GFOAA Lake Guntersville Resort State Park GASB / SAS Update

1. GFOAA Lake Guntersville Resort State Park GASB / SAS Update

2. Statement 43 (Plans) and 45 (Employers) F/S Effect: September 30, ‘08, ‘09, ’10

3. Effective Dates • Phased implementation: GASB 43GASB 45 Phase 1 9/30/07 9/30/08 Phase 2 9/30/08 9/30/09 Phase 3 9/30/09 9/30/10 • Based on same “phase” used for GASB Statement No. 34 implementation

4. GASB Statement No. 51 –Accounting and Financial Reporting for Intangible Assets Financial Assets Tangible Assets Intangible Assets Issued June 2007 Effective for Periods Beginning After 6/15/09 (or Years Ending 9/30/10)

5. Description • An intangible asset is an asset that possesses all of the following characteristics: • Lack of physical substance  • Nonfinancial nature • Initial useful life extending beyond a single reporting period • Statement generally does not provide guidance on whether a transaction results in an asset

6. Scope • Standard provides guidance relative to: • Easements • Water Rights • Timber Rights • Patents • Trademarks • Computer Software Development

7. Scope Exceptions • Intangible assets acquired or created primarily for directly obtaining income or profit • Capital leases • Goodwill from a combination transaction

8. Overview • Basic concept • Treat like any other capital asset • Presumed indefinite useful life • Additional guidance • Internally generated intangible assets • Software • Development stoppage as impairment indicator

9. Internally Generated • Includes items created or produced • By government itself • By others on its behalf • Including items acquired from third parties that “require more than minimal incremental effort on the part of the government to begin to achieve their expected level of service capacity”

10. Prerequisites for Capitalization • Specific objective of the project determined • Nature of the service capacity to be provided determined • Feasibility of successfully completing demonstrated, and • Government has demonstrated that it 1) intends, 2) is able, and 3) is making an effort to develop/complete the project.

11. Software Guidance • Three stages • Preliminary project stage • Application development stage • Post-implementation/operation stage • Capitalize only for application development stage • Only after completion of preliminary stage • Only with explicit or implicit commitment to continue funding through current period

12. Internally Generated Computer Software • Reporting costs of internally generated modifications of software should follow development stage approach if the modification results in: • An increase in the functionality of the software • An increase in the efficiency of the software; or • An extension of the estimated useful life of the software • If modification does not result in one of the above, associated outlays should be expensed as incurred • Extension of useful life without increased functionality or efficiency expected to rarely occur

13. Amortization • Existing guidance for depreciation of capital assets generally applies to amortizing intangible assets • Exception for intangible assets with indefinite useful lives: • No factors currently exist that limit the useful life of the asset • Estimating a useful life does not mean indefinite useful life • Permanent right-of-way easement versus computer software • Intangible assets with indefinite useful lives should not be amortized

14. Amortization • Useful life of an intangible asset that arises from contractual or legal rights should not exceed the legal term of the rights • Renewal periods can be considered if there is evidence that: • Renewal will be sought and will be able to be achieved, considering any third-party consent; and • Any anticipated outlays related to renewal are nominal in relation to the level of service capacity expected to be obtained through the renewal

15. Effective Date and Transition • Effective date is fiscal periods beginning after June 15, 2009 • Provisions generally should be retroactively applied • Exceptions for retroactively reporting intangible assets: • Permitted but not required for IGIA and intangible assets with indefinite useful lives at transition • Required for all other intangible assets acquired in fiscal years ending after September 30, 1980 by phase 1 or 2 governments • Encouraged but not required for all other intangible assets of phase 3 governments

16. Effective Date and Transition • Indefinite useful life provisions should be applied retroactively only if asset has indefinite useful life at transition • Land use rights associated with property already owned by government should not be reported as intangible assets separate from the property • Additional Statement 51 implementation guidance was included in the 2008 Comprehensive Implementation Guide

17. GASB Statement No. 53 – Accounting and Financial Reporting for Derivative Instruments Effective for Periods Ending 9/30/10

18. Accounting Guidance Fair value accounting • Derivative instruments would be measured on the statement of net assets at fair value • Fair value changes would be reported on the “change statement” as investment income • Exception: HEDGES! • Changes in fair value of derivative instruments would be reported on the balance sheet as deferrals—either deferred charges or deferred credits • Swap asset, deferred inflows • Swap liability, deferred outflows • Hedge accounting (deferral) stops if hedge is not effective 18

19. Effective Date and Transition • Effective for financial periods beginning after June 15, 2009 (9/30/10) • Retroactive implementation is required • Implementation guide now on the street

20. Statement No. 54 • Approved by the Board in February 2009 • Effective for periods beginning after June 15, 2010 (year ends of 9/30/11)

21. Origins of the Project • Significant variation in how standards are applied, leading to significant divergence in practice • Widespread confusion about terminology • Mismatch between what governments are reporting about fund balance and what users of financial statements actually need

22. Interaction ofFund Reporting in Generalwith Fund Balance Reporting • Consider a government that has • $100 earmarked for capital projects by the government itself • $100 in property tax revenue restricted to paying debt service • $100 of cash available for any purpose

23. Under the current standards If the amounts constrained to specific purposes are reported in the general fund, they are shown as reserved $100 $100 $100 $100 $100 $100 But…

24. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 $300 This will change…

25. New Fund Balance Classifications The classification hierarchy is “based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts…can be spent” • Nonspendable • Restricted • Committed* • Assigned • Unassigned Essentially what is now reserved Essentially what is now designated Essentially what is now unreserved *Proposal called this classification "limited"

26. Nonspendable Fund Balance • Not in spendable form, such as • Inventory & Prepaids • Long-term amounts of loans and notes receivable • Property held for resale • However, if the use of the proceeds from the collection of receivables or sale of the property is restricted, committed, or assigned, then the receivables or property should be reported in those categories • Corpus of a permanent fund

27. Restricted Fund Balance • Same definition as for net assets in Statement 34 (as amended by Statement 46)—amounts constrained to being used for a specific purpose by • External parties • Constitutional provisions • Enabling legislation

28. Committed Fund Balance • Constraint on use imposed by the government itself, using its highest level of decision making authority • Constraint can be removed or changed only by taking the same highest-level authority’s action • Action to constrain resources should occur prior to end of fiscal year, though the exact amount may be determined subsequently

29. Assigned Fund Balance • Amounts intended to be used for specific purposes • Required, not optional • Intent is expressed by • The governing body • High-level body or individual authorized by the governing body

30. Assigned Fund Balance • Amounts in governmental funds other than the general fund that are not restricted or committed are reported as assigned • The act of transferring resources to another governmental fund is considered an assignment of those resources to the purpose of that fund

31. Unassigned Fund Balance • Available for any purpose • Reported only in the general fund, except in cases of negative fund balance • Negative balances in other governmental funds are reported as unassigned

32. Under the new standards The amounts constrained to specific purposes are reported in the same classifications regardless of the fund they are in $100 $100 $100 $100 $100 $100 Or…

33. Under the new standards The amounts constrained to specific purposes are reported in the same classifications regardless of the fund they are in $100 $100 $100 $100 $100 $100 The funds have changed, but the fund balance classifications have not

34. Fund Type Definitions

35. Special Revenue Funds Current Definition: Special Revenue Funds —To account for the proceeds of specific revenue sources (other than trusts for individuals, private organizations, or other governments or for major capital projects) that are legally restricted to expenditure for specified purposes.

36. Special Revenue Funds Statement 54 Definition: 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. The term “proceeds of specific revenue sources” establishes that one or more specific restricted or committed revenues should be the foundation for a special revenue fund.

37. Special Revenue Funds • Restricted or committed specific revenue sources should comprise substantial portion of fund’s resources on an ongoing basis • But fund also may include other restricted, committed, and assigned resources • Disclosure: purpose of each major special revenue fund and each revenue source or other resources authorized to be reported in each

38. Debt Service and Capital Projects Funds • Text made consistent with other definitions • Capital projects funds broadened from “major capital facilities” to “capital outlays” • Should be clearer that debt service funds are required when • Legally mandated • Financial resources are being accumulated for principal and interest payments maturing in future years

39. Specific purpose details displayed

40. Classification totals displayed—details disclosed in the notes

41. Effective Date and Transition • Periods beginning after June 15, 2010—earlier application is encouraged • Fund balance classifications should be applied retroactively by restating fund balance for all prior periods presented • Changes to information in the statistical section may be made prospectively, though retroactive application is encouraged; if prior years are not restated, difference in information should be explained

42. Governmental Accounting Guidance Found in Other Literature

43. GASB Approach To Incorporating Literature • Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments • Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards • Current Technical Agenda Project—Pre-November 30, 1989 AICPA and FASB literature

44. Statement 55 • Incorporates GAAP hierarchy guidance found in SAS No. 69, The Meaning of “Present Fairly in Conformity With Generally Accepted Accounting Principles, basically “as is.” • Some modifications made to clarify and update the guidance and reflect the government environment • Removed reference to AICPA and FASB standards in the hierarchy. Once GASB adopts—source is no longer relevant • International Accounting Standards Board (IASB)—other accounting literature • International Public Sector Accounting Standards Board (IPSASB) and Federal Accounting Standards Advisory Board (FASAB)—other accounting literature

45. Statement 56 • Incorporates guidance found in SASs basically “as is.” • Related party transactions • Subsequent events • Going concern • Again, modifications were made to clarify and update the guidance and reflect the government environment

46. Statement 56 • Related Party Transactions • Subsequent Events • Going Concern Considerations

47. Related Party Transactions • Requires Disclosures • Consider Substance Over Form • Current Literature • NCGA Interpretation 6 • SAS AU Section 334 • SFAS No. 57

48. Subsequent Events • Recognized Events – Require adjustments to the financial statements. • Nonrecognized Events – Require disclosure in the Notes to the Financial Statements.

49. Going Concern • A Governmental Entity’s Inability To Continue To Meet Its Obligations As They Become Due Without Substantial Disposition Of Assets Outside the Ordinary Course of Governmental Operations, Restructuring Of Debt, Submission To The Oversight Of A Separate Fiscal Assistance Authority Or Financial Review Board, Or Similar Actions.

50. Note Disclosures • Pertinent conditions and events giving rise to the assessment of substantial doubt about the government’s ability to continue as a going concern for a reasonable period of time. • The possible effects of such conditions and events.