New GASB Statements: A Preparer’s Perspective
Tim Becker, CPAManager, Financial
Reporting SectionState of Michigan Office of Financial
ManagementNASACT Annual
ConferenceOmaha 2006
GASB Pronouncements Implemented This Fiscal Year
Statement 42: Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries
Statement 44: Economic Condition Reporting: The Statistical Section
Statement 46: Net Assets Restricted by Enabling Legislation
Statement 47: Accounting for Termination Benefits
Technical Bulletin 2006-1: Medicare Part D
Objectives of GASB 42
Establish requirements for accounting and reporting of impaired capital assetsPrior standards lacked a mechanism to
reduce carrying valuePrior to GASB 42 the only option to reduce
the value was through depreciation
Establish authoritative guidance for insurance recoveries for all funds
Statement 42 - Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries
Significant and unexpected decline in service utility indicated by: Physical damage Legal or environmental
changes Technological
development or obsolescence
Change in manner or duration of use
Construction stoppages
Impairment is not only for infrastructure
Key Factors in Decision Tree: Is event significant? Is decline in utilization unexpected?
IF YES to BOTH above 2, impairment is present. IF NO – disclose if asset is idle
Is evidence of temporary nature of impairment unavailable?
If NO – disclose if asset is idle Will asset continue to be used?
IF NO – write down to lower of carrying or FMV
Recoveries – separate transaction Other financing source or extraordinary item Can also be recoveries of non-capital items
Statement 42 - Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries
How to identify impairments Clear policy and
procedures Target the
keepers of capital assets records
Provide specific examples in the policy and procedures
Statement 42 - Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries
Develop / Confirm policy – new policy should addressWho makes impairment decision
Must be able to gauge five factors explained before
Must judge if temporary or permanentMust be involved in deciding fair
market values or service unitsWho is in charge of disclosureinsurance recoveries
Statement 42 - Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries
Objectives of GASB 44
Improved the understandability and usefulness of information presented as supplementary information in CAFR Statistical SectionNCGA Statement 1 was prior
standard for statistical sectionLack of specificity in NCGA 1 led to
divergence of practiceNCGA 1 did not require government-
wide, accrual based information established by GASB 34
Statement 44 – Economic Condition Reporting
States if part of GFOA CAFR program are doing much of GASB 44 work already Financial trends Revenue Debt Demographic / Economic Operations
Key for states to focus onOPERATING INFORMATION – why?
Focus on information that isVerifiableReplicableTells the story that ‘should be told’
Statement 44 – Economic Condition Reporting
Statement 44 – Economic Condition Reporting
OPERATING INFORMATION – basic requirements:By GASB 34 Activity
category:Number of government
employees“Indicators” (e.g. performance
measures) of the demand of level of service
“Indicators” of capital asset usage
Pitfalls to watch out for as a middle manager recommending courses of action to a decision maker Not getting consensus on what an
“employee” is or what is the employee’s home agency
Not agreeing with policymakers up front as to what the key indicators should be for operations
What do you think key indicators should be for your state?
Statement 44 – Economic Condition Reporting
Objectives of GASB 46
Clarifies meaning of phrase “legally enforceable” as it relates to restrictions imposed on net asset use by enabling legislation Can’t be removed by
Government easily External – legal
constraints Can be imposed by
public interest groups or citizens in judicial finding
Statement 46 – Net Assets Restricted by Enabling Legislation
Succeeding in implementing 46Review all current restrictions
Special revenue funds are not necessarily restricted revenue
Beware of “earmarking”Work with legal or legislative staff
if uncertain on legislative intentCreate a database / spreadsheet of
restrictions
Statement 46 – Net Assets Restricted by Enabling Legislation
Statement 46 database or spreadsheetAgency/ Type of activityFundAccountLegal cite or source of restrictionInternal or external restrictionAnalysis (explanation for audit
trail)
Statement 46 – Net Assets Restricted by Enabling Legislation
Statement 46 database or spreadsheet Amount of net assets (%) that could be
restricted Category of restriction
Constitution Enabling Legislation External Restriction
Have any net assets been used for other than this purpose? What and why
Treatment for statutory restrictions if different than GAAP
Objectives of GASB 47
Provide guidance to governmental employers for accounting of all termination benefits Prior guidance only
covered special termination benefits (those offered for a short period of time)
Termination benefits are Early retirement incentives Severance benefits
Excluding pensions and OPEB (covered by other standards)
Statement 47 – Accounting for Termination Benefits
Keys for managerial successEstablish a line of communication
with HR decision makers toQuantify populationCalculate benefits dueUnderstand timing
Health care costs related to early retirement will increase pensions and OPEB
Work with actuary to make sure changes are done
Objectives of GASB Technical Bulletin 2006-1
Clarifies the application of existing standards of accounting and financial reporting to payments that an employer or DB OPEB plan receives from Federal Government pursuant to retiree drug subsidy provisions of Medicare Part DBulletin clarifies guidance by
providing responses to four common questions
T.B. 2006-1 Medicare Part D
Question 1: How should an employer account for and report payment from the Federal Government pursuant to retiree drug subsidy (RDS)?
Answer: The payment is a voluntary nonexchange transaction between the Federal Government and employer Record asset and revenue
Per GASB 33 Paragraph 7 Payment is a separate transaction from the
exchange of salaries and benefits for services between the employer and employee
T.B. 2006-1 Medicare Part D
Question 2: How does RDS payment affect the accounting and financial reporting by a DB OPEB plan?
Answer: The transaction does not affect accounting for employer contributions or the financial reporting presentation by a DB OPEB in which the employer participates An OPEB plan should apply measurement
requirements of GASB 43 to determine actuarial accrued liability, ARC, and annual OPEB without reduction for RDS payment
T.B. 2006-1 Medicare Part D
Question 3: How should an employer account for and report RDS payment to the DB OPEB plan?
Answer: plan administration dictatesOPEB administered as qualifying trust
RDS is an on-behalf payment for fringe benefits
Employer recognizes revenue and expense per GASB 24 and disclose amounts recognized
Multiple-employer OPEB not administered as a qualifying trust
Plan is to be reported as an agency fundEmployer recognizes asset and revenue
T.B. 2006-1 Medicare Part D
Question 4: How should a DB OPEB plan account for and report RDS payment to the plan?
Answer: GASB 43 Paragraph 34 requires the plan and its participating employer should apply the same actuarial methods and assumptions DB OPEB administered as a qualifying
trust should measure the actuarial accrued liability, ARC, and annual OPEB cost without reduction for RDS payments
Questions?Take advantage
of resources GASB Staff Early
implementing governments
NASACT members and groups
Don’t be afraid of mistakes, just keep them small enough!