Financial Reporting and Auditing GASB Update
Krista Edoff, Partner
Course Objectives
Understand the accounting and financial
reporting of recently issued GASB standards
that are effective in the current and upcoming
years
Understand the projects currently being
assessed by GASB and the potential
implications for your organization in the future.
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GASB Effective Dates
Periods beginning after December 15, 2013
 GASB 69: Government Combinations and Disposal of
Government Operations
Periods beginning after June 15, 2014
 GASB 68: Accounting & Financial Reporting for
Pensions
 GASB 71: Pension Transition for Contributions Made
Subsequent to the Measurement Date – an
amendment to GASB68
Periods beginning after June 15, 2015
 GASB 72: Fair Value Measurement and Application
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GASB Statement 69
Government Combinations and Disposals of
Government Operations
Purpose
Objective is to improve financial reporting by
addressing accounting and financial reporting for
government combinations and disposals of
government operations
Guidance previously applied to government
combinations was developed for
nongovernmental entities and, therefore,
addressed conditions and circumstances that
would generally not be present in government
combinations
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Background
Transactions may involve:
 Combinations of legally separate entities, such as
• Governmental entity with other governmental entities
• Governmental entity with not-for-profit or for-profit entities if the
new or continuing organization is a government
 Government combinations also include mergers and
acquisitions of activities that comprise less than an entire
legally separate entity and involve only the assets and
liabilities previously used by an entity to provide specific
goods or services
An operation is an integrated set of activities
conducted and managed for the purpose of
providing identifiable services with associated
assets or liabilities
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Combinations
Definition
Combinations:
Consideration
Continuing Entity
One or more entities cease to exist and
their operations are absorbed into and
provided by one or more continuing
governments.
New Entity
Two or more entities cease to exist as
legally separate entities and are
combined to form one or more new
governments.
Governments agree to combine
operations and transfer assets and
liabilities to a new government.
Merger
No
Transfer of
Operations
No
A government transfers operations to
another existing government.
Acquisition
Yes
A government acquires another entity
or its operations in exchange for
significant consideration.
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N/A
Combinations
Accounting
Combinations:
Date
Merger - New
Merger - Continuing
Merger Date
Beginning of Reporting Period
Transfer - New
Transfer Date
Transfer - Continuing
Transfer Date
Acquisition
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Acquisition Date
Recognition
Carrying Value as reported in separate
financial statements of the merging entities
Carrying Value as reported in separate
financial statements of the merging entities
Carrying Value as reported in separate
financial statements of transferor entities
Carrying Value as reported in separate
financial statements of transferor entities
Acquisition Value - market based entry price
Exceptions to Acquisition Value
 Measure assets, deferred outflows of resources, liabilities, or deferred
inflows of resources related to the acquired entity’s financial statements as
follows:



Employment benefit arrangements, such as compensated absences, pensions, other
postemployment benefits, or termination benefits – use the accounting and financial
reporting requirements for state and local governments that are applicable to those
transactions to the extent such benefits are not terminated
Municipal solid waste landfill closure and postclosure care costs or obligations for
pollution remediation – use the accounting and financial reporting requirements for
state and local governments that are applicable to those transactions
Investments, including derivatives that are required to be reported at fair value, using
the accounting and financial reporting requirements for state and local governments
that are applicable to those transactions
 Deferred outflows of resources and deferred inflows of resources should be
measured at the carrying values previously reported by the acquired
government, except for those that relate to effective hedging arrangements
as provided for in paragraph 20 of Statement No. 53, Accounting and
Financial Reporting for Derivative Instruments
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Note Disclosures
 For each government combination (all types), the government
should include the following information in the notes to financial
statements:
 A brief description of the government combination, including
identification of the entities involved in the combination and
whether the participating entities were included within the same
financial reporting entity
 The date of the combination
 A brief description of the primary reasons for the combination
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Note Disclosures, Continued
 Government Mergers and Transfers of Operations - new
government or continuing government should disclose the following
information:
 The amounts recognized as of the merger date or the effective
transfer date as follows:
• (1) Total assets—distinguishing between current assets,
capital assets, and other assets
• (2) Total deferred outflows of resources
• (3) Total liabilities—distinguishing between current and longterm amounts
• (4) Total deferred inflows of resources
• (5) Total net position by component
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Note Disclosures, Continued
 Government Acquisitions - In the period in which an acquisition
occurs, the acquiring government should disclose the following
information:
 A brief description of the consideration provided
 The total amount of net position acquired as of the date of
acquisition
 A brief description of contingent consideration arrangements,
including the basis for determining the amount of payments that
are contingent
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Disposal of Operations
 Recognition:
 Recognize a gain/loss on
the disposal of operations
as a special item in the
period in which the
disposal occurs, based on
either the effective
transfer date of a transfer
of operations or the date
of sale for operations that
are sold
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 Disclosure:
 Identify the operations and
provide a brief description of
the facts and circumstances
leading to the disposal
 Disclose the following if not
separately presented in the
financial statements:
• Total expenses, operating
and non-operating
• Total revenues, operating
and non-operating
• Governmental fund
revenues and expenditures
Pension Accounting and Reporting
GASB Statements 68 and 71
GASB 68 Scope and Applicability
Applies to plans administered through trusts or
equivalent arrangements
Does not apply to OPEB
Statement No. 68 (Employers) is effective for
fiscal years beginning after June 15, 2014
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Employer Financial Statements
Single or agent employers, without a special
funding situation, recognize a liability equal to
the net pension liability
Single or agent plans with special funding
situations and cost-sharing plans recognize
proportionate share of the collective net pension
liability
 Determined by comparing employer’s projected longterm contribution effort to the collective projected
long-term contribution effort
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Employer Net Pension Liability
Measurement of the Net Pension Liability
Total pension liability
Less: Plan’s fiduciary net position
Net Pension Liability
Total pension liability - actuarial PV of projected
benefit payments attributed to past service
 Discounted, likely, to a rate of return lower than preGASB 67/68 requirements
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Measurement of Total Pension Liability
GASB 67/68 (new)
 Only entry age actuarial cost
method
 Fair value of investments used to
determine employer’s net pension
liability
 Projected benefits also includes
ad hoc postemployment benefits if
substantively automatic
 Discount rate based on long-term
expected rate of return only for
period that plan’s net position is
projected to be sufficient to make
benefit payments
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GASB 25/27 (old)
 Several different actuarial cost
methods
 Actuarial valuation of investments
used to determine employer’s
ARC
 Projected benefits only included
plan or contractually agreed to
benefits
 Discount rate based on
investment return assumption
Changes in Net Pension Liability
 Include in pension expense immediately
 Changes in total pension liability resulting from current-period service cost
and interest on total pension liability
 Changes in benefit terms and projected earnings on plan’s investments
 Defer recognition over a closed period based on service lives of all
active and inactive employees
 Changes of economic and demographic assumptions
 Differences between actual and expected experience
 Defer recognition over a five-year closed period
 Difference between projected earnings on plan investments and actual
experience
 Defer recognition for one year only
 Contributions made subsequent to the measurement date of the net
pension liability, but before the end of the reporting period
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Note Disclosures and RSI
 Note disclosures are expanded to include:
 More descriptive information on plan assumptions
 Information on the changes in the total pension liability and net
pension liability
 Calculation of discount rate, target allocation and long-term
expected rate of return by asset classes
 Net pension liability with a discount rate 1% higher and 1% lower
than the discount rate used
 New 10-year RSI tables will show trends:
 Schedule of changes in the net pension liability and related
ratios
 Schedule of contributions compared to required contributions
and related ratios
 Plans will show a schedule of the money-weighted rate of return
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Fair Value Measurement and Application
GASB Statement 72
Purpose
Objective is to improve financial reporting by
clarifying the definition of fair value, establishing
general principles for measuring fair value,
providing additional fair value application
guidance and enhancing disclosures about fair
value measurement
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Fair Value Measurement
 Defines fair value as “price received for asset or paid
for transfer of liability in an orderly transaction between
market participants at the measurement date”
 Fair value is an exit price at the measurement date
 Measurement of an asset or liability depends on the unit
of account of the asset or liability. The unit of account
is level at which asset or liability is
aggregated/disaggregated
 Valuation techniques: market, cost or income
approaches
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Fair Value Measurement
 Investments should be measured at fair value, except:

Investments in nonparticipating interest-earning investment contracts

Investment in unallocated insurance contracts

Money market investments

Participating interest-earning investment contracts maturing < 1 year

Investments in or held by 2a7-like external investment pools

Synthetic guaranteed investment contracts

Investments in life insurance contracts
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Fair Value Measurement
 Fair Value Hierarchy (Level 1, 2 and 3)
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
Level 1 – inputs are quoted prices in active markets for identical
assets

Level 2 - inputs are significant other observable inputs

Level 3 - inputs are significant unobservable inputs
Fair Value Measurement
 Fair Value Disclosures
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
Should be organized by type of asset or liability

For recurring and nonrecurring fair value measurement:
•
Fair value at end of reporting period (example, next slide)
•
Level of fair value hierarchy (example, next slide)
•
Valuation technique, and any changes, used in fair value measurement
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Future Projects
Current Projects
Listing on GASB website – Current Projects
Updated as of March 10, 2015
One new project added to date in 2015
Two projects continue to be on HOLD
All other projects have been updated in 2015
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Current Projects
In Deliberation
On Hold







 Conceptual Framework
 Economic Conditions
Reporting
OPEB
GAAP Hierarchy
Tax Abatement Disclosures
Lease Accounting
Fiduciary Responsibilities
Irrevocable Charitable Trusts
Blending Requirements for
Certain Bsn-Type Activities
 Asset Retirement Obligation
 External Investment Pools
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Conceptual Framework
Financial statements prepared using the economic
resources measurement focus, recognize and report
items when:
 The item meets the definition of an element
 The item is measurable with a sufficient degree of
reliability
Financial statements prepared using the current
financial resources measurement focus would be
replaced with “near-term financial resources
measurement focus”
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Economic Conditions Reporting
This project seeks to define fiscal sustainability
and require certain elements within the financial
statements to allow users to assess the
government’s fiscal sustainability.
Preliminary views called for management to
provide certain 5-year projected financial
information within the Statistical Section of the
financial statements.
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OPEB Project
Considerations to improve accountability,
transparency and usefulness of OPEB reporting
Reviewing accounting requirements,
disclosures, supplementary information and
other relevant information
Expect issuance of final Statement by June
2015, with plan implementation likely in 2016
and employer implementation likely in 2017
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GAAP Hierarchy Project
Possible Changes in Structure
 Fewer levels, reducing to two authoritative and one
nonauthoritative
 Level 1- would require formal GASB approval and
exposed to public comment (statements and
interpretations)
 Level 2- GASB technical bulletins, GASB
implementation guides and AICPA pronouncements
cleared by GASB
 Nonauthoritative - FASB Codification, GASB
Concepts Statements and other accounting literature
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Tax Abatement Disclosures
Examine potential disclosures of tax abatements
Items being considered:
 Tax abatement programs and agreements
 Current amount of tax abatements
Expect issuance of final statement August 2015
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Leases
Reexamine issues associated with lease
accounting
Items being considered:
 Are current standards appropriate?
 Should there be distinction between lease types?
Exposure draft issued November 2014;
statement expected to be final in November
2016
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Fiduciary Responsibilities
Examine financial reporting of fiduciary activities
Items being considered:
 Clarify private-purpose trust fund vs agency fund
 Clarify reporting for BTA engaging in fiduciary activity
 Consider requiring agency fund combining statement
Exposure draft is scheduled for issuance
October 2015
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Irrevocable Charitable Trusts
Project considers recognition, measurement and
disclosure of beneficial interests in resources
held by third parties outside the reporting entity
Project expands guidance on recognition,
measurement and disclosure for split-interest
agreements where the government or its CU
administer the assets
Exposure Draft expected for May 2015
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Blending Requirements
Scope of the project is to clarify blending
requirements, specifically for special purpose
governments:
 When governments are sole corporate members of
an LLC with no separate governing board
 When governments are sole corporate members of
an incorporated non-profit component units
Exposure Draft expected for June 2015
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Asset Retirement Obligation
Asset Retirement Obligation
 Other than landfills – power and sewer plants
 Propose definition from FASB Codification Topic 410
 Obligation would include legal, but not constructive
obligations
 Defines recognition and triggering events
Exposure Draft expected for December 2015
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External Investment Pools
This project looks to improve financial reporting
by external investment pools and pool
participants that report positions in investment
pools by addressing recognition and
measurement of investment pools and their
disclosures.
Exposure draft expected for June 2015.
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