Governmental Accounting Standards Board (GASB) Statement 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, was implemented for years beginning after June 15, 2014. GASB 68 was subsequently amended by GASB Statements 71, 73, 75, 78, 82 and 85.
Although GASB 68 is not new, it may be unfamiliar to those CPAs whose auditing experience is limited to local auditees (local governments and quasi-public organizations) that are not participating employers - whose employees do not participate in the Louisiana state or statewide retirement systems.
Before performing their first audit of a local auditee that is a participating employer, the Louisiana Legislative Auditor (LLA) recommends CPAs take the following steps to familiarize themselves with GASB 68:
1. Review the GASB Pension Implementation Toolkit for Governments for links to the GASB 68 original pronouncement, implementation guide, videos, fact sheets, articles, podcasts, and other useful information. (http://www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176163527940)
2. Review Chapter 13 of the AICPA Audit and Accounting Guide State and Local Governments, available for purchase on the AICPA’s website. https://www.aicpastore.com/AuditAttest/EnhancingAuditQuality/state-and-local-governments---audit-and-accounting/PRDOVR~PC-012665/PC-012665.jsp)
3. Obtain an understanding of the journal entries for the initial year of GASB 68 implementation, as well as the journal entries for subsequent years. Some amounts are amortized over time, and will affect both current and subsequent years’ journal entries.
LLA cannot recommend a single illustrative journal entry for use in all situations, but there are many examples available on the public domain. Illustrative journal entries with amounts from actual or simulated pension system reports may be the most useful to the practitioner.
4. Obtain an understanding of the note disclosures and required supplementary information (RSI) required by GASB 68. Again, LLA cannot recommend examples of illustrative note disclosures or RSI schedules, but examples are available on the internet.
5. If auditing a participating employer in a governmental cost-sharing multiple-employer pension plan, review the guidance in AU-C 9500.23-29 relative to the responsibilities of the auditor; if auditing a participating employer in a governmental agent multiple employer plan, refer to AU-C 9500.30-36.
6. If local auditee personnel are unfamiliar with the standard, have a discussion with management about the effect implementation of GASB 68 will have on the agency’s financial statements. GASB issued a plain language article in June 2012 titled New GASB Pension Statements to Bring about Major Improvements in Financial Reporting. This article is included in the GASB Toolkit referenced in (1), and may serve as a useful starting point for the discussion.
7. When auditing a nonprofit that reports on the FASB model and also participates in one of the state or statewide multiple employer pension systems, the CPA should refer to FASB ASC 715-80-35 and FASB ASC 715-80-50 for guidance in how the nonprofit agency should report its participation in the pension system.
INFORMATION TO KEEP IN MIND:
- All Louisiana state and statewide pension systems, with the exception of the Louisiana State Police Retirement System, are cost-sharing multiple employer systems.
- All Louisiana cost-sharing multiple employer state and statewide pension systems issue audit reports, separate from the normal pension system audit reports, from which the amounts for beginning and ending net pension liabilities, deferred outflows, deferred inflows, pension expense, employer allocations, and information for note disclosures, for the system as a whole and for each participating employer may be obtained.
Links to these GASB 68 reports may be found on LLA's website. All systems’ audit and GASB 68 reports are also available on the LLA Audit Report Library6. Please note that these reports may not include all elements recommended by the AICPA, and the impact of changes in proportion or proportionate share of contributions may need to be manually calculated for participating employers.
PLEASE NOTE THAT THE GUIDANCE LLA IS PROVIDING IS NOT AUTHORITATIVE, AND IS NOT INTENDED NOR DESIGNED TO REPLACE AUDITOR JUDGEMENT OR GUIDANCE FROM THE GOVERNMENTAL ACCOUNTING STANDARDS BOARD. SPECIFIC CIRCUMSTANCES AND CONDITIONS MAY AFFECT AN AGENCY’S REPORTING FOR ITS PENSION LIABILITY.
IT IS ULTIMATELY THE RESPONSIBILTY OF THE AGENCY TO ENSURE THAT ITS FINANCIAL STATEMENTS ARE CORRECT; AND THE RESPONSIBILITY OF THE AGENCY’S AUDITOR TO DETERMINE THAT THE AGENCY’S FINANCIAL STATEMENTS ARE MATERIALLY CORRECT, OR TO APPROPRIATELY MODIFY THE OPINION.
A CPA or local auditee that has questions regarding GASB 68 implementation may call LLA Local Government Services staff.
Questions:
- Why doesn’t the Legislative Auditor provide its own illustrative GASB 68 journal entry for local auditees in Louisiana?
- Previous to implementing GASB 68, most of my local government clients were reporting a positive net position balance; since implementation, most are reporting deficits. Some of them are very upset about this. They are also upset about the additional cost to audit the GASB 68 calculations. They have asked me if they can opt out of implementing this standard. What are the consequences for a local government agency that chooses not to implement GASB 68?