Governmental Update

Elizabeth Thyer, CPA, Partner

One of the issues facing our clients last year was the Opioid Settlement. The State of Iowa and counties within the state settled claims relating to the misleading and fraudulent conduct of certain prescription drug companies and pharmaceutical distributors. Local governments began receiving settlement payments during the fiscal year ended June 30, 2023 and will continue to receive these payments for the next seventeen years.

These opioid settlement funds are to be used for activities to remediate the opioid crisis and treat or mitigate opioid use disorder and related disorders through prevention, harm reduction, treatment and recovery services. There will be additional settlements to be considered for the fiscal year ended June 30, 2024 including the CVS settlement, the Walgreens settlement and the Walmart settlement.

As counties are reporting these settlement amounts, the entire amount will need to be reported as an opioid settlement receivable and related deferred inflows of resources. As settlement payments are received, the county should record the revenue and decrease the receivable amount.

The counties should have established a separate general ledger fund to account for the opioid settlement funds. The Chart of Accounts has been updated to include opioid settlement revenue and expenditure codes. Object codes including codes for opioid settlement administration expenditures, expenditures for naloxone or other FDA approved drugs to reverse opioid overdoes and prevention programs, etc. have been established. This Opioid Settlement Fund should be reported as an Other Special Revenue Fund with a Restricted Fund Balance for budget and reporting purposes.

Something new for the audit of the fiscal year ended June 30, 2024 will be the implementation of Governmental Accounting Standards Board Statement 100, Accounting Changes and Error Corrections. This standard defines accounting changes as a change in accounting principle, a change in accounting estimate or a change to or within the financial reporting entity.

A change in accounting principle should be applied consistently and generally refers to a change from one generally accepted accounting principle (GAAP) to a new GAAP when the new GAAP is preferable or when a new pronouncement is implemented. A change in accounting estimate happens when amounts subject to measurement uncertainty are recognized or disclosed in the financial statements and the inputs have changed. A change to or within the reporting entity happens when a fund is added or removed resulting from the movement of continuing operations, a fund is reclassified between major and nonmajor status or a component unit is added or removed or changed presentation between a blended component unit and a discretely presented component unit.

This new standard also refers to the correction of errors. An error as defined by this standard is comprised of a mathematical miscalculation, a misapplication of an accounting principle or oversight or misuse of facts related to conditions that existed as of the financial statement date, facts that existed at the time the financial statements were issued or facts reasonably expected to have been obtained and taken into account before the financial statements were issued.

Changes in accounting principle will be reported retroactively by restating prior periods presented, if practical while if it’s not practical only the beginning balances of the current period will be restated. Changes in accounting estimates will be reported prospectively. Changes to or within the reporting entity will be reported by adjusting current period beginning balances and error corrections will be reported retroactively be restating prior periods presented. Footnote disclosures will be included to provide more details regarding the change.