2018 Audit Wrap Up Presentation and Discussion UNLV Medicine, Inc - NSHE Board of Regents
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2018 Audit Wrap Up
Presentation and Discussion
NSHE Board of Regents –
UNLV Medicine, Inc.
October 2018
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 1 of 38
Our Values are CLEARR
To achieve our global vision, we capitalize on our strengths by
embracing the following values:
• Unite through global Collaboration
• Demonstrate Leadership in all we do
• Promote a consistent culture of Excellence
• Act with Agility
• Ensure deep Respect for people
• Take Responsibility for our actions
Our values serve as the foundation of each step we take toward
achieving our vision. They guide our decision-making and provide a
framework for our people to make correct and appropriate choices.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine October 2018 1
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 2 of 38
Our Responsibilities
We are responsible for:
• Performing an audit under US GAAS and US GAGAS of the financial statements prepared by management, with your oversight .
• Forming and expressing an opinion about whether the financial statements are presented fairly, in all material respects in accordance with US GAAP
• Reporting on material non-compliance related to laws, regulations, contracts and grant agreements, as well as significant deficiencies and/or material
weakness in internal control related to financial reporting.
• Communicating specific matters to you on a timely basis.
An audit provides reasonable, not absolute, assurance that the financial statements do not contain material misstatements due to fraud or error. It does not
relieve you or management of your responsibilities. Our respective responsibilities are described further in our engagement letter.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine October 2018 2
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 3 of 38
Those Charged With Governance and
Management Responsibilities
Those Charged with Governance are responsible for: Management is responsible for:
• Overseeing the financial reporting process • Preparing and fairly presenting the financial statements including
• Setting a positive tone at the top and challenging the Organization’s supplementary information, Management’s Discussion and
activities in the financial arena Analysis, in accordance with US GAAP
• Discussing significant accounting and internal control matters with • Designing, implementing, evaluating, and maintaining effective
management internal control over financial reporting
• Informing us about fraud or suspected fraud, including its views • Communicating significant accounting and internal control matters
about fraud risks to those charged with governance
• Informing us about other matters that are relevant to our audit, such • Providing us with unrestricted access to all persons and all
as: information relevant to our audit
- the Organization’s strategies and related business risks that • Informing us about fraud, illegal acts, significant deficiencies, and
may result in heightened risks of material misstatement material weaknesses
- Matters warranting particular audit attention • Adjusting the financial statements, including disclosures, to correct
- Significant communications with regulators material misstatements
- Matters related to the effectiveness of internal control and your • Informing us of subsequent events
oversight responsibilities • Providing us with written representations
- Your views regarding our current communications and your
actions regarding previous communications
2018 Presentation to the NSHE Board of Regents – UNLV Medicine October 2018 3
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 4 of 38Audit Timeline & Scope
• Client acceptance
March/April 2018 Client acceptance • Engagement letter
• Meet with management to confirm expectations and discuss
April 2018 Planning business risks
• Discuss scope of work and timetable
Preliminary risk assessment • Develop audit plan that addresses risk areas
June 2018 • Update understanding of internal control environment
procedures
• Perform walk-throughs of business processes and controls
August - September 2018 Year-end fieldwork
• Perform substantive testing on all balances
• Perform final audit procedures
October 2018 Final fieldwork and deliverables • Prepared presentation of results to the Audit Committee
2018 Presentation to the NSHE Board of Regents – UNLV Medicine October 2018 4
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 5 of 38Materiality
Materiality is the magnitude of an omission or misstatement that likely influences a reasonable person's judgment. It is ordinarily evaluated against
relevant financial statement benchmarks.
We believe that total revenues is the relevant benchmark for UNLV Medicine.
Financial statement items greater than materiality are within our audit scope. Other accounts or classes of transactions less than materiality may be
in our scope if qualitative risk factors are present (for example, related party relationships or significant unusual transactions).
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 5
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 6 of 38Significant risks
The following provides an overview of the areas of significant audit focus based on our risk assessments.
Area of focus Procedures
Net patient service revenue Performed control and process walkthroughs to obtain an understanding of design
• Revenue recognition effectiveness.
• Patient service receivable
Analytically reviewed patient service by average invoice, department, and other
• Accrued patient service receivable and revenue
relevant ratios.
• Allowance for contractual adjustments
• Allowance for doubtful accounts Performed detail testing on patient service revenue and receivable through sampling
• Contractual expenses to determine proper recognition based on service performed and evidencing
• Bad debt expense recognition subsequent collection of cash receipt.
• Patient refunds
Performed detail testing on patient service accrued revenue and receivable to
determine proper recognition.
Assessed the adequacy of management’s calculation of allowance for contractual
adjustments and bad debt reserve estimates by utilizing current year actual
collections.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 6
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 7 of 38Significant risks
The following provides an overview of the areas of significant audit focus based on our risk assessments.
Area of focus Procedures
Pharmacy revenue Performed control and process walkthroughs to obtain an understanding of design
• Revenue recognition effectiveness.
• Pharmacy accounts receivable (other receivables)
Performed detail testing on pharmacy revenue and receivables through sampling to
determine proper recognition based on prescription ordered and filled and evidencing
subsequent collection of cash receipt.
Assessed for appropriate cut-off by selecting a sample of transactions before and
after year-end.
Contract revenue Performed detail testing on contract revenue through sampling to determine proper
• Revenue recognition recognition based on service and contract rates and subsequent cash collection.
• Contract receivables
Confirmed outstanding contracts receivables selected for testing.
Assessed for appropriate cut-off.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 7
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 8 of 38Significant risks
The following provides an overview of the areas of significant audit focus based on our risk assessments.
Area of focus Procedures
Other revenue – Medicaid incentive payments, grant revenue and UMC mission Performed control and process walkthroughs to obtain an understanding of design
support effectiveness.
• Revenue recognition
Performed detail testing on other revenue through sampling to determine proper
• Accounts receivable (other receivables)
recognition based expenses incurred or services performed and evidencing
subsequent collection of cash receipt.
Assessed for appropriate cut-off by selecting a sample of transactions before and
after year-end.
Management override of controls Performed control and process walkthroughs to obtain an understanding of operating
and design effectiveness.
Tested completeness of the journal entry population.
Performed substantive testing through extractions based on the criteria determined
through assessing the risks of the Organization.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 8
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 9 of 38Other key areas of focus
The following provides an overview of the areas of significant audit focus based on our risk assessments.
Area of focus Procedures
Property and Equipment, net Performed control and process walkthroughs to obtain an understanding of design
• Proper accounting for capitalization effectiveness.
• Proper accounting for lease agreements
Statistically sampled all capital asset additions for appropriate useful life, date placed
into service, and appropriate capitalization.
Obtained and reviewed all related contract and memos related to transition of
operations to the South from UNRSOM and ICS to UNLVSOM and subsequently
UNLV Medicine.
Tested the acquisition of both southern assets and Mojave pharmacy, noting
acquisition was appropriately reflected in the financial statements and acquired from
a loan with UNLVSOM.
Reviewed the capitalization guidance for the implementation of EPIC and its related
billing system, Resolute.
Reviewed all space utilization expenses and accruals and subsequent leasehold
improvements with management and UNLVSOM.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 9
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 10 of 38Other key areas of focus
The following provides an overview of the areas of significant audit focus based on our risk assessments.
Area of focus Procedures
Investment to and from affiliates Performed control and process walkthroughs to obtain an understanding of design
• Identification and disclosure of related party transactions effectiveness.
Performed detail testing on related party transactions, including but not limited to:
long-term loan from UNLVSOM for general operations, long-term loan from
UNLVSOM for fixed assets, and physician service expenses incurred.
Confirmed related party transactions for appropriate disclosure in the financial
statements and to verify the listings provided were complete.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 10
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 11 of 38Technology support as part of the
audit process
Understand and
Identify IT controls
document business Assess design
Assess IT risks that support audit
processes material to effectiveness of IT
objectives
the audit controls
Phase 1 Phase 2 Phase 3 Phase 4
An important component of our audit approach is to understand how IT is used in supporting business operations and producing financial reports. Our technology
specialists place particular emphasis on the risks relating to the use of technology and its associated controls, processes and practices.
Our general controls review evaluates the design of controls that mitigate risk in areas such as organization and operations, protection of physical assets,
application systems development and maintenance, access controls and computer operations. The in-scope systems for 2018 were Centricity Business (patient
service billing and EMR), QS1 (pharmacy inventory and billing) and SAGE2017 (general ledger). Control deficiencies were noted and provided to management.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 11
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 12 of 38Summary of Misstatements
Increase (Decrease) to:
Description Assets Deferred Outflow Liabilities Net Assets Revenue Expenses
Material, corrected misstatements - Auditor identified
To reclassify cash balance that is due from ICS
Other Receivables 53,037
Cash on Hand (53,037)
To reclass entire lease accrual from AP to I/C AP
Accounts Payable (335,436)
Interco A/P - General 335,436
To reverse the gift account and properly record contribution revenue and operating expense
Gift Account - General (380,112)
IndContr - General 33,888
Gift General 414,000
To record the financial statement disclosure adjustment - Topside AJE # 1
Unrestricted net assets (380,112)
Restricted net assets 380,112
To reclassify the Mojave purchase from PPE to deferred outflow
Pharmacy Purchase - General (445,000)
Deferred Outflow 363,110
Amortization 81,889.67
To record the financial statement disclosure adjustment - Topside AJE # 2
Pharmacy Purchase - General $75,000
Furniture and equipment $75,000
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 12
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 13 of 38Summary of Misstatements
Description Assets Deferred Outflow
Increase (Decrease) to:
Liabilities Net Assets Revenue Expenses
Material, corrected misstatements - Auditor identified - continued
To increase the allowance for doubtful accounts balance
Bad Debt Expense 287,582
Allowance for Doubtful Accounts (287,582)
To increase the allowance for contractual adjustment balance
Contractual Adjustment Expense 653,035
Allowance for Contractual Adjustment (653,035)
To reallocate contractual and bad debt expense based on the detail reports and correct allowance balances
Bad Debt Expense 625,312
Contractual Adjustment Expense (625,312)
To net down accounts recievable based upon unapplied cash receipts by patient medical record number and payment fsc (federal supply code)
Patient Refund (271,539)
Patient Service AR 271,539
To reclass short-term portion from long-term portion of UNLV loan
Due to Aflliate (1,367,000)
Due to Aflliate - Noncurrent 1,367,000
To remove assets aquired through debt from net assets - Topside AJE # 3
Invested in capital assets, net of related debt (1,025,594)
Unrestricted 1,025,594
Net impact $ (1,032,188) $ 363,110 $ (651,651) $ - $ 414,000 $ 974,505
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 13
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 14 of 38Summary of Misstatements
Increase (Decrease) to:
Description Assets Deferred Outflow Liabilities Net Assets Revenue Expenses
Uncorrected misstatements - Auditor identified
To reverse over accrued for rent at location 5380 S. Rainbow at location 5380 S. Rainbow
Accounts payable (50,382)
Rent Expense (50,382)
To reverse over accrued for rent at location 4000 E Charleston
Accounts payable (7,658)
Rent Expense (7,658)
To correct gross patient service revenue bad debt expense for a charge correction
Bad Debt Expense 132,462
Patient Service Revenue (132,462)
To reclassify related party accounts recievable (included as contract recievable) related to federal grants and contracts with UNLV
and NSHE as pass through from UMC from $275,000
Due from Affliates 275,000
Due to Aflliates 275,000
Due from Affliates 428,046
Other Recievable (428,046)
To record accrued revenue based on ackerman patient service revenue's cut-off testing.
Total CB Accounts Receivable 74,013
FFS Clinic Charges 74,013
Net Impact $ 349,013 $ - $ 216,960 $ - $ (58,449) $ 74,422
Management believes the uncorrected misstatements are immaterial to the financial statements. Uncorrected
misstatements could be potentially material to future periods. As such, we request that these uncorrected
misstatements be corrected.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 14
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 15 of 38Other Required Communications
Professional standards require that we communicate the following matters to you, as
applicable.
Going concern matters None noted.
Fraud and noncompliance with laws and regulations None noted
Significant deficiencies and material weaknesses in Refer to the Appendix and to the Summary of Findings in the Compliance section of the
internal control over financial reporting financial statements.
Use of other auditors None noted
Use of internal audit None noted
Related parties and related party transactions Refer to the Appendix slides.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 15
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 16 of 38Other Required Communications
(continued)
Disagreements with management None noted.
Management's consultations with other accountants None noted.
Significant issues discussed with management Refer to Appendix slides.
Significant difficulties encountered during the audit Refer to Appendix slides.
Other significant findings or issues that are relevant to you and your None noted.
oversight responsibilities
Modifications to the auditor's report None noted.
Other information in documents containing audited financial Noted noted.
statements
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 16
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 17 of 38Quality of Accounting Practices
Accounting policies We are not aware of any significant/unusual transactions recorded by the Organization or of any significant accounting policies
used by the Organization related to controversial or emerging areas for which there is a lack of authoritative guidance.
The accounting policies are disclosed in Note B of the financial statements and appear appropriate.
Accounting estimates We believe the following represent particularly sensitive accounting estimates*:
• Lookback patient service revenue (e.g. accrued revenue)
• Allowance for doubtful accounts on patient service revenue
• Allowance for contractual adjustments on patient service revenue
*Certain accounting estimates are particularly sensitive because of their significance to the financial statements and
because of the possibility that future events affecting them may differ markedly from management's current
judgment
Disclosures The disclosures appear to be complete and consistent with US GAAP. Further, the disclosures provide clarity and accurately
represent the transactions recorded and balances reflected at year end.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 17
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 18 of 38Deliverables
Deliverables
Communicate relevant technical audit, accounting, internal control, and Refer to the Appendix.
regulatory-related matters
Opinion on the 2018 financial statements The opinion is included in the financial statements.
Communicate any identified control deficiencies or recommendations Refer to the Appendix and to the Summary of Findings in the
for management Compliance section of the financial statements.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 18
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 19 of 38Audit Wrap Up Presentation
Appendix
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 20 of 38Significant issues discussed with
management
A primary focus of the 2018 audit included:
• Identification and disclosure of related party transactions
• During the year, there were transactions with UNRSOM, ICS, UNLV, and UNLVSOM and operating agreements
• Accounting treatment and capitalization of the EPIC software implementation and the Mojave Pharmacy purchase.
• Review of the internal accounting policies in comparison to US GAAP, noting issues with establish allowances for both contractual adjustments and
bad debt, based on evaluating collectability as of June 30, 2018.
• Contractual and bad debt allowance methodology, analysis, and adjustments
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 20
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 21 of 38Significant difficulties encountered
during the audit
In 2018, there were post-close entries that were identified by the audit team in addition to passed adjusting entries, summarized under “Summary
of Misstatements” slide. In summary, there were 12 posted adjusting entries identified during audit fieldwork.
The financial statement draft submitted for audit required several rounds of commentary by the audit team to reflect accurate information. This
included incorrect references to other entities (particularly, ICS), footnotes that did not agree to the financial statements nor the audit support
provided during fieldwork (e.g. property and equipment, net and capital leases), and incomplete disclosures (related party transactions).
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 21
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 22 of 38Internal Control Matters
Responsibility
We are responsible for obtaining reasonable assurance about whether the financial statements are free of material misstatement. Our audit included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our
opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization's internal control. Accordingly, we
express no such opinion. Control deficiencies that are of a lesser magnitude than a significant deficiency will be communicated to management.
Definitions
• A deficiency in internal control ("control deficiency") exists when the design or operation of a control does not allow management or employees, in the normal
course of performing their assigned functions, to prevent or detect, misstatements on a timely basis.
• A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement
of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
• A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to
merit attention by those responsible for oversight of the organization's financial reporting.
Refer to the Summary of Findings for details on the internal control matters identified as of June 30, 2018.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 22
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 23 of 38Related Party Transactions
Nature of related party relationships
The Organization has various transactions with the University of Nevada, Las Vegas School of Medicine (UNLVSOM):
• UNLV Medicine reimburses UNLVSOM for physician salaries and records related expenses
• UNLVSOM provided long-term loans for general operations (LOC with US Bank) and purchase additional fixed assets
• UNLVSOM grants UNLV Medicine access to facilities without a full lease agreement in place
• UNLSOM has contracts with UNLV Medicine for sports clinic, student health, and obstetrics and gynecology
• UNLV is a pass through entity for federal grants
The Organization had various interactions with University of Nevada, Reno (UNR) and its related practice plan, Integrated Clinical Services, Inc. (ICS) as a result of
the transition of southern operations:
• UNLVSOM/UNLV purchased assets from ICS for a purchase price of $617,102.
• The Organization bought the operation and specific assets of the pharmacy to UNLVSOM for $520,000.
• UNLVSOM / UNLV Med paid for the pharmacy inventory and medical supplies of $417,290 and $191,718, respectively.
• UNLVSOM/ UNLV Med entered into an agreement with ICS/UNR regarding support for Mojave billing services and access for to the electronic medical record
billing system. These services were provided for the entire twelve months of FY18.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine October 2018 23
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 24 of 38Commitment to Promote Ethical and
Professional Excellence
We are committed to promoting ethical and professional excellence. To advance this commitment, we have put
in place a phone and internet-based hotline system.
The Ethics Hotline (1.866.739.4134) provides individuals a means to call and report ethical concerns.
The EthicsPoint URL link can be accessed from our external website or through this link:
https://secure.ethicspoint.com/domain/en/report_custom.asp?clientid=15191
Disclaimer: EthicsPoint is not intended to act as a substitute for a company's "whistleblower" obligations.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 24
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 25 of 38Audit Wrap Up Presentation
Technical Updates – GASB
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 26 of 38Selected pronouncements effective for the year ending
June 30, 2019 or subsequent periods - GASB
Title Effective date
GASB 84- Fiduciary Activities Periods beginning after December 15, 2018
GASB 87- Leases Periods beginning after December 15, 2019
GASB 88- Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements Periods beginning after June 15, 2018
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 26
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 27 of 38GASB Statement 84, Fiduciary Activities
Summary Potential impact
• Guidance addresses the following: Currently, the Organization acts as a fiduciary
- The categorization of fiduciary activities for financial reporting for patients of Mojave Client Trust.
- How fiduciary activities are to be reported
- When liabilities to beneficiaries must be disclosed Under this new requirement, the Organization
must report the fiduciary activity on its financial
• Types of fiduciary funds that must be reported include the following:
statements, where it may not have done so in
- Pension (and other employee benefit) trust funds the past. Management should identify which
- Investment trust funds fiduciary activities it is engaged in to inventory
- Private-purpose trust funds the relationships which may need to be
- Custodial funds reported. Management may want to consider
changing the terms of the relationships such
• A government controls the assets of an activity if it holds the assets or "has the ability to direct the use, that they are not subject to reporting on the
exchange or employment of the assets in a manner that provides benefits to the specified or intended financial statements of the Organization when
recipients" the requirement becomes effective.
• Fiduciary activities must be disclosed in the basic financial statements of the government entity and a
statement of fiduciary net position and changes in fiduciary net position should be presented (unless the
period of custody is less than three months).
• Effective for periods beginning after December 15, 2018, with early adoption encouraged.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 27
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 28 of 38GASB Statement 87, Leases
Summary
• The GASB recently issued guidance which resembles the recently issued FASB guidance on leases.
• To determine whether a lease exists, a government should assess whether it has both:
1) The right to obtain the present service capacity from use of the underlying asset as specified in the contract, and
2) The right to determine the nature and manner of use of the underlying asset as specified in the contract
• For Lessees:
- In general, all leases will be reported on the statement of net position (the distinction between operating and capital leases is no longer relevant) as a
"right of use" asset and a corresponding lease liability within long term debt
- On the statement of changes, rent expense will be replaced by amortization expense of the right-of-use asset as well as interest expense on the lease
liability (thus accelerating expenses in the beginning years of the lease term)
- There is an exemption for short term leases (those with a term of 12 months or less, including extension options) as well as leases that transfer
ownership at the end of the term
- Disclosures regarding matters such as total leased assets by major class of underlying assets and related accumulated amortization (in total), principal
and interest payments for each of the five subsequent fiscal years and in five year increments thereafter and commitments under leases before a
lease commencement period, among other items
• Effective for periods beginning after December 15, 2019, with early adoption encouraged. Existing leases will be adjusted based on the remaining lease
payments as of the beginning of the period of adoption or beginning of any earlier periods restated (for example, for June 30 year ends, adoption is June 30,
2021 so the beginning period is July 1, 2020).
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 28
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 29 of 38GASB Statement 87, Leases (continued)
Potential Impact
For those which use operating leases to finance certain capital activities, this standard could have a significant impact on the financial statements upon
adoption. Management should consider the impact on financial covenants, as well as ensuring a complete inventory of existing leases that will be subject to the
new accounting and disclosures.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 29
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 30 of 38GASB Statement 88, Certain Disclosures Related to Debt
Summary Potential impact
• Improves consistency of information presented in the footnotes with respect to long-term debt, and to Depending on the amount of information
distinguish it from other long-term liabilities in applying disclosure requirements. currently disclosed as it relates to debt, higher
• New guidance defines debt as "a liability that arises from a contractual obligation to pay cash (or other education institutions may find themselves
assets that may be used in lieu of payment of cash) in one or more payments to settle an amount that is having to augment existing footnotes to comply
fixed at the date the contractual obligation is established". with the standard, specifically as it relates to
direct borrowings, lines of credit, and other debt
• In addition to the existing debt disclosures, universities should disclose the following about all types of
instruments.
debt:
• Amount of unused lines of credit
• Assets pledged as collateral for debt
• Terms specified in debt agreements related to significant events of default or termination
events with finance-related consequences, as well as any subjective acceleration clauses
• Direct borrowings and direct placements of debt should be distinguishable from other types of debt for all
disclosures.
• Effective for periods beginning after June 15, 2018. Changes to adopt this standard should be applied
to all periods presented within the footnotes.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 30
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 31 of 38GASB projects
Project Timing
Financial Reporting Model- Reexamination of Statements 34, 35, 37, 41 and Preliminary Views to be issued in September 2018, planned issuance of final
46, and Interpretation 6 standard in 2022.
Revenue and expense recognition Preliminary Views expected in May 2020 (currently in redeliberations)
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 31
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 32 of 38GASB major project – Financial Reporting Model
Summary
• GASB is revisiting its reporting model established in GASB 34 and 35, as well as other GASB standards, following the FASB project to revisit the reporting model of
NFP entities.
• Although there is general consensus that most of the components of the financial reporting model are effective, the Board determined that there is a need to update
guidance related to several categories, focusing on the following:
- MD&A
- Government-wide financial statements
- Major funds
- Governmental fund financial statements
- Proprietary fund and business-type activity financial statements
- Fiduciary fund financial statements
- Budgetary comparisons
• Tentative Preliminary Views of note for colleges and universities (Preliminary Views to be issued in September 2018):
- Definition of non-operating activities includes i) subsidies received and provided, ii) revenues and expenses of financing, iii) resources from the disposal of
capital assets and inventory and iv) investment income and expenses
- A subtotal for "operating income/(loss) and noncapital subsidies"
- Government-wide schedule of natural classification of expenses would be presented as supplementary information (BTA activities by segment)
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 32
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 33 of 38GASB major project – Financial Reporting Model,
continued
Potential impact
Similar to the significant impact on reporting and disclosures when GASB 34 and 35 were issued, this proposed guidance could have sweeping effects on
the reporting and disclosures by public colleges and universities. Depending on how much the GASB looks to what was done by the FASB on the NFP
reporting model, there could be an increase in comparability between the two types of entities that currently use very different reporting models.
Three of the business type activities issues that the GASB is considering that are particularly relevant to public universities are guidance on the operating
indicator, MD&A and extraordinary and special items. Based on comments made by GASB representatives, one of the tentative preliminary views is to
present a subtotal for "operating income/loss and noncapital subsidies", which includes state appropriations. This is an accommodation to the request by
many constituents to include state appropriations as an operating revenue, which will not be changed based on tentative preliminary views. In addition,
the addition of a separate schedule of expenses by natural classification will highlight certain expenses that may receive additional scrutiny such as
salary/compensation expense. Depending on the ultimate guidance, universities may want to think about how the reporting of these expenses will be
captured to be accurately reported in the financial statements.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 33
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 34 of 38GASB major project – Revenue and Expense Recognition
Summary Potential impact
• Three primary areas of focus of the project are as follows: As it relates to recognition of
1. Common exchange transactions not specifically addressed in existing GASB guidance exchange and non-exchange
transactions such as grants vs
Project plans to develop guidance or improve existing guidance regarding
gifts vs contracts, there continues
i. Exchange and exchange-like transactions having single elements to be an element of judgment
ii. Exchange and exchange-like transactions having multiple elements and interpretation of existing
iii.The differentiation between exchange-like and non-exchange transactions GASB and FASB guidance. This
2. Post-implementation review of GASB 33 and 36 project could impact the current
practices of higher education
Areas to be considered include: institutions as it relates to
i. Distinguishing between eligibility requirements and purpose restrictions revenue recognition.
ii. Determining when a transaction is an exchange or a non-exchange transaction
iii. Using the availability period concept consistently across governments
iv. Applying time and contingency requirements
3. Development of GASB conceptual framework
GASB 33 and 36 were developed prior to key parts of the conceptual framework, such as defining deferred
inflows and outflows
An evaluation of the recognition of non-exchange transactions against the conceptual framework is necessary
• Invitation to Comment recently ended, currently in redeliberations, with Preliminary Views expected in May 2020.
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 34
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 35 of 38Audit Wrap Up Presentation
Technical Updates – Tax Reform
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 36 of 38Tax Reform: Unrelated Business Income
Summary Potential impact
Main provisions:
Planning anticipated on identifying and
- UBI separately calculated for each trade or business activity: separating activities, and making sure the
- Effective for tax years beginning after December 31, 2017 Organization is comfortable with position that
- Loss from one activity cannot offset income from another activity old losses generated are "good" losses from
- NOL deductions are allowed only with respect to the activity from which the loss was derived activities with profit motives
- The changes do not effect NOLs arising in a tax year beginning before January 1, 2018, these
losses can be used to offset income from any activity.
- Increase in UBI by amount of certain fringe benefits provided tax-free to employees:
- Qualified transportation fringe benefits
- Parking
2018 Presentation to the NSHE Board of Regents – UNLV Medicine, Inc. October 2018 36
(AUDIT & COMPLIANCE COMMITTEE 11/29/18) Ref. A-6a, Page 37 of 38This communication is intended solely for the information and use of management and
those charged with governance of NSHE Board of Regents – UNLV Medicine, Inc. and
is not intended to be and should not be used by anyone other than these specified
parties.
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