College and University Auditors of Virginia Annual Conference May 22, 2012

College and University Auditors of Virginia

Annual Conference

May 22, 2012

Financial Statement Issues

• Audit Report Changes• Group Audits and Foundations• Pension Accounting • Other Information in Documents Containing

Audited Financial Statements• Service Organization Control Reporting• Revised GAGAS (Yellow-book)

Auditor of Public Accounts 2

Audit Report Changes

• Opinion Letter will have some changes and be slightly reorganized– No reference to auditor or management responsibility in

the introduction paragraph– New Section: “Management’s Responsibility for the

Financial Statements”– New Section: “Auditor’s Responsibility”– Opinion Paragraph will be preceded with heading:

“Opinion”– If it’s a modified opinion: an additional heading is

required (e.g. – “Basis for Qualified Opinion”)Auditor of Public Accounts 3

SAS 122: 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 Auditors

must be communicated to us• We can either include Component Unit Findings

in the Business Unit Report or reference the CU report

4

Group Audit and Foundations

Question: What is the Group?

APA Answer:

The Institution of Higher Education and all of its Foundations, that comes to a Total Column.

Where does this Answer Come From?



Q—How would a reporting entity display the financial statements of a component unit that uses a GAAP reporting model other than the governmental model? A—Component units that use other GAAP reporting models would be incorporated into the reporting entity's financial statements generally in the same manner as governmental component units. As described in paragraph 43 of Statement 14 , all component units are required to apply the definition and display provisions of Statement 14 before they are combined with the primary government. In the reporting entity's statement of net assets, a discretely presented component unit's financial data may be presented in a separate discrete column or combined with the financial data of other discretely presented component units as described in paragraph 44 , as amended.



Similarly, in the reporting entity's statement of activities, a nongovernmental component unit's financial data may be presented on a separate line or combined with the financial data of other component units. The financial data of a nongovernmental component unit would be arrayed based on the same display considerations as those discussed for component units engaged only in business-type activities in question 7.26.6 of Chapter 7. If the reporting entity's financial statements do not include a statement of activities, the nongovernmental component unit's financial statement data should be reconfigured into a display that is compatible with the reporting entity's change statement format and be presented in a discrete column to the right of the financial statement data of the primary government.



However, if it is impractical to reformat the nongovernmental component unit's change statement data, they need not be reported on the same page as that of the primary government, but may be reported on a separate following page.


Exposure Draft: Financial Reporting for Pension Plans: an amendment of GASB Statement No. 25

Plan to issue Statement in June or July 2012


Pension Disclosure

• Universities will need to include all disclosure about Pension Plan in their financial statements.

• Plan on a significant increase in both time and cost to include this disclosure.

• Applies to all plans not just VRS.• No decision on effective date or whether it will

be phased in.


SAS 118: Other Information in Documents Containing Audited Financial Statements

Effective for Fiscal Year 2012 Audits

(Periods beginning on/after December 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 (not likely)


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 management refuses; communicate 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


SSAE 16: Service Organization Control Reporting

Replaces SAS 70 Reporting on Outsourced Services

Two types:

Type I (SOC1)

Type II (SOC2)

Relevant to those Relying on Campus Partners or other outsourced service providers


SOC I vs. SOC II

Report Contents Type I Type II

Independent service auditor’s report (opinion)

Service organization’s description of its system and controls

Information provided by 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 increased auditor judgment

• Independence Determination


Questions?

Walter J. Kucharski

[email protected]

19Auditor of Public Accounts

mailto:[email protected]