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
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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
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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
Effective for Periods Beginning After December 15, 2011
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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
Effective for Periods Beginning After December 15, 2011
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
Effective for Periods Beginning After December 15, 2011
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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
Effective for Periods Beginning After December 15, 2012
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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
Effective for Periods Beginning After December 15, 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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Basic Three-StepMeasurement Approach
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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
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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
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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
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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