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This report is intended solely for the use of management and the audit committee
Mission possible.
A Presentation to the Board of Directorsof the 2015 Audit Report of Financial Statements
Prepared for Midwest Reliability Organization
March 17, 2016
This report is intended solely for the use of management and the Board of Directors
This report is intended solely for the use of management and the audit committee
Presentation overview
> Your engagement team
> Audit results and our opinion
> Required communication
> What is a financial statement audit?
> Overview of fraud discussions held
> Summary of financial information
> Alerts
> Board Governance – Best Practices
> Questions
2This report is intended solely for the use of management and the Board of Directors
This report is intended solely for the use of management and the audit committee
Your engagement team
3
Nicki Donlon, CPA, Partner(612) [email protected]
David Kelley, CPA, Manager(612) [email protected]
This report is intended solely for the use of management and the Board of Directors
This report is intended solely for the use of management and the audit committee
Audit results and our opinion
> Cooperation was received from members of management
> The financial statements are fairly presented in Accounting Principles Generally Accepted in the U.S. (GAAP)
> All appropriate disclosures have been properly reflected in the financial statements and footnotes
> There were no unrecorded misstatements
> There were no journal entries as part of the audit process
4This report is intended solely for the use of management and the Board of Directors
This report is intended solely for the use of management and the audit committee
Required communication
> Conducted audit in accordance with Generally Accepted Auditing Standards
> Audit does not relieve management or the Board of their responsibilities
> Audit provides reasonable, but not absolute, assurance that financial statements are free of material misstatement
> Audit is not designed to provide assurance on internal control or to identify deficiencies in internal controls
5This report is intended solely for the use of management and the Board of Directors
This report is intended solely for the use of management and the audit committee
Required communication
> Audit was conducted as planned and previously communicated
> Management selects accounting policies
− No new policies and no changes to existing policies
> No significant and unusual transactions
> No other auditors’ opinions on GAAP
> Management representation letter
6This report is intended solely for the use of management and the Board of Directors
This report is intended solely for the use of management and the audit committee
Required communication
> Accounting Estimates:
− Prepared by management and based on current judgments and assumptions. Accounting estimates are sensitive because of their significance to their statements and because of the possibility that future events may cause actual results to differ from those estimates
• Actuarial calculation of postretirement medical benefit obligation (discount rate, expected rate of return on plan assets and health care cost trend rate)
We agree with management’s judgments related to such estimates
7This report is intended solely for the use of management and the Board of Directors
This report is intended solely for the use of management and the audit committee
Required communication
> We believe we are independent
> Other services performed
− Preparation of the tax return
> No difficulties, disagreements or significant issues with management
8This report is intended solely for the use of management and the Board of Directors
This report is intended solely for the use of management and the audit committee
What is a financial statement audit?
> Risk Assessment and Internal Controls− Walk through the organization’s controls to understand what controls are in place
• What is an example of a control?
− Fraud discussions (2 to 3 interviews performed each year to understand individuals’ views about the risk of fraud within the organization)
− Where controls may not be in place or fraud risks are apparent, we would plan additional substantive testing procedures for the audit to address those risks
> Obtain the Organization’s financial statements and perform substantive testing procedures− Test of details, utilizing scopes and sampling
− Analytical review
− Assertions: Existence, completeness, rights/obligation, valuation, accuracy, cut-off
9This report is intended solely for the use of management and the Board of Directors
This report is intended solely for the use of management and the audit committee
Overview of fraud discussions held
The auditing standards require that each year in connection with the audit and our risk assessment procedures, we make inquiries of those charged with governance, management and other employees about the risk of fraud within the Organization. Fraud is an intentional act that results in a material misstatement of financial statements that are being audited, or intentionally misappropriating assets that belong to the Organization. While fraud is difficult to detect, identifying risk factors assists the auditors in determining if fraud may be occurring or whether there is a heightened risk for fraud.
No additional risks for the audit were identified as a result of our fraud inquiries performed in the current year.
10This report is intended solely for the use of management and the Board of Directors
This report is intended solely for the use of management and the audit committee
Overview of fraud discussions held
Use professional judgment to determine which members of management and employees to interview, the extent of inquiries, and whether it is necessary to obtain corroborating information. The following are example questions used during our fraud interviews:
> How would you describe management’s values and ethical standards?
> Are you aware of any employees who are experiencing financial pressure?
> Are you aware of any actual or suspected instances of fraud within the Organization?
> Have you ever been asked to circumvent a control policy or procedure?
> Are you aware of any processes or types of transactions where there could be a higher risk for fraud?
11This report is intended solely for the use of management and the Board of Directors
This report is intended solely for the use of management and the audit committee
Summary of financial information
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2015 2014 2013
Assets $5,719,708 $5,365,419 $5,915,239
Liabilities 3,179,596 2,755,544 2,172,912
Equity 2,540,112 2,609,875 3,742,327
Revenue-operating 9,821,018 8,877,942 9,112,927
Expense-operating 9,834,545 9,768,940 8,737,175
Operating income (13,527) (890,998) 375,752
Postretirement medical benefit obligation – change other than net periodic costs
56,236 241,454 (194,304)
Change in net assets (69,763) (1,132,452) 570,056
This report is intended solely for the use of management and the Board of Directors
This report is intended solely for the use of management and the audit committee
Alerts
> Presentation of Financial Statements for Not-for-Profit Entities
> Revenue Recognition
> Leases
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This report is intended solely for the use of management and the audit committee
Proposed Accounting Standard Update: Not-Profit-Entities and Health Care Entities “Presentation of Financial Statements for Not-For-Profit Entities”
> Phase 1:− Net Asset Classifications
• Present net assets with restrictions and without restrictions
• Amounts and purpose of board-designated net assets
• Enhanced disclosures for underwater endowment funds
• Requirement of placed-in-service approach
− Improved disclosures when presenting operating measure
− Information useful in assessing liquidity
− Expenses• Expenses by function and analysis of expenses
by function and nature
• Netting of investment expense against return
• Disclosure of netted investment expense
• Enhanced disclosures about cost allocations
− Statement of Cash Flows• Methods of presenting operating cash flows
Alerts
14
This report is intended solely for the use of management and the audit committee
Proposed Accounting Standard Update: Not-Profit-Entities and Health Care Entities “Presentation of Financial Statements for Not-For-Profit Entities”
> Phase 2: Operating measure and realignment of items in the statement of cash flows
Phase 1 is expected to be finalized in the near term and Phase 2 is likely to require more time.
Alerts
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This report is intended solely for the use of management and the audit committee
Alerts
Revenue Recognition (Topic 606): Revenue from contracts with customers
> Five-step process to recognize revenue
> Required to apply for reporting periods beginning after December 15, 2017 for public companies and reporting periods beginning after December 15, 2018 for non-public companies
> Not-for-Profit AICPA Task Force identified five implementation issues:
− Tuition and housing
− Contributions
− Government grants
− Subscriptions and membership dues
− Bifurcation of transactions between contributions and exchange components
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This report is intended solely for the use of management and the audit committee
> Capitalize all leases
> Lessee:
− Right to use asset
− Lease obligation
> Lessor:
− Lease Revenue
− Lease performance obligation
> FASB expects to issue the final standard in early 2016.
> Effective for fiscal year 2021
− Early adoption is permitted
Leases
Alerts
17
This report is intended solely for the use of management and the audit committee
A board of directors is a body of elected or appointed members who jointly oversee the activities of an organization.
Some best practices in the area of governance over the financial statements include:
> Review and approval of financial statements on a periodic basis
− Utilization of committees to do a more thorough review is best practice, but there should be evidence that the full board is discussing as well
> Review and approval of the Form 990 (annually)
> Review and approval of the budget
> Understanding of the internal controls of the organization
Board Governance – Best Practices
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This report is intended solely for the use of management and the audit committee
19
This report is intended solely for the use of management and the audit committee
Alerts
Sign up for thought leadership> Visit bakertilly.com/insights/subscribe
> Complete the required form fields
> Check the boxes next to your areas of interest
> Select “Submit”
20This report is intended solely for the use of management and the Board of Directors
