Governmental Accounting and Reporting Update

1. Governmental Accounting and Reporting Update GFOA Spring Conference May 3, 2010

2. Agenda • Federal perspective • Environment • Implementation stories • What is happening now? • What is waiting? • Future considerations

3. Remaining GASB 34/35 Issues / Inconsistencies

4. GASB 34 / 35 Issues • MD&A requirements for BTAs, clarification of exceptions to general requirements • Grants and contracts, exchange and exchange-like • Federal financial aid, Pell grants, direct lending • Library books • Split-interest agreements • Perkins Loan

5. Other Issues • Fund raising function used? • Other functions / programs • Matrix presentation for functional and natural expenses

6. Federal Perspective

7. Federal Perspective • IPEDS Technical Review Panel focused on - • Consistency of reporting (GASB/FASB) • Need for more useful information • IPEDS changes – Part C Expenses • Optional for FY June 30, 2009, allows for similar allocation of FASB institutions - • Operations and Maintenance of Plant • Depreciation • Interest Expense

8. Part C-Expenses and Other Deductions (non Aligned)

9. Part C- Expenses and Other Deductions (Aligned)

11. NACUBO AR 2010-1 Issued February, 2010 Offers guidance for public institutions For IPEDS Reporting only

12. NACUBO AR 2010-1 Select categories of cost Review methodologies of cost Explore availability of date Consider mission, objectives and practices of your institution

13. NACUBO AR 2010-1 The NACUBO APC and NACUBO survey support the use of the following common allocation methodologies - • Direct assignment based on functional category of space • Assignable square footage • Salaries and wages, or salaries and wages plus benefits • Total expenses by function • Combination of the above

14. Governmental Reporting Environment • Codification of FASB, AICPA, Pre GASB authoritative • GASB • Concepts • Focus on Accountability • Service Efforts and Accomplishments • FAF confirmed jurisdictional authority to include in financial accounting and reporting standards • International Financial Reporting Standards

15. Watch Out ! • New changes – OPEB, Pollution Remediation Derivatives • Impact on legal restrictions • Bonds covenants • Labor / collective bargaining negotiations

16. FY 2009 Implementation Stories Statement 45 – Accounting and Reporting by Employers for Other Post Employment Benefits Statement 49 – Accounting and Financial Reporting for Pollution Remediation Obligations Statement 52 - Land and Other Real Estate Held as Investments 2009 GASB Implementation Guide – Pell Grants

17. What is Happening Now? Effective FY 2010 – • Statement 51 – Accounting and Financial Reporting for Intangible Assets • Statement 53 – Accounting and Financial Reporting for Derivative Instruments • Statement 55 – Hierarchy of GAAP for State and Local Governments • Statement 56 – Codification of Accounting and Financial Reporting Guidance Contained in the AICPA SAS

18. What is Happening Now? • Statement 58 – Accounting and reporting for Chapter 9 Bankruptcies • Concepts Statement 4 – Elements of Financial Statements • Concepts Statement 5 – Service Efforts and Accomplishments • 2009 GASB Implementation Guide

19. Statement 51Accounting for Intangible Assets Effective for periods beginning after June 15, 2009 (FY 2010)

20. Intangible Assets Easements Water rights Timber rights Patents Trademarks Computer software

21. Recognition Must be identifiable Specified conditions approach for internally generated assets (computer software)

22. Amortization Required over useful life Limited by legal or contractual provisions May have indefinite life if no limits

23. Implementation Retroactively GASB 34 - Phase 1 or 2 Assets acquired after June 30, 1980 Except indefinite useful life Except internally generated assets GASB 34 – Phase 3 Retroactive application encouraged not required

24. Statement 53Accounting and Financial Reporting for Derivatives Effective for periods beginning after June 15, 2009 (FY 2010)

25. Derivatives Fair Value Derivative instruments are measured on the statement of net assets at fair value Fair value changes are reported on the “changes statement” as investment income Hedges are an exception - Changes in fair value are reported on the statement of net assets as a deferral, charges or credits

26. Derivatives ? Interest rate swap Variable rate to fixed rate Fixed rate to variable rate Basis swap Exchange payments based on changes of two variable rates Swaption Gives the purchaser of the option the right but not the obligation to enter into interest rate swap Commodity swap Reduce exposure to a commodity call risk

27. What is Not a Derivative Normal purchase or sale contracts Loan commitments Financial Guarantees Contracts not exchanged – traded (earthquake or weather derivatives) Investments (endowments) where underlying asset is a derivative

28. Hedge and Hedge Accounting Requirements Association – instrument is associated with a hedgeable item Substantial offsets – instrument is effective in providing changes in cash flows or fair values that substantially offset the cash flow or fair value of a hedgeable item If the requirements are met, hedge accounting must be applied. Accounting is not dependent on documentation

29. Hedge Accounting Effectiveness must be evaluated Qualitative method Quantitative method When a method becomes ineffective in a later period, another method may be used

30. Disclosure Requirements Significant terms Risks – credit, interest rate, basis, termination, rollover, market access, foreign currency If another evaluation method is used , details must be provided Investment derivative requires credit, interest rate, foreign currency risks Contingencies Hedged debt Synthetic guaranteed investment contracts

31. Statement 55Hierarchy of Generally Accepted Accounting Principles for State and Local Governments Effective immediately Moves the definitions from AICPA Audit Guide

32. Statement 56Codification of Accounting and Reporting Guidance Contained in the AICPA Statements of Auditing Standards Effective immediately Moves the definitions from AICPA Statement of Auditing Standards

33. Statement 59 Accounting and Financial Reporting for Chapter 9 Bankruptcies Effective immediately Addresses bankrupt governmental units under chapter 9

34. Concepts Statement 4 Elements of Financial Statements

35. Concepts Statement -Elements of Financial Statement • Resource – An item of present service capacity • Assets – Resources the entity presently controls • Liabilities – Present obligations to sacrifice resources or future resources that the entity has little or no discretion to avoid • Deferred outflow of resources – A consumption of net resources by the entity that is applicable to a future reporting period

36. Concepts Statement -Elements of Financial Statement • Deferred inflow of resources – An acquisition of net resources by the entity that is applicable to a future reporting period • Net Position – The residual of all other elements presented in the statement of financial position

37. Concepts Statement -Elements of Financial Statement • Outflow of resources – A consumption of net resources by the entity that is applicable to the reporting period • Inflow of resources – An acquisition of net resources by the entity that is applicable to the reporting period • Before an item can be reported in a financial statement it must meet appropriate recognition and measurement criteria. A separate project will define these criteria.

38. Concepts Statement 5 Service Efforts and Accomplishments Reporting

39. Concepts Statement -SEA Reporting Amended Concept Statement 2 • Clarifies scope limitation “beyond the scope of the GASB” to exclude – • Goals and objectives of governmental services • Specific nonfinancial measures or indicators of service performance • Standards or benchmarks of service performance • Focuses on types of SEA performance measures – • Measures of service efforts • Measures of service accomplishments • Measures that relate service efforts to service accomplishments

40. What is Waiting? • Effective FY12 - • GASB 54 - Fund Balance Reporting and Governmental Fund Type definitions • GASB 57 – OPEB Measurements by Agent Employers and Agent Multiple –Employer Plans • Exposure Draft - Reexamination of GASB 14 • Issued March, 2010 • May be effective in FY 13

41. International Financial Reporting Standards IFRS

42. Future Considerations • Exchange – like revenues • Fiduciary responsibilities • In-kind contributions • Irrevocable charitable trusts • Reporting unit presentation and GASB 14 • Financial performance measures

43. Reexamination Projects • Compensated absences • Debt refundings • Deferred compensation plans

44. NACUBO Issues FASB component units disclosures in a GASB based financial report GASB 14 Revisited Alternative SRECNA Pell and Direct Lending

45. Questions? ctegen@clemson.edu