GASB Update: Prepare Now to Implement Successfully

Transcription

1 GASB Update: Prepare Now to Implement Successfully January 13, 2017 The webinar will begin at 12:30 pm CT. Tara Laughlin, CPA, CGFM Senior Manager, Assurance Services

2 Administration If you need CPE credit, please participate in all polls throughout the presentation.

3 Administration A recording of today s webinar will be ed for your reference or to share with others.

4 Administration For best quality, call in by phone instead of using your computer speakers.

5 Administration To ask questions during the presentation, use the questions box on the right side of your screen.

6 Administration Please provide your feedback at the end of today s presentation.

7 Our Presenter Tara J. Laughlin, CPA, CGFM 7 years experience, specializing in providing auditing and consulting services to a variety of governmental and not-for-profit entities Member of the: American Institute of Certified Public Accountants Government Finance Officers Association

8 Learning Objectives Understand key changes impacting accounting and financial reporting Learn what you can do now to prepare Determine how your entity could be affected in the future

9 New GASBs

10 Standard Effective Dates Effective Date (periods beginning after) YE Starting 72 Fair Value Measurement Pensions not within scope of GASB (assets) (ER) Financial Reporting for OPEB Plans Accounting & Financial Reporting for OPEB (employer) Tax Abatement Disclosures Certain Multiple-Employer Defined Benefit Pension Plans 79 Certain External Investment Pools and Pool Participants 80 Blending Requirements for Certain Component Units Irrevocable Split-Interest Agreements Pension Issues Certain Asset Retirement Obligations

11 Polling Question #1

12 72 Fair Value Measurement Defines what is measured at Fair Value: Investments Exceptions to Fair Value Certain liabilities Provides disclosure requirements retroactive application is required (if doing comparative statements)

13 72 Fair Value Measurement Discusses valuation techniques; requires that observable inputs be maximized where possible Creates a hierarchy of inputs: Level 1 inputs: highest quality Level 2 inputs Level 3 inputs: lowest quality (unobservable inputs)

14 72 Fair Value Measurement Level 1 Directly observable inputs Quoted prices in active markets for identical assets or liabilities Level 2 Inputs observable for the asset or liability either directly or indirectly Quoted price for similar assets or liabilities in active markets Quoted prices for identical or similar assets or liabilities in markets that are not active Other observable inputs (yield curves, credit spreads) Market-corroborated inputs (by observable data, correlation, or other means)

15 Investments Requiring Fair Value Measurement Alternative investments reported by endowments Equity securities (including unit investment trusts and closed-end mutual funds), stock warrants and stock rights that do not have readily determinable fair values Intangible assets meeting the proposed definition of investments Land and land rights, including oil and gas properties, classified as investments Commingled investment pools that are not government sponsored Invested securities lending collateral Real estate meeting the definition of an investment asset Life settlement contracts (when there is no insurable interest, the purpose of the instrument is solely to generate cash) Debt securities reported as assets (regardless of whether they meet the definition of an investment or they were acquired or originated by the government) Securitized debt obligations

16 Exceptions to Fair Value Money markets and participating interest-earning investment contracts that have remaining maturities at time of purchase of 1 year or less: measure at amortized cost (does not apply if held by an external investment pool) Investments held by 2a7-like external investment pools: measure at amortized cost (see also GASB 79) Investments in 2a7-like external investment pools: measure at net asset value (NAV) per share as determined by the pool. (see also GASB 79) Unallocated insurance contracts: report like interest-earning investment contracts (fair value if participating, and cost if non-participating ) Synthetic guaranteed investment contracts that are fully benefit-responsive: measure at contract value Investment in life insurance contracts: measure at cash surrender value Certain equity interests in common stock: measure using equity method Measured at Acquisition Value: donated capital assets, donated works of art or historical treasures

17 Use of NAV for Fair Value Net Asset Value = NAV Permitted to establish the fair value using NAV per share if an entity does not have a readily determinable fair value Example: member units or an ownership interest in partners capital NAV generally calculated according to FASB principles for investment companies

18 Disclosures For each class or type of assets and/or liabilities measured at fair value, disclose: The fair value measurement at the end of the reporting period The level of the fair value hierarchy (Level 1, 2, or 3) o Not applicable to investments that calculate NAV or its equivalent A description of the valuation technique(s) o Including any change in a technique and reason for the change (if result is significantly impacted) For nonrecurring fair value measurements, the reasons for the measurement

19 Disclosures: NAV Fair value measurement of the investment type and description of the significant investment strategies of the investee For investments that can never be redeemed with the investees, the government s estimate of the liquidation period Amount of unfunded commitments General description of the redemption terms and conditions Redemption restrictions, an estimate of length of restriction period or how long restriction has been in place Any other significant selling restrictions Information regarding planned sales of investments

20 72 How to Prepare Determine investments held (what meets definition of investment?). Determine where to obtain Level information. If using a pricing service, what valuation techniques do they use? If using a financial institution or safekeeping agent, what is their process / source of info? If have investments at NAV, how to obtain disclosure info?

21 Polling Question #2

22 73 Pensions not under GASB 68 Applies to non-trusted pensions Extends concepts from GASB 68 to all pensions Recognize liability for the Total Pension Liability (instead of Net Pension Liability) Assets accumulated for pension purposes should continue to be reported as assets of the employer.

23 74 / 75 OPEB Reporting 74 Applies to the Plans, both those with assets held in trust, and those not administered through a trust 75 Applies to the Employer Similar requirements to GASB 67/68 Difference: fewer entities have plans with assets held in trust Annual measurements now required

24 74/75 OPEB Reporting Differences from GASB 67/68: Since few entities have a plan or assets held in trust, the governance / organization structure for most OPEB plans is different than for pensions the employer has greater responsibility for determination of liability / setting assumptions. If there is no trust, the employer will record the total OPEB liability, not a net OPEB liability.

25 74/75 How to Prepare Evaluate actuary being used. Work with actuary on impact of changes in assumptions that GASB 74/75 requires to be used. Scrutinize in more detail the assumptions used / data provided to the actuary.

26 77 Tax Abatement Disclosures Tax abatement: Reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which: a) one or more gov ts promise to forgo tax revenues to which they are otherwise entitled, and b) the individual or entity promises to take a specific action that contributes to economic development or otherwise benefits the governments or citizens

27 77 Tax Abatement Disclosures Tax abatements may result from one government imposing a tax abatement on another government. Tax abatement agreements may have non-disclosure provisions.

28 77 Tax Abatement Disclosures Disclosures: Distinguish between yours and those entered into by other gov ts that impact you. May present individual abatements, or aggregated If individual: only those that meet / exceed a quantitative threshold selected by the gov t Organize by major tax abatement program. Disclose period of abatement, and continue disclosure until abatement period ends.

29 77 Tax Abatement Disclosures Disclosures: Name / purpose of abatement program Specific tax being abated Criteria for eligibility Mechanism of reducing tax, provisions for recapturing abated tax Gross dollar amount that reduced tax revenue during the reporting period Other commitments made other than to reduce taxes If legal prohibition on disclosure, then disclose the general nature of tax abatement info omitted and source of legal prohibition.

30 77 How to Prepare Analyze economic development programs/ tax abatement programs for those that fall under 77. Records may not be readily available. Coordinate with other governments who may have abated taxes, to gather info. Develop process to quantify / track annual gross dollar amount of tax reduction.

31 Polling Question #3

32 78 Certain Multiple-Employer Pension Plans Applies to pension plans that: 1) Are not a state / local government pension plan 2) Are used to provide defined benefits to employees of the gov t and to employees of employers that are not state / local gov ts, and 3) Have no predominant state / local gov t employer

33 79 Certain External Investment Pools GASB 31 and 72 included provisions that applied to 2a7-like external investment pools if met, investments could be measured at amortized cost. Requirements to be a 2a7-like pool may be modified by SEC over time; GASB 79 replaces reference to 2a7-like pools with a set of criteria, that if met, would allow for continued use of amortized cost to measure their investments. Amortized cost could also be used by participants in the pool (otherwise at fair value).

34 79 How to Prepare If your government participates in an external investment pool: Contact the investment pool to obtain info on whether the criteria are met. Obtain the pool s audited financial statements to obtain their explanation for how they value investments.

35 80 Blending Requirements for Certain Component Units Amends blending requirements in paragraph 53 of GASB Statement No. 14 Adds a criterion that requires blending of a component unit incorporated as a notfor-profit corporation in which the primary government is the sole corporate member as identified in the component unit s articles of incorporation or bylaws

36 81 Irrevocable Split-Interest Agreements Recognition / measurement guidance for situations where a government is a beneficiary of a split-interest agreement May involve various agreements: charitable lead trusts, charitable remainder trusts, life interests in real estate, etc. Gov t should recognize assets, liabilities and deferred inflows at inception of agreement. Accounting differs if the gov t holds the assets vs. if they are held by a third party.

37 GASB 82 Pension Issues Addresses three issues that have come out of implementation of GASB 67/68: 1) RSI schedules present covered payroll definition amended to be the payroll on which contributions to a pension plan are based.

38 GASB 82 Pension Issues 2) When selecting assumptions, a deviation from the Actuarial Standards of Practice is not considered to be in conformity with GASB 67 / 68. 3) Payments made by an employer to satisfy contribution requirements of plan members should be classified as member / employee contributions ( employer pick-ups ). Also requires that the employer s expense for such amounts be recognized in period for which the contribution is assessed

39 GASB 83 Certain Asset Retirement Obligations Asset Retirement Obligations: Applies to obligations other than landfills Addresses costs that are an unavoidable part of the cost of retiring a capital asset Recognize liability when the liability is incurred and reasonably estimable Incurred when external / internal obligating events arise

40 Exposure Drafts Standard Certain Debt Extinguishments Comment Deadline Projected Issuance Date Proposed Effective Date May Fiduciary Activities December 2016 Leases December

41 Exposure Drafts Certain Debt Extinguishments: Pertains to extinguishments using existing resources Would be treated similar to an Advance Refunding, if existing resources placed in a trust to extinguish debt (deferred refunding gain / loss would be recognized)

42 Exposure Drafts Fiduciary activities: Establish criteria for identifying and reporting fiduciary activities Focus is on whether a gov t controls the assets of a fiduciary activity and the beneficiaries with whom a fiduciary relationship exists Replaces agency funds with custodial funds (not held in a trust and meets specified criteria) Statement of Changes in Fiduciary Net Position would report additions / deductions for each fiduciary fund

43 Exposure Drafts Leases: Lessee would recognize a lease liability and a lease asset at the beginning of the lease, measured at present value of payments expected to be made over lease term. o Liability would be reduced as payments are o made. Asset would be amortized over the lease term / useful life of underlying asset. Lessor would recognize a lease receivable and deferred inflow of resources at beginning of lease; would NOT de-recognize the asset underlying the lease. Exception for certain short-term leases (12 mo. or less)

44 Polling Question #4

45 On the Horizon Financial Reporting Model project (reexamination of GASB 34) Revenue & Expense Recognition project

46 Resources All GASB statements and Exposure Drafts are available on their website for free. All comments letters submitted on Exposure Drafts are available. Summaries are provided from the latest deliberations / meetings. Technical inquiries can be submitted to GASB.

47 Resources Implementation Guides issued for specific Statements: 67, 68, coming soon for 74/75 The Comprehensive Implementation Guide is updated regularly 2016 issued in March New questions on fair value, tax abatement disclosures

48 Thank you! Tara Laughlin, CPA, CFGM Senior Manager, Assurance Services Check out our other webinars! AGHUniversity.com Questions NOT related to today s content? mike.ditch@aghlc.com