Technical Update Mark Thomas, Partner KPMG LLP April 24, 2015

Learning Objective: Be familiar with the new accounting pronouncements and understand its effect to the California State University System financial statements April 2015Year-End GAAP Training2

GASB Pronouncements GASB Statement No. 68, Accounting and Financial Reporting for Pensions, Issued June 2012 GASB Statement No. 69, Government Combinations and Disposals of Government Operations GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68 GASB Statement No. 72, Fair Value Measurement and Application April 2015Year-End GAAP Training3

GASB 68 Overview Addresses accounting and financial reporting for pensions that are provided to the employees of state and local governmental employers Employers should report in their financial statements a net unfunded pension liability Moving from a funding approach to an earned approach An employer should recognize its proportionate share of the collective net pension liability, pension expense, and deferred inflows/outflows of a cost-sharing plan April 2015Year-End GAAP Training4

Statement No. 72 GASB Statement No. 72, Fair Value Measurement and Application Issued February 2015 Effective for periods beginning after June 15, 2015 (effective June 30, 2016) Addresses accounting and financial reporting issues related to fair value measurements. April 2015Year-End GAAP Training5

Investments Investments – Defined as a security or other asset that (a)government holds primarily for the purpose of income or profit and (b)has a present service capacity based solely on its ability to generate cash or to be sold to generate cash. GASB 72 generally requires investments to be measured at fair value April 2015Year-End GAAP Training6

Investments A government is permitted in certain circumstances to establish the fair value of an investments that does not have a readily determinable fair value by using the net asset value per share (or its equivalent) April 2015Year-End GAAP Training7

Fair Value definition Fair Value – Price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assumes highest and best use: Physically possible Legally permissible Financially feasible April 2015Year-End GAAP Training8

Valuation Techniques Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Market Approach – uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets and liabilities. April 2015Year-End GAAP Training9

Valuation Techniques Cost Approach – reflects the amount that would be required to replace the present service capacity of an asset. Income Approach – converts future amounts to a single current amount. April 2015Year-End GAAP Training10

Fair Value Hierarchy Level 1 inputs – quoted market prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs – inputs other than quoted prices – included within level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs – unobservable inputs, such as management’s assumption of the default rate among underlying mortgages of a mortgage- backed securities. April 2015Year-End GAAP Training11

Fair Value of Liabilities Measurement of the fair value of a liability assumes that the liability is transferred to a market participant at the measurement date. April 2015Year-End GAAP Training12

Fair Value Measurement Exceptions Type of InvestmentsMeasurementApplicable Guidance Investments in nonparticipating interest-earning investment contracts Cost-based measureStatement 31, par. 8 Investments in unallocated insurance contracts Interest-earning investment contracts Statement 31, par. 8 Statement 59, par. 4 Money market investments and participating interest-earning investment contracts with maturity of < one year and are held by government other than external investment pools Amortized costStatement 31, par. 9 April 2015Year-End GAAP Training13

Fair Value Measurement Exceptions Type of InvestmentsMeasurementApplicable Guidance Investments held by 2a7-like external investment pools Amortized costStatement 31, par. 16 Fully benefit-responsiveness synthetic guaranteed investment contracts Contract valueStatement 53, par. 67 Investments in life insurance contracts Cash surrender value April 2015Year-End GAAP Training14

Fair Value Disclosures Fair value amounts Level of fair value hierarchy Valuation techniques Organize disclosures by type of asset or liability reported at fair value Additional disclosures regarding investments in certain entities that calculate net asset value per share (or its equivalent). April 2015Year-End GAAP Training15

Coming Soon... GASB Statements 73-75: Accounting and Financial Reporting for Other Postemployment Benefits (Plan and Employer) April 2015Year-End GAAP Training16

April 2015Year-End GAAP Training17