horan Martello Morrone P.C., in Hauppauge, N.Y., is a member of the Society’s Government Accounting and Auditing Committee.
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