38 years of excellent client service gasb update presented by william blend, cpa, cfe

38 Years of Excellent Client Service GASB Update Presented By William Blend, CPA, CFE

Schedule Course Begins Break Course Ends GASB Update Part 1 GASB Update Part 2 2

Housekeeping Details Course evaluations Confirmation of attendance Type of credit Participants responsibility Other matters 3

GASB Update 4 Clarifications on implementation of GASB No. 54 Fund Balance Reporting and Governmental Fund Type Definitions GASB 60 Accounting and Reporting for Service Concession Arrangements GASB No. 61 The Financial Reporting Entity: Omnibus Agenda

GASB Update GASB 62 Codification GASB 64 Derivatives: Application of Hedge Accounting GASB 63 Reporting Deferred Outflows, Inflows and Net Position Future GASB Projects Agenda 5

38 Years of Excellent Client Service GASB Update Part 1 6

38 Years of Excellent Client Service GASB 54 Revisited 7

GASB 54 O VERVIEW Objectives: Establishes fund balance classifications based on the relative strength of the constraints on spending and the source of constraints Clarifies the existing governmental fund type definitions (special revenue funds and capital projects funds) 8

GASB 54 GASB No. 54 Fund Balance Reporting and Governmental Fund Type Definitions This statement is designed to improve financial reporting by establishing fund balance classifications that are easier to understand and apply. The following classifications are established : Nonspendable (inventory, prepaids, advances, etc.) Restricted (externally) Committed (contractual, highest level of action by governing body) Assigned (intended use set by a governing body or designee) Unassigned (residual in general fund) 9

GASB 54 I MPLEMENTATION G UIDANCE GASB Comprehensive Implementation Guide Refer to Chapter Z, Section 54 10

N ONSPENDABLE F UND B ALANCE First, consider resources that are not in spendable form, such as inventories and prepaids. Second, consider other amounts that are potentially nonspendable, such as long-term receivables, long-term advances to other funds, and property held for resale. Third, determine if potential amounts are restricted, committed, or assigned. 11

N ONSPENDABLE F UND B ALANCE If cash to be received from nonspendable asset is restricted, committed, or assigned, then fund balance should be classified as such and not as nonspendable 12

N ONSPENDABLE F UND B ALANCE Q: General Fund has inventory of $100 and long-term advances to Utility Fund of $400? Payments received from Utility Fund will fund general government operations. What amount should be reported as nonspendable fund balance in the General Fund? A: $500 Nonspendable 13

N ONSPENDABLE F UND B ALANCE Q: CRA Special Revenue Fund has prepaids of $50 and property held for resale of $150? What amount should be reported as nonspendable fund balance in this Special Revenue Fund? 14

N ONSPENDABLE F UND B ALANCE A: Only $50 is nonspendable. Because spendable resources in a special revenue fund must be either restricted, committed, or assigned, cash received from sale of property will fall into one of those categories. 15

R ESTRICTED F UND B ALANCE Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments Imposed by law through constitutional provisions or enabling legislation 16

R ESTRICTED F UND B ALANCE Restricted Fund Balance for governmental funds does not typically equal Restricted Net Assets for governmental activities for the following reasons: 1.Principal of permanent fund is nonspendable for governmental funds but restricted for governmental activities 2.Difference in basis of accounting 3.Governmental activities includes internal service fund assets 17

C OMMITTED F UND B ALANCE Amounts used for specific purposes pursuant to constraints imposed by formal action of the government's highest level of decision-making authority Committed fund balance also should incorporate contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements 18

C OMMITTED F UND B ALANCE Committed fund balance constraints cannot lapse Amounts in committed fund balance may only be redeployed for other purposes by using the same level of action used to originally commit the funds 19

C OMMITTED F UND B ALANCE Formal action of the government's highest level of decision-making authority that commits fund balance should occur prior to the end of the reporting period 20

A SSIGNED F UND B ALANCE Amounts that are constrained by the government's intent, but are neither restricted nor committed Intent should be expressed by: The governing body itself A body (a budget or finance committee, for example) or official to which the governing body has delegated the authority to assign amounts to be used for specific purposes 21

A SSIGNED F UND B ALANCE Assigned fund balance includes: All remaining amounts (except for negative balances) reported in governmental funds, other than the general fund, not classified as nonspendable, restricted or committed Amounts in the general fund that are intended to be used for a specific purpose 22

A SSIGNED F UND B ALANCE Reporting amounts that are not restricted or committed in a special revenue; the government has assigned those amounts to the purposes of the respective fund Unspent resources remaining in a special revenue fund at year end remain assigned (no additional action necessary) 23

A SSIGNED F UND B ALANCE Action to assign may occur after close of the reporting period to identify purpose and amount 24

A SSIGNED F UND B ALANCE Q: A government adopts its FY13 legal budget before 9/30/12 through the use of an ordinance, which includes the use of FY12 existing fund balance to cover a projected FY13 budgetary deficit of $500. Should the $500 be reported as committed or assigned fund balance at 9/30/12? A: Assigned. Because the constraint lapses at end of FY13 budget period with no formal action taken. Committed constraints do not lapse. 25

A SSIGNED F UND B ALANCE Q: Citys FY13 legally adopted budget ordinance for the general fund reports beginning fund balance of $100 as a funding source and also projects an ending fund balance of $75. What amount should be reported as Assigned for Subsequent Year Expenditures at 9/30/12? 26

A SSIGNED F UND B ALANCE A: $25 The legal budget authorizes rather than constrains spending. The $100, while included in the FY13 budget as a funding source, is not entirely constrained for spending in FY13. Only $25 ($100 beginning FB minus $75 ending FB) is intended to fund the FY13 budgetary deficit. 27

U NASSIGNED F UND B ALANCE Unassigned fund balance is the residual classification for the general fund The general fund should be the only fund that reports a positive, unassigned fund balance amount 28

U NASSIGNED F UND B ALANCE Unassigned fund balance is not an appropriate category for encumbrances because a purchase order entails a spending constraint (assignment at a minimum) Unassigned fund balance of a blended component unit becomes assigned, committed, or restricted when it is reported in the primary governments financial statements because it is reported as a special revenue fund 29

S TABILIZATION A RRANGEMENTS Some governments set aside amounts for use in emergency situations or when revenue shortages or budgetary imbalances arise. Those amounts are subject to controls that dictate the circumstances under which they can be spent, such as: Revenue stabilization Working capital needs Contingencies or emergencies 30

S TABILIZATION A RRANGEMENTS To be classified as restricted or committed: Authority for establishing stabilization arrangements should be set by enabling legislation or highest level of decision making Conditions of arrangement must be specific and non-routine in an emergency is not specific when revenues fall more than 1% below expectations is specific but could be expected to occur routinely 31

S TABILIZATION A RRANGEMENTS Regardless of whether arrangement meets criteria to be classified as restricted or committed, disclosure is needed for the following: The authority for establishing stabilization arrangements (for example, by statute or ordinance) The requirements for additions to the stabilization amount The conditions under which stabilization amounts may be spent The stabilization balance, if not apparent on the face of the financial statements 32

S TABILIZATION A RRANGEMENTS Difference between a stabilization policy and a minimum fund balance policy: A stabilization arrangement establishes spending constraints so that fund balance may be expended only when certain specific circumstances or conditions exist that are not expected to occur routinely. A minimum fund balance policy establishes a savings target that the government believes should be maintained. 33

S TABILIZATION A RRANGEMENTS Q: What is the difference between a stabilization arrangement and a minimum fund balance policy? 34

S TABILIZATION A RRANGEMENTS A: For financial reporting purposes, resources set aside under a stabilization arrangement may be expended only when certain specific circumstances or conditions exist that are not expected to occur routinely. A minimum fund balance policy generally does not stipulate the conditions under which fund balance may fall below the minimum but, rather, establishes a target amount that the government believes should be maintained to provide a reasonable level of assurance that day-to-day operations can continue if revenues are insufficient to cover expenditures. 35

S TABILIZATION A RRANGEMENTS Q: In May 2012, a City Commission agrees in a workshop that it would like to set aside a reserve for emergencies in its General Fund equal to 25% of General Fund operating expenditures. If there is no further action on the matter, how should this affect the Citys fund balance classification at 9/30/12? Committed, assigned, or unassigned? 36

S TABILIZATION A RRANGEMENTS A: Unassigned. Not committed because no formal action was taken by the Commission, nor did the Commission establish specific and non-routine conditions to determine when the fund balance amount could be spent. Not assigned because the only possible classification options for stabilization arrangements, even de facto stabilization arrangements like a minimum fund balance policy, are restricted, committed, or unassigned (GASB 54, Para. 21). 37

R EPORTING E NCUMBRANCES Encumbering amounts for specific purposes for which resources already have been restricted, committed, or assigned should not result in separate display of the encumbered amounts within those classifications (within the detail note, or on the face of the financial statements) Encumbrances should not be included within unassigned fund balance classifications 38

G OVERNMENTAL F UND T YPE D EFINITIONS General Fund Special Revenue Funds will have further discussion Capital Projects Funds Debt Service Funds Permanent Funds will have further discussion Definitions are modified to provide for clarity and consistency 39

Special Revenue Funds Special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes, other than debt service or capital projects Restricted or committed revenues should be the foundation for a special revenue fund 40 G OVERNMENTAL F UND T YPE D EFINITIONS

Special Revenue Funds (Cont.) Assigned resources are permitted, but the restricted or committed revenue sources should be expected to continue to comprise a substantial portion of the inflows reported in the fund Annual transfer is not a sufficient basis for use of a special revenue fund 41 G OVERNMENTAL F UND T YPE D EFINITIONS

I MPLEMENTATION E XAMPLE Special Revenue Funds Q: A government uses a formal ordinance to require that 20% of an existing revenue source can be spent only for economic development activities. A separate fund is established to account for those resources and their use. The government budgets the entire revenue source in the general fund and annually appropriates a transfer to the separate fund. Can the government report the separate fund as a special revenue fund? 42

A: It depends. The ordinance qualifies as a commitment of a specific revenue for a specific purpose. However, notwithstanding the budgetary treatment, the separate fund can be reported as a special revenue fund only if the 20% portion is recognized as revenue in the separate fund, rather than in the general fund. 43 I MPLEMENTATION E XAMPLE Special Revenue Funds

Permanent Funds Used to account for and report resources that are restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government's programs, that is, for the benefit of the government or its citizenry. 44 G OVERNMENTAL F UND T YPE D EFINITIONS

I MPLEMENTATION The following slides present examples provided within the statement itself, the comprehensive implementation guide, and a few real-life examples of implementing the standard for assigned fund balance. 45

I MPLEMENTATION E XAMPLE Assumptions Special revenue fund whose policy is to use restricted resources before unrestricted No established policy for use of its unrestricted resources The fund includes amounts that have been restricted, committed, or assigned to three specific purposes 46

47 I MPLEMENTATION E XAMPLE

Using the example in the preceding question, assume that the government has adopted a policy of using assigned resources first, followed by committed amounts. How would the ending balances change? (Q&A2012-Z.54.20) 48 I MPLEMENTATION E XAMPLE

Using the special revenue fund example, what would be the effect if one of the specific purposes was overspent? (Q&A2012-Z.54.21) The government would first reduce balances assigned to other purposes in the fund (the specific purposes that would be reduced are at the government's discretion) until the deficit is eliminated. However, if the deficit exceeds the remaining assigned balances in the fund, then the residual amount should be reported as negative unassigned fund balance. 50 I MPLEMENTATION E XAMPLE

38 Years of Excellent Client Service GASB 60 52

GASB Statement No. 60 Effective for fiscal years beginning after December 15, 2011 and thereafter (FL - FYE 6/30/13 & 9/30/13) A type of public-private or public-public partnership Parties: Transferor, Operator, Customer/User Benefits: Leverage existing infrastructure for cash Get facilities built, but transfer the risks Provide services in a more efficient manner Accounting and Financial Reporting for Service Concession Arrangements 53

Scope: What is an SCA? ALL of the following criteria are met: Transferor conveys to an operator the right and related obligation to provide services to the public through the use and operation of a capital asset (facility) in exchange for significant consideration Operator collects and is compensated by fees from third parties 54

Scope: What is an SCA? ALL of the following criteria are met: Transferor is entitled to significant residual interest in the service utility of the facility at the end of the arrangement Transferor determines or has the ability to modify or approve: What services the operator is required to provide To whom the services will be provided The prices or rates that will be charged 55

Examples of SCAs An operator will design and build a facility and obtain the right to collect fees from third parties: construction of a municipal complex for the right to lease a portion of the facility to third parties. Operator will provide significant consideration in exchange for the right to access an existing facility: operating a parking garage and collecting fees from third parties for its usage. 56

Examples of SCAs The operator will design and build a facility (new tollway), finance the construction costs, provide the associated services, collect the associated fees, and convey the facility to the government at the end of the arrangement. 57

Should recognize a liability for certain obligations to sacrifice financial resources if: Obligation relates directly to the facility, or Obligation relates to a commitment to maintain a minimum or specified level of service in the facility Deferred inflow should be reduced and revenue recognized in a systematic and rational manner over the term of the SCA GASB Statement No. 60 58

GASB 61 T HE F INANCIAL R EPORTING E NTITY : O MNIBUS - AN AMENDMENT OF GASB S TATEMENTS 14 AND 34 60

I NTRODUCTION Effective for fiscal years beginning after June 15, 2012 (FL - FYE 6/30/13 & 9/30/13) The cumulative effect of applying this statement should be reported as a restatement of beginning equity for the current period with appropriate disclosure 61

I NTRODUCTION Omnibus means to address multiple issues within one document Objective of GASB 61: To improve financial reporting for governmental entities and, specifically, to address issues that have arisen since GASB 14 and 34 Include the organizations that should be included Exclude the organizations that should not be included Consistency with current conceptual framework 62

S COPE AND A PPLICABILITY Modifies existing requirements for the assessment of potential component units in determining what should be included in the financial reporting entity, and financial reporting entity display and disclosure requirements. It applies to financial reporting by primary governments and other stand-alone governments, and to the separately issued financial statements of governmental component units, as defined in Paragraph 9 of Statement 14. 63

S COPE AND A PPLICABILITY In addition, GASB 61 should be applied to nongovernmental component units when they are included in a governmental financial reporting entity. 64

A MENDMENTS TO I NCLUSION C RITERION GASB 61 adds financial to the accountability criteria of GASB 14, making it financial accountability. To meet this criteria, the following circumstances for a primary government should include the following: a.PG appoints a voting majority and it is able to impose its will on the organization or the organization has the potential to provide specific financial benefits to, or impose financial burdens on the PG b.If an organization is fiscally dependent on the PG and there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the PG despite: (1) separately elected governing board, (2) governing board appointed by a higher level of government, or (3) jointly appointed board 65

Examples of the financial benefit or burden relationship presented in GASB 61 are: a.PG is legally entitled to, or can otherwise access, the organizations resources b.PG is legally obligated, or has otherwise assumed the obligation to finance the deficits of, or provide financial support to, the organization c.PG is obligated in some manner for the debt of the organization The above are examples of other ways to show this relationship? 66 A MENDMENTS TO I NCLUSION C RITERION

A MENDMENTS TO THE M ISLEADING TO E XCLUDE C RITERION GASB 61 emphasizes the use of managements professional judgment when considering the inclusion of potential component units. The relationship between a primary government and closely related organization will generally be financial in nature and often include financial benefit or burden relationships. When an organization does not meet financial accountability criteria, management may still determine that inclusion is necessary to prevent the reporting entitys financial statements from being misleading. When evaluating a potential component unit, management should consider if the organization is closely related to or financially integrated with the primary government. 67

A MENDMENTS TO THE C RITERIA FOR B LENDING C OMPONENT U NITS Discrete presentation is the default method for inclusion of component units. Blending should occur only in specific, narrowly defined circumstances. Prior to GASB 61, this criterion consisted of substantively the same governing body and services provided entirely/exclusively to the primary government. GASB 61 adds additional criteria for blending component units. Using just the substantively the same governing body rule, resulted in PG adding significant assets to their financial statements that they could not access, or significant debt for which it was not liable. 68

A MENDMENTS TO THE C RITERIA FOR B LENDING C OMPONENT U NITS The two provisions added to the blending criteria of substantively the same governing body were as follows: 1)Either a financial benefit or burden requirement also exists between the PG and component unit, or 2)Management of the PG also has operational responsibility for the component unit. GASB 61 also added a third criterion for blending, which occurs when a component units total debt outstanding, including leases, is expected to be repaid entirely or almost entirely with resources of the PG. 69

A MENDMENTS TO THE R EQUIREMENTS FOR R EPORTING THE F UNDS OF A B LENDED C OMPONENT U NIT GASB 61 clarifies that funds of a blended component unit assume all the characteristics of funds of the PG and are subject to the same fund reporting requirements. The general fund of a blended component unit should continue to be reported as a special revenue fund of the PG. For governments engaged only in business-type activities that use a single-column presentation, a component unit may be blended by consolidating its financial statement data within the single column of the PG and presenting condensed combining information in the notes to the financial statements. 70

A MENDMENTS TO THE R EQUIREMENTS FOR R EPORTING THE F UNDS OF A B LENDED C OMPONENT U NIT Condensed combining information should include at a minimum: 1)Condensed statement of net assets 2)Condensed statement of revenues, expenses, and changes in net assets 3)Condensed statement of cash flows 71

A MENDMENTS TO THE M AJOR C OMPONENT U NIT R EQUIREMENTS Prior to GASB 61, there was inconsistency between PG in how they determined which component units are major. GASB 61 clarifies that major component units should be those which are of greater interest to the financial statement user. Therefore, determination should be based on the nature and significance of relationship to the PG. This would include factors, such as: 1)Essential services provided to the citizenry 2)Significant transactions with the PG 3)Significant financial benefit or burden relationship with the PG 72

A MENDMENTS TO THE M AJOR C OMPONENT U NIT R EQUIREMENTS In addition, GASB 61 eliminates the requirement that the major component unit determination include consideration of each component units significance relative to other component units. Major component units should be presented either: 1)In a separate column in the statement of net assets and activities 2)In combining statements of major component units in the basic financial statement following the fund financial statements, or 3)In the notes to the financial statement in a condensed financial statement format. Nonmajor component units should be aggregated in a single column. A combining schedule is not required but is allowed as supplementary information. 73

A MENDMENTS TO THE R EQUIREMENTS FOR R EPORTING E QUITY I NTERESTS OF C OMPONENT U NITS When a government owns a majority of the equity interest of a legally separate organization and the intent is to directly enhance the governments ability to provide governmental services, the organization should be reported as a component unit. Prior to GASB 61, equity interests in discretely presented component units were reported as expense or outflow of resources for the acquisition, whereas equity interests in joint ventures were reported as assets. 74

GASB 61 now requires that the equity interest in a discretely presented component unit be reported as an asset of the fund that has the equity interest. If the component unit is blended, the equity interest is eliminated in the blending process. 75 A MENDMENTS TO THE R EQUIREMENTS FOR R EPORTING E QUITY I NTERESTS OF C OMPONENT U NITS

N OTE D ISCLOSURES GASB 61 clarifies how disclosure requirements for component units should be applied. Note disclosures should include the following: 1)Brief description of the component units of the financial reporting entity and their relationship to the PG. 2)Discussion of the rationale for including each component unit in the financial reporting entity and whether it is discretely presented, blended, or in fiduciary funds. 3)Information about how the separate financial statements for the individual component units may be obtained. 76

N OTE D ISCLOSURES GASB 61 also clarifies that component units may be disclosed together based on common characteristics, as long as each component unit is separately identified. (Example: multiple CRA funds) Believe it or not, no new disclosures. 77

A MENDMENTS FOR C OMPONENT U NITS AND R ELATED O RGANIZATIONS WITH J OINT V ENTURE C HARACTERISTICS GASB 61 provides reporting guidance for minority interests in component units and related organizations with joint venture characteristics. For component units reported in a majority participants financial reporting entity, equity interests of the minority participants should be reported as restricted net assets, nonexpendable. Minority interest in a component unit was also added to GASB 34s paragraph describing expendable and nonexpendable restricted net assets. 78

I LLUSTRATION GASB 61 Q: A County established a nonprofit organization to provide emergency medical services to its residents. The County commissioners serve as the Board for the EMS. The County provides significant financial support to the EMS. How should the EMS be reported in the F/S of the County? 79

A: Blended Component Unit. The EMS governing body is substantively the same as the Countys and a financial burden to the County exists. 80 I LLUSTRATION GASB 61

Q: A District School Board has approved a charter school. The charter school is not fiscally dependent on the District, nor is the District responsible for funding the charter schools deficits. There are no other significant financial relationships between the District and charter school. How should the charter school be reported in the financial statements of the District School Board? 81 I LLUSTRATION GASB 61

A: Not a Component Unit, but disclose as a related organization. The District School Board does not have financial accountability for the charter school, nor does it appear to be misleading to exclude the charter school from the School Boards financial statements because of the lack of any significant financial relationships. 82 I LLUSTRATION GASB 61

38 Years of Excellent Client Service GASB Update Part 2 83

GASB Statement No. 62 Effective for fiscal years beginning after December 15, 2011 and thereafter (FL FYE 6/30/13 & 9/30/13) Incorporates pronouncements issued before November 30, 1989, by the following that do not contradict GASB Pronouncements FASB Statements and Interpretations (SFAS 106) Accounting Principle Board opinions (APB) AICPA Accounting Research Bulletins Supersedes GASB S-20 Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements 85

Capitalized interest Proprietary Funds Revenue recognition when right of return exists Proprietary Funds Defines classifications for a classified statement of position (balance sheet) Over 500 paragraphs Due to issuance of FASB Codification GASB Statement No. 62 86

GASB Statement No. 63 Effective for fiscal years beginning after December 15, 2011 Applies to Florida governments FYE 6/30/2013 and 9/30/2013 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position 88

Background Concepts Statement 4 identifies 5 elements that make up a statement of financial position: Assets Liabilities Deferred outflows of resources Deferred inflows of resources Net position Differs from the composition currently required by Statement 34, which requires the presentation of assets, liabilities, and net assets in a statement of financial position Statements 53 and 60 identify deferrals of resources 89

For Proprietary Funds Net approach is encouraged Balance Sheet approach is allowed For Governmental Funds Balance Sheet approach still appropriate Difference is still called Fund Balance and applies GASB 54 90

Definitions 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 91

Statement of Net Position Assets + Deferred Outflows = Total Assets and Deferred Outflows Liabilities + Deferred Inflows = Total Liabilities and Deferred Inflows Net Position 92

Display Requirements 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 assets 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 93

Disclosures Provide details of different types of deferred amounts if components of the total deferred amounts are obscured by aggregation on the face of the statements If the amount reported for a component of net position is significantly affected by the difference between deferred inflows or outflows and their related assets or liabilities, provide an explanation in the notes Balances of deferred outflows and deferred inflows may be aggregated on face of statements 94

Current Deferred Outflows/ Inflows Statement 53 - Accounting and Financial Reporting for Derivative Instruments Statement 60 - Service Concession Arrangements 95

Examples of Other Deferred Inflows of Resources Proposed Deferred amounts from refunding of debt (credits) Proceeds from sales of future revenues Deferred gain from sale-leaseback Regulatory credits 96

Deferred amounts from refunding of debt (debits) Cost to acquire rights to future revenues (intra-entity) Deferred loss from sales-leaseback Examples of Other Deferred Inflows of Resources Proposed 97

Other Issues Criteria for determining major funds will include deferred items Use of the term deferred limited to deferred outflows and deferred inflows 98

GASB Statement No. 64 Effective for fiscal years beginning after June 15, 2011 Applies to Florida governments FYE 6/30/2012 and 9/30/2012 Derivative Instruments: Application of Hedge Accounting Termination Provisions an amendment of GASB Statement No. 53 100

GASB Statement No. 64 In many instances, governments have managed to replace their swap counterparty or swap counterpartys credit support providers by amending existing swap agreements or by entering into new swap agreements. Therefore, GASB 64 was issued to clarify the circumstances in which an effective hedging relationship continues after these events occur. 101

When Does a Hedging Relationship Continue? Statement 53 requires immediate recognition of deferred amounts when swap is terminated This Statement clarifies when a hedging relationship (and hedge accounting) continues when all of the following are met: Collectability of swap payments is probable Counterparty (or support provider) is replaced with an assignment or in-substance assignment Act of default or termination by counterparty (or support provider) 102

Assignment Assignment: Occurs when swap agreement is amended to replace original counterparty, or counterpartys credit support provider, but all other terms of swap agreement remain unchanged. 103

In-substance Assignment In-substance Assignment: Original counterparty, or counterpartys credit support provider, is replaced Original swap agreement ended and replacement swap agreement entered into on same date Terms that affect changes in fair values and cash flows in original and replacement swap agreements are identical (notional amounts, maturity, reference rates, etc.) 104

38 Years of Excellent Client Service Future GASB Projects 105

Other Current Projects Economic Condition Reporting: Financial Projections Pension Accounting and Reporting Conceptual Framework Recognition and Measurement Attributes Government Combinations Financial Guarantees Fair Value Measurement and Reporting GAAP Hierarchy User Guide Series 106

38 Years of Excellent Client Service GASBs Economic Condition Reporting: Financial Projections Project 107

NCGA Concepts Statement 1 Information concerning financial condition of the governmental unit. To provide financial information useful for determining and forecasting the financial condition of the governmental unit and changes therein. 108

GASB Concepts Statement 1 Financial reporting should assist users in assessing the level of services that can be provided by the governmental entity and its ability to meet its obligations as they become due. Financial reporting should provide information about the financial position and condition of a governmental entity. 109

Why Now? Current Environment Many governments are under financial stress Financial statement users are looking for the pressure points Weakness in revenue sources Calls on resources Users need financial projections to assess a governments fiscal sustainability 110

What is Economic Condition? Economic condition is a composite of a governments financial position, fiscal capacity, and service capacity. (Redundancies removed) Financial Position Financial position is the status of a governments assets, deferred outflows, liabilities, deferred inflows, and net position, as displayed in the basic financial statements. Fiscal Capacity Fiscal capacity is the governments ability and willingness to meet its financial obligations as they become due on an ongoing basis. Service Capacity Service capacity is the governments ability and willingness to meet its commitments to provide services on an ongoing basis. 111

Assumptions for Projections Principles-based approach for providing guidance on how to identify and develop assumptions which would not specifically identify the assumptions necessary for projecting the components of fiscal sustainability information. Principles provide that assumptions should be based on relevant historical information, as well as events and conditions that have occurred and affect the future, that are: Consistent with each other and the information used as the basis for the assumptions Comprehensive by considering significant trends, events, and conditions Assumptions used by the government should be disclosed 112

38 Years of Excellent Client Service Pension Accounting and Financial Reporting by Employers Preliminary Views of the GASB 113

Fundamental Approach Balance between a point-in-time measure of the employers obligation to employees and the measure over time of the cost to taxpayers of providing governmental services Employment-exchange transactions create an obligation of employer to employees to provide pension benefits in retirement Annual exchanges, viewed by the Board within context of a career-long employment relationship Accounting-based versus funding-based proposals (currently, we compare the ARC with the actual payment made) 114

Types of Plans Single-employer plans involve only one government Multiple-employer plans includes more than one government Agent multiple-employer plans separate accounts are maintained to ensure that each employers contributions are used to provide benefits only for the employees of that government Individual employers are responsible for benefits associated with their own employees only, and separate actuarial calculations are made for each participating government in the plan Collection of single-employer plans Costs of administering the plan are shared by participating governments, and the plan assets are pooled for investment purposes 115

Multiple-employer plans include more than one government Cost-sharing multiple-employer plans governments pool (share) the costs of providing benefits and administering the plan and the assets accumulated to pay benefits A single actuarial valuation is conducted for all of the employees of the participating governments combined Types of Plans 116

Biggest Changes SOLE OR AGENT MULTIPLE-EMPLOYER PLANS Old UAL meets the definition of a liability when parameters of the calculation are limited to: Use of fair value of plan net position, instead of a potential actuarial value of assets Use of the actuarial cost method similar to the current definition of entry age, instead of one of 6 methods, as allowed in Statement 27 117

SOLE OR AGENT MULTIPLE-EMPLOYER PLANS (Cont.) Changes in the components of the total pension liability, that are not changes in plan terms (which are recognized as expense immediately) to be amortized over the expected remaining service life of plan members (now no distinction between active and inactive (retired) employees) CHANGE FROM THE ED WHICH WAS amortized over the weighted average, expected remaining service life of the individual employee (causing immediate recognition of expense for retirees), instead of a period up to 30 years Biggest Changes 118

Biggest Changes SOLE OR AGENT MULTIPLE-EMPLOYER PLANS (Cont.) Changes in investment performance (differences in expected and actual investment performance) should be amortized over a 5-year closed period COST-SHARING MULTIPLE-EMPLOYERS Should apply these concepts and report their collective share of the activity of the plan (liability, expense, deferred inflows, and deferred outflows), unless another entity is legally obligated to pay its share, or a portion of its share, of the liability on an ongoing basis 119

38 Years of Excellent Client Service Cost-Sharing Employers 120

Current Requirements Reflect the pooling of risks and assets Do not require actuarial information to be presented for individual employers The information is required to be presented in the cost-sharing pension plans own financial statements USERS want to know if a government in a cost- sharing plan, like other government employers, incurred an obligation to provide pensions to employees as they have worked 121

Proposed Recognition A government participating in a cost-sharing pension plan would report A net pension liability based on its proportion of the collective net pension liability of all of the governments participating The proportion would equal the governments long-term expected contributions to the plan divided by those of all governments in the plan, if calculation is practicable 122

Measurement The Board adopts the same approach to measurement of the collective unfunded liability, deferred inflows, and pension expense for cost-sharing employers as it tentatively has done for sole and agent employers. 123

38 Years of Excellent Client Service GASBs Conceptual Framework Project 124

Recognition and Measurement Attributes Concepts Statements Recognition Concepts: Develop recognition criteria for what items should be reported as elements of that financial statement The related basis of accounting determines when those items should be reported 125

Recognition and Measurement Attributes Concepts Statements Measurement Approach: Focuses on whether an asset or liability presented in a financial statement should be reported at an amount that reflects the value when: The asset was acquired or the liability was incurred Remeasured to reflect the value at the date of the financial statements 126

Recognition of Elements of Financial Statements Boards Preliminary Views : Financial statements prepared using the current financial resources measurement focus (fund statements) should be replaced with the near- term financial resources measurement focus, which recognizes balances from a near-term perspective and flows of financial resources for the reporting period The period to which near-term refers should be considered in standards, rather than a concept statement 127

Current Financial Resources Recognizes the net effect of transactions on current financial resources by recording accruals for those revenue and expenditure transactions which have occurred by year- end that are normally expected to result in a cash receipt or disbursement within a specified period after year-end (confusion is it 60 days, like deferred property taxes, or 1 year?) 128

Measurement Approaches Initial-Transaction-Date-Based Measurement (Initial Amount) The transaction price, or amount assigned when an asset was acquired or a liability was incurred, including subsequent modifications to that price or amount, such as through amortization or depreciation Current-Financial-Statement-Date-Based Measurement (Remeasured Amount) The amount assigned when an asset or liability is remeasured as of the financial statement date, including fair value; current acquisition, sales, and settlement price; replacement cost; and value-in-use 129

Measurement Approaches Boards Preliminary Views : Neither measurement approach is best for all objectives Initial amounts are appropriate for: Assets that are used directly in providing services Remeasured amounts are more appropriate for: Assets that will be converted to cash Variable-payment liabilities, such as compensated absences or pollution remediation obligations 130

38 Years of Excellent Client Service Government Combinations 131

Project Objectives Consider the financial reporting requirements for government combinations that are accomplished through annexation, consolidation, acquisition, shared service arrangements, or by other means Analysis of government combinations that have taken place in both the general government area (ex., City/County consolidations), and the business- type activities area (ex., Healthcare organizations) Address certain spin-off issues (ex., a library district that was formerly a department in a primary government) 132

Overall Approach To consider government combinations based on the presence (or lack) of financial consideration Other combination arrangements, without the presence of financial consideration, that are within the scope of this project: Annexations that include transfers of assets and liabilities between two or more legally separate governments School district reorganizations that result in the consolidation of two or more legally separate entities or that include transfers of assets and liabilities between two or more legally separate entities Shared service arrangements in circumstances that governments jointly agree to provide discontinued services and create new legally separate entities, or contribute resources to existing legally separate entities in order to provide those services 133

38 Years of Excellent Client Service Financial Guarantees 134

Financial Guarantees Primarily associated with commitments related to debt issue by governmental entities Take many forms, including statutory commitments Current economic environment has resulted in a level of financial stress, bringing to light financial guarantees that have been made or received in the past 135

Financial Guarantees No single comprehensive source of guidance. Heightened and potential for claims on a governments resources and if a recipient, potential resources Additional guidance should be developed regarding the recognition and disclosure of financial guarantees made by state and local governments 136

Examples: A state government that guarantees the debt of local school districts Several states providing guarantees for investments made in venture capital organizations Financial Guarantees 137

38 Years of Excellent Client Service Fair Value Measurement and Application 138

Objectives of the Project Review and consider alternatives for: Further development of the definition of fair value Methods used to measure fair value Potential disclosures about fair value measurements Address issues of fair value measurement of alternative investments: Private placements and hedge funds Real estate investment trusts State land trusts Partnership interest 139

Project Parts Part 1 - Addresses the definition of fair value and potential measurement techniques Part 2 - Addresses specific issues involving the application of fair value measurement to specific assets and liabilities, including donated capital assets and fair value measurement in governmental funds Will not begin until Part 1 is completed 140

38 Years of Excellent Client Service GAAP Hierarchy 141

Project Objectives Will consider possible modifications to the GAAP hierarchy, as set forth in Statement No. 55 Will re-examine the hierarchy levels to assess whether the standards-setting process and the governmental financial reporting environment have sufficiently evolved since the establishment of the original hierarchy by the AICPA in 1992 to warrant reconsideration or reconfiguration of certain aspects of the structure Will consider modifying the reference to the pronouncements referred to in categories (a)-(d) in Paragraph 6 of Statement No. 55 and adding a specific reference in that paragraph to the FASB Codification as other accounting literature 142

38 Years of Excellent Client Service GASBs User Guide Series 143

GAAP Hierarchy Summary Established Accounting Principles GASB Statements and Interpretations, plus AICPA and FASB pronouncements, if made applicable to state and local governments by a GASB Statement or Interpretation GASB Technical Bulletins, and the following pronouncements, if specifically made applicable to state and local governments by the AICPA: AICPA Industry Audit and Accounting Guides and AICPA Statements of Position Consensus positions of the GASB Emerging Issues Task Force (has not been established) and AICPA Practice Bulletins, if specifically made applicable to state and local governments by the AICPA (none currently exist) Qs and As published by the GASB staff, as well as industry practices widely recognized and prevalent 144

GAAP Hierarchy Summary Established Accounting Principles Other Accounting Literature Other accounting literature, including GASB Concepts Statements pronouncements in the first four categories of the hierarchy for nongovernmental entities, when not specifically made applicable to state and local governments 145

User Guide Series To update the user guides to incorporate GASB standards issues during the past decade and revising them to address issues raised by readers To issue a new series of four user guides to replace the original series What you should know about your local governments finances: A guide to financial statements (released January 2012) What you should know about your school districts finances: A guide to financial statements What you should know about the finances of your governmental business-type activity: A guide to financial statements An analysts guide to state and local government financial statements, note disclosures, and supporting information Project Objective 146

38 Years of Excellent Client Service GASBs Research Agenda 147

Research Agenda Electronic Financial Reporting - GASB to monitor and encourage use Fiduciary Responsibilities - Assess whether additional guidance should be developed regarding the application of the fiduciary responsibilities criterion in deciding whether and how governments should report fiduciary activities in their financial statements Leases Re-examine issues associated with lease accounting, considering improvements to existing guidance, including consideration of whether operating leases meet the definitions of assets or liabilities 148

Research Agenda Tax Abatement Disclosures - Consider providing disclosure guidance for governments that have granted stand-alone property tax abatement programs (SAPTAPS) or other abatements/subsidies that share the same characteristics Provide for decreased tax liability for select parcels Serve a specific purpose beyond tax relief (spurring growth) - taxpayer receiving the abatement promises some performance Are in effect for a limited time Can stand alone without other incentives 149

38 Years of Excellent Client Service QUESTIONS?

38 years of excellent client service gasb update presented by william blend, cpa, cfe

Documents

gasb update gasb

general fund

nonspendable fund balance

fund balance reporting

implementation of gasb

utility fund

codification gasb

fund balance classifications