Presentation is loading. Please wait.

Presentation is loading. Please wait.

GAAP Update Presented For The GASBO Presented by Paul E. Glick Glick Consulting Group.

Similar presentations


Presentation on theme: "GAAP Update Presented For The GASBO Presented by Paul E. Glick Glick Consulting Group."— Presentation transcript:

1 GAAP Update Presented For The GASBO Presented by Paul E. Glick Glick Consulting Group

2 What I Shall Do  I will touch upon: –GASBS 60, 61, 62, 66, 67 & 68, 69 & 70  I will show you what is coming one of these days

3 The GASB 3

4 Current Board Members Member David A. Vaudt, Chair William Fish Michael Granof David Sundstrom Jan Sylvis Marcia Taylor Jim Brown Term Expires 2020 – single term 2016—first term 2015---first term 201920172015 2017—first term 4

5 GASB Funding  GASB is funded by a combination of accounting support fees, subscription and publication revenue, and investment income  The largest share of financial support for the GASB comes from accounting support fees  Those fees are paid by municipal bond brokers and dealers for the GASB 4

6 GASB Funding  GASB Accounting Support Fees are collected under Section 978 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to fund the annual recoverable expenses (again, roughly equivalent to operating expenses) of the GASB.  These support fees were instituted in 2012 through an SEC order instructing the Financial Industry Regulatory Authority (FINRA) to establish, assess, and collect accounting support fees from its members.  GASB accounting support fees collected in 2012 were $8.5 million, paid by a total of 532 broker dealers. 4

7 GASB Funding  Since 2005, the FAF voluntarily has chosen not to seek accounting support fees to fund the full amount of the FASB’s budget.  Similarly, beginning in 2013, the FAF is seeking 2013 GASB accounting support fees that are less than GASB recoverable expenses.  Instead, the FAF has chosen to fund a portion of FASB and GASB recoverable expenses with residual reserve funds.  Residual reserves are those funds that are forecast to exceed a targeted reserve balance 4

8 2014 GASB Budget  Revenues: –Accounting Support Fees$6,159,100 –Investment Earnings 600 –Total Revenues$6,159,700  Expenses: –Board and Research Staff$5,893,800 –Advisory Council 28,800 –FAF Administrative 3,287,500 –Total Expenses$9,210,000 Residual Reserve Funds $3,050,400 4

9 What is Effective?

10 Effective Dates  During 2014 –Statement 67 – Financial Reporting for Pension Plans – an Amendment of GASBS 25 (Beginning After 6/15/2013) –Statement 69 – Government Combinations and Disposals of Government Operations (Beginning After 12/15/2013) –Statement 70 – Accounting and Financial Reporting for Nonexchange Financial Guarantees (Beginning After 6/15/2013) 10

11 Effective Dates  During 2015 -Statement 68 – Accounting and Financial Reporting for Pensions – an Amendment of GASBS 27 (Beginning After 6/15/2014) -Statement 71 – Pension Transition for Contributions Made Subsequent to the Measurement Date – an Amendment of GASB Statement No., 68 11

12 GASB Statement No. 69, Government Combinations and Disposals of Government Operations

13 Government Combinations The Term Government Combinations Includes A Variety of Transactions Referred To As: Mergers, Acquisitions, Transfers Of Operations. 13

14 GASBS 69 Provides Accounting and Financial Reporting Guidance for Mergers and Acquisitions 14

15 GASB Statement No. 70 Accounting and Financial Reporting for Nonexchange Financial Guarantees

16 Entities Addressed  Providers of financial guarantees  Recipients of financial guarantees 16

17 Background Some governments extend financial guarantees for the obligations of another government, a not-for- profit entity, or a private entity without directly receiving equal or approximately equal value in exchange A government commits to indemnify the holder of the obligation if the entity that issued the obligation does not fulfill its payment requirements Also, some governments issue obligations that are guaranteed by other entities in a nonexchange transaction 17

18 Guidance Two-Step Plan   Consider Whether Qualitative Factors And Historical Data Indicate That Payments May Have To Be Made As A Result Of The Guarantee And   Report A Liability As Soon As Such Payments Appear “More Likely Than Not” To Occur. 18

19 Statement 65 Items Previously Reported as Assets and Liabilities

20 GABS Statement No. 65  Reclassifies, As Deferred Outflows Of Resources Or Deferred Inflows Of Resources, Certain Items That Were Previously Reported As Assets And Liabilities And Recognizes, As Outflows Of Resources Or Inflows Of Resources, Certain Items That Were Previously Reported As Assets And Liabilities 20

21 Three Important Changes  First, it identifies which specific items should be classified as deferred inflows of resources and deferred outflows of resources, rather than as assets and liabilities  Second, it clarifies the effect of deferred inflows of resources and deferred outflows of resources on the determination of major funds  Finally, it limits the use of the term deferred in financial statements 21

22 GASBS’s Two-Step Approach  1.Does the item meet the definition of an asset or liability? If so, it should be reported as such  2.If the item does not meet the definition of an asset or liability, does it meet the definition of a deferred inflow of resources or a deferred outflow of resources? If so, it should be reported as such  It the items does not meet either of the above, then it is reported as an inflow or outflow or resources on the operating statement 22

23 Debt Refundings  In regard to the guidance in GASBS No. 23, and GASBS No. 62 for refunding of debt, the Board concluded that the resulting difference from current refundings and advance refundings does not meet the definition of an asset or a liability as explained in GASB Statement No. 63.  When the value of the resources required to refund the old bonds exceeds the net carrying amount of the old bonds, the Board does not believe the resulting debit amount represents an increase in service capacity that the government presently controls 23

24 Debt Refundings  The resources cannot be exchanged for another asset or used to directly provide present service capacity and, therefore, do not meet the definition of an asset. 24

25 Debt Refundings   Similarly, if the value of the resources required to refund the old bonds does not exceed the net carrying amount of the old bonds, the resulting credit amount does not represent an obligation to sacrifice resources for another unavoidable and specific purpose   Therefore, the Board concluded that the difference does not represent a liability of the government. 25

26 Debt Refundings  Because of its conclusion that the debit amount or credit amount is not an asset or liability, respectively, the Board analyzed the balances to determine if they met the definition of a deferred outflow of resources or a deferred inflow of resources, respectively  The Board concluded that reporting an accounting ‘gain’ or ‘loss’ in the period the old debt is refunded not only fails to report the purpose of the transaction, but also distorts operating results in the period the debt is refunded and in subsequent periods 26

27 Debt Refundings   The Board concluded that the difference resulting from a current refunding, or an advance refunding, relates to future periods and, therefore, meets the definition of a deferred outflow of resources or a deferred inflow of resources, as applicable 27

28 One Important Change - Debt Refundings  Accounting for the debit/credit resulting from the refunding of debt (GASBS 23): –Report as a deferred outflow (loss) or deferred inflow (gain) and recognize as a component of interest expense (i.e., the amortization) over shorter of life of old debt (i.e., the refunded debt) or new debt (i.e., the refunding debt) –Report separately from related bonds payable, or not netted against the debt (a change). 28

29 Debt Refundings  Accounting for the debit/credit resulting from changes in the provisions of a lease due to a refunding by a lessor: –Report as a deferred outflow (loss) or deferred inflow (gain) and recognize as a component of interest expense over shorter of life of old debt or new debt. 29

30 Debt Issuance Costs  Currently reported as a deferred charge on the statement of net position and deferred and amortized  The Board concluded that most debt issuance costs do not meet the definition of an asset, because the costs incurred do not result in service capacity that the government presently controls 30

31 Debt Issuance Costs   The GASB believes prepaid insurance associated with the issuance of debt should be considered an asset because these costs have present service capacity that the government generally indirectly controls.   The GASB concluded that debt issuance costs, other than prepaid insurance, do not meet the definition of a deferred outflow of resources because the costs are not applicable to a future period 31

32 Debt Issuance Costs  The GASB concluded that reporting these costs as an asset or a deferred outflow of resources and recognizing either balance over the life of the related debt is contrary to the concept of interperiod equity  As a result, the Board concluded that these costs should be recognized as an outflow of resources (i.e., a current year cost) in the reporting period in which they are incurred. 32

33 Debt Issuance Costs  Several respondents to the Exposure Draft expressed concerns with the proposed reporting for debt issuance costs.  In most cases, these respondents believed debt issuance costs relate to future periods and, therefore, should be recognized over the life of the debt rather than expensed in the period incurred  However, the GASB did not concur. 33

34 Debt Issuance Costs  Debt issuance costs: –Debt issuance costs, other than prepaid insurance costs, should be recognized as an outflow of resources in the period incurred. –Prepaid insurance costs reported as an asset. 34

35 Debt Issuance Costs  When implementing this pronouncements, you need to remove any deferred charges previously reported: –Write off in the year of occurrence –Or report a prior period adjustment –(note prepaid insurance work paper) 35

36 GASBS 33 Revenue Classifications  Derived Tax Revenue – Sales and Income Taxes  Imposed Non-Exchange – Property Taxes and Fines  Government Mandated Non-Exchange  Voluntary Non-Exchange 36

37 Nonexchange Transactions  The GASB believes that resources received prior to the period when the resources are required to be used or when use is first permitted do not meet the definition of a liability  The Board concluded that the advancing of these resources does not create a liability that obligates a government to sacrifice resources, because the government does not have to sacrifice those resources in an imposed nonexchange transaction 37

38 Nonexchange Transactions  Rather, the Board concluded that these resources relate to a future period (for example, when the advance is first permitted to be used in accordance with the imposed nonexchange transaction) and, therefore, should be classified as a deferred inflow of resources until such time. 38

39 Nonexchange Transactions  Imposed nonexchange revenues (GASB 33): –Report as deferred inflows (as a credit), resources received or recognized as receivables before: The period for which the taxes are levied for property taxes.The period for which the taxes are levied for property taxes. The period when resources are required to be used or when use is first permitted for all other imposed nonexchange transactions for which time requirements are specified.The period when resources are required to be used or when use is first permitted for all other imposed nonexchange transactions for which time requirements are specified. 39

40 Nonexchange Transactions   The Board concluded that resources reported as assets that do not meet the availability criterion for recognition as revenue in governmental fund financial statements also do not meet the definition of a liability   The Board believes that there is not a present obligation to sacrifice resources at the period- end.   However, those resources are not available for spending in the current period and, therefore, should be classified as a deferred inflow of resources. 40

41 Nonexchange Transactions The unavailable portion of a property tax receivable should be matched by a deferred inflow of resources for unavailable revenue   When an asset is recorded in governmental fund financial statements but the revenue is not available, the government should report a deferred inflow of resources until such time as the revenue becomes available. 41

42 Grant Revenue Recognition GASBS 33 distinguishes between two kinds of stipulations on the use of resources: time requirements and purpose restrictions   Time requirements specify (a) the period when resources are required to be used (sold, disbursed, or consumed) or when use may begin (for example, operating or capital grants for a specific period) or (b) that the resources are required to be maintained intact in perpetuity or until a specified date or event has occurred.   Time requirements affect the timing of recognition of nonexchange transactions 42

43 Grant Revenue Recognition  Purpose restrictions specify the purpose for which resources are required to be used.  Purpose restrictions should not affect when a nonexchange transaction is recognized.  However, governments that receive resources with purpose restrictions should report resulting net position, equity, or fund balance as restricted 43

44 I Asked The Expert GASBS 65 – If a government receives a cash advance on an expenditure grant but they have not spent the money yet, how should the advance be reported? 44

45 I Asked The Expert Revenue (or a deferred inflow of resources) can be recognized only if all eligibility requirements are met EXCEPT for a time requirement. In the case of an expenditure-driven grant, the key eligibility requirement (qualified spending) is NOT met until the qualifying expenditures have been incurred--therefore the cash advance would be matched by a LIABILITY to the grantor (essentially, unearned revenue), rather than a deferred inflow of resources (i.e., revenue that is earned, but not yet available). 45

46 Nonexchange Transactions   The GASB does not believe that the advance payments by a provider and the resources received in advance by a recipient in government- mandated nonexchange transactions and voluntary nonexchange transactions, including “reimbursement-type” or “expenditure driven” grant programs, meet the definition of an asset and a liability, respectively, when the only eligibility requirement not met is a time requirement 46

47 Nonexchange Transactions  Government-mandated and voluntary nonexchange transactions (GASB 33): –Resources received/provided in advance of one of the eligibility requirements being met other than time requirements: Provider reports as an assetProvider reports as an asset Recipient reports as a liabilityRecipient reports as a liability  Resources received/provided in advance of time requirements being met (all other eligibility requirements are met): –Provider reports as deferred outflows –Recipient reports as deferred inflows 47

48 Major Fund Determination  GASB Statement No. 65 clarifies that henceforth the point of reference for this determination will no longer be assets, but rather assets + deferred outflows of resources.  Likewise the determination of a major fund will focus not just on liabilities, but rather on liabilities + deferred inflows of resources.  Basically no effect on the determination 48

49 Use of the Term Deferred  The use of the term deferred should be limited to items reported as deferred outflows of resources or deferred inflows of resources 49

50 Effective Dates Effective for fiscal yearsEffective for fiscal years Effective for fiscal yearsEffective for fiscal years beginning after June 15, 2013 beginning after June 15, 2014 beginning after June 15, 2013 beginning after June 15, 2014 GASB Statement No. 67 Accounting and Financial Reporting For Pension Plans (Plan Reporting) GASB Statement No. 68 Accounting and Financial Reporting for Pensions (Employer Reporting)

51 Major Game Changers  Placing the net pension liability on the Statement of New Position  Decoupling expenses from funding  Accounting for Cost Sharing Plans  Expanding disclosure information (notes & RSI) 51

52 GASB Goals and Objectives  Financial Reporting Focus –GASB establishes accounting and reporting standards – not funding policies –Focus on pension obligation, changes in obligation, and attribution of expense GCG 521

53 GASB Goals and Objectives  Long-term Nature of governments –Cost of services to long-term operation –“Interperiod equity” matches current period resources and costs GCG 531

54 GASB Goals and Objectives  Employer-Employee Exchange –Employer incurs an obligation to its employees for pension benefits –Transaction is in context of a career- long relationship GCG 541

55 Types of Pensions  Defined benefits –Benefits defined by terms of the plan (for example, specific dollar amount or calculated based on factors such as compensation, age, years of service)  Defined contributions –Individual accounts –Contributions in the periods that services are rendered –Dependent on contributions, earnings, and forfeitures of other employee accounts, administrative costs

56 Types of Pensions  Classification of the type of defined benefit (DB) pension plan is based on the number of employers and whether pension obligations and pension plan assets are shared

57 Types of Plans  Single employer — –Provides pensions to employees of one employer –The government sponsors its own pension plan - like police and fire plans  Agent multiple-employer — –Provides pensions to employees of more than one employer –Assets are pooled for investment purposes, but separate accounts maintained for each employer –Employer’s share of pooled assets is legally available only for its employees

58 Types of Plans  A cost-sharing multiple-employer plan - –Provides pensions to employees of more than one employer –Employers pool or share obligations –Plan assets can be used to pay the benefits of retirees from any employee –Typically a state sponsored plan

59 A Big Picture View of GASBS 67 and 68 59

60 #1-Net Pension Liability (NPL)  NPL = total pension liability minus assets at MV  It is similar to the UAAL but using: –Valuing at market, not smoothing –Using only entry age normal actuarial funding –Possibly a “blended” discount rate GCG 601

61 #1-Net Pension Liability (NPL)  The NPL must be reported on the employer’s Statement of Net Position –Currently, UAAL Is Reported as RSI –Currently, only the NPO is reported on the Statement of Net Position (cumulative difference between the ARC and actual contributions-typically a small amount) GCG 611

62 The New “Blended” Discount Rate  Discount rate is based on projected benefits, current assets, and projected assets for current members  For projected benefits that are covered by projected assets –Discount using long-term expected rate of return on assets  For projected benefits that are not covered by projected assets (i.e., after the “cross-over date”) –Discount using yield on 20-year AA/Aa tax-exempt municipal bond index GCG 621

63 Pension Liability  Provide context –Only the accounting treatment has changed Nothing has changed economicallyNothing has changed economically  No surprise in many cases –Number was already being reported in the notes and in required supplementary information Single-employer and agent plansSingle-employer and agent plans  Not an indicator, per se, of fiscal stress GCG 631

64 Blended Discount Rate  Discount Rate – Is based on projected benefits, current assets, and projected assets for current members  For projected benefits that are covered by projected assets – discount using long- term expected rate of return on assets  For projected benefits that are not covered by projected assets – discount using yield on 20-year AA/Aa tax-exempt municipal bond index GCG 641

65 #2-Decoupling Expense and Funding  Current Pension Expense:  Based upon actuarially determined funding requirement-ARC Normal cost plus Normal cost plus Amortization of the unfunded actuarial accrued liability (UAAL) Amortization of the unfunded actuarial accrued liability (UAAL) Period not greater than 30 yearsPeriod not greater than 30 years Closed or open amortization periodClosed or open amortization period Level dollar or level percent of payrollLevel dollar or level percent of payroll Can be based on any of six actuarial cost methods Can be based on any of six actuarial cost methods GCG 651

66 #2-Decoupling Expense and Funding  Current Pension Expense:  Based upon actuarially determined funding requirement-ARC –Can be based on any of six actuarial cost methods –Serves as a defacto funding standard GCG 661

67 New Pension Expense  It is the change in the NPL each year, with deferred recognition of certain elements (It specifically not intended to be a funding standard) GCG 671

68 New Pension Expense Components  Service cost (i.e., normal cost)  Interest on the TPL at the beginning of the year  Changes in the TPL over the year (with limited deferrals)  Differences between actual and projected earnings over the year GCG 681

69 New Pension Expense Components  Projected investment returns over the year  Employee contributions  Other changes in plan net position GCG 691

70 Changes in TPL That Are Recognized Immediately  No Deferrals –Service cost –Annual interest on the TPL –Projected investment returns over the year –All plan amendments GCG 701

71 Changes in TPL That Are Not Recognized Immediately  Changes in actuarial assumptions  Actuarial gains and losses  These changes are recognized in expense over average expected remaining services lives of active and in active members GCG 711

72 Changes in TPL That Are Not Recognized Immediately  Resulting recognition periods will be very short (often less than ten years)  Method must be systematic and rational, using closed periods GCG 721

73 New Pension Expense Components  The faster, often immediate recognition of NPL changes will introduce much greater volatility in the reported expense  This volatility is what disqualifies this new expense as a basis for determining a funding policy GCG 731

74 #3-Proportioned Reports for Cost Sharing Plans  Current standards are simple  Pension expense is contractually required contribution  Statement of NPL is the accumulated difference between the contractually required contribution and the actual contribution  No ARC or NPO  Unfunded actuarial accrued liability is not reported at all GCG 741

75 Cost Sharing Treated Like a Single Employer Plan  Recognize proportionate share of collective NPL and pension expense GCG 751

76 Determining an employers “proportionate share” - NPL  Calculation must reflect any different contribution rates associated with different components of the collective NPL  A description of the basis for determining the proportionate share of the NPL must be disclosed in notes GCG 761

77 Determining an employers “proportionate share” - PE  Collective pension expense –Amortization of items based on average expected remaining service life of all employees  Proportionate share of pension expense  Multiply collective pension expense by the ratio of the employer’s portion of the NPL to collective NPL GCG 771

78 Cost Sharing Measurement Date  Plan can determine its TPL and plan net position (market assets) at one date each year –Probably the plan’s valuation date –Each employer’s share can be as of that same date GCG 781

79 Potential for Modified Audit Opinion  Audit opinion is not an assessment of the government’s underlying finances  Not the fault of either the government or the auditor  Auditing standards not available in time for implementation of the new standard 79

80 Potential for Modified Audit Opinion  Many of the records and calculations necessary for the auditor to opine on the net pension liability and related disclosures are maintained only by FRS.  The FRS’s auditor and the government’s auditor both have responsibility 80

81 Potential for Modified Audit Opinion  The local government’s auditor is ultimately responsible for expressing an opinion on the financial statements and related notes disclosures  The AICPA is currently proposing that the TMRS auditor be engaged to issue a Service Organization Control Report (SOC) that provides assurance that the appropriate internal controls were both in place and operating effectively during the reporting period. 81

82 #4 - Expansion of Disclosure Information (Notes and RSI)  Greatly expanded employer disclosures, including: –Description of the plan and assumptions –Policy for determining contributions –Sensitivity analysis of the impact on NPL of a one percentage point increase and decrease in the discount rate –Changes in the NPL for the past 10 years GCG 821

83 #4 - Expansion of Disclosure Information (Notes and RSI)  Greatly expanded employer disclosures, including:  Development of long-term earnings assumption  Annual rates of investment return for past 10 years (plan only) GCG 831

84 Key Implications of New Standards  Shift in focus from the long-term commitment to fund to a short-term snapshot of funded status based on market assets and a blended discount rate  Reporting the NPL on the Statement of Net Position will add a large and unstable element to the net position GCG 841

85 Key Implications  Having two different cost amounts, funding and expense will be challenging  Cost sharing plans will have new expense and liability reporting GCG 851

86 Key Implications  Both the timing and the scope of the new reporting will require greater coordination between the plan and employer, as well as between the actuary and the auditor GCG 861

87 Key Implications  Having the NPL on the Statement of Net Position could mean more involvement by the auditor in actuarial results GCG 871

88 Other GASB Current Agenda Items

89 89 Other Major Projects in Process  Conceptual Framework—Recognition and Measurement (PV)  Fair Value—Measurement and Application  Fiduciary Responsibilities  Leases  Economic Condition  Other Post Employment Benefits 89

90 Practice Issues  Comprehensive Implementation Guide – Annual Update  GAAP Hierarchy  Irrevocable Charitable Trusts  Tax Abatement Disclosures

91 Pre-agenda Research  Financial Reporting Model  Debt Extinguishments  External Investment Pools

92 GCG 921 Monitoring Activities  Electronic Financial  Emerging Accounting Issues  Pension Implementation

93 GCG 931 Research Projects  Electronic Financial Reporting  Fiduciary Responsibility  Tax Abatement Disclosures

94 GCG 941 Potential Projects  2a7-Like External Investment Pools  Asset Retirement Obligations  Emission Trading (Carbon Credits)  Exchange and Exchange-Like Financial Guarantees  Exchange Like Revenues  Financial Performance Measurements  Financial Transactions with Characteristics of Both Loans and Grants  In-Kind Contributions

95 GCG 951 Potential Projects  Impairment of Assets Other than Capital Assets  Interim Financial Reporting  Popular Reporting  Present Value  Preservation Method  Reporting Unit Presentations  Equity Interests in Component Units  Direct Borrowing

96 GCG 961 Reexamination Projects  Accounting for Prior-Period Adjustments, Accounting Changes, and Error Corrections  GASBS 42 - Asset Impairment  GASBS 62 – Capitalization of Interest Costs  GASBS 16 – Compensated Absences  GASBI 2 – Conduit Debt  GASBS 32 – Deferred Compensation Plans

97 GCG 971 Reexamination Projects  GASBS 21 – Escheat Property  GASBS 56 – Going Concern  GASBS 18 – Landfills  GASBS 33 & 36 - Nonexchange Transactions  GASBS 62 - Inventory

98 GCG 981 Reexamination Projects  GASBS 62 - Nonmonetary Transactions  GASBS 38 & 40 – Note Disclosures  GASBS 10 & 30, Risk Financing  GASBS 62 – Capitalization of Interest  GASBS 28, Security Lending Transactions and Reverse Repurchase Agreements

99 GCG 991 Reexamination Projects  GASBS 62 - Right of Offset  Sales of Real Estate  GASBS 62 - Troubled Debt Restructurings  Statements 62 and 65 - Regulated Operations  Statement 49 Pollution Remediation Obligations

100 GCG 1001 Reexamination Projects  GASBS 62 – Research and Development  GASBS 62 - Revenue Recognition: Exchange Transactions  GASBS 44 - Statistical Section  GASBS 46 – Termination Benefits

101 We Are Finally Finished Any Questions pglick@mindspring.com


Download ppt "GAAP Update Presented For The GASBO Presented by Paul E. Glick Glick Consulting Group."

Similar presentations


Ads by Google