Presentation Transcript

1. GASB Update

   NASACT Middle Management Conference Saint Paul, MN April 18, 2013
2. Disclaimer The opinions and views expressed in this presentation are my own and do not collectively represent the positions of the TN Comptroller of the Treasury or the TN Division of State Audit. Official positions are determined only after due process and deliberation. Thanks to David Bean!
3. Current Board Members Member Bob Attmore, Chair Jim Brown Bill Fish Michael Granof David Sundstrom Jan Sylvis Marcia Taylor Term Expires 2014 (retiring in 2013) 2017—first term 2016—first term 2015—first term 2014—first term 2017 2015
4. Effective Dates—FYE June 30 2013 Statement 60—Service Concession Arrangements Statement 61—Financial Reporting Entity Statement 62—Codification of AICPA and FASB Statement 63—Deferrals Presentation 2014 Statement 65—Assets and Liabilities—Reclassification and Recognition Statement 66—Technical Corrections Statement 67—Pension Plans 2015 Statement 68—Pension Accounting for Employer and Nonemployer Contributing Entities Statement 69—Government Combinations and Disposals of Government Operations

5. 2013

6. Statement 60Service Concession Arrangements

   Effective for Periods Beginning After December 15, 2011
7. Service Concession Arrangements (SCAs) SCAs are a type of public-private or public-public partnership. The term public-private partnership is used to refer to a variety of: Service arrangements Management arrangements SCAs.
8. Scope The transferor conveys to the operator the right and related obligation to provide public services through the operation of a capital asset in exchange for significant consideration, such as an up-front payment, installment payments, a new facility, or improvements to an existing facility. The operator collects and is compensated from fees from third parties The transferor determines or has the ability to modify or approve what services the operator is required to provide, to whom the operator is required to provide the services, and the prices or rates that can be charged for the services. The transferor is entitled to significant residual interest in the service utility of the facility at the end of the arrangement
9. Reporting Facilities If the facility associated with an SCA is a new facility purchased or constructed by the operator, or an existing facility that has been improved by the operator, then the transferor should report The new facility or the improvement as a capital asset at fair value when it is placed in operation, with Any contractual obligations recorded as liabilities, along with a corresponding deferred inflow of resources
10. Reporting Upfront or Installment Payments Transferor should report the up-front payment or present value of installment payments as an asset and any contractual obligations recorded as liabilities along with a related deferred inflow of resources. Revenue should be recognized as the deferred inflow of resources is reduced. This revenue should be recognized in a systematic and rational manner over the term of the arrangement beginning when the facility is placed into operation.
11. Recognition of Liabilities Liabilities associated with the SCA should be recorded at their present value if a contractual obligation is significant and meets either of the following criteria: The contractual obligation directly relates to the facility (for example, obligations for capital improvements, insurance, or maintenance on the facility). This obligation could relate to ownership of the facility or could arise from the transferor’s responsibility to assure that the facility remains fit for the particular purpose of the arrangement. The contractual obligation relates to a commitment made by the transferor to maintain a minimum or specific level of service in connection with the operation of the facility (for example, providing a specific level of police and emergency services for the facility or providing a minimum level of maintenance to areas surrounding the facility).
12. Statement 61 The Financial Reporting Entity—Omnibus Effective for Periods Beginning After June 15, 2012
13. Overview – Statement 61 The most significant effects of the amendments are to: Increase the emphasis on financial relationships Raises the bar for inclusion Refocus and clarify the requirements to blend certain component units Improve the recognition of ownership interests Joint ventures Component units Investments
14. Inclusion Criteria Statement 14 requires inclusion if Potential Component Unit is fiscally dependant. That is, Primary Government has authority over: Budget, or Setting taxes and charges, or Issuing debt Statement 61 adds a requirement for a financial benefit or burden before inclusion is required.
15. Blending Requirements—Narrowed Statement 14 requires blending if Primary Government and Component Unit have “substantively the same” governing body Statement 61 modifies that requirement to also include: A financial benefit/burden relationship, or Primary Government has “operational responsibility” for Component Unit Primary Government’s personnel manage activities of Component Unit like a fund, program, or department of the primary government
16. Blending Requirements—Broadened The blending criteria is broadened to include component units whose total debt outstanding is expected to be repaid entirely or almost entirely by revenues of the primary government Even if the component unit provides services to constituents or other governments, rather than exclusively or almost exclusively to the primary government
17. Note Disclosures Clarifies that current disclosures require: Rationale for including eachcomponent unit Whether it is discretely presented, blended, or included as a fiduciary fund (Practical consideration: Can aggregate similar Component Units for disclosure) No new disclosures

18. Statement 62Codification of Pre-November 30, 1989 FASB and AICPA Pronouncements

    Effective for Periods Beginning After December 15, 2011
19. Five Classifications Conflict with or contradict GASB standards FASB Statement 4—Gain or loss on debt extinguishments FASB Statement 43—Compensated absences Are not applicable to governments FASB Statement 84—Convertible debt Rarely applicable (excluded) FASB Statement 19–Oil and Gas Are applicable to governments FASB Statement 34—Capitalization of interest Will be addressed in GASB projects (applicable, but excluded) APB Opinion 16—Business combinations
20. Basic Guidance Statement 20 is superseded All applicable pre-11/30/89 standards are contained in the GASB’s codification All potentially applicable post-11/30/89 non-GASB standards will be “other accounting literature” Guidance on 29 topics is brought into the GASB literature
21. Significant Topics Special and extraordinary items (APB Opinion 30) Comparative financial statements (ARB 43) Related parties (FASB Statement 57) Prior-period adjustments (FASB Statement 16 and APB Opinion 9) Accounting changes and error corrections (APB Opinion 20 and FASB Interpretation 20) Contingencies (FASB Statement 5 and FASB Interpretation 14) Extinguishments of debt (APB Opinion 26 and FASB Statement 76) Inventory (Accounting Research Bulletin 43) Leases (FASB Statements 13, 22, and 98 and FASB Interpretations 23, 26, and 27)
22. Specialized Topics Sales of real estate (FASB Statement 66) Real estate projects (FASB Statement 67) Research and development arrangements (FASB Statement 68) Broadcasters (FASB Statement 63) Cable television systems (FASB Statement 51) Insurance enterprises (FASB Statement 60) Lending activities (FASB Statement 91) Mortgage banking activities (FASB Statement 65) Regulated operations (FASB Statements 71, 90, and 101)
23. Statement 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position Effective for Periods Beginning After December 15, 2011
24. Background Concepts Statement 4 identifies five elements that make up a statement of financial position: Assets Liabilities Deferred outflows of resources Deferred inflows of resources Net position This differs from the composition currently required by Statement 34, which requires the presentation of assets, liabilities, and net assets in a statement of financial position
25. Definitions Deferred outflows of resources A consumption of net assets by the government that is applicable to a future reporting period Has a positive effect on net position, similar to assets Deferred inflows of resources An acquisition of net assets by the government that is applicable to a future reporting period Has a negative effect on net position, similar to liabilities Net position The residual of all elements presented in a statement of financial position = assets + deferred outflows – liabilities – deferred inflows
26. Deferred Outflows/Inflows Prior Standards Statement 53—Accounting and Financial Reporting for Derivative Instruments Statement 60—Service Concession Arrangements Post-issuance Standards Statement 65—Items Previously Reported as Assets and Liabilities Statement 68—Pensions Statement 69—Government Combinations
27. Display Requirements Deferred outflows should be reported in a separate section following assets Similarly, deferred inflows should be reported in a separate section following liabilities Net Position components resemble net asset components under Statement 34, but include the effects of deferred outflows and deferred inflows Net investment in capital assets Restricted Unrestricted Governmental funds continue to report fund balance
28. Statement of Net Position Assets + Deferred Outflows = Total Assets and Deferred Outflows Liabilities + Deferred Inflows = Total Liabilities and Deferred Inflows Net Position
29. New Components of Net Position Net Investment in Capital Assets – calculated in manner similar to “old” Net Assets Invested in Capital Assets Net of Related Debt except deferrals are now included Restricted Unrestricted
30. Microsoft Word - GASB 63 Appendix C Illustration.pdf
31. For Proprietary Funds, Fiduciary Funds, and Government-Wide Statements Net approach is encouraged Balance Sheet approach is allowed
32. Disclosures Balances of deferred outflows and deferred inflows may be aggregated on face of statements Governments should provide details in notes if significant components are obscured by aggregation If component of net position is significantly affected by deferred item, must disclose that impact

33. 2014 and 2015

34. Statement 65Items Previously Reported as Assets and Liabilities

    Effective for Periods Beginning After December 15, 2012
35. Changes Considered Effect on assets Continue to report as assets Reclassify as deferred outflows Treat as current period expenditure/expense Effect on liabilities Continue to report as liabilities Reclassify as deferred inflows Treat as inflow of current period
36. Continue to report as assets Prepayments Capitalized incurred costs for regulated activities Net pension plan position in excess of employer’s total liability Cable TV initial subscriber installation costs
37. Continue to report as liabilities Advance of derived tax revenues Advance from grantor (if eligibility requirements – other than time – have not been met Receipt of a prepayment Cable TV hook-up revenue in excess of selling costs
38. Continue to report as liabilities [continued] Commitment fees (with the obligation to make or acquire a loan) Fees to guarantee funding of mortgage loans Fees to arrange commitment directly between permanent investor and borrower Refunds imposed by a regulator
39. Deferred Inflows of Resources Grants received in advance of meeting timing requirement Deferred amounts from refunding of debt (credits) Proceeds from sales of future revenues Deferred gain from sale-leaseback “Regulatory” credits
40. Deferred Outflows of Resources Grant paid in advance of meeting timing requirement Deferred amounts from refunding of debt (debits) Cost to acquire rights to future revenues (intra-entity) Deferred loss from sale-leaseback
41. Reclassify as deferred inflows Advance of revenue from imposed nonexchange transaction Grants received in advance of meeting timing requirement Deferred amounts from refunding of debt (credits) Proceeds from sale of future revenues “Regulatory” credits
42. Reclassify as deferred inflows [continued] Deferred gain from sale-leaseback “Unavailable” revenue related to the application of modified accrual accounting Loan origination fees (excluding points) for mortgage loans held for resale prior to sale
43. Reclassify as deferred inflows [continued] Loan origination fees for points for lending activities and mortgage loans held for investment Resources generated by current rates intended to recover costs that are expected to be incurred in the future (regulated industries) Gains or other reductions of net allowable costs intended to reduce rates over future periods (regulated industries)
44. Deferred Outflows of Resources Grant paid in advance of meeting timing requirement Deferred amounts from refunding of debt (debits) Cost to acquire rights to future revenues (intra-entity) Loss from sale-leaseback
45. Outflows of Resources Debt issuance costs (other than insurance) Initial costs incurred by lessor in an operating lease Acquisition costs for risk pools Loan origination costs
46. Treat as current inflows Loan origination fees (excluding points) related to lending activities Commitment fees realized upon exercise or expiration of commitment Commitment fees charged (with obligation to make or acquire a loan or to satisfy an obligation when exercise is considered remote)
47. Treat as current inflows [continued] Fees received for purchased loans Loan origination fees (excluding points) for mortgage loans held as investments Loan origination fees (including points) for mortgage loans held for resale after sale
48. Treat as current inflows [continued] Fees realized after the funding of mortgage loans has occurred or after commitment to guarantee the funding of mortgage loans expires Fees realized when a commitment is arranged directly between a permanent investor and a borrower
49. Other Items Criteria for determining major funds will include deferred items Use of the term “deferred” limited to deferred outflows and deferred inflows

50. Statement 66Technical Corrections—2012

    Effective for Periods Beginning After December 15, 2012
51. Conflicts Statement 62 with Statement 13—Leases Statement 48 Purchase of a loan or group of loans Servicing fees related to mortgage loans Statement 10 with Statement 54—Risk financing pools

52. Statement 68Accounting and Financial Reporting for Pensions

    Effective for Fiscal Years Beginning After June 15, 2014
53. Fundamental Approach View the cost of pensions within the context of an ongoing, career-long employment relationship Use an accounting-based versus funding-based approach to measurement and report any Net Pension Liability on the statement of financial position
54. Scope and Applicability Defined benefit and defined contribution pensions provided through trusts that meet the following criteria: Employer/nonemployer contributions irrevocable Plan assets dedicated to providing pensions Plan assets legally protected from creditors Excludes all OPEB Applies to employers and nonemployer contributing entities that have a legal obligation to make contributions directly to a pension plan
55. Types of Pension Plans Defined Benefit Single employer Agent multiple employer Cost-sharing multiple employer Defined Contribution Hybrid
56. Defined Benefit Pensions Liabilities to the pension plan (payables) Liabilities to employees for pensions “Net pension liability” (NPL) Total pension liability (TPL), net of pension plan’s fiduciary net position TPL = actuarial present value of projected benefit payments attributed to past periods Fiduciary net position as measured by pension plan Single/agent employers recognize 100 percent of NPL Cost-sharing employers recognize proportionate shares of collective NPL

57. Total Pension Liability

    Measurement
58. 1) Project Benefit Payments Basic Three-StepMeasurement Approach 25 40 62 80 2) Discount Future Payments Present Value of Payments 3) Attribute to Employee Service Periods
59. Actuarial Assumptions Selection of all actuarial assumptions should be made in accordance with Actuarial Standards of Practice (unless specific guidance is provided by the GASB).
60. Projection of Benefits The projection of pension benefit payments should include the effects of projected future salary increases and future service credits, if part of the benefits formula, as well as automatic COLAs Ad hoc COLAs would be incorporated into projections of pension benefit payments only if an employer’s practice indicates that the COLAs are substantively automatic
61. Discount Rate Should be a single rate that reflects: The long-term expected rate of return on plan investments that are expected to be used to finance the payment of benefits to the extent that Plan net position is projected to be sufficient to make projected benefit payments, and Assets are expected to be invested using a strategy to achieve that return A yield or index rate for 20-year, tax exempt general obligation bonds with an average rating of AA/Aa or higher to the extent that the conditions for the use of the long-term expected rate of return are not met
62. Crossover Point $ (millions) Years
63. Attribution Method Single actuarial cost allocation method: Based on entry age normal principles Applied as a level percentage of payroll Over periods beginning in first period in which the employee’s services lead to benefits under the plan (without regard to conditional service-related provisions such as vesting) and ending in last period of the employee’s service
64. Timing and Frequency of Measurement The net pension liability is measured as of a date (the measurement date) no earlier than the end of its prior fiscal year, consistently applied from period to period Total pension liability component of the net pension liability at the measurement date is determined either by An actuarial valuation as of that date or The use of update procedures to roll forward amounts to the measurement date from an actuarial valuation as of a date no more than 30 months (plus 1 day) prior to the fiscal year-end  For financial reporting purposes, actuarial valuations at least biennially More frequent valuations are encouraged 

65. Plan Net Position

    Measurement
66. Measurement of Plan Assets In calculating the employer’s net pension liability, plan net position should be measured in the same way as measured in the plan’s statement of plan net position, including measurement of investments at fair value.

67. Pension Expense

    Measurement
68. Immediate Expense Recognition Expense recognition would be immediate for: Pension benefits earned during the reporting period (service cost or normal cost) Interest cost on the total pension liability Changes in benefit terms that affect the total pension liability Long-term expected rate of return on pension plan investments
69. Deferred Expense Recognition Expense would be deferred and recognized over a period equal to the average remaining service periods of active and inactive (including retirees) employees for: Differences between expected and actual changes in economic and demographic factors Changes in assumptions about economic and demographic factors Differences between actual and projected earnings on plan investments would be deferred and recognized as pension expense over a five-year, closed period
70. Implications of the New Pensions Statements Changes in the employer’s net liability likely to be recognized in pension expense more quickly

71. Governmental Funds

    Recognition
72. Modified Accrual Net pension liabilities are normally expected to be liquidated with expendable available financial resources to the extent that pension benefits have matured—that is, pension benefit payments are due and plan net position is not sufficient for payments of benefits. Liabilities to defined benefit pension plans, as well as liabilities for defined contribution pensions, are normally expected to be liquidated with expendable available financial resources when amounts are due pursuant to contractual arrangements or legal requirements.

73. Cost-Sharing Multiple Employer Plans

74. Cost-Sharing Employers A government participating in a cost-sharing plan would report a liability in its own financial statements that is equivalent to its proportionate share of the net pension liability of all the employers in the cost-sharing plan. Approach uses a basis for allocation of proportionate share based on the employer’s contribution effort relative to that of all contributors
75. Additional Deferrals Change in proportion Net effect deferred Expense recognition period—average expected remaining service lives of all employees Contributions during the measurement period Difference between the amount of contributions and the amount of the entity’s proportionate share Expense recognition period—average expected remaining service lives of all employees
76. Effective Dates Fiscal years beginning after June 15, 2013 for Pension Plans Fiscal years beginning after June 15, 2014 for Employers Early application is encouraged
77. What’s Next - 2013 and Beyond Educational and outreach efforts Two Implementation Guides Initial guidance for pension plans tentatively scheduled for June 2013 Employer and nonemployer contributing entity guidance will follow in January 2014 Phase 2 of Postemployment Benefits project OPEB and pensions not within scope of Statements 67/68

78. Statement 69Government Combinations and Disposals of Operations

79. Scope Combinations in which no consideration is provided Government mergers Transfers of operations Combinations in which consideration is provided Government acquisitions Disposal of government operations reporting
80. Mergers and Transfers of Operations Assets and liabilities at carrying values Presumption of GAAP Reporting Mergers New entity Continuing entity Transfers of operations Adjustments Accounting principles, policies, and estimates Capital asset impairment Transaction eliminations
81. Acquisitions Assets (and liabilities)at acquisition value GAAP applicable to state and local governments is used for recognition Market-based entry price measurements Exceptions Accounting for the difference Goodwill–deferred outflow of resources Contribution received or reduction of non-current assets Reporting period
82. Disposals of Government Operations Governments would report disposals of operations for all disposals of operations (transfers or sales). Gains and losses reported as special items Costs associated with disposals of government operations Should consider all costs associated with disposals of operations Disclosures Description of the circumstances leading to the discontinuation Operations revenues, expense, and non-operating items
83. Additional Note Disclosures General information about ALL government combinations Brief description of the combination and identification of the entities involved Date of the combination Primary reasons for the combination Additional information about specific combinations Government mergers and transfers of operations Carrying values recognized as of the merger date Description of significant adjustments Amounts recognized
84. Disclosures—Government Acquisition Brief description of consideration provided Total amount of net position acquired Brief description of contingent consideration arrangements
85. Effective Date Combinations and disposals of government operations in financial reporting periods beginning after December 15, 2013

86. Current Agenda Projects

87. Overview Nonexchange Financial Guarantees Fair Value Measurement and Application Conceptual Framework Measurement Approaches Recognition Other Postemployment Benefits GAAP Hierarchy Pension Implementation Guides
88. Nonexchange Financial Guarantees Scope—Nonexchange transactions Measurement When qualitative factors or historical data indicate that it is more likely than not that a government will make a payment on nonexchange financial guarantees it extended, the government should recognize a liability Timetable Final Statement expected to be approved in later this month
89. Fair Value—Measurement Proposals include adoption of the FASB provisions related to: Definition of fair value—The amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Fair value hierarchy Level 1—Quoted prices in active markets for identical assets or liabilities Level 2—Significant other observable inputs Level 3—Significant unobservable inputs
90. Fair Value—Application Application guidance limited to investments, life insurance, and other current fair value requirements Proposed definition of investment—A security or other asset that a government holds primarily for the purpose of income or profit and its present service capacity is based solely on its ability to generate cash, to be sold to generate cash, or to procure services for the citizenry. Some current references to fair value proposed to be changed to acquisition costs Donated capital assets
91. Conceptual Framework—Measurement Approaches Measurement Approaches Initial value Remeasured value Measurement Attributes Historical cost Fair value Replacement cost (including acquisition value) Settlement value
92. Other Postemployment Benefits Proposal to mirror pension standards on basic measurement provisions Projection of benefits (will include healthcare inflation) Discounting to present value Attribution to reporting periods Issues to be discussed Implicit rate subsidy Alternative measurement method Community-rated plans Disclosures
93. GAAP Hierarchy Proposal includes reducing four levels of current authoritative literature to two levels Level 1—Statements Interpretations would be eliminated Level 2—AICPA accounting guidance formally cleared by the GASB Classification of GASB Technical Bulletins and Comprehensive Implementation Guide (CIG) to be reconsidered The CIG will be subjected to full due process as part of this project
94. Pension Implementation Guides Two guides Pension Plans Employers/Noncontributing Entities Timetable Plan—June 2013 Employer—January 2014

95. Research Agenda Projects

96. Research Agenda Electronic Financial Reporting Fiduciary Responsibilities Leases Tax Abatement Disclosures
97. Questions? Gerry Boaz, CPA, CGFM TN Division of State Audit Technical Manager phone: (615) 747-5262 email: Gerry.Boaz@cot.tn.gov or GASB Phone: (203) 847-0700 WWW.GASB.ORG