GASB Update: Implementation Issues and a Look to the Future

GASB Update: Implementation Issues and a Look to the Future
Gerry Boaz, CPA, CGFM Technical Manager TN Division of State Audit Gerry.Boaz@cot.tn.gov (615) 747-5262 NASACT Middle Management Conference – Little Rock, AR April 17, 2012

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.

Objective Provide an update on recently issued and effective GASB pronouncements Statements Interpretations Technical bulletins Concepts statements Implementation Guides Provide an update on recently issued due process documents on the GASB current technical agenda

Know Your Board Bob Attmore, Chairman (2014) William W. Fish (2016) [replaces Mike Belsky, resigned 2011] Michael Granof (2015) David Sundstrom (2014) Jan Sylvis (2017) Marcia Taylor (2015) James E. Brown (2017) [replaces Jim Williams this Summer]

Principal Staff David Bean, Director of Research and Technical Activities Ken Schermann Randy Finden Dean Mead Roberta Reese Michelle Czerkawski

Where Are We Now?

Effective Dates—FYEs June 30, 2011 Statement 54 – Fund Balance reporting & definitions Statement 59 – Financial Instruments Omnibus June 30, 2012 Statement 57 – OPEB Measurements: frequency and timing of actuarial valuations Statement 64 – Derivatives amendment June 30, 2013 Statement 60 – Service Concession Arrangements Statement 61 – Financial Reporting Entity: Omnibus Statement 62 – Pre-89 FASB, APB, & CAP Statement 63 – Statement of Net Position

FYE 6/30/11

GASB 54 Implementation Issues in TN Stabilization Funds Special Revenue Funds Nonspendable in Special Revenue Funds Debt Service Funds: Arbitrage Issues Restrictions, Commitments, and Assignments: Law, Budget, Resolutions Non-complying Funds Records vs. Audit Encumbrances Beginning Fund Balances Chart of Accounts Tracking Restricted Amounts Detailed vs. Aggregate BS Presentation Libraries and Solid Waste Funds Qualifying our Opinion: County’s that will not Change

Statement 59, Financial Instruments Omnibus

GASB 59 Effective for financial statements for periods beginning after June 15, 2010 Objective: to update and improve existing standards regarding financial reporting and disclosure requirements of certain financial instruments and external investment pools for which significant issues have been identified in practice

GASB 59 – Guarantees of the Indebtedness of Others Amended NCGA Statement 4 to limit its applicability to debt instruments that are not investment derivative instruments entered into primarily for the purpose of obtaining income or profit.

GASB 59 – Unallocated Insurance Contracts Amended Statements 25 and 43. Unallocated insurance contracts should be measured at fair value, consistent with the provisions of Statement 31, rather than at cost.

GASB 59 – 2a7-Like External Investment Pools Amended Statement 31 to require investments in 2a-7 like pools to be measured at net asset value, rather than amortized cost, to approximate a fair value.

GASB 59 – Interest Rate Risk Disclosures for Debt Investment Pools Amended statement 40 to limit required interest rate risk disclosures for a government’s investments in mutual funds, external investment pools, or other pooled investments to investments in debt mutual funds, external debt investment pools, or other pooled debt investments.

GASB 59 – Amendments to Statement 53 Specifically excludes nonperformance penalties. Excludes financial guarantee contracts not entered into for the purpose of obtaining income or profit Excludes revenue based contracts. Clarifies hybrid instrument criteria.

FYE 6/30/12

GASB Statement 64
Derivative Instruments: Application of Hedge Accounting to Termination Provisions

Termination Provisions GASB 64 designates specific circumstances where hedge accounting may continue after the termination of the hedging derivative instrument. Under the provisions of GASB 53, Accounting and Financial Reporting for Derivative Instruments, a government is to cease hedge accounting upon the termination of the hedging derivative instrument, resulting in the immediate recognition of the deferred outflows or inflows of resources as a component of investment income. However, in many instances, governments have managed to replace their swap counterparty or swap counterparty’s credit support providers by amending existing swap agreements or by entering into new swap agreements. Therefore, GASB 64 was issued to clarify the circumstances in which an effective hedging relationship continues after these events occur.

Termination Provisions (cont.) Under GASB 64, a hedging derivative instrument is considered terminated unless an effective hedging relationship continues when all of the following criteria are met: Collectability of swap payments is considered to be probable. The swap counterparty of the interest rate swap or commodity swap, or the swap counterparty’s credit support provider, is replaced with an assignment or in-substance assignment. The government enters into the assignment or in-substance assignment in response to the swap counterparty, or the swap counterparty’s credit support provider, either committing or experiencing an act of default or a termination event as both are described in the swap agreement.

GASB Statement No. 57
OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans

Objective of Statement Provide guidance on 2 implementation issues related to OPEB in GASBS #43 and #45 Use of the alternative method Timing and frequency of measurement of actuarial information

Agent Employer Option to Use Alternative Measurement Method Agent employer must have 100 or fewer total plan members Plan member is someone currently employed, terminated but not receiving benefits, and retired and drawing benefits May use alternative measurement method regardless of the number of total plan members in the agent-multiple employer plan

Agent Multiple-Employer Plan Reporting Actuarially Determined Information May meet requirements by using aggregated individual employer plan information Individual employers may use either Actuarial valuations Alternate measurement method

Frequency and Timing Of Measurements Agent employer should obtain actuarial valuations of its plan at least as frequently as is required by the agent multiple-employer Plan Agent multiple-employer plan and each participating employer should obtain actuarial valuations on same actuarial valuation date

Dual Effective Dates Use and reporting of the alternative measurement method effective immediately Frequency and timing provisions effective for periods ending after June 15, 2012

FYE 6/30/13

Statement No. 60:Accounting and Financial Reporting for Service Concession Arrangements

Statement No. 60 Approved by the Board in November 2010 Released December 16, 2010 Effective for periods beginning after December 15, 2011

GASBS 60 Statement addresses 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.

Service Concession Arrangements:Benefits of SCAs to Governments May provide government with ability to leverage existing infrastructure and other public assets to generate additional resources in form of up-front payments from operator for right to operate such assets. May be used to facilitate construction and financing of new infrastructure and other public assets and transfer the risks associated with their construction and maintenance to a private entity. May be used to provide services to the general populace in a more efficient and cost-effective manner.

Scope: What is an SCA?ALL of the following criteria are met: Government conveys to an operator the right and related obligation to provide services to the public through the use and operation of a capital asset (“facility”) in exchange for significant consideration Operator collects and is compensated by fees from third parties Government is entitled to significant residual interest in the service utility of the facility at the end of the arrangement Government determines or has the ability to modify or approve: What services the operator is required to provide To whom the services will be provided The prices or rates that will be charged

Examples of SCAs The operator will design and build a facility and will obtain the right to collect fees from third parties: construction of a municipal complex for the right to lease a portion of the facility to third parties. The operator will provide significant consideration in exchange for the right to access an existing facility: operating a parking garage and collecting fees from third parties for its usage. The operator will design and build a facility (new tollway), finance the construction costs, provide the associated services, collect the associated fees, and convey the facility to the government at the end of the arrangement.

Government Accounting Existing facility: government continues to report existing facility as capital asset. New facility or improvements to existing facility – government reports: A new facility or improvements as capital asset at fair value when placed into operation, Any contractual obligations as liabilities, And a corresponding deferred inflow of resources equal to the difference between (1) and (2).

Government Accounting Up-front or installment payments – government reports: An up-front payment or the present value of installment payments as an asset, Any contractual obligations as liabilities, And a corresponding deferred inflow of resources equal to the difference between (1) and (2).

Government Accounting A liability is recorded at present value if a contractual obligation exists AND if it meets either of the following criteria: The contractual obligation directly relates to the facility (for example, capital improvements, insurance, or maintenance). OR The contractual obligation relates to a commitment by the government to maintain a minimum or specific level of service in connection with the operation of facility (for example, police or emergency services, maintenance around facility).

Government Accounting Revenue is recognized in a systematic and rational manner over the term of arrangement as the deferred inflow is reduced. Liability is reduced as transferor’s obligations are satisfied – when obligation is satisfied, a deferred inflow is reported and related revenue is recognized in systematic and rational manner over the term of the arrangement.

Government Accounting After initial measurement, the capital asset is subject to existing requirements for depreciation, impairment, and disclosures. Improvements made to the facility during the arrangement would increase the government’s asset. Does NOT depreciate if arrangement requires operator to return facility to government in its original or enhanced condition.

Governmental Operator Reports an intangible asset for the right to access and use the property Measured by the amount of up-front payment or contributed asset Amortized over the life of the arrangement Improvements made to the facility by the government operator increases the government operators intangible asset if the improvements increase the capacity of efficiency of the facility. Reports a liability to restore facility to a specified condition if required by agreement and the facility is not in the expected condition.

Revenue Sharing Arrangements Government reports only its portion of revenues and expenses Recognized when earned in accordance with the terms of the arrangement Unconditional payments to transferor treated like installment payments discussed earlier Governmental operator reports all revenues earned and expenses incurred

Note Disclosures by Government and Government Operator A general description of the arrangement Including government’s objectives for entering into the arrangement If applicable, the status of the project during the construction period Nature and amounts of assets, liabilities, and deferred inflows of resources related to the SCA that are recognized in the financial statements Nature and extent of rights retained by the government or granted to the government operator

Note Disclosures [continued] If applicable, disclosures should be made about guarantees and commitments, including identification, duration, and significant contract terms of the guarantees or commitments. Disclosures for multiple SCAs may be provided individually or in the aggregate for those that involve similar facilities and risk.

GASB 60 SCA Flowchart.docx

Illustration 4: SCA for County Golf Course Facts and Assumptions:Madison County, through its County Park District (CPD), the transferor, enters into an arrangement with XYZ Golf, Inc. (XYZ), a nongovernmental operator, in which XYZ has agreed to operate and maintain one of the County's three golf courses, the County Golf Course, and collect the related fees for 10 years. The golf course and related equipment are reported as capital assets by the County in its Golf Course enterprise fund at a carrying amount of $500,000. XYZ has agreed to pay the CPD installment payments over the course of the arrangement; the present value of these installment payments is estimated to be $1.5 million. XYZ also has agreed to pay the CPD 10 percent of the revenues collected from the operation of the golf course. The arrangement meets all criteria in GASB 60 paragraph 4 to qualify as a service concession arrangement. The transferor has no contractual obligations to sacrifice financial resources that meet the criteria to be recognized as a liability in GASB 60 paragraph 10.

Accounting at the commencement of the arrangement The County would continue to recognize the golf course as a capital asset and recognize a receivable and a deferred inflow of resources for the present value of the installment payments, $1.5 million. The County would not record an estimated present value for the payments it will receive under the revenue sharing agreement because those amounts are contingent on the generation of revenues from the golf course and will be recognized as revenue by the County as they are earned in accordance with the agreement.

Illustrative Disclosures Note X: Service Concession Arrangement for County Golf Course At the end of the current year, Madison County, through its County Park District (CPD), entered into an agreement with XYZ Golf, Inc. (XYZ), under which XYZ will operate and collect user fees from the County Golf Course for the next 10 years. XYZ will pay CPD installment payments over the course of the arrangement; the present value of these installment payments is estimated to be $1.5 million. XYZ will also pay the CPD 10 percent of the revenues it earns from the operation of the golf course. XYZ is required to operate and maintain the golf course in accordance with the County Golf Course Concession Contract. The CPD plans to use the proceeds from the installment payments to fund future parks and recreation sports programs. The CPD reports the golf course and related equipment as a capital asset with a carrying amount of $500,000 at year-end and reports a receivable and deferred inflow of resources in the amount of $1.5 million at year-end pursuant to the service concession arrangement.

Accounting in future years The County would continue to apply existing capital asset guidance, including depreciation, if applicable, to the golf course and related equipment. If the County elects to use the straight-line method, it would recognize $150,000 (the present value of installment payments divided by 10 years) in revenue and reduce the deferred inflow of resources in the same amount each year of the arrangement. The County would recognize its 10 percent share of revenues from the operation of the golf course as these revenues are earned in accordance with the terms of the revenue sharing agreement. The County would continue to provide the disclosures required by paragraphs 16 and 17, as applicable.

Statement 14 Reexamination:GASB Statement 61
The Financial Reporting Entity: Omnibus

Background Original standard issued in June 1991 One of only 3 standards issued with 3-2 vote

Foundation of Reporting Entity:The Primary Government All States, Counties and Cities are primary governments (PGs) Other governmental entities may be PGs if It has a separately elected governing body; and It has separate legal standing; and It is fiscally independent

Component Unit Legally separate non-primary government, or nonprofit organization, or for-profit organization For which the primary government is financially accountable

Modification of GASB 14/39 Component Units Modifies fiscal dependency criteria to add that there must be financial benefit/burden between the potential component unit and the government Result – some component units may no longer be component units and vice versa Also modifies blending so that if an entity exists ostensibly to sell debt on behalf of a primary government will now be required to be blended Clarifies equity interests in joint ventures

“Financial accountability” determined by 1 of 2 methods in GASBS 14 An entity is “fiscally independent” if it does not need another government’s approval to: Establish its budget; or Levy taxes or set other rates and charges; or Issue bonded debt Fiscally dependent Appointment +

Appointment + Created in GASBS 14; has not changed in GASBS 61 Two parts: Appointment PG appoints (and/or has ex officio representation constituting) a voting majority of the CU’s governing body, or PG created and can abolish the CU + PG has ability to impose its will on the CU, or Benefit/burden relationship (now applied earlier in GASBS 61)

Ability to impose will Remove appointed governing board members at will without cause, or Approve or require modification of its budget, or Approve or require modification of its rate or fee charges, or Veto, override, or otherwise modify governing board decisions, or Appoint, hire, dismiss, or reassign members of its management, or Significantly influence the types and levels of services provided via other powers

Benefit / Burden Relationship Benefit: PG has the ability to access other organization’s financial resources (other than at dissolution) Burden PG is legally or otherwise obligated to finance the deficits of, or to provide financial assistance to, the other organization PG is “obligated in some manner” for the debt of other organization as determined in GASBS 6

Benefit / Burden Relationship Can exist even if potential CU has: Separately elected governing board; or Governing board appointed by a higher level of government; or Jointly appointed board Exception Exchange transactions between organizations and PG

Other factors that can cause an entity to become a CU For-profit organization of which the PG is the majority owner Organization must be included to keep reporting entity financial statements from being incomplete or misleading Any organization for which the PG has fiduciary responsibility [to be defined soon]

Misleading to Exclude The “misleading to exclude” notion retained in Statement 14 Clarifications: Determination should be based on the nature and significance of relationship with the PG – matter of professional judgment Disclosure on an accountability relationship by any stand-alone government when a voting majority of its governing board is appointed by a PG

Methods to report CUs Blending – looks like any other PG fund Discrete presentation – reported in separate column(s) in government-wide financial statements

GASBS 14: Requirements for blended presentation CU’s governing body and PG’s governing body are substantially the same CU provides services only for the PG itself (building authority) CU benefits exclusively the PG (administers PG employee healthcare plans) CU is included because PG has a fiduciary responsibility for it (pension plan)

New Blending Criteria Component units will be blended if the component unit’s governing body is substantively the same as the governing body of the primary government and either: a financial benefit/burden relationship exists with the primary government or management of the primary government has operational responsibility for the component unit. New criteria also would be added to require blending of component units whose total debt outstanding, including leases, is expected to be repaid entirely or almost entirely with resources of the primary government. Usually a pledge exists Result – end to “off balance sheet” financing

Reporting Discretely Presented CUs Found only on Government-Wide Financial Statements Statement of Net Assets Statement of Activities Four options for reporting Cus Columns on statement of net assets / activities Combining after fund statements Condensed financials in notes Nonmajors aggregated – combining is SI

Concept of Major CUs Major” Component Unit concept clarified Include as major based on nature & significance of relationship with PG – including: Services provided to citizens Significant transactions with primary government Significant benefit/burden Not based on percentage analysis used for major funds in GASBS 34

Reporting Equity Investments Reasons for investment Enhance ability to provide government services – entity reported as a CU Discretely presented – equity interest should be reported as an asset in the fund with the equity interest Blended – purchase is reported as an outflow in fund that provided resources for purchase Obtain income or profit – report CU as an investment

Other relationships Related organization – appointment criteria met but not the “plus” Jointly governed organization – has not met appointment requirement or “plus” requirements Joint venture – has not met appointment requirement and has either ongoing financial interest or ongoing financial responsibility

GASB 61 Reporting Entity Flowchart.docx

GASB Statement 62Pre-1989 Private Sector Standards

Statement No. 62 Approved by the Board in December 2010 Released December 30, 2010 Effective for periods beginning after December 15, 2011

Why the Implementation Delay? Why not make standard effective immediately – after all, aren’t you already doing this stuff? Maybe, but in case you find something you weren’t doing, now you have time to determine how to adjust – change in principle rather than correction of error

Implementing GASBS 62 Earlier application is encouraged Accounting changes adopted to conform to the provisions of this Statement should be applied retroactively by restating financial statements for all periods presented (unless not practical – then use cumulative effect in earliest period restated). In period first applied, disclose the nature of any restatement and its effect, including reason for not restating prior periods

Why Was GASB 62 Issued? FASB Standards applied by governments all the time Election in GASB-20, paragraph 6 used by BTAs Old FASB Standards (e.g. FASB 116) don’t exist anymore AICPA standards sometimes in conflict with GASB standards Clarity project of AICPA auditing standards removes direct references to GAAP (now financial reporting framework) Removes “urban legends” No new GAAP – but items “left on the table”

GASB 62: Which Bases of Accounting Apply What?

Items in GASB 62 Slatedfor Reexamination in the Future

GASB Statement 63
Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position

Origin of Statement Deferred Outflows and Deferred Inflows first mentioned in GASB Concepts Statement No. 4, Elements of Financial Statements Since included in: GASBS 53, Accounting and Financial Reporting for Derivative Instruments GASBS 60, Accounting and Financial Reporting for Service Concession Arrangements

Deferrals Defined Deferred Outflow – a consumption of net assets by the government that is applicable to a future reporting period. Deferred Inflow – an acquisition of net assets by the government that is applicable to a future reporting period.

Application of Deferrals So far, limited to derivatives and service concession arrangements GASB will tell us how to apply deferrals in future standard(s) For now, must be included in new Statement of Net Position

Statement of Net Position Assets + Deferred Outflows = Total Assets and Deferred Outflows Liabilities + Deferred Inflows = Total Liabilities and Deferred Inflows Net Position

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

For Proprietary Funds, Fiduciary Funds, and Government-Wide Statements Net approach is encouraged Balance Sheet approach is allowed

Microsoft Word - GASB 63 Appendix C Illustration.pdf

Appendix C Illustration Microsoft Word - GASB 63 Appendix C Illustration.pdf

For Governmental Funds Balance Sheet approach still appropriate Difference is still called Fund Balance and applies GASBS 54

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

Related Standard – Now an ED Reporting Items Previously Recognized as Assets and Liabilities Effective for FYE after 6/15/2013 (same time as GASBS 63

Changes being 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

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

Report as deferred outflows Deferred charge resulting from refunding of debt (debit balance) Loss on sale-leaseback

Treat as current outflow Debt issuance costs Acquisition costs Initial direct cost incurred by lessor for operating leases Fees related to purchased loans

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

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

Reclassify as deferred inflows Advance of revenue from imposed nonexchange transaction Advance from a grantor (if eligibility requirements except for time met) Deferred charge resulting from refunding of debt (credit balance) Proceeds from sale of future revenues

Reclassify as deferred inflows [continued] “Unavailable” revenue related to the application of modified accrual accounting Gain from sale-leaseback Loan origination fees (excluding points) for mortgage loans held for resale prior to sale

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)

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)

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

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

Other pending actions Criteria for determining major funds will include deferred items Use of the term “deferred” limited to deferred outflows and deferred inflows

Pensions – Relook
The Looming Giant

Impact in Tennessee

Objectives of this Amendment Improve accounting and financial reporting for SLGs that offer pensions to employees Improve information provided by SLGs about financial support for pensions Establish definition of a pension plan – trust fund that is used for the accumulation and management of assets dedicated for pensions and the payment of pensions to plan members as the benefits come due

Characteristics of aQualified Trust Employer contributions to the plan (including contributions made by other nonemployer entities) and earnings on those contributions are irrevocable Plan assets are dedicated to providing pensions to plan members in accordance with benefit terms Plan assets are legally protected from the creditors of the employer(s), nonemployer contributing entities, and plan administrator. If plan is defined benefit plan, assets are also protected from creditors of plan members

Accounting Standards Apply to governments whose employees are provided with defined benefit pensions through qualified trusts. Establish procedures for measuring and recognizing Obligations associated with pensions as liabilities Costs of pensions as expenses, deferred outflows, and deferred inflows Identify methods and assumptions used to Project pension payments Discount projected payments to PV Attribute PVs to periods of employee service

Notes & RSI Requirements Apply to defined benefit pensions administered through qualified trusts Distinctions made for employers based on Number of employers Whether pension assets and obligations are shared Additional guidance provided for defined contribution plans administered by a qualified trust Special funding situations

Classifications of Employers Single employer – plans in which pensions are provided to the employees of only one employer Agent employer – plans in which the plan assets are pooled for investment purposes but are legally segregated to the pensions of each employer’s employees Cost-sharing employers – plans in which the participating employers pool or share their obligations to provide pensions to their employees and plan assets can be used to pay pensions of any participating employer’s employees

Single or Agent Employer Liabilities:(GW Statements & Proprietary Funds) Required to use MF – economic resources BA – accrual Net Pension Liability = Total pension liability – Plan net position restricted for pensions Total pension liability = portion of PV of projected benefit payments attributable to employees’ past periods of service Actuarial valuations must be done at least every two years

Other Requirements Selection of assumptions must be made in conformity with Actuarial Standards of Practice Projections of benefit payments based on then-existing benefit terms and incorporate projected salary increases, service credits, proposed automatic COLAs, and other automatic benefit changes. Ad hoc COLAs and other ad hoc changes included if considered substantively automatic

Other Requirements [continued] Discount rate used for PV calculations Long-term expected rate of return on plan investments to the extent that plan net position is projected to be sufficient to pay pensions and the net position projected to remain after each benefit payment can be invested long-term Tax-exempt, high quality municipal bond index rate to the extent that the conditions in (1) are not met.

Other Requirements [continued] Attribution method – entry age normal as a level percentage of payroll. Actuarial PV attributed for each employee individually, from time employee first accrues pension benefits through period employee retires

Measurement of Pension Expense,Deferred Outflows, & Deferred Inflows Result from changes in total pension liability and pension plan’s net position Changes included in pension expense immediately Current-period service cost Interest on total pension liability Benefit changes

Measurement [continued]

Measurement [continued] Changes in plan net position resulting from projected earnings on the plan’s investments included in pension expense immediately Effect of differences between projected earnings and actual experience recognized as deferred outflow or deferred inflow and included in pension expense in a systematic and rational manner over a closed period of 5 years beginning with the current period All other changes recognized in period in which they occur

Governmental Fund Accounting & Reporting Net pension liability recognized to the extent the liability is normally expected to be liquidated with expendable available financial resources Pension expenditures would be recognized equal to the total amounts contributed to the pension plan and amounts normally expected to be liquidated with expendable available financial resources

Basic Three-StepMeasurement Approach 1) Project Benefit Payments 25 40 62 80 2) Discount Future Payments Present Value of Payments 3)Attribute to Service Periods 127

Single and Agent-Employer Notes Descriptive information – types of benefits provided and composition of the employees covered by the benefit terms For current year – changes in the net pension liability Significant assumptions used to calculate the total pension liability, including assumptions used in calculating the discount rate Individual components of the current-period pension expense

Notes [continued] Date of the underlying actuarial valuation, information about assumptions and benefit terms, basis for determining employer contributions to the plan, and information about the purchase of allocated insurance contracts, if any Explanations of changes in deferred outflows and deferred inflows during the current period

Single and Agent-Employer RSI Schedules reporting past 10 years Changes in net pension liability Components of new pension liability and related ratios that present: Total pension liability Amount of plan net position Net pension liability Plan net position as a percentage of total pension liability Amount of covered-employee payroll Net pension liability as a percentage of covered-employee payroll

RSI [continued] If employer contributions are actuarially determined, 10 year schedule showing: Actuarially calculated employer contribution Amount of employer contributions made Difference in 1 and 2 Amount of covered-employee payroll Employer contributions made as a percentage of covered-employee payroll

Notes to RSI Schedules If not disclosed elsewhere, identify significant methods and assumptions used in determining actuarially calculated contributions Explain factors that significantly affect the identification of the trends reported in the schedules: Changes in benefit provisions Size or composition of the population covered by the benefit terms Assumptions used

Cost-Sharing Employers – Reported in Financial Statements Net pension liability Deferred outflows and deferred inflows Pension expense based on proportionate share of the collective net pension liability of all employers in the plan Share of liability based on employer’s expected long-term contribution effort to the plan as a proportion of all expected employer-related contributions

Cost-Sharing Employers –Other Guidance Measurement of collective net pension liability, pension expense, and other key information follows same standards that apply to single and agent employers Effects of a change in employer’s expected proportion of total employer-related contributions and effects of differences between expected and actual share each period would be reported as a deferred outflow or deferred inflow and amortized over same closed period

Cost-Sharing Employers – Notes Descriptive information about pensions they provide Discount rate and other assumptions made in measurement of net pension liabilities Information about how actual contributions to the plan are determined

Cost-Sharing Employers – RSI 10 year schedules showing Changes in the collective net pension liability Information about the components of the collective net pension liability and related ratios Information about the components of net pension liability and related ratios for the individual employer If employers’ contributions are actuarially determined, collective employer contribution information and contribution information for the individual employer, all as of the employer’s year-end

Defined Contribution Plans Recognize pension expense equal to the amount of contributions or credits to employees’ accounts that are defined by the benefit terms attributable to the employees’ services in the period, net of forfeited amounts that are removed from the accounts Pension liability is difference between amounts recognized as expense and actual contributions made

Defined Contribution Plans [continued] In Governmental Funds Pension expenditure equal to total of amounts contributed and amounts expected to be liquidated with expendable available financial resources Pension liability is the liability expected to be liquidated with expendable available financial resources

Defined Contribution Plans – Notes Describe plan and benefit provisions Contributions rates and how they were determined Amounts attributed to employee service and forfeitures in the current period

Special Funding Situations Occur when nonemployer entity is required to contribute to the employer’s pension plan If contribution is conditional on events not related to pension, nonemployer reports contribution as on-behalf payment and employer recognizes it as revenue If contribution is unconditional, nonemployer recognizes proportionate share of employer’s net pension liability, deferred outflows, deferred inflows, and pension expense

FYE after 6/15/2013 If All Conditions Are Met [6/15/2014 for others] Employer is required to apply only the requirements of this Statement for single employers with defined benefit plan Employer does not have an unconditional special funding situation for any of its defined benefit pension plans provided through a plan administered through a qualified trust One or more of employer’s defined benefit pensions has a net position of $1 billion or more in the plan’s first fiscal year ended after 6/15/2010 None of the employer’s defined benefit pensions are provided through a qualified trust that also reports a single-employer plan in which the employer has an unconditional special funding situation OR an agent or a cost-sharing pension plan

Comprehensive Implementation Guide – Midyear Supplement
Dated December 2010 Released February 2011 Available only on the Web

What’s New Document is 63 pages long Questions added addressing Disclosures Related to Deposits, Investments, and Reverse Repurchase Agreements Accounting and Reporting for Certain Investments and External Investment Pools Derivative Instruments (most material) Intangible Assets Probably won’t be one in 2012

GASB Publications Due process documents on GASB web site Individual standards still published Annual issues: Codification Original pronouncements Comprehensive Implementation Guide

Just Over the Horizon Conceptual Framework – Recognition & Measurement Approaches Economic Condition Reporting: Fiscal Sustainability Financial Guarantees Government Combinations CIG – Annual and mid-year updates Deferred Inflows and Outflows User Guides – Update

Just Over the Horizon Conceptual Framework – Recognition & Measurement Approaches Economic Condition Reporting: Fiscal Sustainability Financial Guarantees Government Combinations CIG – Annual and mid-year updates Deferred Inflows and Outflows User Guides – Update And Coming up quickly

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

GASB Update: Implementation Issues and a Look to the Future