Georgia Department of Audits and Accounts

1. Georgia Department of Audits and Accounts G.A.I.N.S. Annual Meeting May 4, 2012 Presented by: Suzanne L. Hatfield, CPA, CGFM

2. OVERVIEW • GASB 54 Fund Balance Reporting and Governmental Fund Type Definitions • GASB 59 Financial Instruments Omnibus • GASB 60 Accounting and Financial Reporting for Service Concession Arrangements • GASB 61 The Financial Reporting Entity: Omnibus • GASB 62 Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements • GASB 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position • GASB 64 Derivative Instruments: Application of Hedge Accounting Termination Provisions

3. OVERVIEW • Collateralization Form • Net Assets, Invested in Capital Assets, net of Related Debt • Reconciling Balance Sheet to Statement of Net Assets • Timeliness • Manuscript Process • Data Submission

4. GASB 54 Fund Balance Reporting and Governmental Fund Type Definitions

5. 5 Classifications of Fund Balance • Nonspendable • Restricted • Committed • Assigned • Unassigned

6. Nonspendable Fund Balance • Includes amounts that cannot be spent because • Not in spendable form • Not expected to be converted to cash • Inventories • Prepaid amounts • Legally or contractually required to be maintained intact • Corpus of a permanent fund

7. Restricted Fund Balance • Use the same criteria required when reporting government-wide net assets • Constraints placed on the use of resources are either • Externally imposed by • Creditors (debt covenants) • Grantors • Contributors • Local Matching Funds • Laws or regulations of other governments • Imposed by law through constitutional provisions or enabling legislation • SPLOST receipts

8. Committed Fund Balance • Amounts that can only be used for specific purposes as a result of constraints imposed by formal action of the board • Formal action should occur no later than the close of the fiscal year • The actual amount may be determined in the subsequent period • Constraints on committed amounts can only be removed by formal action as well • Can also be created by contracts • Committed amounts cannot be used for any other purpose unless the board removes or changes the specified use by taking similar formal action • School Activity Accounts

9. Assigned Fund Balances • Amounts that are constrained by the government’s intent to be used for specific purposes, but are neither restricted nor committed • Exception – stabilization arrangements. Should be reported as Restricted or Committed. • Established by • The board • Finance committee or • An official delegated by the governing body to assign amounts

10. Unassigned Fund Balance • Residual classification for the general fund • The general fund balance that has not been restricted, committed, or assigned to specific purposes within the general fund

11. Differences between Committed and Assigned • An assignment of resources does not have to be made by the board’s highest level of decision-making authority • The actions needed to remove or modify an assignment are not as prescriptive • Resources may be assigned for specific purposes even after the LEA’s year end

12. Assigned Fund Balance • Assigned fund balances should always be reported for positive fund balances remaining afternonspendable, restricted, and committed amounts have been identified for reporting in • special revenue • capital projects • debt service • permanent funds • By reporting resources in any of these funds, the government has effectively assigned them to the purpose of that fund.

13. Assigned Fund Balance • There should be no unassigned fund balance in • Special revenue • Debt service • Capital projects • Permanent • Typically, general fund will include unassigned fund balance

14. Requirements for School Districts • O.C.G.A. § 20-2-167 • The total of the Committed + Assigned, + Unassigned fund balance – Committed for Capital Outlay will be used in the calculation of the 15% maximum allowable fund balance • The residual unobligated bus replacement funds will be accounted for as Restricted

15. GASB 59 Financial Statements Omnibus

16. Summary • Objective • Update and improve existing standards regarding financial reporting and disclosure requirements of certain financial instruments and external investment pools • Amends • GASB Statements 25, 31, 40 and 53

17. Summary • Provides for more complete information • Improving consistency of measurements • Interest-earning investment contracts that are reported in pension and OPEB plans • Providing clarifications of existing standards • Interest rate risk disclosures • Refining which financial instruments are within scope of GASB 53

18. GASB 60 Accounting and Financial Reporting for Service Concession Arrangements

19. Summary • Objective • Improve financial reporting by addressing issues related to service concession arrangements (SCAs) • Improve the consistency in reporting these arrangements • Enhancing comparability of accounting and financial reporting of such arrangements among state and local governments • Effective periods beginning after December 15, 2011 • Fiscal year 2013

20. Service Concession Arrangements • A type of public-private or public-public partnership • Public-private relationship is used to refer to a variety of • Service arrangements • Management arrangements • Service concession arrangements

21. Service Concession Arrangements • An arrangement in which allof the following criteria are met • A transferor 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 (users of the facility) • Transferor is entitled to significant residual interest in the service utility of the facility a the end of the arrangement • Transferor determines or has the ability to modify or approve • What services operator is required to provide • To whom services will be provided • Prices or rates that will be charged

22. GASB 61 The Financial Reporting Entity: Omnibus

23. Summary • Objective • Improve financial reporting for a governmental financial reporting entity • Effective periods beginning after June 15, 2012 • Fiscal year 2013

24. Overview • Increases 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

25. Inclusion Criteria • GASB 14 requires inclusion if PCU is fiscally dependent (PG has authority over) • Budget • Setting taxes or charges • Issuing debt • GASB 61 adds requirement for a financial benefit or burden before inclusion is required • Effect of this • PCU needing PG approval for its budget, levies or debt issuance is no longer a sufficient reason, on its own, to include it

26. Inclusion Criteria • GASB 14 requires inclusion of a PCU if exclusion would make PGs statements “misleading or incomplete” • GASB 61 eliminates “incomplete” and emphasizes determination would generally be based on the nature and significance of relationship with PG • Based on preparer professional judgment

27. Blending Requirements • GASB 14 requires blending if PG & CU have “substantively same” governing body • GASB 61 additionally requires either of the following relationships to qualify for blending • A financial benefit/burden relationship, or • PG has “operational responsibility” for CU • PGs personnel manage activities of CU like a fund, program, or department of PG

28. Blending Requirements • GASB 61 expands blending criteria to include CUs whose total debt outstanding is expected to be repaid entirely or almost entirely by resources of the PG • Even if the CU provides services to constituents or other governments, rather than exclusively or almost exclusively to the PG

29. GASB 62 Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements

30. Summary • Objective • Incorporate into GASBs authoritative literature certain accounting and financial reporting guidance that is includes in the following pronouncements issued on or before November 30, 1989, which does not conflict or contradict GASB pronouncements • FASB Statements and Interpretations • Accounting Principles Board Opinions • Accounting Research Bulletins of the AICPA Committee on Accounting Procedure • Effective periods beginning after December 15, 2011 • Fiscal year 2013

31. Guidance Incorporated • Capitalization of interest costs • Statement of net assets classification • Special and extraordinary items • Comparative financial statements • Related parties • Prior-period adjustments • Accounting changes and error corrections • Contingencies • Extinguishments of debt • Troubled debt restructuring

32. Guidance Incorporated • Inventory • Leases • Sales of real estate • Real estate projects • Research and development arrangements • Broadcasters • Cable television systems • Insurance enterprises • Lending activities • Mortgage banking activities • Regulated operations

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

34. Summary • Objective • Provides financial reporting guidance for deferred outflows of resources and deferred inflows of resources • Effective periods beginning after December 15, 2011 • Fiscal year 2013

35. Background • Concepts Statement 4 identifies five elements making up a financial position • Assets • Liabilities • Deferred outflows of resources • Deferred inflows of resources • Net position This from composition currently required by GASB 34 which requires • Assets • Liabilities • Net assets

36. Definitions • Deferred outflows of resources • A consumption of net assets by the entity that is applicable to a future reporting period • Positive effect on net position, similar to assets • Deferred inflows of resources • An acquisition of net assets by the entity that is applicable to a future reporting period • Negative impact on net position, similar to liabilities • Net position • The residual of all elements presented in a statement of financial position

37. Accounting Equation • Governmental activities – Statement of Net Position • Net position = assets + deferred outflows – liabilities – deferred inflows • Governmental funds – Balance Sheet • assets + deferred outflows = liabilities + deferred inflows + fund balance

38. GASB 64 Derivative Instruments: Application of Hedge Accounting Termination Provisions

39. Summary • Objective • Clarify whether an effective hedging relationship continues after the replacement of a swap counterparty or a swap counterparty’s credit support provider • Effective periods beginning after June 30, 2011 • Fiscal year 2012

40. Collateralization Inquiry

41. Required Disclosure • For the notes disclosure, GASB codification C20.107 indicates that the disclosure of custodial risk should be broken out into 3 categories: • Uncollateralized • Amount collateralized with securities held by the pledging financial institution • Amount collateralized with securities held by the pledging financial institution's trust depart or agent, but not in the School District's name • Note: Categories 2 and 3 are both NOT in the School District’s name.

42. Confirmation • Additional categories • 4a. Amount collateralized with securities held by the pledging financial institution or by its trust department or agent, IN the School District's name • 4b. Amount covered by depository insurance • In accordance with GASB, Categories 4a and 4b are not reported in the Notes to the Financial Statements • Categories 2 and 3 are confusing because the phrasing is exactly like the standard • HOWEVER, both categories are for securities not held in the school district's name

43. Category for Pooled Pledges • GASB Comprehensive Implementation Guide 2011-2012 1.37.3 states: • “Multiple financial institution collateral pool… Statutes authorizing these pools specify the amount of collateral that is required to be pledged by each financial institution – usually a percentage of the uninsured public deposits it holds…. As a result, a multiple financial institution collateral pool that provides for additional assessments is similar to deposit insurance and does not require the disclosure of custodial credit risk.” • The category depends on if your entity is specifically listed as a member of the pledging pool

44. Notes Disclosure • Collateralization information is needed for the disclosure • Worksheet for collateralization is included in the Audit Packet found on our website. • To prepare your deposit and investment note, you should obtain this information from the bank • We will verify the validity of the information included in the Notes

45. Capital Assets, Net of Related Debt

46. Calculation Capital Assets, net of Accumulated Depreciation - Total Long Term Debt including any Bond Premium or Discount + Long Term Debt not used to acquire Capital Assets Compensated Absences + Amount of Bond Proceeds not expended If the debt has not been expended, it is not yet related to the Capital Assets + Amount of Debt expended for items that were not capitalized If items were not capitalized that were acquired with debt, the related debt should not be included in the calculation NOTE: Bond Issuance Costs that are Amortized over the life of the debt is added to Unrestricted Net Assets and is not included in this calculation

47. GASB Implementation Guide 2011-2012 • Section 7.23.3 • Question – Which component(s) of net assets do unamortized debt issue costs, premiums and discounts, and deferred amounts from refundings affect – invested in capital assets, net of related debt; restricted net assets; or unrestricted?

48. GASB Implementation Guide 2011-2012 • Answer – Because premiums, discounts, and deferred amounts from refundings affect the carrying value of the debt in the statement of net assets, they “follow the debt” in calculating net asset components for the statement of net assets. That is, if debt is capital related, those amounts would be included in the calculation of invested in capital assets, net of related debt. If the debt is restricted for a specific purpose and the proceeds are unspent, the net proceeds would affect restricted net assets. Reporting both within the same element of net assets prevents one classification from being overstated while another is understated by the same amount. If the debt proceeds are not restricted for capital or other purposes, the unamortized premiums, discounts, and deferred amounts from refundings would be included in the calculation of unrestricted net assets.

49. GASB Implementation Guide 2011-2012 • Unamortized debt issue costs should be included in unrestricted net assets because those outlays do not acquire, construct, or improve capital assets. If the issuance costs were paid from bond proceeds, the portion of outstanding debt attributable to those issuance costs also should be included in unrestricted net assets.

50. Reconciling Balance Sheet to Statement of Net Assets