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GASB Update
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• GASB 72 – Fair value• GASB 73 – Certain pensions not administered
through a trust• GASB 76 – GAAP hierarchy• GASB 79 – External investment pools
Recent GASB Activity - Past
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• GASB 74 – OPEB reporting for plans• GASB 77 – Tax abatement disclosures• GASB 78 – Certain multiple-employer defined
benefit pension plans• GASB 80 – Blending requirements for certain
component units• GASB 82 – Pension issues• Implementation Guide No. 2016-1
Recent GASB Activity - Present
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• GASB 81 – Irrevocable split-interest agreements (2018)
• GASB 83 – Asset retirement obligations (2019)• GASB 84 – Fiduciary activities (2020)• GASB 85 – Omnibus (2018)• GASB 86 – Debt Extinguishment (2018)• GASB 87 – Leases (2021)• GASB 89 – Capitalized Interest (2021)
Recent GASB Activity - Future
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A Brief Recap
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Exceptions to Fair Value measurement• Nonparticipating interest-earning investment
contracts– Example: Certificates of Deposit
• Money market investments < 1 year– Includes commercial paper, banker’s acceptances,
and US Treasuries• External investment pools which meet certain
requirements (GASB 79)
GASB 72 – Fair Value Measurements
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GASB 73 – More Pensions
Effective – Years beginning after 6/15/2016 AND Years beginning after 6/15/2015
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Accounting and Financial Reporting For Pensions and Related Assets That Are Not
Within The Scope of GASB 68, and Amendments to Certain Provisions of GASB 67
and 68
GASB 73 – More Pensions
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• Impacts pensions WITHOUT a trust• If the employer does not have a “special
funding situation” – should record an obligation for the Total Pension Liability
• Discount rate to use – yield or index rate for 20-year, tax-exempt GO municipal bonds with average rating of AA/Aa or better
GASB 73 – More Pensions
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• Assets accumulated for the payment of pension obligations that are NOT administered through a trust should NOT be accounted for as “pension plan assets”
• Required disclosures – similar to requirements of GASB 67 and 68 in the notes and RSI
GASB 73 – More Pensions
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GASB 79 – External Investment Pools
Effective – years beginning after June
15, 2015 except provisions on portfolio quality, custodial credit risk & shadow pricing which are effective for years after December
15, 2015
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• Establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes.
• If an external investment pool measures its investments at amortized costs, the pool’s participants should measure their investments in the pool at amortized costs.
GASB 79 – External Investment Pools
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• Establishes additional note disclosure requirements for pools that measure their investments at amortized costs.
• Disclosures for both the qualifying external investment pools & their participants include information about any limitations or restrictions on participant withdrawals.
GASB 79 – External Investment Pools
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GASB 77 – Tax Abatements
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GASB 77 – Tax Abatements
Tax Abatement Disclosures
Effective – years beginning after
December 15, 2015
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Requires disclosures about a government’s tax abatement agreements
WHY?“Information about revenues that governments agree to forgo is essential to understanding the financial position, economic condition, interperiod equity, sources and uses of financial resources and compliance with finance-related legal or contractual requirements”
GASB 77 – Tax Abatements
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Emphasis is on the substance of the arrangement meeting the definition in GASB 77, not on its name or form
Does not include all transactions that reduce tax revenues – some actions can cause a reduction in taxes but are not abatements
GASB 77 – Tax Abatements
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Applies only to arrangements that meet this definition:
A reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which:(a) One or more governments promise to forgo
tax revenues to which they are otherwise entitled ---AND
GASB 77 – Tax Abatements
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(b) the individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or the citizens of those governments
GASB 77 – Tax Abatements
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Disclosure Principles• Disclosure info for similar tax abatements
may be provided either individually or in the aggregate
• Disclose separately (a) its own tax abatements and (b) tax abatements that are entered into by other governments that reduce the reporting government’s tax revenues
GASB 77 – Tax Abatements
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• Must disclose own tax abatements by major program
• Disclose those of other governments by the government and the specific tax that was abated
• May disclose individual abatements above the quantitative threshold established by the government
GASB 77 – Tax Abatements
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• Disclosure commences in the period in which a tax abatement agreement is entered into and continues until the tax abatement expires, unless otherwise specified
GASB 77 – Tax Abatements
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NOTE (X): Tax Abatements
The County enters into property tax abatement agreements with local businesses under the State Economic Development Opportunity Act of 20X1. Under the Act, localities may grant property tax abatements of up to 40 percent of a business’ property tax bill for the purpose of attracting or retaining businesses within their jurisdictions. The abatements may be granted to any business located within or promising to relocate to the County.
GASB 77 – Tax Abatements
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Note (X): Tax AbatementFor the fiscal year ended September 30, 20X7, the County abated property taxes totaling $347,620 under this program, including the following tax abatement agreements that each exceeded 10 percent of the total amount abated:A 40 percent property tax abatement to a grocery store chain for purchasing and opening a store in an empty storefront in the business district. The abatement amounted to $97,500.A 40 percent property tax reduction for a local restaurant increasing the size of its restaurant and catering facility and increasing employment. The abatement amounted to $38,750.
GASB 77 – Tax Abatements
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Scope: Tax Increment Financings (TIF)
IG 2016-1, Question 4.77
Government uses TIF to encourage economic development
• Bonds issued by government to finance infrastructure in specific area
• Baseline for sales tax revenues for the area, including proposed development, is established prior to the start of the project
• Additional sales tax revenues above baseline are set aside for payment of the bonds
Disclose under 77? NO
IG 2017-1, Question 4.40
Government enters into agreement with developer to stimulate economic growth
• Developer will construct building• Baseline for property tax revenues for
the specific area will be established prior to the start of the project
• Developer will receive amount from additional property tax revenues above baseline, based on certain costs incurred by the developer related only to the developer’s building.
Disclose under 77? YES
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• Government is subject to a property tax cap that limits the growth of property tax levy to 2 percent per year. Full amount allowed under the cap is levied on properties that are not subject to agreements to lower taxes of individual taxpayers. Therefore, overall tax revenues will not be reduced. Are those agreements tax abatements under Statement 77?
• Yes, if they meet the other parts of the definition. It is not necessary that the government forgo tax revenue in the aggregate. The fact that the government may effectively recoup the tax revenue associated with the agreements from other taxpayers is not relevant to determining whether the agreement meets the definition of a tax abatement.
• Source: IG 2017-1, Question 4.39
Scope: Existence of Property Tax Cap
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• A government would disclose separately (a) its own tax abatements and (b) tax abatements that are entered into by other governments and reduce the reporting government’s taxes
• Disclose own tax abatements by major program • Disclose those of other governments by the government and
specific tax abated• May disclose individual tax abatements above quantitative
threshold established by the government• Disclosure would commence in the period in which a tax abatement
agreement is entered into and continue until the tax abatement agreement expires, unless otherwise specified
General Disclosure Principles
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Brief Descriptive Info Government’s Own
Abatements
Other Government’s Abatements
Name of program X
Purpose of program X
Name of government X
Tax being abated X X
Authority to abate taxes X
Eligibility criteria X
Abatement mechanism X
Recapture provisions X
Types of recipient commitments X
GASB 77 – Tax Abatements
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Other Disclosures Government’s Own Abatements
Other Government’s Abatements
Dollar amount of taxes abated X X
Amounts received or receivable from other governments associated with the abated taxes
X X
Other commitments by the government
X
Quantitative threshold for individual disclosure
X X
Information omitted (if any) due to legal prohibitions
X X
GASB 77 – Tax Abatements
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Other GASB Pronouncements
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GASB 78 – Multiple Employer Pensions
Pensions Provided through Certain
Multiple Employer Defined Benefit Pension Plans
Effective – years beginning after
December 15, 2015
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• Excludes certain plans from the scope of #68• Cost-sharing multiple employer defined benefit
plans that are:a. not a state or local governmental planb. used to provide benefits to both
governmental and non-governmental employers, and
c. plans with no predominant gov’t employer
GASB 78 – Multiple Employer Pensions
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GASB 80 – Blending Component Units
Blending Requirements for
Certain Component Units
Effective – years beginning after June
15, 2016
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• Requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member, as identified in the component unit’s articles of incorporation or bylaws.
• Does not alter GASB #39
GASB 80 – Blended Component Units
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GASB 82 – Pension Issues
An Amendment of GASB Statements No.
67, 68 & 73
Effective – years beginning after June
15, 2016
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• Addresses issues regarding:a. presentation of covered payroll – defines
covered payroll as the payroll on which contributions to a pension plan are based & ratios that use that measure– Previously, covered payroll was the payroll of
employees that are provided with pensions through the plan
GASB 82 – Pension Issues
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• Addresses issues regarding:b. selection of assumptions and treatment of
deviations from Actuarial Standard of Practice– Deviations are not considered to be in
conformity with GASB
GASB 82 – Pension Issues
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• Addresses issues regarding:c. classification of payments made by
employers to satisfy employee contribution requirements as plan member contributions
– Requires employer’s expense/ expenditures for these contributions be recognized in the period assessed
– Recognized as compensation other than pension (not pension expense)
GASB 82 – Pension Issues
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Newly Applicable…
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GASB 81 – Split-Interest Agreements
Irrevocable Split-Interest Agreements
Effective – years beginning after
December 15, 2016
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• Giving agreements used by donors to provide resources to two or more beneficiaries, including governments
• Created through trusts or other legally enforceable agreements
• Donor transfers resources to an intermediary to hold & administer for the benefit of the government & at least 1 other beneficiary.
GASB 81 – Split-Interest Agreements
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• Requires that a government records assets, liabilities & deferred inflows at the agreement inception
• Revenue is recognized when the resources become applicable to the reporting period
• Standard should be applied retroactively
GASB 81 – Split-Interest Agreements
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Will Be Here Soon…
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GASB 83 – Asset Retirements Obligations
Certain Asset Retirement Obligations
Effective – years beginning after June
15, 2018
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• ARO – a legally enforceable liability associated with the retirement of a tangible capital asset.
• Establishes criteria for determining the timing, pattern of recognition & corresponding deferred outflows for ARO’s.
• Recognition occurs when liability is both incurred & reasonably estimable.
GASB 83 – Asset Retirement Obligations
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• Laws & regulations may require governments to take specific actions to retire certain capital assets, like sewage treatment plants.– May also result from contracts or court
judgements
• Internal events include the occurrence of contamination or placing into operation an asset that is required to be retired
GASB 83 – Asset Retirement Obligations
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• ARO is based on best estimate of the current value of outlays to be incurred– Should include probability weighting of all
potential outcomes– Alternative measure if probability weighting is
not financially feasible• Deferred outflows reduced & recognized as
outflows in a systematic manner over the life of the capital asset.
GASB 83 – Asset Retirement Obligations
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GASB 84 – Fiduciary Activities
Fiduciary Activities
Effective – years beginning after
December 15, 2018
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• Focus is on:– Whether a government is controlling the assets
of the fiduciary activity; and– The beneficiaries with whom a fiduciary
relationship exists
• Establishes the criteria on which a fund should be reported as a fiduciary fund
GASB 84 – Fiduciary Activities
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• Four fiduciary funds:– Pension (and OPEB) trust funds– Investment trust funds– Private-purpose trust funds– Custodial funds
• Liability recognized in the fiduciary fund when an event has occurred that requires the government to disburse fiduciary resources.
GASB 84 – Fiduciary Activities
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• Liability recognized in the fiduciary fund when an event has occurred that requires the government to disburse fiduciary resources– May result in net position balances for custodial
funds– Exception for some fiduciary funds of business-
type activities that normally expect to hold assets for 3 months or less
GASB 84 – Fiduciary Activities
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• Presentation of additions and deductions on the statement of changes in fiduciary net position for all fiduciary funds, including custodial funds– Additions should be disaggregated by source, and if
applicable, separately present investment earnings and costs
– Deductions should be disaggregated by type– Same exception for custodial funds that are expected
to be held for 3 months or less
GASB 84 – Fiduciary Activities
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• Activities are fiduciary funds if the 3 following conditions are met:– The government controls the assets– Those assets are not derived either:
• Solely from the government’s own-source revenues, or• From government-mandated nonexchange transactions or
voluntary nonexchange transactions with the exception of pass-through grants and for which the government does not have administrative or direct financial involvement
– One of the criteria on the next slide is met
GASB 84 – Fiduciary Activities
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– The assets are (1) administered through a trust agreement or equivalent arrangement in which the government itself is not a beneficiary, (2) dedicated to providing benefits to recipients in accordance with the benefit terms, and (3) legally protected from the creditors of the government.
– The assets are for the benefit of individuals and the government does not have administrative involvement with the assets or direct financial involvement with the assets. In addition, the assets are not derived from the government’s provision of goods or services to those individuals.
– The assets are for the benefit of organizations or other governments that are not part of the financial reporting entity. In addition, the assets are not derived from the government’s provision of goods or services to those organizations or other governments.
GASB 84 – Fiduciary Activities
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• Three words… School Internal Funds
GASB 84 – Fiduciary Activities
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GASB 85 – Omnibus 2017
Omnibus 2017
Effective – years beginning after June
15, 2017
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• Addresses a variety of practice issues identified during the implementation & application of certain GASB statements– Blending a component unit in which the primary
government is a business-type activity with a single column for FS presentation
– Reporting amounts previously reported as goodwill
– Classifying real estate held by insurance entities
GASB 85 – Omnibus 2017
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– Measuring certain investments at amortized cost– Timing of measurement of pension or OPEB
liabilities for entities using the current financial resources measurement focus
– Recognizing on-behalf payments for pensions or OPEB
– Presenting payroll-related measures in RSI– Classifying employer paid member contributions
for OPEB
GASB 85 – Omnibus 2017
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– Simplifying certain aspects of alternative measurement method for OPEB
– Accounting & financial reporting for OPEB provided through certain multiple-employer defined benefit OPEB plans.
GASB 85 – Omnibus 2017
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GASB 87 – Capitalized Interest
Leases
Effective – years beginning after
December 15, 2019 for all leases that existed
at the beginning of the period of
implementation
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• The existing standards had been in effect for decades without review to determine if they remain appropriate in light of GASB conceptual framework and continue to result in useful information; FASB and IASB conducted a joint project to update their lease standards; opportunity to increase comparability and usefulness of information and reduce complexity for preparers
GASB 87 - Leases
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• Applied to any contract that meets the definition of a lease: “A lease is a contract that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset) for a period of time in an exchange or exchange-like transaction.”– The right-to-use asset is that “specified in the contract”– Control is manifested by (1) the right to obtain present service
capacity from use of the underlying asset and (2) the right to determine the nature and manner of use of the underlying asset
• Leases are financings of the right to use an underlying asset – Therefore, single approach applied to accounting for leases with some
exceptions, such as short-term leases
GASB 87 - Leases
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• Scope Exclusions:– Intangible assets (mineral rights, patents, software, copyrights),
except for the sublease of an intangible right-to-use asset– Biological assets (including timber, living plants, and living
animals)– Inventory– Service concession arrangements (Statement 60)– Assets financed with outstanding conduit debt, unless both the
asset and the debt are reported by the lessor– Supply contracts (such as power purchase agreements that do
not convey control of the right to use the underlying power generating facility)
GASB 87 - Leases
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• At beginning of lease, maximum possible term under the contract is 12 months or less (including any options to extend, regardless of probability)
• Lessees recognize expenses/expenditures based on the terms of the contract– Do not recognize assets or liabilities associated with the
right to use the underlying asset for short-term leases• Lessors recognize lease payments as revenue based on the
payment provisions of the contract – Do not recognize receivables or deferred inflows
associated with the lease
GASB 87 – Leases – Short-term exception
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GASB 87 – Leases – Initial reporting
Assets Liability Deferred Inflow
Lessee Intangible lease asset (right to use underlying asset)—value of lease liability plus prepayments and initial direct costs that are ancillary to place asset in use
Present value of future lease payments (incl. fixed payments, variable payments based on index or rate, reasonably certain residual guarantees, etc.)
NA
Lessor • Lease receivable (generally includes same items as lessee’s liability)
• Continue to report the leased asset
NA Equal to lease receivable plus any cash received up front that relates to a future period
67
GASB 87 – Leases – Subsequent reporting
Assets Liability Deferred Inflow
Lessee Amortize the intangible lease asset over shorter of useful life or lease term
Reduce by lease payments (less amount for interest expense)
NA
Lessor • Depreciate leased asset (unless indefinite life or required to be returned in its original or enhanced condition)
• Reduce receivable by lease payments (less amount needed to cover accrued interest)
NA Recognize revenue over the lease term in a systematic and rational manner
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• General description of leasing arrangements• Total amount of lease assets (by major classes of underlying assets),
and the related accumulated amortization• Amount of outflows of resources recognized for the period for
variable payments and other payments (such as residual value guarantees or penalties) not previously included in the measurement of the lease liability
• Principal & interest requirements to maturity for each of the next 5 fiscal years and in 5-year increments thereafter
• Commitments under leases that have not yet begun (other than short-term leases)
• Components of any net impairment loss recognized on the lease asset during the period.
GASB 87 – Leases – Lessee Disclosures
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• General description of leasing arrangements• Total amount of inflows of resources (such as lease revenue
and interest revenue), if not otherwise displayed• Amount of inflows of resources recognized for the period
for variable payments and other payments (such as residual value guarantees or penalties) not previously included in the measurement of the lease receivable
• The existence, terms, and conditions of options by the lessee to terminate the lease or abate payments if the lessor government has issued debt for which the principal and interest payments are secured by the lease payments
GASB 87 – Leases – Lessor Disclosures
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GASB 89 – Capitalized Interest
Accounting for Interest Cost Incurred
before the End of a Construction Period
Effective – years beginning after
December 15, 2019
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GASB 89 – Capitalized Interest
• Interest incurred during the construction period will be expensed as incurred for business-type and enterprise funds
• Governmental funds keep same requirement of interest costs being included in debt service as paid
• Prospective application • Early application is encouraged
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GASB Technical Agenda
www.gasb.org
What Lies Ahead??
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Financial Reporting Model—Reexamination of Statement 34
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• What: The Board is redeliberating over comments received in response to the December 2016 Invitation to Comment, the first due process document in the project reexamining the effectiveness of the financial reporting model―Statements 34, 35, 37, 41, and 46, and Interpretation 6.
• Why: A review of these standards found that they generally were effective, but that there were aspects that could be significantly improved.
• Status: Invitation to comment redeliberations.
Financial Reporting Model Reexamination
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• Lack of conceptual consistency in recognition of assets and liabilities
• Lack of foundation from which to develop standards for complex transactions
• Some consider it ineffective in conveying that the information is related to fiscal accountability (rather than operational accountability)– Focus on financial resources, rather than on economic
resources– Shorter time perspective than information in
government-wide financial statements
Concerns with Governmental Funds Financial Statements
77
• Three possible recognition approaches to replace current financial resources/modified accrual:– Near-term financial resources– Short-term financial resources– Long-term financial resources
• Format of governmental funds resource flows statement– Existing format v. Current and long-term activities format
• Governmental funds cash flows statement– Could be needed for short-term and long-term financial
resources approaches because the time perspective is not close to cash
Topics Covered in the Invitation to Comment
78
• The recognition approach for governmental funds to be presented in the PV will be a based on a combination of the near-term and short-term recognition approaches with the following characteristics:– One-year (operating cycle) recognition timeframe – Accrued interest would be recognized when payable and
normally due within one year, which may not necessarily align with the recognition of principal payments on the related debt
– Recognition of tax and revenue anticipation notes as liabilities– Exclusion of the recognition of the current portion of long-term
assets and liabilities
Tentative Decisions for the Preliminary Views
79
• Separate presentation of operating and nonoperating revenues and expenses—in proprietary fund and business-type activity (BTA) financial statements– Operating activities are those other than
nonoperating activities– Nonoperating activities include
• Subsidies received and provided• Revenues and expenses of financing• Resources from the disposal of capital assets and inventory• Investment income and expenses
Tentative Decisions for the Preliminary Views (continued)
80
• Separate presentation of operating and nonoperating revenues and expenses (continued)– Subsidies are resources provided by another party or fund for
the purpose of keeping the rates lower than otherwise would be necessary for the level of goods and services to be provided
• Includes resources for purchase of capital assets– Subtotal for operating income (loss) and noncapital subsidies
• Budgetary comparisons– Would be presented in required supplementary information (no
option for basic statements)– Required variances would be final-budget-to-actual and original-
budget-to-final-budget
Tentative Decisions for the Preliminary Views (continued)
81
• Improved format for the government-wide statement of activities
• Permanent funds– Determine recognition approach and presentation
for permanent funds when preliminary view for recognition approach in governmental funds is finalized
Other Topics Expected to Be Addressed in the Preliminary Views
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• Extraordinary and special items—explore options for clarifying the guidance for more consistent reporting
• Management’s discussion and analysis (MD&A)– Enhance the financial statement analysis component– Eliminate boilerplate– Clarify guidance for presenting currently known facts,
decisions, or conditions• Debt service funds—explore options for providing
additional information, either individually or in aggregate in the financial statements or the notes
Topics Expected to Be Addressed in an Exposure Draft
83
Pre-Agenda Research Started April 2013
Added to Current Technical Agenda September 2015
Invitation to Comment Issued December 2016
Preliminary Views Expected September 2018
Project Timeline
84
Revenue and Expense Recognition
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• What: The Board is developing a comprehensive application model for recognition of revenues and expenses from all types of transactions.
• Why: Stakeholders have raised questions about how to account for revenues from transactions that are neither fully exchange or nonexchange; the revenue recognition standards incorporated in Statement 62 have not been revised for governments in nearly 50 years; current literature does not provide guidance for exchange and exchange-like expenses.
• Status: Public hearings.
Revenue and Expense Recognition
86
• The project scope broadly encompasses revenue and expense recognition but excludes the following:– Topics with guidance developed considering the
current conceptual framework, such as pensions and other post-employment benefits
– Topics related to financial transactions, such as investments, derivatives, leases, and insurance
– Topics related to transactions arising from recognition of capital assets or certain liabilities, such as depreciation, asset retirement obligations, and pollution remediation obligations
Tentative Decisions: Project Scope
87
• The Invitation to Comment will present comprehensive application models for the recognition of revenue and expense.
• Two primary models have been identified for inclusion in the Invitation to Comment:– Performance obligation/no performance
obligation model– Exchange/nonexchange model
Tentative Decisions: Revenue and Expense Recognition Models
88
• A performance obligation is a promise in a binding arrangement between a government and another party to provide distinct goods and services to a specific beneficiary.
Tentative Positions: Performance Obligation
89
• For revenue and expense transactions that have a performance obligation, revenue and expense would be recognized as the performance obligation is satisfied, either at a point in time or over time.
• For transactions that do not have a performance obligation, revenue and expense would be recognized with respect to key characteristics of those transactions, many of which are reflected in current guidance for recognition of revenue and expense from nonexchange transactions.
Tentative Positions: Performance Obligation Recognition
90
• For transactions classified as exchange revenue and expense transactions, the earnings recognition approach would be applied. – The government controls an asset or has incurred a
liability, the right of return has expired, and the increase or decrease in net assets is applicable to the reporting period.
• Transactions classified as nonexchange revenue and expense would be recognized with respect to key characteristics of those transactions, many of which are reflected in current guidance for nonexchangetransactions.
Tentative Positions: Exchange/Nonexchange Recognition
91
Pre-Agenda Research Started September 2015
Added to Current Technical Agenda April 2016
Invitation to Comment January 2018Public Hearings May 2018
Project Timeline
92
Questions?
