GASB Updates
David Bullock, CPA, CGMA
Partner
September 12, 2014
GASB Updates
1
GASB Pronouncements
2
2013-2014 Comprehensive Implementation Guide
3
GASB Exposure Drafts
GASB Pronouncements
Agenda.
1
GASB 65 - Items Previously Reported as Assets and Liabilities
2
GASB 66 – Technical Corrections 2012
3
GASB 67, 68, 71 - Accounting and Financial Reporting
4
GASB 69 - Government Combinations and Disposals of
5
for Pensions and Plans
Government Operations
GASB 70 - Accounting & Financial Reporting for Nonexchange
Transactions
3
GASB 65
Items Previously
Reported as Assets and
Liabilities.
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
What GASB 65 does:
• Identifies which items should be classified as deferred
inflows/outflows of resources
• Limits the use of the term deferred in financial
statements
• Clarifies the effect of deferred inflows/outflows on
determination of major funds
5
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
Q: What are deferred outflows and deferred inflows of resources?
A: Concepts Statement No. 4, Elements of Financial Statements
(June 2007)
 Assets are resources with present service capacity that the government
presently controls.
 Liabilities are present obligations to sacrifice resources that the
government has little or no discretion to avoid.
 A deferred outflow of resources is a consumption of net assets by the
government that is applicable to a future reporting period.
 A deferred inflow of resources is an acquisition of net assets by the
government that is applicable to a future reporting period.
 Net position is the residual of all other elements presented in a statement
of financial position.
Deferred outflows and inflows of resources should only be used as specifically
required in authoritative GASB pronouncements.
6
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
• Deferred outflows and inflows of resources should only be
used as specifically required in authoritative GASB
pronouncements.
o
o
o
o
o
GASB 53 on derivative instruments
GASB 60 on service concession arrangements
GASB 65 defines additional deferred outflows/inflows
GASB 68/71 on pension accounting and reporting
GASB 69 on government combinations and disposals of
operations
7
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
Some items that remain as Assets
• Prepayments
• Grants paid in advance of meeting eligibility requirements
(other than timing)
• Rights to future revenues acquired from outside the reporting
entity
• “Regulatory” assets (capitalized incurred costs)
• Pension asset (Plan net assets exceed total liabilities)
8
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
Some transactions, currently classified as assets, in which
the resulting item should now be reported as a Deferred
Outflow of Resources
•
•
•
•
Grant paid in advance of meeting timing requirement
Deferred amounts from the refunding of debt (debits)
Costs to acquire rights to future revenues (intra-entity)
Deferred loss from sale-leaseback
9
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
Some transactions, currently classified as assets, in which
the resulting item should now be reported as an expense
(an outflow of resources)
•
•
•
•
Debt issuance costs (other than prepaid insurance)
Initial direct costs incurred by the lessor for operating leases
Acquisition costs for risk pools
Loan origination costs
10
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
Some items that remain as Liabilities
•
•
•
•
Resources received in advance of an exchange transaction
Derived tax revenue received in advance
Premium revenues (risk pools)
Grants received in advance of meeting eligibility requirements
(other than timing)
• Refunds imposed by a regulator
11
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
Some transactions, currently classified as liabilities, in
which the resulting item should now be reported as a
Deferred Inflow of Resources
•
•
•
•
•
•
•
Grants received in advance of meeting timing requirement
Taxes received in advance
Deferred amounts from refunding of debt (credits)
Proceeds from sales of future revenues
Deferred gain from sale-leaseback
“Regulatory” credits (gains or other reductions)
“Unavailable” revenue in governmental funds
12
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
Some transactions, currently classified as liabilities, in
which the resulting item should now be reported as
revenue (an inflow of resources)
• Loan origination fees (excluding points)
• Commitment fees (after exercise or expiration)
13
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
Revenue Recognition in Governmental Funds
• Revenues and other governmental fund financial resources
should be recognized in the accounting period in which they
become both measureable and available
• When the revenue is measureable but not available, it should
be reported as deferred inflow of resources until such time as
the revenue becomes available.
14
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
Limitations on the Use of the Term Deferred
• Pre-GASB 65
Deferred has been broadly used to any balances where the
asset or liability is not realized until a future period
• NOW… deferred is only to used to describe deferred outflows
of resources or deferred inflows of resources
15
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
Limitations on the Use of the Term Deferred
Example – Assume all of the following circumstances for a
governmental fund:
a) The government has received $5 of prepaid rent in connection with its rental
of vacant office space;
b) The government has received a $15 advance from a grantor for which it has
not yet met key eligibility requirements;
c) The government has recognized a receivable for property taxes that are
intended to finance the subsequent fiscal year ($1,000); and
d) The government has not yet recognized $50 as revenue solely because it is
not yet considered to be available
16
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
Limitations on the Use of the Term Deferred
Example – for a governmental fund:
Example
Current Presentation
GASB 65
a) Receipt of $5 prepaid rent
Deferred revenue
Unearned revenue
b) Receipt of $15 grant
Deferred revenue
advancement, but has not met key
eligibility requirements
Unearned revenue
c) $1,000 receivable for property
taxes that are intended to finance
the subsequent fiscal year
Deferred revenue
Deferred inflows of
resources
d) $50 of unavailable revenue
Deferred revenue
Deferred inflows of
resources
17
GASB 65: Items Previously
Reported as Assets and
Liabilities.
For periods beginning after December
15, 2012
Major Funds Criteria
• GASB 34, ¶76, as amended, establishes the criteria for major
fund determination
• For purposes of determining which elements meet the criteria
for major fund,
 Combine assets and deferred outflows
 Combine liabilities and deferred inflows
18
GASB 66
Technical Corrections –
2012
GASB 66:
Technical Corrections – 2012
For periods beginning after December
15, 2012
• Effective for periods beginning after December 15, 2012
• Technical corrections for conflicting guidance:
 Risk Financing
 GASB 10, Accounting and Financial Reporting for Risk Financing
and Related Insurance Issues
 Operating lease payments
 GASB 62, Codification of Accounting and Financial Reporting
Guidance Contained in Pre-November 30, 1989 FASB and AICPA
Pronouncements
20
GASB 66:
Technical Corrections – 2012
For periods beginning after December
15, 2012
Risk Financing
•
•
GASB 66 amends GASB 10, by removing the provision that limits
reporting of risk financing activities to the general fund or an internal
service fund type. As a result, fund type classification should be
based on GASB 34 & GASB 54.
Statement 54, Fund Balance Reporting and Governmental Fund
Type Definitions – would allow for certain risk financing activities to
be reported in a special revenue fund
– EX: some state statutes that authorize their local governments to assess a
dedicated tax levy for tort liabilities, which would constitute a restricted revenue
that could serve as the foundation for a special revenue fund
21
GASB 66:
Technical Corrections – 2012
For periods beginning after December
15, 2012
Operating Leases
•
GASB 66 amends GASB 62 by modifying guidance on accounting
for
– Operating lease payments that vary from a straight-line basis
– The difference between the initial investment (purchase price) and the
principal amount of a purchased loan or group of loans
– Servicing fees related to mortgage loans that are sold when the stated
service fee differs significantly from a normal servicing fee rate
•
These changes clarify how to apply GASB 13, Accounting for
Operating Leases with Scheduled Rent Increases and results in
consistency with GASB 48, Sales and Pledges of Receivables and
Future Revenues and Intra-Entity Transfers of Assets and Future
Revenues
22
GASB 67, 68, 71
Accounting and Financial
Reporting for Pensions and
Plans
GASB 67, 68, 71:
Accounting and Financial
Reporting for Pensions
and Plans
Effective Date and Transition:
•
Pension Plans (GASB 67) - effective for fiscal years beginning
after June 15, 2013 (i.e., FYE June 30, 2014 and after)
•
Employers (GASB 68) - effective for fiscal years beginning after
June 15, 2014 (i.e., FYE June 30, 2015 and after)
•
Employers would be required to restate prior year financial
statements under the new rules, if practical
o
If restatement of all prior periods is not practical, cumulative effect
of applying GASB 68 to beginning balances
o
If restating all beginning deferred outflows and inflows is not
practical, start with a zero beginning balance
 GASB 71 – amends the pension transition for contributions
made subsequent to the Measurement Date
GASB 67, 68, 71:
Accounting and Financial
Reporting for Pensions
and Plans
Effective Date and Transition (continued):
•
For 10 year trend information in Required Supplementary
Information … all 10 years may not be readily available.
During the transition period, present as many years as
are available.
o
Build the 10 year trend information over time
GASB 67, 68, 71:
Accounting and Financial
Reporting for Pensions
and Plans
GASB 67 Highlights:
•
Few changes to financial statements
•
Notes and Required Supplementary Information
•
o
Single-employer and cost-sharing v. agent pension
plans
o
Changes to reflect new measures of employer liability
o
RSI now provides 10 years of trend data
Measurement requirements same as GASB 68
GASB 67, 68, 71:
Accounting and Financial
Reporting for Pensions
and Plans
GASB 68 Highlights:
•
Separates accounting from funding
•
Introduces Net Pension Liability (NPL)
•
Introduces concept of a “Measurement Date”
•
Elimination of the Annual Required Contribution (ARC)
concept for recognizing pension expense, and replaces it
with a comprehensive measurement of pension expense
•
Significant increase in disclosures and information
reported as required supplementary information
•
A blended discount rate
•
Shorter amortization periods
•
Special funding situations
Summary of Pension
Standard Changes.
Current Accounting
Standards (GASB 27)
Pension Liability –
recognized in plan
sponsor’s financial
statements
Net Pension Obligation
(NPO) – Measured as the
cumulative difference
between the employer’s
annual required contribution
(ARC) and actual
contributions
New Accounting
Standards (GASB 68)
Net Pension Liability (NPL) –
Measured as the difference
between the employer’s total
pension liability (TPL) and the
plan’s fiduciary net position
(PNP) as of the measurement
date
NPL = TPL - PNP
Impact of New
Standards
Inclusion of NPL on
employer’s statement
of net position will
result in major
change in financial
reporting ...
It will substantially
increase liabilities
reported for most
governments!
The TPL will be more
volatile than the
current unfunded
actuarial accrued
liability (UAAL).
Summary of Pension
Standard Changes.
Current Accounting
Standards (GASB 27)
Pension Expense –
recognized in plan
sponsor’s financial
statements
Annual Pension Cost (APC)
Measured as employer’s
ARC plus certain adjustments
when an employer’s actual
payments are less than or in
excess of the ARC.
ARC = normal cost +
amortization of UAAL
New Accounting
Standards (GASB 68)
Pension Expense (PE) –
Measured as the change in
NPL with certain exceptions.
Immediate recognition:
• Service costs (+)
• Interest on TPL (+)
• Changes in benefits (+or-)
• Projected investment
returns over the year (-)
• Administrative expenses
and other changes of the
pension plan (+or-)
Deferred recognition:
• Changes in TPL due to
changes in actuarial
assumptions and
differences in assumed and
actual actuarial experience
• Changes in PNP due to
difference between
projected and actual
investment returns
Impact of New
Standards
New measurement will
disconnect the
relationship of funding to
expense recognition.
The direct relationship to
the change in NPL with
shorter deferral and
recognition periods will
increase the volatility in
the new pension
expense.
Note: Governmental funds
continue to report pension
expenditures based on
contributions made during
the year.
Summary of Pension
Standard Changes.
Current Accounting
Standards (GASB 27)
Deferred Outflows
and Inflows of
Resources
Not recognized
New Accounting
Standards (GASB 68)
Impact of New
Standards
• Changes in TPL due to
changes in actuarial
assumptions and differences
in assumed and actual
actuarial experience.
Deferrals will provide
some degree of
“smoothing” of market
volatility and changes
in economic or
demographic factors.
These amounts are
amortized over a closed
period equal to the average
of the expected remaining
service period of all
employees (active and
inactive).
• Changes in PNP due to
difference between projected
and actual investment
returns. These amounts are
amortized over a closed fiveyear period.
Summary of Pension
Standard Changes.
Discount Rate
Current Accounting
Standards (GASB 27)
New Accounting
Standards (GASB 68)
Long-term investment rate of
return
“Blended” discount rate is used
to the extent that projected
benefits exceed projected plan
net position.
Long-term expected rate of
return on assets and, if
applicable, the 20-year AA/Aa
tax-exempt municipal bond yield
or index rate
Impact of New
Standards
A blended discount
rate could be lower
than the long-term
expected rate of
return resulting in a
larger TPL
Attribution
Methodology
One of six allowed
methodologies can be used
Entry age actuarial cost method
Use of one actuarial
cost method will
provide uniformity in
the calculation of TPL
and current service
cost.
Asset Valuation
Generally smoothed market
value
Fair value of plan’s assets
Use of fair value will
add volatility to the
NPL and PE
GASB 69
Government Combinations
and Disposals of
Government Operations
GASB 69: Government
Combinations and Disposals
of Government Operations
For periods beginning after December
15, 2013
Types of Government Combinations
• Merger – combination of legally separate entities in
which no significant consideration is exchanged and at
least one of the entities cease to exist
(e.g. new government is formed, or an entity is absorbed
by one or more continuing governments)
• Acquisition – a government acquires another entity, or
the operations of another entity, in exchange for
significant considerations (in relation to the assets and
liabilities acquired)
33
GASB 69: Government
Combinations and Disposals
of Government Operations
For periods beginning after December
15, 2013
Types of Government Combinations (continued)
• Transfer of operations – a government combination that
involves the operations of a entity in which no significant
consideration is exchanged.
– Operations may be transferred to an existing entity or to a new
entity.
34
GASB 69: Government
Combinations and Disposals
of Government Operations
For periods beginning after December
15, 2013
Consideration > Acquisition value
• Deferred outflow of resources
• Attribute deferral systematically and rationally
• Length of attribution period is a matter of professional
judgment
Acquisition value > Consideration
• Excess net position generally would reduce noncurrent
assets
• May instead reduce contribution received (when seller
accepts a lower price)
35
GASB 70
Accounting & Financial
Reporting for Nonexchange
Financial Guarantees
GASB 70: Accounting & Financial
Reporting for Nonexchange
Financial Guarantees
For periods beginning after June 15, 2013
• Governments occasionally extend or receive financial
guarantees on obligations of other entities without
receiving or paying equivalent value for the guarantees
(nonexchange financial guarantee)
• Current guidance in GASB 62 is based on private sector
guidance (FASB 5 and interpretations 14 and 34)
37
GASB 70: Accounting & Financial
Reporting for Nonexchange
Financial Guarantees
For periods beginning after June 15, 2013
• Applies to governments that extend a nonexchange
financial guarantee
• Does not apply to guarantees related to special
assessment debt
– Factors, include, but are not limited to:
• Initiation of bankruptcy
• Breach of debt, or other indicators of financial difficulty
38
GASB 70: Accounting & Financial
Reporting for Nonexchange
Financial Guarantees
For periods beginning after June 15, 2013
• Show as a liability, if more likely than not that a payment
will be required
• If similar arrangements are being made, the "more likely
than not" determination should be made on the group
• Liabilities are recognized under modified accrual with
expendable available resources
• Governments receiving nonexchange guarantees
recognize revenue when released as an obligor
39
GASB 70: Accounting & Financial
Reporting for Nonexchange
Financial Guarantees
For periods beginning after June 15, 2013
• When liability is recognized, measure at
– Best estimate of the discounted present value of the future
outflows expected to be incurred
– If no best estimate, but a range exists, the minimum
amount of that range
40
2013-2014
Comprehensive
Implementation Guide
2013-2014 Comprehensive
Implementation Guide
• Updated through June 30, 2013
• 15 new questions have been added
– NOT including questions related to the incorporation of the new
implementation guide for GASB Statement No. 67, Financial
Reporting for Pension Plans (Q. 5.59-5.114)
• Many questions amended to incorporate recent
statements
42
2013-2014 Comprehensive
Implementation Guide
4.11.6 – Tax Levy Authority
Scenario
• Charter school cannot levy taxes
• Funding formula includes allocation of portion of
sponsoring school district’s tax levy
Question
• Is the levy allocation equivalent to the sponsoring
government effectively approving their levy for fiscal
dependency purposes?
43
2013-2014 Comprehensive
Implementation Guide
4.11.6 – Tax Levy Authority
Answer
• No – since the Charter School does not have levying
power to begin with, this does not create an implicit
ability to do so. There is obviously a financial burden, but
not fiscal dependency. Dependency would be evidenced
by the Charter only being able to levy with approval.
44
2013-2014 Comprehensive
Implementation Guide
4.30.9 – Blending
Scenario
• State government creates financing authority to issue
debt for itself and local schools (25%)
• State has pledged to repay ALL the debt (even that
portion related to the school financing)
Question
• How should the financing authority be reported in the
State’s financial statements?
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2013-2014 Comprehensive
Implementation Guide
4.30.9 – Blending
Answer
• Financing authority should be blended because the
Authority’s debt is going to be repaid “entirely, or almost
entirely” by the State.
This criteria was added to the list of blending requirements
with GASB Statement No. 61, “The Financial Reporting
Entity: Omnibus”.
46
2013-2014 Comprehensive
Implementation Guide
4.30.10 – Blending
Scenario
• Assume, in the previous example, that the debt
attributable to the Schools was to be repaid with a tax
levy and not by the State
Question
• Would this change how the financing authority would be
reported?
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2013-2014 Comprehensive
Implementation Guide
4.30.10 – Blending
Answer
• Since the 25% portion attributable to the Schools would
be considered a substantial portion of the overall debt,
the State would NOT be expected to repay the debt
“entirely, or almost entirely”. Therefore, assuming the
other facts remain the same, the financing authority
would be discretely presented.
48
2013-2014 Comprehensive
Implementation Guide
7.23.16 – Net Investment in Capital Assets
Scenario
• An entity has several enterprise funds, one of which is a
financing authority and is a blended component unit of
the primary government
• Authority issues debt and loans proceeds to other
enterprise fund, which purchases capital
Question
• Who has the capital-related debt?
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2013-2014 Comprehensive
Implementation Guide
7.23.16 – Net Investment in Capital Assets
Answer
• The enterprise fund that borrowed the funds carries the
capital assets and reports an interfund loan.
• The authority reports the debt and an interfund
receivable.
• The fact that the loan is to a separate legal entity (albeit
blended component unit) is critical.
• The enterprise fund has “capital-related” debt, not the
financing authority.
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2013-2014 Comprehensive
Implementation Guide
10.15.9 – Termination of Hedge Accounting
Scenario
• An interest-rate swap with an original fixed rate of 5% is
re-negotiated at a later date to a rate of 3%
• Hedges are considered terminated if any critical terms
are changed.
Question
• In this case, has the hedge terminated and, if so, what
are the ramifications?
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2013-2014 Comprehensive
Implementation Guide
10.15.9 – Termination of Hedge Accounting
Answer
• The rate of interest is definitely a “critical term” in an
interest-rate swap hedging arrangement. Therefore, the
hedge is terminated and the previously deferred amount
would be recognized as income (in this case) for the
period.
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2013-2014 Comprehensive
Implementation Guide
10.16.6 – Hedging Derivative Instruments
Scenario
• An interest-rate swap is used to hedge mortgage-backed
bonds. The contract contains a call option that allows the
issuing entity to adjust the notional amount, as needed.
They do so for prepayments.
Question
• Is this an action that terminates the hedge?
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2013-2014 Comprehensive
Implementation Guide
10.16.6 – Hedging Derivative Instruments
Answer
• No. The option itself (thus the ability to exercise it) was
part of the original agreement. Therefore, it is not
considered a “critical term” in the agreement that has
been breached.
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2013-2014 Comprehensive
Implementation Guide
Z.54.63 – Fund Balance Classification
Scenario
• Governing body sets aside a portion of fund balance for
the specific purpose of paying for appropriated
expenditures at the beginning of the new fiscal year; this
portion of fund balance “cannot be used for any other
purpose”
Question
• Should this portion of fund balance be considered
“committed” fund balance?
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2013-2014 Comprehensive
Implementation Guide
Z.54.63 – Fund Balance Classification
Answer
• The amount set aside can be used for any purpose – it is
mainly a timing restriction. Thus, the limitation is not how
the resources can be spent, but when. This is more of a
minimum fund balance policy – it is not a true
commitment. The action is irrelevant for classification – it
would be part of unassigned fund balance.
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2013-2014 Comprehensive
Implementation Guide
Z.60.1 – Service Concessions
Scenario
• A service concession arrangement (SCA) is evidenced
by the government remaining in control of the type and
level services to be provided, as well as to whom. This is
typically explicit in the contract.
Question
• Is it possible to have an SCA that does not explicit
identify this in the contract?
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2013-2014 Comprehensive
Implementation Guide
Z.60.1 – Service Concessions
Answer
• Yes – control is often assured even in the absence of
specific language use in the contract. For example, the
purpose and intent of golf courses, toll roads, etc. are
sufficiently clear.
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2013-2014 Comprehensive
Implementation Guide
Z.63.1 – Deferred Outflows/Inflows
Scenario
• Assume that a deferred outflow arose from an effective
hedging arrangement, as did a deferred inflow from a
similar arrangement
Question
• Can these deferred outflows and inflows be netted?
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2013-2014 Comprehensive
Implementation Guide
Z.63.1 – Deferred Outflows/Inflows
Answer
• No – assets and liabilities may not be netted unless
there is “right of legal offset”. The same principle applies
to deferred outflows and deferred inflows.
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Implementation Guide
Z.69.1 – Government Combinations
Scenario
• A government dissolves and ceases to exist.
• All of its operations form the basis of a new
governmental entity
• No consideration is exchanged in the event.
Question
• Is this a government combination (i.e., merger or
acquisition) or a transfer of operations?
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Implementation Guide
Z.69.1 – Government Combinations
Answer
• A merger or acquisition requires there be two legal
entities entering into the combination, so it does not
qualify.
• The dissolution of a single entity that allows the creation
of a new legal entity is simply a transfer of operations.
There is no requirement for the original single entity to
continue to exist.
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Implementation Guide
Questions not included here:
• 7.77.5 – Presentation of postemployment benefit plans in
the report of a public employee retirement system
• 10.16.4 – How the reduction of debt principal affects a
hedging relationship
• 10.16.5 – Evaluation of hedge effectiveness
• Z.65.1 – Disclosure of changes in deferred
outflows/inflows of resources from debt refunding
transactions
• Z.69.2 – Presentation of capital asset impairment
associated with government combination
63
GASB
Exposure Drafts
Exposure Drafts
1.
2.
3.
4.
5.
6.
7.
Accounting and Financial Reporting for Postemployment Benefits
Other Than Pensions (5/28/14)
Financial Reporting for Postemployment Benefit Plans Other Than
Pension Plans (5/28/14)
Accounting and Financial Reporting for Pensions and Financial
Reporting for Pension Plans That Are Not Administered through
Trusts That Meet Specified Criteria, and Amendments to Certain
Provisions of GASB Statements 67 and 68 (5/28/14)
Fair Value Measurement and Application (5/5/14)
Implementation Guide No. 20xx-1 (12/20/13)
The Hierarchy of Generally Accepted Accounting Principles for State
and Local Governments (12/20/13)
Economic Condition Reporting: Financial Projections (11/29/11)
65