National Association of State Auditors, Comptrollers and Treasurers

1. National Association of State Auditors, Comptrollers and Treasurers New Standards and the Latest on SEA The views expressed in this presentation are those of The speakers. Official positions of the GASB are determined only after extensive due process and deliberation.

2. Topics for Discussion • Recent FAF trustee actions • Service efforts and accomplishment reporting project • Derivative instruments standard • Current GASB projects, including fund balance reporting • GASB research projects

3. Recent FAF Actions

4. SEA Reporting Project

5. Project Has Two Phases • Phase 1 – Amendments to Concepts Statement No. 2, Service Efforts and Accomplishments Reporting • Phase 2 – Request for Response, Suggested Guidelines for Voluntary Reporting of SEA Performance Information

6. Concepts Statement 2—Amendments • Exposure Draft issued on April 4, 2008 • Comment deadline was July 3, 2008 • Public Hearing – July 29, 2008 – 9:00AM Association of Government Accountants’ Professional Development Conference Atlanta, Georgia • AMENDMENTS INCLUDE - Elimination of one section and the modification of four sections

7. Amendments • Section on Developing Reporting Standards for SEA Information – deleted • Sections on Limitations of SEA Performance Information and Usefulness of SEA Performance Information – clarifying revisions only • Section on Purpose and Scope – clarification that it is beyond the scope of the GASB to establish the goals and objectives of state and local government services, to develop specific nonfinancial measures or indicators of service performance, or to set standards for service performance.

8. Elements of SEA Performance Measures • Section on Elements of SEA Performance Measures – proposes to separate the elements of SEA performance measurement from related factors as follows: • Measures of service efforts (costs), • Measures of service accomplishments, • Measures that relate service efforts to service accomplishments, • Discussion of other factors – expanded to include comparisons, secondary effects, and the concept of demand for services. Focus shifted to factors that influenced results.

9. Feedback to Proposed Concepts Amendments—To Date Summary of comments received include: • Global issues • Specific issues

10. Response to Date—Global Issues • Many in agreement with the amendments and support the Board’s role • Disagreement with the fact that developing “specific” nonfinancial measures or indicators is outside of the GASB role • SEA is not under the purview of the GASB • Opposition to any inclusion of SEA in the CAFR or other GPEFR – should be in policy documents like the budget • Concepts are important but guidance should be voluntary in nature

11. Feedback to Date—Specific Issues • Expand the purpose section as it lacks adequate context – performance reporting is only as good as the measures which are only as good as the management system • Concern with word “integral” implying that governments are required to report SEA • Measures of service efforts are not properly described • Inputs should not be included as measures of performance • Surrogate measures should be directly related to the performance of the government or not be included • More examples of measures are needed and from different programs and services other than just roads • Government to government comparisons can be misleading

12. Suggested Guidelines • Ballot draft approved by Board – July 15, 2008 • “Suggested Guidelines for Voluntary Reporting of SEA Performance Information” composed of two parts: • Four essential components of an effective SEA report • Six qualitative characteristics that are appropriate for reporting SEA performance information • Suggested guidelines, although voluntary, will assist governments in improving the quality of their reported SEA performance information • Traditional financial statements provide information about fiscal and operational accountability but not the degree to which the government was successful in helping to maintain or improve the well-being of its citizens by providing services

13. GOVERNMENT PERFORMANCE MANAGEMENT SYSTEM Sole Focus Of GASB Efforts

14. Four Essential Components Provide guidance to assist preparers of SEA reports in effectively communicating SEA performance information to users • Purpose and Scope • Major Goals and Objectives • Key Measures of SEA Performance • Discussion and Analysis of Results and Challenges

15. ESSENTIAL COMPONENTS AND USER NEEDS

16. ELEMENTS OF SEA PERFORMANCE MEASURES

17. Qualitative Characteristics Provide further guidance in the application of the essential components – assist users in comprehending and assessing government programs and services • Relevance • Understandability • Comparability • Timeliness • Consistency • Reliability

18. QUALITATIVE CHARACTERISTICS AND USER NEEDS

19. Accounting for Derivative Instruments Issued in June 2008

20. Basic Approach Fair value with hedge accounting • Derivative instruments are measured on the statement of net assets at fair value • Fair value changes are reported on the statement of resource flows as investment income • Scope Exclusion: Measurement of derivatives in government funds • Exception: Effective Hedges • Changes in fair value of derivative instruments would be reported on the statement of net assets as deferrals—either deferred inflows or deferred outflows

21. Methods of Evaluating Effectiveness Effectiveness is determined by using a specified method of evaluating hedges • Qualitative method • Consistent critical terms • Quantitative methods • Synthetic instrument • Linear regression • Dollar offset • Other methods

22. Note Disclosures Summary of derivative instrument activity Disclosures for HEDGING derivatives Significant terms Risks: Credit, Interest Rate, Basis, Termination, Rollover, Market-access, Foreign Currency Disclosures for INVESTMENT derivatives Risks: Credit, Interest Rate, Foreign Currency Contingencies (for example, collateral postings) Synthetic guaranteed investment contracts Description and nature Fair values Wrap contract Underlying investments

23. What’s Next? • The requirements of the Statement are effective for financial statements for periods beginning after June 15, 2009. Earlier application is encouraged. • The Implementation Guide (Q + A) is currently in progress and is expected to be issued in February 2009. • The Implementation Guide will include examples and clarifications for each section of the Statement, as well as illustrations with sample journal entries. • Example topics: What does or does not qualify for the normal purchases and normal sales scope exclusion? What does or does not meet the definition of a derivative?

24. Implementation Guide • If you have a question that you would like to see addressed in the Implementation Guide, please contact the project staff: Randy Findenrjfinden@gasb.org Emily Shafroneashafron@gasb.org Katherine Cancro kcancro@gasb.org

25. Fund Balance Reporting and Governmental Fund Definitions

26. Fund Balance Reporting • Presentation hierarchy based primarily on spending constraints placed upon use of resources versus availability for appropriation • Format: • Non-spendable—Inventory, long-term receivables • Spendable • Restricted—Statement 34/46 definition • Limited—Formal action of governing body • Assigned—Similar to designations expressing intent • Unassigned

27. Clarify Fund Type Definitions • Special revenue • proceeds of specific revenue sources that are restricted or limited to expenditure for specified purposes • Capital projects • Debt service—paragraph 30

28. Project Timetable Invitation to Comment—October 2006 Roundtable—February 2007 Exposure Draft—February 2008 Public hearing—July 2008 Final Statement—December 2008

29. ARC Adjustment—Proposed TB When the ARC adjustment amount is known, the use of the known amount—instead of an amount derived from application of the estimation procedures—would be consistent with the purpose of the ARC adjustment and is encouraged.

30. Other Current Projects Postemployment Benefit Accounting and Reporting Public and Private Partnerships Reporting Units/Statement 14 Revisited AICPA Omnibus—accounting guidance currently presented only in the SASs Recognition and Measurement Attributes – Concepts Statement

31. Research Agenda Economic Condition Reporting Electronic Financial Reporting FASB Pronouncements (pre-1989) Fair Value Measurement Investment Omnibus

32. Effective Dates—June 30 Y/E • June 30, 2008 • Statement 43—OPEB Plans—Phase II • Statement 45—Employer’s OPEB—Phase I • Statement 48—Sales and Pledges • Statement 50—Pension Disclosures • June 30, 2009 • Statement 43—OPEB Plans—Phase III • Statement 45—Employer’s OPEB—Phase II • Statement 49—Pollution Remediation Obligations • Statement 52—Land Investments by Endowments • June 30, 2010 • Statement 45—Employer’s OPEB—Phase IIl • Statement 51—Intangible Assets • Statement 53—Derivative Instruments

33. Telephone—(203) 847-0700 Web site—www.gasb.org Questions?