Recent State of Texas legislation gives local governments the option of implementing, or not implementing, GASB Statement No. 45 on Other Postemployment Benefits (OPEB). The officials of your audit client, Travail County, are concerned that implementing GASB Statement No. 45 will lead to news media criticism of their long-standing commitments to pay substantial amounts of retiree health care insurance premiums, rating agency concerns or even bond rating downgrades, and, ultimately, recognition of large liabilities in the county’s Statement of Net Assets.
The county attorney’s opinion is that the county should not implement GASB Statement No. 45. “We’re not legally required to implement GASB Statement No. 45,” he notes, “so why should we do it, especially if it will be controversial?” One of the county commissioners is concerned, however, that the auditor may have to issue a qualified or even adverse opinion on the county’s financial statements. “Nonsense,” said another commissioner, a CPA who was in practice before becoming a county commissioner 14 years ago. “By state law we have the option to implement, or not implement, GASB S45. If we do implement, we comply with GAAP, and if we don’t, we are in compliance with what is known as a comprehensive basic of accounting other than GAAP, so the auditor’s report should not have to be qualified or adverse.” They then turn to you and ask, “How will our not implementing GASB S45 affect your auditor’s report on our financial statements?”
Based on this chapter and further research, including professional articles and Internet research (e.g., http://www.aicpa.org) draft a letter responding to these questions and concerns. Your letter should be specific with respect to the type of auditor’s report (opinion) that will be appropriate should the county not implement GASB S45.