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O ACUBO – Accounting Update

O ACUBO – Accounting Update. Pending Standards. March 29, 2019. Today’s presenter. Mike Gibson Partner, Oklahoma City mike.gibson@rsmus.com 405.218.4701. Learning objectives. After completing this program, you should

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O ACUBO – Accounting Update

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  1. OACUBO – Accounting Update Pending Standards March 29, 2019

  2. Today’s presenter Mike Gibson Partner, Oklahoma City mike.gibson@rsmus.com 405.218.4701

  3. Learning objectives • After completing this program, you should • Have a better understanding of recent accounting and reporting developments and issues impacting public colleges and universities • To address applicable standards in the preparation of the financial statements of a higher education institution • To prepare for implementation of applicable standards with future effective dates

  4. Agenda Today’s topics: • GASB Statement No. 84 – Fiduciary Activities • GASB Statement No. 87 – Accounting for Leases • GASB Preliminary Views – Financial Reporting Model Improvements

  5. GASB 84 – Fiduciary Activities • Issued January 2017 • Effective for periods beginning after December 15, 2018 (FY 2020, July 1, 2019)

  6. GASB 84 – Fiduciary Activities SUMMARY • Criteria for identifying fiduciary activities is generally on - • Whether the government is controlling the assets of the fiduciary activity and; • The beneficiaries with whom a fiduciary relationship exists

  7. GASB 84 – Fiduciary Activities • Activity meeting the criteria of a fiduciary activity should be reported as a fiduciary fund in the basic financial statements • Statement of Fiduciary Net Position and Statement of Fiduciary Changes in Net Position

  8. GASB 84 – Fiduciary Activities • Activity meeting the criteria of a fiduciary activity should be reported as a fiduciary fund in the basic financial statements • Exception to this requirement is provided for a business-type activity that normally expects to hold custodial assets for three months or less

  9. GASB 84 – Fiduciary Activities • Four kinds of fiduciary funds that should be reported, if applicable: • Pension and other employee benefit trust funds • Investment trust funds • Private-Purpose Trust funds • Custodial funds

  10. GASB 84 – Fiduciary Activities • Fiduciary Component Units • Pension plan that is administered through a trust that meets the criteria of GASB Statement 67 • OPEB Plan that is administered through a trust that meets the criteria of GASB Statement 74 • Other circumstances in accordance with GASB Statement 73 and 74

  11. GASB 84 – Fiduciary Activities • Fiduciary Component Units – the Trust must meet the following characteristics: • Contributions from employers and non-employer contributing entities, and earnings, are irrevocable • Pension plan assets are dedicated to providing benefits to members in accordance with the plan terms

  12. GASB 84 – Fiduciary Activities • Plan assets are legally protected from creditors of employers,nonemployer contributing entities, and the pension plan administrator. If the plan is a defined benefit plan, plan assets also are legally protectedfrom creditors of the plan members.

  13. GASB 84 – Fiduciary Activities • Pension and OPEB arrangements that are not component units are also Fiduciary activities if the government controls the assets of the arrangement and the arrangements meet the criteria described on the previous slide

  14. GASB 84 – Fiduciary Activities • Other Fiduciary Activities – the activity is a Fiduciary Activity if all of the following criteria are met: a. The assets associated with the activity are controlled by the government

  15. GASB 84 – Fiduciary Activities b. The assets associated with the activity are not derived either: • (1) Solely from the government’s own-source revenues • (2) From government-mandated nonexchange transactions or voluntary nonexchange transactions, with the exception of pass-through grants for which the government does nothave administrative involvement or direct financial involvement.

  16. GASB 84 – Fiduciary Activities c. The assets associated with the activity have one or more of the following characteristics: • The assets are • administered through a trust in which the government itself is not a beneficiary; • dedicated to providing benefits to recipients in accordance with the benefit terms; and • legally protected from the creditors of the government.

  17. GASB 84 – Fiduciary Activities c. The assets associated with the activity have one or more of the following characteristics: • The assets are for the benefit of individuals and the government does not have administrative involvement with the assets or direct financial involvement with the assets. In addition, the assets are not derived from the government’s provision of goods or services to those individuals.

  18. GASB 84 – Fiduciary Activities c. The assets associated with the activity have one or more of the following characteristics: • The assets are for the benefits of organizations or other governments that are not part of the financial reporting entity. In addition the assets are not derived from the government’s provision of goods or services to those organizations or other governments.

  19. GASB 84 – Fiduciary Activities Control of Assets A government controls the assets of an activity if the government (a) holds the assets or (b) has the ability to direct the use, exchange or employment of the assets in a manner that provides benefits to the specified or intended recipients.

  20. GASB 84 – Fiduciary Activities Administrative Involvement A government has administrative involvement with the assets if, for example, it: a. monitors compliance with the requirements of the activity that are established by the government or by a resource provider that does not receive the direct benefits of the activity,

  21. GASB 84 – Fiduciary Activities Administrative Involvement, continued b.determines eligible expenditures that are established by the government or by a resource provider that does not receive the direct benefits of the activity, or

  22. GASB 84 – Fiduciary Activities Administrative Involvement, continued • has the ability to exercise discretion over how assets are allocated.

  23. GASB 84 – Fiduciary Activities Own-Source Revenues Are revenues generated by the government itself. They include exchange and exchange-like revenues (tuition and fees, auxiliary type revenues) and investment earnings.

  24. GASB 84 – Fiduciary Activities Most Likely Fiduciary Activities for an Oklahoma Higher Education Institution • Pension plan that is administered through a trust but is not necessarily a component unit (Supplemental retirement plans) • Clubs and organizations (custodial funds)

  25. GASB 84 – Fiduciary Activities Reporting Requirements • Statement of Fiduciary Net Position • Statement of Changes in Fiduciary Net Position

  26. GASB 84 – Fiduciary Activities Reporting of Custodial Funds by Business-Type Activities/Enterprise Funds • May report assets with a corresponding liability in the statement of net position if those assets, upon receipt, are normally expected to be held for three months or less.

  27. GASB 84 – Fiduciary Activities Reporting of Custodial Funds by Business-Type Activities/Enterprise Funds • Should separately report additions and deductions, if significant, as cash inflows and outflows, respectively, in the operating activities of the statement of cash flows.

  28. GASB 84 – Fiduciary Activities Effective Date and Transition • Effective in FY 2020 • Changes required to adopt GASB Statement 84 should be applied retroactively by restating financial statements, if practicable, for all prior periods presented.

  29. GASB 84 – Fiduciary Activities Effective Date and Transition • In the first period that Statement 84 is applied, the notes to the financial statements should disclose the nature of the restatement and its effect. • The reason for not restating prior periods presented should also be disclosed.

  30. GASB 87 – Leases • Issued June 2017 • Effective for periods beginning after December 15, 2019 (FY 2021)

  31. GASB 87 – Leases SUMMARY • Establishes a single model for Lease Accounting based on the foundational principle that leases are financings of the right to use an underlying asset

  32. GASB 87 – Leases DEFINITION OF A LEASE • A contract that conveys control of the right to use another entity’s nonfinancial asset for a period of time in an exchange or exchange-like transaction. • Examples of nonfinancial assets include buildings, land, vehicles and equipment.

  33. GASB 87 – Leases LEASE TERM • The period during which a lessee has a noncancelable right to use an underlying asset, plus the following periods if applicable: • Periods covered by a lessee’s option to extend the lease if it is reasonably certain that the lessee will exercise that option • Periods covered by a lessee’s option to terminate the lease if it is reasonably certain that the lessee will not exercise that option • Lessor options – same as above

  34. GASB 87 – Leases LEASE TERM • A fiscal funding or cancellation clause allows governments to cancel a lease if the government does not appropriate funds for the lease payments. • This type of clause should not affect the lease term unless it is reasonably certain the clause will be exercised.

  35. GASB 87 – Leases LEASE TERM • Other factors that affect lease term: • Certain termination provisions • Economic incentives or disincentives to extend or terminate • History of exercising options to extend or terminate • Reassessment of lease term if certain events take place

  36. GASB 87 – Leases SHORT-TERM LEASE • A lease that has a maximum possible term under the lease contract of 12 months or less, including options to extend, and regardless of their probability of being exercised. • These leases would continue to be accounted for as “operating leases”

  37. GASB 87 – Leases CONTRACTS THAT TRANSFER OWNERSHIP • A contract that transfers ownership of the underlying asset to the lessee should be reported as a financed purchase of the asset by the lessee and sale of the asset by the lessor.

  38. GASB 87 – Leases ACCOUNTING BY LESSEE • At beginning of lease term, a lessee should recognize a lease liability and an intangible right-to-use lease asset (capital asset) • A lessee should initially record the lease liability at the present value of payments expected to be made during the lease term.

  39. GASB 87 – Leases • Lease Asset should initially be measured as the sum of the following: • Amount of the initial lease liability • Lease payments made before the commencement of the lease term • Initial direct costs necessary to place asset into service (unless debt issuance costs, then those are expensed)

  40. GASB 87 – Leases • Lease Asset should amortized in a systematic and rational manner over the shorter of the lease term or the useful life of the underlying asset

  41. GASB 87 – Leases ACCOUNTING BY LESSOR • Recognizes a lease receivable and Deferred inflows of resources • Does not de-recognize the asset underlying the lease, and continues to apply other guidance to the underlying asset, including depreciation and impairment.

  42. GASB 87 – Leases PLANNING CONSIDERATIONS NOW – FY 2020 • Inventory of all lease agreements and analysis as to whether they meet the definition of a lease under GASB 87

  43. GASB 87 – Leases PLANNING CONSIDERATIONS Consideration of capitalization thresholds

  44. GASB 87 – Leases PLANNING CONSIDERATIONS Effective date and transition • Changes should be applied retroactively by restating financial statements, if practicable, for all prior periods presented. • If restatement for prior periods is not practicable, the cumulative effect, if any, of applying this Statement should be reported as a restatement of beginning net position (for the earliest period restated.

  45. GASB 87 – Leases PLANNING CONSIDERATIONS Effective date and transition • In the first period that this Statement is applied, the notes to financial statements should disclose the nature of the restatement and its effect. • Also, the reason for not restating prior periods presented should be disclosed.

  46. GASB Preliminary Views – Financial Reporting Model Improvements • Issued September 2018, currently in the “Deliberation” stage • Written comments were due February 15, 2019

  47. GASB Preliminary Views – Financial Reporting Model Improvements Most of the topics deal with financial reporting for General Governments, and the impact on Governmental Funds, relationship to budgetary information and government-wide financial statements.

  48. GASB Preliminary Views – Financial Reporting Model Improvements However, there are a few specific matters that will affect public institutions of higher education.

  49. GASB Preliminary Views – Financial Reporting Model Improvements • Adds a category of “subsidies received and provided” to the Nonoperating Revenue and Expense category

  50. GASB Preliminary Views – Financial Reporting Model Improvements • Defines subsidy as “resources provided by another party or fund to keep the rates lower than otherwise would be necessary to support the level of goods and services to be provided.”

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