Certain External Investment Pools and Pool Participants Robert M. Apple, CPA, MSA

Certain External Investment Pools and Pool Participants Understanding GASB statement number 79

Certified continuing professional education class 1-hour credit Must remain for the entirety of the class to receive CPE credit Must sign in and sign out to receive CPE credit Certificates of attendance will be emailed for CPE credit

Certain External Investment Pools and Pool Participants Who/what are Governmental Accounting Standards Board (GASB) and Generally Accepted Accounting Principles (GAAP)? Qualifying criteria Specifics for criteria Noncompliance individually or in aggregate Effective June, 2015

What is GAAP? Proper accounting Decades of accounting practice No authoritative book

What is GAAP? Does not account for every situation Make the best choice Rule makers leave room for options

What is GAAP? The grey area of materiality Qualitative aspects Quantitative aspects

Who Sets Up GAAP? GASB sets the GAAP rules GASB provides: Accounting principles Interpretations Guidance for implementation

GASB Statement No. 76 Category A Category B GASB Statements GASB Technical Bulletins GASB Implementation Guides American Institute of Certified Public Accountants (AICPA) literature cleared by GASB

GASB Statement No. 76 If not Specified in Category A or B AICPA literature not cleared by the GASB Practices widely practiced by state and local government agencies Literature from professional organizations, regulatory agencies, and authoritative accounting texts

Part 1 Scope and Applicability of This Statement GASB Statement No. 79

What is an External Investment Pool? GASB 31: “An arrangement that commingles (pools) the moneys of more than one legally separate entity And invests, on the participants behalf, in an investment portfolio; One or more of the participants is not part of the sponsor’s reporting entity”

Scope and Applicability of This Statement Establishes accounting and financial reporting standards Specifically those who elect to measure all investments at amortized cost

Part 2 Accounting and Financial Reporting for Qualifying External Investment Pools GASB Statement No. 79

Compliance with Amortized Cost Criteria GASB Statement No. 79

Compliance with Amortized Cost Criteria Not going to cover variant security rules that cover items such as credit support, demand and guarantee features, etc. Refer to GASB 79 to see these additional rules and where they are significant.

Compliance with Amortized Cost Criteria Must meet all the following (discuss later): Transacts with its participants at a stable net asset value per share (e.g.; $1.00 a share) Meets portfolio maturity requirements Meets portfolio quality requirements

Compliance with Amortized Cost Criteria Meets portfolio diversification requirements Meets portfolio liquidity requirements Meets shadow pricing requirements

Compliance with Amortized Cost Criteria Noncompliance results in not measuring at amortized cost for that reporting period Professional judgement is used for noncompliance determination individually or in aggregate

Portfolio Maturity Requirements GASB Statement No. 79

Portfolio Maturity Requirements Investment has a remaining maturity of 397 calendar days or less Maintain a weighted average maturity of 60 days or less (when investments become due and payable) Maintain a weighted average life of 120 days or less

Portfolio Quality Requirements GASB Statement No. 79

Portfolio Quality Requirements The security is denominated in U.S. dollars Has a credit rating within the highest category of short-term credit ratings Credit rating established by a nationally recognized statistical rating organization (NRSRO)

Portfolio Quality Requirements Securities not rated by any NRSRO must be of comparable credit quality To other securities with highest category short-term credit ratings At reporting date, no securities rated below second-highest category should be held

Portfolio Diversification Requirements GASB Statement No. 79

Portfolio Diversification Requirements No more than 5 percent of the total investment in any one issuer of securities At reporting date no more than one-half of 1 percent can be second-highest category

Portfolio Diversification Requirements U.S. government securities exempt from prior mentioned rules U.S. government insured certificates of deposits exempt as well Two or more issuers of securities are considered one issuer if one issuer controls the other or under common control

Portfolio Liquidity Requirements GASB Statement No. 79

Portfolio Liquidity Requirements Must hold liquid assets sufficient to meet reasonably foreseeable redemptions Should have knowledge of the expected cash needs of its participants Illiquid investments (not easily converted to cash within 5 days) can be no more than 5 percent

Portfolio Liquidity Requirements At least 10 percent has to be daily liquid assets Cash Direct obligation U.S. government securities Securities maturing in one day Securities on demand exercisable within one day Portfolio security receivables due in one day

Portfolio Liquidity Requirements At least 30 percent has to be weekly liquid assets Cash, demand deposits, and cd’s maturing within 5 days Direct obligation U.S. government securities Non direct obligation U.S. government securities issued at a discount maturing within 60 days or less

Portfolio Liquidity Requirements Securities maturing in five days Securities on demand exercisable within five days Portfolio security receivables due in five days

Shadow Pricing Requirements GASB Statement No. 79

Shadow Pricing Requirements This is the net asset value per share Calculated using total investments measured at fair value at the calculation date (minimum monthly) No deviation by more than one half of 1 percent at each calculation date from amortized cost

Part 3 Accounting and Financial Reporting for Participants in External Investment Pools GASB Statement No. 79

Accounting and Financial Reporting for Participants in External Investment Pools If amortized cost criteria is met, the participants report the investments the same Otherwise participants report at fair value

Part 4 Notes to Financial Statements GASB Statement No. 79

Qualifying External Investment Pools GASB Statement No. 79

Qualifying External Investment Pools Disclose the fair value measurements Disclose presence of limitations or restrictions on participants withdrawals such as: Redemption notice periods Maximum transaction amounts

Participants in External Investment Pools GASB Statement No. 79

Participants in External Investment Pools Participants measuring the investment at amortized cost disclose the same as previously mentioned

Closure Enhances comparability of financial statements among governments Establishes criteria for determining election of amortizing instead of fair value measurement Provides consistent application

Questions? GASB Statement No. 79