GASB Update The views expressed in this presentation are those of Mr. Sundstrom. Official positions of the GASB are determined only after extensive due

GASB Update

The views expressed in this presentation are those of Mr.

Sundstrom. Official positions of the GASB are determined only

after extensive due process and deliberation.

Current Board Members

MemberDavid Vaudt, ChairJim BrownBill FishMichael Granof David SundstromJan SylvisMarcia Taylor

Term Expires2020—single term2017—first term2016—first term2015—first term2014—first term20172015

2

Effective Dates—FYE June 30

2013- Statement 60—Service Concession Arrangements- Statement 61—Financial Reporting Entity- Statement 62—Codification of AICPA and FASB Pronouncements- Statement 63—Deferrals Presentation

2014- Statement 65—Assets and Liabilities—Reclassification and

Recognition- Statement 66—Technical Corrections- Statement 67—Pension Plans- Statement 70—Nonexchange Financial Guarantees

2015- Statement 68—Pension Accounting for Employer and

Nonemployer Contributing Entities- Statement 69—Government Combinations and Disposals of

Government Operations 3

Recently Issued Pronouncements

Statements 69 and 70

Statement 69Government Combinations and Disposals of Operations

Effective for Periods Beginning After December 15, 2013

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What Is Covered?

Combinations in which no consideration is provided- Government mergers- Transfers of operations

Integrated set of activities conducted and managed for the purpose of providing identifiable service associated with assets and liabilities

Combinations in which consideration is provided- Government acquisitions

Disposal of government operations reporting

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How Should Mergers and Transfers of Operations Be Reported?

Assets and liabilities at carrying values- Presumption of GAAP

Mergers New entity—Date of merger Continuing entity—Beginning of fiscal year

Transfers of operations—Date of transfer Adjustments

Accounting principles, policies, and estimates Capital asset impairment Transaction eliminations

8

How Should Acquisitions Be Reported?

Assets (and liabilities) at acquisition value- GAAP applicable to state and local governments is used for

recognition- Market-based entry price measurements- Exceptions

Accounting for the difference- Goodwill–deferred outflow of resources- Contribution received or reduction of non-current assets

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How Should The Disposals of Government Operations Be Reported?

Governments would report disposals of operations for all disposals of operations (transfers or sales).- Gains and losses reported as special items

Costs associated with disposals of government operations- Should consider all costs associated with disposals of

operations

Statement 70Nonexchange Financial Guarantees

Effective for periods beginning after June 15, 2013

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What Are Nonexchange Financial Guarantees?

Based the same definition of nonexchange that is found in Statement 33

Excludes exchange and exchange-like transactions

Entities addressed- Providers of financial guarantees- Recipients of financial guarantees

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When Should The Guarantee Be Recognized?

Provider of financial guarantee- When qualitative factors and historical data, if any,

indicate that it is more likely than not that a government will make a payment on nonexchange financial guarantees it extended, the government should recognize a liability

Recipient of financial guarantee- When nonexchange financial guarantee is legally

released as an obligor from the obligation and from any liability to the guarantor, the government should recognize revenue

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How Should The Guarantee Be Measured?

Provider of financial guarantee- Amount equal to the discounted present value of the best

estimate of the future outflows expected to be incurred as a result of the guarantee If there is no best estimate, the discounted present value of the minimum

amount in that range should be recognized

Recipient of financial guarantee- Amount equal to the reduction of the guaranteed liability

should be recognized

2013

Statement 60Service Concession Arrangements


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What Is An SCA?

The transferor conveys to the operator - Right and related obligation to provide public services

through the operation of a capital asset - In exchange for significant consideration

The operator collects and is compensated from fees from third parties

The transferor determines or has the ability to modify or approve - What services the operator is required to provide - To whom the operator is required to provide the services,

and - Prices or rates that can be charged for the services.

The transferor is entitled to significant residual interest in the service utility of the facility at the end of the arrangement

How Should Facilities Be Reported?

A new facility purchased or constructed by the operator or An existing facility that has been improved by the operator,

then the transferor should report - The new facility or the improvement as a capital asset at fair

value when it is placed in operation, with- Any contractual obligations recorded as liabilities, along with a

corresponding deferred inflow of resources

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How Should Upfront Or Installment Payments Be Reported?

Up-front payment received or present value of installment payments reported as an asset

Any contractual obligations recorded as liabilities along with a related deferred inflow of resources

Revenue should be recognized as the deferred inflow of resources is reduced.- Systematic and rational manner over the term of the

arrangement beginning when the facility is placed into operation.

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When Should Liabilities Be Reported?

Liabilities should be recorded at their present value if a contractual obligation is significant and meets either of the following criteria:- The contractual obligation directly relates to the

facility Could relate to ownership of the facility or Could arise from the responsibility to assure that

the facility remains fit for the particular purpose of the arrangement– For example, obligations for capital improvements,

insurance, or maintenance on the facility - The contractual obligation relates to a commitment

made to maintain a minimum or specific level of service in connection with the operation of the facility For example, providing a specific level of police

and emergency services for the facility or providing a minimum level of maintenance to areas surrounding the facility 19

Statement 61The Financial Reporting Entity—Omnibus

Effective for Periods Beginning After June 15, 2012

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What Are The Significant Effects?

Increase the emphasis on financial relationships Raises the bar for inclusion

Refocus and clarify the requirements to blend certain component units

Improve the recognition of ownership interests- Joint ventures- Component units- Investments

What Are The Changes To The Inclusion Criteria?

Statement 14 requires inclusion if Potential Component Unit is fiscally dependant. That is, Primary Government has authority over:- Budget, or- Setting taxes and charges, or- Issuing debt

Statement 61 adds a requirement for a financial benefit or burden before inclusion is required.

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How Have The Blending Requirements Been Narrowed?

Statement 14 requires blending if Primary Government and Component Unit have “substantively the same” governing body

Statement 61 modifies that requirement to also include:- A financial benefit/burden relationship, or- Primary Government has “operational responsibility”

for Component Unit Primary Government’s personnel manage activities of

Component Unit like a fund, program, or department of the primary government

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How Have The Blending Requirements Been Broadened?

Component units whose total debt outstanding is expected to be repaid entirely or almost entirely by revenues of the primary government will now be blended- Even if the component unit provides services to constituents or

other governments, rather than exclusively or almost exclusively to the primary government

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How Are The Current Disclosures Clarified?

Rationale for including each component unit Whether it is discretely presented, blended, or included as a

fiduciary fund Disclosures focus on the relationship of the primary

government and the component units

Statement 62Codification of Pre-November 30, 1989 FASB and AICPA Pronouncements


How Are The Standards Impacted? Statement 20 is superseded

- All applicable pre-November 30, 1989 standards are contained in the GASB’s codification

- All potentially applicable post-November 30, 1989 non-GASB standards will be “other accounting literature”

Guidance on 29 topics is brought into the GASB literature

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Statement 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position


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What Are The New Elements?

Deferred outflows of resources- A consumption of net assets by the government that is

applicable to a future reporting period - Has a positive effect on net position, similar to assets

Deferred inflows of resources- An acquisition of net assets by the government that is

applicable to a future reporting period - Has a negative effect on net position, similar to liabilities

Net position- The residual of all elements presented in a statement of

financial position - = assets + deferred outflows – liabilities – deferred inflows

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How Are These Changes Displayed?

Deferred outflows should be reported in a separate section following assets

Similarly, deferred inflows should be reported in a separate section following liabilities

Net Position components resemble net asset components under Statement 34, but include the effects of deferred outflows and deferred inflows- Net investment in capital assets- Restricted- Unrestricted

Governmental funds continue to report fund balance

What Qualifies For Reporting As A Deferral?

Prior Standards- Statement 53—Accounting and Financial Reporting for

Derivative Instruments - Statement 60—Service Concession Arrangements

Post-issuance Standards- Statement 65—Items Previously Reported as Assets and

Liabilities- Statement 68—Pensions- Statement 69—Government Combinations

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2014

Statement 65Items Previously Reported as Assets and Liabilities


34

What Should Be Classified As Deferred Inflows of Resources?

Governmental funds—resources not available for expenditure

Grants received in advance of meeting timing requirement Deferred amounts from refunding of debt (credits) Proceeds from sales of future revenues Deferred gain from sale-leaseback “Regulatory” credits

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What Should Be Classified As Deferred Outflows of Resources?

Grant paid in advance of meeting timing requirement Deferred amounts from refunding of debt (debits) Cost to acquire rights to future revenues (intra-entity) Deferred loss from sale-leaseback

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What Should Be Classified AsOutflows of Resources?

Debt issuance costs (other than insurance) Initial costs incurred by lessor in an operating lease Acquisition costs for risk pools Loan origination costs

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What Should Be Classified As Inflows of Resources?

Loan origination fees Commitment fees (after exercise or expiration)

Statement 66Technical Corrections—2012


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What Are The Clarifications?

Statement 62 with- Statement 13—Leases- Statement 48

Purchase of a loan or group of loans Servicing fees related to mortgage loans

Statement 10 with- Statement 54—Risk financing pools

2014 and 2015

Pensions – GASB 68

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Statement 68Accounting and Financial Reporting for Pensions

Statement 67Financial Reporting for Pension Plans

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Defined Benefit Pensions

Liabilities to the pension plan (payables) Liabilities to employees for pensions

- “Net pension liability” (NPL) Total pension liability (TPL), net of pension plan’s fiduciary net position

– TPL = actuarial present value of projected benefit payments attributed to past periods

– Fiduciary net position as measured by pension plan

- Single/agent employers recognize 100 percent of NPL- Cost-sharing employers recognize proportionate shares of

collective NPL

Total Pension Liability

Measurement

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40

Basic Three-StepMeasurement Approach

25 62 80

1) Project Benefit Payments

2) Discount Future Payments

Present Value of Payments

3) Attribute to Employee Service Periods

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Actuarial Assumptions

Selection of all actuarial assumptions should be made in accordance with Actuarial Standards of Practice (unless specific guidance is provided by the GASB).

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Projection of Benefits

The projection of pension benefit payments should include the effects of projected future salary increases and future service credits, if part of the benefits formula, as well as automatic COLAs

Ad hoc COLAs would be incorporated into projections of pension benefit payments only if an employer’s practice indicates that the COLAs are substantively automatic

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Discount Rate

Should be a single rate that reflects:- The long-term expected rate of return on plan

investments that are expected to be used to finance the payment of benefits to the extent that Plan net position is projected to be sufficient to make projected

benefit payments, and Assets are expected to be invested using a strategy to achieve

that return- A yield or index rate for 20-year, tax exempt general

obligation bonds with an average rating of AA/Aa or higher to the extent that the conditions for the use of the long-term expected rate of return are not met

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Beginning Plan Fiduciary Net Position

Projected Benefit Payments

CrossoverPoint

$1.43

$0.11

0 27

Crossover Point$

(mil

lio

ns)

Years

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Attribution Method

Single actuarial cost allocation method:- Based on entry age normal principles- Applied as a level percentage of payroll- Over periods beginning in first period in which the

employee’s services lead to benefits under the plan (without regard to conditional service-related provisions such as vesting) and ending in last period of the employee’s service

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Timing and Frequency of Measurement

The net pension liability is measured as of a date (the measurement date) no earlier than the end of its prior fiscal year, consistently applied from period to period

Total pension liability component of the net pension liability at the measurement date is determined either by - An actuarial valuation as of that date or - The use of update procedures to roll forward

amounts to the measurement date from an actuarial valuation as of a date no more than 30 months (plus 1 day) prior to the fiscal year-end

For financial reporting purposes, actuarial valuations at least biennially- More frequent valuations are encouraged

Pension Expense

Measurement

52

Immediate Expense Recognition

Expense recognition would be immediate for:- Pension benefits earned during the reporting period

(service cost or normal cost) - Projected investment earnings on pension plan

investments (long-term expected rate of return)- Interest cost on the total pension liability- Changes in benefit terms that affect the total pension

liability

53

Deferred Expense Recognition

Expense would be deferred and recognized over a period equal to the average remaining service periods of active and inactive (including retirees) employees for: - Differences between expected and actual changes in

economic and demographic factors- Changes in assumptions about economic and

demographic factors Differences between actual and projected

earnings on plan investments would be deferred and recognized as pension expense over a five-year, closed period

54

Implications of the New Pensions Statements

Changes in the employer’s net liability likely to be recognized in pension expense more quickly

Cost-Sharing Multiple Employer Plans

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Cost-Sharing Employers

A government participating in a cost-sharing plan would report a liability in its own financial statements that is equivalent to its proportionate share of the net pension liability of all the employers in the cost-sharing plan.

Approach uses a basis for allocation of proportionate share based on the employer’s contribution effort relative to that of all contributors

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Additional Deferrals

Change in proportion- Net effect deferred- Expense recognition period—average expected

remaining service lives of all employees Contributions during the measurement period

- Difference between the amount of contributions and the amount of the entity’s proportionate share

- Expense recognition period—average expected remaining service lives of all employees

Governmental Funds

Recognition

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Modified Accrual

Net pension liabilities are normally expected to be liquidated with expendable available financial resources to the extent that pension benefits have matured—that is, pension benefit payments are due and plan net position is not sufficient for payments of benefits.

Liabilities to defined benefit pension plans, as well as liabilities for defined contribution pensions, are normally expected to be liquidated with expendable available financial resources when amounts are due pursuant to contractual arrangements or legal requirements.

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What’s Next - 2013 and Beyond Two Implementation Guides

- Initial guidance for pension plans was released in June 2013

- Employer and nonemployer contributing entity guidance will follow in January 2014

Phase 2 of Postemployment Benefits project- OPEB and pensions not within scope of Statements 67/68- Exposure Draft expected to be released in mid-2014

Current Agenda Projects

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Overview

Conceptual Framework- Measurement- Recognition

Fair Value Measurement and Application Fiduciary Responsibilities Leases Other Postemployment Benefits GAAP Hierarchy Pension Employer Implementation Guide Pensions—Deferral Transition

Research Agenda Projects

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Pre-Agenda Research

Financial Reporting Model—Statement 34 Tax Abatement Disclosures

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Questions?

Web site—www.gasb.org

Documents

GASB Update The views expressed in this presentation are those of Mr. Sundstrom. Official positions of the GASB are determined only after extensive due