Leases and Materiality Concepts in SFFAS 54 Implementation
Delve into the implications of forthcoming lease accounting changes, materiality considerations, and audit strategies. Understand SFFAS 54 guidelines and their impact on financial statements.
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Leases and Materiality Applying Materiality Concepts and Guidance in the Context of SFFAS 54 Implementation 1
Speakers Ricky Alan Perry, CPA, CGFM (moderator) Senior Analyst, FASAB Robert F. Dacey, JD, CPA, CGFM Chief Accountant, GAO; Member, FASAB Christi M. Dewhirst, CGFM Senior Financial Management Analyst, GSA D. Scott Showalter, CPA, CGFM, CGMA Professor of Practice, NC State; Member, IPSASB; Former Chair, FASAB 2
Disclaimer Views expressed are those of the speakers and presented for discussion and educational purposes only. They should not be construed as representing the official views of their respective organizations. Official positions of the Board are reflected in its official pronouncements only after extensive due process and deliberations. 3
Learning Objectives Understand the forthcoming changes to lease accounting and effects on the statements, the resulting line item risks and assertions, and materiality implications. Learn about applying materiality concepts and standards when auditing leases in year one of implementation (FY24), management and auditor responsibilities related to materiality and leases, and strategies for achieving audit objectives and mitigating audit risk. 4
SFFAS 54 Big Picture Pre-54 54 Off Short-Term Leases Intragovernmental Leases Balance Sheet Operating Leases Bright-line rules resulting in off-balance-sheet financing On Lease Assets / Liabilities Lease Rec / Unearned Rev Balance Sheet Capital Leases 5
Effects on the Statements Balance sheet Lease asset (49, 54) Lease liability (40) Statement of net cost Lease expense (23, 27, 37, 54) Interest expense (43) Lease receivable (56, 68) Unearned lease revenue (64) Underlying asset (66) Lease revenue (24, 28, 65, 67) Interest revenue (60) Statement of changes in net position Change in accounting principle adjustment to cumulative results of operations (96-97)* Red = lessee Blue = lessor (##) = SFFAS 54 paragraph *also see: SFFAS 21 par. 13, TR 20 par. 97-99 6
Line Item Assertions and Risks Accuracy Completeness Classification Existence Presentation/disclosure Rights/obligations Definitional Discounting Embedded leases Lease term Lease type Systems and controls 7
Materiality An overarching, fundamental concept applied in: the application of accounting requirements (management), and planning and performing fieldwork, evaluating misstatements (auditors) See: FASAB Preamble to the Concepts, SFFAC 1, and AU-C 320 8
Materiality Management Responsibilities Responsibility: Fair presentation in accordance with GAAP Without misstatements or omissions considered to be material Evaluate materiality in the context of the reporting entity Factors to consider when making materiality determinations User needs (internal and external) Documenting evaluations and judgments See: AU-C 210, AU-C 580 9
Materiality Auditor Responsibilities Responsibility: Obtain reasonable assurance about whether the statements, as a whole, are free from material misstatements Determine planning materiality SFFAS 54 affects the statements in the year of implementation and could thereby affect materiality base selections and calculations, with further cascading effects on risk assessment procedures risk of material misstatement, and the nature, timing, and extent of audit procedures Evaluate management s materiality determinations, decisions, evaluations, and related documentation Identify, communicate, and evaluate misstatements See: AU-C 200, AU-C 320, AU-C 450 10
Panel Discussion Anticipated challenges in year one Unique aspects of SFFAS 54 affecting materiality evaluations Responding in real time to unanticipated conditions, misstatements, and internal control deficiencies Planning and prevention strategies Applying materiality concepts and requirements in accordance with generally accepted auditing standards Other sage advice from the panelists 11
Post-Issuance Activities A Brief Update SFFAS 58 issued SFFAS 60 issued Technical Release 20 issued A few targeted and narrow proposals Omnibus Amendments: Technical Clarifications Addressing Lessee and Lessor Discount Rates and Sale-leasebacks ED out for comment Intragovernmental Lease-related Reimbursable Agreements working draft ED under development Training and outreach Government-wide implementation activities 12
Contact Ricky Alan Perry, Jr. PerryRA@fasab.gov Technical inquiries: https://fasab.gov/technical-inquiries-2/ Project pages: https://fasab.gov/projects/active-projects/leases/ https://fasab.gov/about-aapc/aapc-active-projects/leases-implementation/ Subscribe to the FASAB listserv Comment on exposure documents 14
