American Accounting Association Government and Nonprofit Section Mid-Year Meeting

1. American Accounting AssociationGovernment and Nonprofit SectionMid-Year Meeting GASB Update The views expressed in this presentation are those of Mr. Bean. Official positions of the GASB are established only after extensive due process.

2. Agenda Acknowledgements and Background Economic Condition Reporting: Financial Projections Pension Accounting and Financial Reporting Other Current Agenda Projects User Guide Series The Next Generation

3. Acknowledgements and Background

4. Academic Community Contributions Smitty and Mark Robbins (GASAC) Greg Allison and Sue Kattelus (Comprehensive Implementation Guide) Larry Johnson (Deferrals) Jim Chan and Mike Pagano (Fiscal Sustainability) Mary Fischer (Government Combinations) Catherine Plante (OPEB) Paul Copley, Bob Freeman, and Jackie Reck (Recognition and Measurement Approaches) Beverly Bunch, Irfan Bora and Cynthia Searcy (User Guides)

5. Gil Crain Memorial Research Grant • 2012 Request for Research now available • Previous recipients include: • Wie Yusuf (Virginia Commonwealth) and Meagan Jordan (Univ. of Arkansas) • Judith Harris, Karen McKenzie and Randall Rentfro, Nova Southeastern Univ. • Nolan Kido, Univ. of Hawaii at Manoa • SalehaKhumawala and Dan Neely, Univ. of Houston • Craig Shoulders, Univ. of North Carolina at Pembroke

6. Current Board Members Member Bob Attmore, Chair Bill Fish Michael Granof David Sundstrom Jan Sylvis Marcia Taylor Jim Williams Term Expires 2014 2016—first term 2015—first term 2014—first term 2017 2015 2012

7. Latest GASAC News • FAF has appointed a new AAA representative on the GASAC: • Jackie Reck, University of South Florida

8. Effective Dates—June 30 • 2011 • Statement 54—Fund Balance • 2012 • Statement 57, paragraph 8—Agent OPEB Plans • Statement 59—Financial Instruments Omnibus • Statement 64—Derivative Terminations • 2013 • Statement 60—Service Concession Arrangements • Statement 61—Reporting Entity • Statement 62—Codification of AICPA and FASB • Statement 63—Deferrals Presentation • 2014 • Statement 65—Reclassification • Statement 66—Technical Corrections

9. Economic Condition Reporting Financial Projections

10. Project History • Overall project—Economic Condition Reporting—part of the original GASB agenda (1984) • Results of Research on Economic Condition Reporting: Fiscal Sustainability (presented as a staff paper to the Board in 2009) • User roundtable discussions • Telephone interviews • Specific project added to the current technical agenda in December 2009 • February 2010—Task force established • August 2010—Board deliberations formally began

11. Timetable • Preliminary Views approved November 2011 • Field test is being conducted with over 50 volunteer governments • Comment deadline—March 16, 2012 • The Board needs to hear from you to know if we got it right, or if additional information or modifications are needed. • Public hearings—March 29 and April 17 • Additional user outreach

12. Project Objectives Identify the information that users of governmental financial information need to assess a governmental entity’s fiscal sustainability Compare those needs with the information that users receive under the current accounting and financial reporting standards Consider whether governments should be required to present additional information for assessing fiscal sustainability Determine how that information should be communicated

13. Projections—Cash Inflows and Outflows • Total cash inflows and major individual cash inflows, in dollars and as a percentage of total cash inflows • Explanations of the known causes of fluctuations in cash inflows • Total cash outflows and major individual cash outflows, in dollars and as a percentage of total cash outflows • Explanations of the known causes of fluctuations in cash outflows

14. City of XYZ Required Supplementary Information Projections of Cash Inflows and Cash Outflows, Fiscal Years 20X2–20X6

15. City of XYZ Required Supplementary Information Projections of Cash Inflows and Cash Outflows, Fiscal Years 20X2–20X6, Continued

16. Projections • Total financial obligations and major individual financial obligations • For example, bonds, pensions, other postemployment benefits, and long-term contracts • Explanations of the known causes of fluctuations in financial obligations • Annual debt service payments (principal and interest)—includes projected issuances

17. City of XYZ Required Supplementary Information Projections of Financial Obligations, Fiscal Years 20X2–20X6

18. Intergovernmental Service Dependencies Narrative discussion of major existing intergovernmental service interdependencies and their nature

19. Information Not Based On Predictions • The financial projections would be: • Based on current policy, • Informed by historical information, and • Adjusted to take into account known events and conditions that affect the projection period.  • A cautionary notice would inform readers that projections do not represent a forecast or prediction of likely outcomes. The notice would caution readers that actual future financial results may be significantly different from those reported.

20. Where Would This Information Be Found? Financial projections would be included as required supplementary information (RSI) of all governmental entities’ annual financial reports Two Board members hold an alternative view

21. Pensions

22. Proposals In June 2011, the GASB approved two Exposure Drafts that propose changes to how state and local governments report and account for the pension benefits provided to their employees. One document addresses reporting by governments (employers) that provide pension benefits. The other relates to reporting by the pension plans that administer those benefits through qualified trusts.

23. Due Process—Current Round Comment deadline was September 30, 2011 The Employer Exposure Draft alone drew more than 600 comment letters, including more than 40 from the user community Final standards expected in June 2012

24. 1) Project Benefit Payments Basic Three-StepMeasurement Approach 25 40 62 80 2) Discount Future Payments Present Value of Payments 3) Attribute to Service Periods

25. Liability Recognition • The difference between the total pension obligation and plan assets held in trust for pension benefits would be reported as a net pension liability in the financial statements • Governments in cost-sharing plans would report their proportionate share of the total net pension liability of all of the participating governments

26. Expense Recognition • In general, expenses will be recognized sooner than at present requirements • More items will be expensed immediately, including changes in benefit terms • Asset value changes will be amortized over five years (no more allocation and then amortization) • Other items will be amortized over the average remaining service period of covered employees (likely to be much shorter than 30 years)

27. Notes to Financial Statements—All Employers Description of benefits Assumptions used to measure total pension liability (including discount rate)

28. Discount Rate—Expected Rate of Return • Long-term expected rate of return on plan investments • Description of how the long-term expected rate of return on plan investments was determined, including • Assumed asset allocation of the portfolio • Best estimate of the long-term expected real rate of return for each major asset class

29. Discount Rate—Municipal Bond Rate • If the discount rate incorporates a municipal bond index rate • Tax-exempt municipal bond index rate • Index selected (20-year maturity) • Reasons for selection of that index • Periods of projected benefit payments to which the long-term expected rate of return and the municipal bond index rate were applied to determine the discount rate

30. Discount Rate—Sensitivity Analysis The effects on the current-period net pension liability of a 1-percentage-point increase and a 1-percentage-point decrease in the discount rate

31. Notes to Financial Statements: Single and Agent Employers • Changes in components of net pension liability by source • Description of changes in assumptions and benefit terms • Basis for employer’s actual contributions • Components of pension expense • Components of changes in deferred outflows of resources/deferred inflows of resources related to pensions

32. Required Supplementary Information (RSI) • 10-year schedules for all governments, regardless of type of plan (plus notes): • Changes in the net pension liability by source • Collective level for cost-sharing employers • Components of the net pension liability and ratios: plan net position ÷ total pension liability; net pension liability ÷ covered-employee payroll • Collective and individual level for cost-sharing • Contribution information, if a government has an actuarially determined contribution: actuarially calculated contribution – actual contributions; contributions ÷ payroll

33. Illustration: Changes in NPL Note: Only 5 years are presented here; 10 years of information would be required

34. Illustration: NPL Components/Ratios Note: Only 5 years are presented here; 10 years of information would be required

35. Illustration: Contribution-related Information Note: Only 5 years are presented here; 10 years of information would be required

36. Other Current Agenda Projects • Upcoming Final Statements • Deferrals—March 2012 • Technical Corrections—March 2012 • Pensions—June 2012 • Exposure Drafts • Government Combinations—March 2012 • Financial Guarantees —June 2012 • Other Projects • Fair Value Measurement and Application • Conceptual Framework-Recognition and Measurement Approaches • Other Postemployment Benefits

37. GASB Resources

38. User Guide—Local Government Now Available

39. User Guide Series—Other Guides School District Guide—now in production Analyst’s Guide—now in production New guide on business-type activities coming soon Information about other new guide editions will be posted on the GASB website, www.gasb.org, as they become available

40. User Guide Series—Features Annotated examples of financial statements, notes, and schedules A storyline designed to help the reader understand the concepts An introduction to basic financial ratios used to analyze government finances Helpful boxes and sidebars further exploring issues raised in the text An overview of governmental accounting and financial reporting An extensive glossary of terms

41. The Next Generation How do we expand the number of universities that offer governmental accounting (with or without not-for-profit accounting) as a stand-alone course? How do we encourage more research in governmental accounting, including doctorial dissertations?

42. Web site—www.gasb.org Questions?