GASB Update. Florida Court Clerks & Comptrollers 2018 Winter Conference. February 28, Christopher M. Davis, CPA, MBA, CFST

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1 GASB Update Florida Court Clerks & Comptrollers 2018 Winter Conference February 28, 2018 Christopher M. Davis, CPA, MBA, CFST 2018 Crowe Horwath LLP 2018 Crowe Horwath LLP

2 Course Objectives At the end of this course, you should be able to: Identify newly issued GASB Statements Describe each Statement, the change from current guidance and disclosure requirements Identify effective implementation dates 2018 Crowe Horwath LLP 2

3 Course Agenda Afternoon Session (3:20pm-5:00pm) GASB 74 GASB 75 GASB 78 GASB 82 GASB 77 GASB 80 GASB 81 GASB 83 GASB 84 GASB 85 GASB 86 GASB 87 On the Horizon Issues 2018 Crowe Horwath LLP 3

4 GASB 74 Objective and Effective Dates Improve usefulness of information about postemployment benefits included in the general purpose external financial reports of state and local governmental OPEB plans. GASB 74 OPEB Plan Accounting Effective for fiscal years beginning after June 15, 2016 Would be 6/30/17, 9/30/2017, 12/31/17, 4/30/18 depending on fiscal year end 2018 Crowe Horwath LLP 4

5 GASB 74 Types of Benefits and Plans Types of Benefits Types of Plans Defined benefit plans Defined contribution plans 2018 Crowe Horwath LLP 5

6 GASB 74 Scope and Specific Criteria State and local government OPEB plans administered through a trust or equivalent arrangement: Contributions from ER and non-er contributing entities to the OPEB plan and earnings are irrevocable OPEB plan assets are dedicated to providing OPEB to plan members in accordance with benefit terms OPEB plan assets are legally protected from creditors of the ER and non-er contributing entities and OPEB administrators. For a DB OPEB plan, plan assets are also legally protected from creditors of plan members. State and local government plans NOT administered through a trust that meets the specified criteria 2018 Crowe Horwath LLP 6

7 GASB 74 Reporting: Financial Statements Defined Benefit Plan administered through a trust Basic Statements Statement of Changes in Fiduciary Net Position Statement of Fiduciary Net Position 2018 Crowe Horwath LLP 7

8 GASB 74 Reporting: Footnotes Note disclosures Single, Cost Sharing and Agency Descriptive information of plan OPEB plan investments Receivables Allocated insurance contracts excluded from plan assets 2018 Crowe Horwath LLP 8

9 GASB 74 Reporting: Footnotes Note disclosures Specific to Single Employer and Cost Sharing Components of the liability of the employers and nonemployer contributing entities to plan members for benefits (net OPEB liability) Significant assumptions used to measure total OPEB liability Date of actuarial valuation on which the total OPEB liability is based and, if applicable, the fact that update procedures were used to roll forward the liability 2018 Crowe Horwath LLP 9

10 GASB 74 Reporting: Required Supplementary Information Single Employer and Cost Sharing 10-year schedules Changes in net OPEB liability by source Percentage information Actuarially determined contribution (ADC) If no ADC, but statutory or contractual contribution requirements, schedule similar to ADC schedule Annual money-weighted rate of return on OPEB plan investments Notes to RSI with methods and assumptions for ADC and significant changes 2018 Crowe Horwath LLP 10

11 GASB 74 Reporting: Required Supplementary Information Agent 10-year schedules Annual money-weighted rate of return on OPEB plan investments Notes to RSI with significant changes 2018 Crowe Horwath LLP 11

12 GASB 74 Net OPEB Liability: Measurement Total OPEB Liability OPEB Plan s Fiduciary Net Position Net OPEB Liability 2018 Crowe Horwath LLP 12

13 GASB 74 Net OPEB Liability: Measurement Three broad steps Project benefit payments Discount projected benefit payments to actuarial present value Attribute actuarial present value to periods Methods and assumptions Generally, assumptions in conformity with Actuarial Standards of Practice 2018 Crowe Horwath LLP 13

14 GASB 74 Net OPEB Liability: Measurement The total OPEB liability should be determined by: An actuarial valuation as of the OPEB plan s most recent fiscal year-end, or Use of update procedures to roll forward to the OPEB plan s most recent fiscal year-end amounts from an actuarial valuation as of a date no more than 24 months earlier than the plan s most recent fiscal year-end Changes in net OPEB liability will be immediately recognized as OPEB expense or reported as deferred outflows/inflows of resources depending on nature of change Approach results in reporting of OPEB liability and expense as employees earn their OPEB benefits by providing services instead of being based on funding requirements 2018 Crowe Horwath LLP 14

15 GASB 74 Reporting: Financial Statements Defined Benefit Plan NOT administered through a trust State and local government plans NOT administered through a trust that meets the specified criteria Assets accumulated for providing OPEB are required to be reported as assets of the employer or nonemployer contributing entity. Those assets held in a fiduciary capacity are required to be reported in an agency fund Crowe Horwath LLP 15

16 GASB 74 Reporting: Footnotes Defined Contribution Plan Plans administered through trusts that meet the specified criteria are required to disclose: Classes of members covered, number of members and participating employers Number of members, participating employers, and nonemployer contributing entities Authority of establishment and amendment to the plan 2018 Crowe Horwath LLP 16

17 GASB 75 Objective and Effective Dates Improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions GASB 75 Employer Accounting and Reporting for OPEB Effective for fiscal years beginning after June 15, 2017 Would be 6/30/2018, 9/30/2018, 12/31/18, 4/30/19 depending on fiscal year end 2018 Crowe Horwath LLP 17

18 GASB 75 Applicability Defined Benefit Plans: Employers participating in single-employer or agent multiple-employer plans will recognize 100 percent of the net OPEB liability for each plan Employers participating in cost-sharing, multiple-employer plans will recognize their proportionate share of the net OPEB liability for the plan as a whole Defined Contribution Plans: Employers required to recognize OPEB expense for amounts of contributions or credits to employees accounts, net of forfeited amounts that are removed from the employees' accounts 2018 Crowe Horwath LLP 18

19 GASB 75 Reporting: Financial Statements Basic Statements Net OPEB liability recorded on Balance Sheet OPEB Expense calculated differently 2018 Crowe Horwath LLP 19

20 GASB 75 Reporting: Financial Statements 2018 Crowe Horwath LLP 20

21 GASB 75 Reporting: Footnotes Note disclosures employers Descriptive information Significant assumptions/other inputs in total OPEB liability 2018 Crowe Horwath LLP 21

22 GASB 75 Reporting: Footnotes Single/agent employer only Number of employees covered inactive receiving benefits, inactive not receiving benefits, active Schedule of changes in net OPEB liability by source for current period Service cost, interest, benefit changes, contributions by source, plan investment income, etc Crowe Horwath LLP 22

23 GASB 75 Reporting: Footnotes Changes in net OPEB liability by source - Example 2018 Crowe Horwath LLP 23

24 GASB 75 Reporting: Footnotes Cost-sharing employer only Employer s proportion, basis for proportion, change in proportion Employer s proportionate share (amount) of collective net OPEB liability If special funding situation: Non-employer contributing entity s proportionate share Total of employer s and non-employer entity s proportionate shares 2018 Crowe Horwath LLP 24

25 GASB 75 Reporting: Footnotes Proportionate share note - Example 2018 Crowe Horwath LLP 25

26 GASB 75 Reporting: RSI Single/Agent Employers 10-year schedules Changes in net OPEB liability by source Total OPEB liability, OPEB plan fiduciary net position, net OPEB liability, plan net position as % of total OPEB liability, covered-employee payroll, net OPEB liability as % of covered-employee payroll May be presented with changes in net OPEB liability by source 2018 Crowe Horwath LLP 26

27 GASB 75 Reporting: RSI Single/Agent Employers 10-year schedules If actuarially determined employer contribution (ADEC) ADEC, contributions in relation to the ADEC, difference, covered-employee payroll, contributions as % of covered-employee payroll If no ADEC, but statutory or contractual contribution requirements, schedule similar to ADEC schedule Notes to RSI with methods and assumptions for ADEC and significant changes 2018 Crowe Horwath LLP 27

28 GASB 75 Reporting: RSI Changes in net OPEB liability - EXAMPLE 2018 Crowe Horwath LLP 28

29 GASB 75 Reporting: RSI Changes in net OPEB liability - EXAMPLE 2018 Crowe Horwath LLP 29

30 GASB 75 Reporting: RSI Cost-sharing employers 10-year schedules Employer s proportion (%), proportionate share (amount) of collective net OPEB liability, coveredemployee payroll, proportionate share as % of covered-employee payroll, OPEB plan s net position as % of total OPEB liability If special funding situation, also include: (1) non-employer contributing entity s proportionate share and (2) total of employer s and non-employer entity s proportionate shares 2018 Crowe Horwath LLP 30

31 GASB 75 Reporting: RSI Cost-sharing employers 10-year schedules If statutory or contractual contribution requirements Required contribution, contributions in relation to required, difference, covered-employee payroll, contributions as % of covered-employee payroll Notes to RSI with significant changes 2018 Crowe Horwath LLP 31

32 GASB 75 Reporting: RSI Schedule of Required Contributions - EXAMPLE 2018 Crowe Horwath LLP 32

33 GASB 75 Reporting: RSI Schedule of the Proportionate Share of OPEB Liability - EXAMPLE 2018 Crowe Horwath LLP 33

34 GASB 75 Journal Entries 2018 Crowe Horwath LLP 34

35 GASB 75 Journal Entries 2018 Crowe Horwath LLP 35

36 GASB 75 Journal Entries 2018 Crowe Horwath LLP 36

37 GASB 74 and 75 What should you do now? Trust or no Trust Census data information Determine measurement and valuation dates Actuary turnaround time Review assumptions used Discount rate Healthcare trend rate Recent experience study? Draft disclosure and RSI Follow-up from GASB 74 implementation discussions 2018 Crowe Horwath LLP 37

38 GASB 78 Pensions Provided through Certain Multiple- Employer Defined Benefit Pension Plans Effective for periods beginning after December 15, 2015 (12/31/16, 4/30/17, 6/30/17, 9/30/17) Amends scope and applicability of Statement 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan: Not a state or local governmental pension plan Used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers Has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan 2018 Crowe Horwath LLP 38

39 GASB 78 Pensions Provided through Certain Multiple- Employer Defined Benefit Pension Plans Establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described on the previous slide. Scope and Applicability Differs from GASB 68 as the government may not be able to obtain information from the plan Arrangement prevents coordination with the pension plan 2018 Crowe Horwath LLP 39

40 GASB 78 Pensions Provided through Certain Multiple- Employer Defined Benefit Pension Plans Pension Liability Difference between required contributions and contributions made Additional Payable Recognition Specific assessments for an employer to join the plan Additional disclosure requirements on the specific assessment Unfunded Liability GASB 62 Note disclosures on exit provisions Pension Expense & Expenditures Follows old GASB 27 Equal to the amount of contributions Additional expense for amounts paid on the payable & change between beginning & ending balances expected to be liquidated w/ expendable financial resources 2018 Crowe Horwath LLP 40

41 GASB 78 Pensions Provided through Certain Multiple- Employer Defined Benefit Pension Plans Note Disclosures Name of plan, ID, other demographic information Is there a publically available report Brief description of benefit terms Brief description of contribution requirements Information on the employer s payables (if any) RSI Schedule of required contributions 10 most recent years Notes to RSI Factors significantly affecting trends in amounts reported 2018 Crowe Horwath LLP 41

42 GASB 82 Pension Issues An Amendment of GASB Statements 67, 68 and 73 Effective for fiscal years ending June 30, 2017 (6/30/17, 9/30/17, 12/31/17, 4/30/18) except for: Requirements for selection of assumptions in a circumstance in which an employer s pension liability is measured as of a date other than the employer s most recent fiscal year-end Requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, Earlier application is encouraged Crowe Horwath LLP 42

43 GASB 82 Pension Issues An Amendment of GASB Statements 67, 68 and 73 Presentation of payroll-related measures in RSI Single-employer and cost-sharing pension plans that are administered through trusts Measure of payroll that is required by Statement 67 and Statement 68 to be presented in schedules of required supplementary information (and used in ratios that are presented in required supplementary information) should be covered payroll. Covered payroll is the payroll on which contributions to a pension plan are based Crowe Horwath LLP 43

44 GASB 82 Pension Issues An Amendment of GASB Statements 67, 68 and 73 Selection of Assumptions A deviation, as the term is used in Actuarial Standards of Practice issued by the Actuarial Standards Board, from the guidance in an Actuarial Standard of Practice should not be considered to be in conformity with the requirements of Statement 67, Statement 68, or Statement Crowe Horwath LLP 44

45 GASB 82 Pension Issues An Amendment of GASB Statements 67, 68 and 73 Classification of Employer-Paid Member Contributions Payments are made by the employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contribution requirements Statement 67 - should be classified as plan member contributions Statement 68 - including for purposes of determining a cost-sharing employer s proportion - classified as employee contributions Employer s expense and expenditures for those amounts should be recognized in the period for which the contribution is assessed and classified in the same manner as the employer classifies similar compensation other than pensions (for example, as salaries and wages or as fringe benefits) 2018 Crowe Horwath LLP 45

46 GASB 77 Tax Abatement Disclosures Provisions of this Statement are effective for financial statements for periods beginning after December 15, (12/31/2016, 4/30/2017, 6/30/2017, 9/30/2017) To improve financial reporting by giving users of financial statements essential information that is not consistently or comprehensively reported to the public at present. To allow users to be better equipped to understand: 1. Tax abatements and ability to raise revenue and meet obligations 2. Impact of abatements on a government s financial position and economic condition 2018 Crowe Horwath LLP 46

47 GASB 77 Tax Abatement Definition Tax abatement A reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which: 1. One or more governments promise to forgo tax revenues to which they are otherwise entitled 2. Individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or the citizens of those governments 2018 Crowe Horwath LLP 47

48 GASB 77 Tax Abatement Disclosures Disclosures required by this Statement encompass tax abatements resulting from both: Agreements that are entered into by the reporting government Agreements that are entered into by other governments and that reduce the reporting government s tax revenues 2018 Crowe Horwath LLP 48

49 GASB 77 Tax Abatement Disclosures Required Disclosures Tax Abatements THEY Enter Into Brief descriptive information, including: (1) Names, if applicable, and purposes of the tax abatement programs (2) The specific taxes being abated. (3) The authority under which tax abatement agreements are entered into. (4) The criteria that make a recipient eligible to receive a tax abatement Crowe Horwath LLP 49

50 GASB 77 Tax Abatement Disclosures Required Disclosures Tax Abatements THEY Enter Into Brief descriptive information, including: (5) The mechanism by which the taxes are abated, including: (a) How the tax abatement recipient s taxes are reduced, such as through a reduction of assessed value (b) How the amount of the tax abatement is determined, such as a specific dollar amount or a specific percentage of taxes owed. (6) Provisions for recapturing abated taxes, if any, including the conditions under which abated taxes become eligible for recapture. (7) The types of commitments made by the recipients of the tax abatements Crowe Horwath LLP 50

51 GASB 77 Tax Abatement Disclosures Required Disclosures Tax Abatements THEY Enter Into Gross dollar amount, on an accrual basis, by which the government s tax revenues were reduced during the reporting period as a result of tax abatement agreements If amounts are received or are receivable from other governments in association with the forgone tax revenue: (1) The names of the governments (2) The authority under which the amounts were or will be paid (3) The dollar amount received or receivable from other governments Crowe Horwath LLP 51

52 GASB 77 Tax Abatement Disclosures Required Disclosures - Tax Abatements THEY Enter Into If the government made commitments other than to reduce taxes as part of a tax abatement agreement, a description of: (1) The types of commitments made (2) The most significant individual commitments made. Information about a commitment other than to reduce taxes should be disclosed until the government has fulfilled the commitment Crowe Horwath LLP 52

53 GASB 77 Tax Abatement Disclosures Required Disclosures - Tax Abatements THEY Enter Into If tax abatement agreements are disclosed individually, a brief description of the quantitative threshold the government used to determine which agreements to disclose individually. If a government is legally prohibited from disclosing specific information, a description of the general nature of the tax abatement information omitted and the specific source of the legal prohibition Crowe Horwath LLP 53

54 GASB 77 Tax Abatement Disclosures Required Disclosures - Tax Abatements Entered Into by OTHER Governments, That Reduce THE REPORTING GOVERNMENT S Tax Revenue Brief descriptive information, including the names of the governments entering into the tax abatement agreement and the specific taxes being abated. The gross dollar amount, on an accrual basis, by which the reporting government s tax revenues were reduced during the reporting period as a result of tax abatement agreements Crowe Horwath LLP 54

55 GASB 77 Tax Abatement Disclosures Required Disclosures - Tax Abatements Entered Into by OTHER Governments, That Reduce THE REPORTING GOVERNMENT S Tax Revenue If amounts are received or are receivable from other governments in association with the forgone tax revenue: (1) The names of the governments (2) The authority under which the amounts were or will be paid (3) The dollar amount received or receivable from other governments Crowe Horwath LLP 55

56 GASB 77 Tax Abatement Disclosures Required Disclosures - Tax Abatements Entered Into by OTHER Governments, That Reduce THE REPORTING GOVERNMENT S Tax Revenue If tax abatement agreements are disclosed individually, a brief description of the quantitative threshold the reporting government used to determine which agreements to disclose individually. If a government is legally prohibited from disclosing specific information, a description of the general nature of the tax abatement information omitted and the specific source of the legal prohibition Crowe Horwath LLP 56

57 GASB 77 Tax Abatement Disclosures Quiz Question 1 Q A government utilizes tax increment financing (TIF) to encourage economic development. The provisions of the TIF agreement are (a) bonds are issued by the government to finance infrastructure improvements in a specific geographic area; (b) a baseline for sales tax revenues for the geographic area, including the proposed development, is established prior to the start of the project; and (c) the additional sales tax revenues above the baseline are specifically set aside for the payment of the bonds. Do the requirements of Statement No. 77, Tax Abatement Disclosures, apply to this TIF agreement? 2018 Crowe Horwath LLP 57

58 GASB 77 Tax Abatement Disclosures Quiz Question 1 Q A government utilizes tax increment financing (TIF) to encourage economic development. The provisions of the TIF agreement are (a) bonds are issued by the government to finance infrastructure improvements in a specific geographic area; (b) a baseline for sales tax revenues for the geographic area, including the proposed development, is established prior to the start of the project; and (c) the additional sales tax revenues above the baseline are specifically set aside for the payment of the bonds. Do the requirements of Statement No. 77, Tax Abatement Disclosures, apply to this TIF agreement? A No. This arrangement does not meet the definition of a tax abatement under Statement 77 for several reasons. It is not an agreement with an individual or entity. Consequently, there are no individuals or entities that are required to perform any actions. Furthermore, the TIF agreement does not result in a reduction of the government s tax revenues Crowe Horwath LLP 58

59 GASB 77 Tax Abatement Disclosures Quiz Question 2 Q A state government shares a portion of the gas tax it collects with local governments. The state also enters into tax abatement agreements with companies that allow the companies to retain a portion of the gas taxes they collect in return for installing safer and more ecologically sensitive equipment. Those tax abatements reduce the amount of gas tax revenue that the state receives, and therefore, the amount that the state shares with local governments also is reduced. Assuming that the agreements otherwise qualify as a tax abatement under Statement 77, are both the state and local governments required to disclose information about these tax abatements? 2018 Crowe Horwath LLP 59

60 GASB 77 Tax Abatement Disclosures Quiz Question 2 Q A state government shares a portion of the gas tax it collects with local governments. The state also enters into tax abatement agreements with companies that allow the companies to retain a portion of the gas taxes they collect in return for installing safer and more ecologically sensitive equipment. Those tax abatements reduce the amount of gas tax revenue that the state receives, and therefore, the amount that the state shares with local governments also is reduced. Assuming that the agreements otherwise qualify as a tax abatement under Statement 77, are both the state and local governments required to disclose information about these tax abatements? A No. The state government would disclose information about those tax abatements because its gas tax revenues have been reduced. However, the local governments would not disclose information about the tax abatement agreements because the local government revenue that is reduced is shared revenue, which is not considered to be tax revenue Crowe Horwath LLP 60

61 GASB 77 Tax Abatement Disclosures Quiz Question 3 Q A local government has entered into an economic development agreement that is not in a TIF District that abates a portion of a local business owner s property taxes in order to encourage the local business to hire additional workers in the community. What would be required to be disclosed under the provisions of GASB Statement 77? Assume no issues with legal disclosures that prohibits disclosures Crowe Horwath LLP 61

62 GASB 77 Tax Abatement Disclosures Quiz Question 3 Q A local government has entered into an economic development agreement that is not in a TIF District that abates a portion of a local business owner s property taxes in order to encourage the local business to hire additional workers in the community. What would be required to be disclosed under the provisions of GASB Statement 77? Assume no issues with legal disclosures that prohibits disclosures. A The disclosures would include: A brief description Gross dollar amount of the abatement A brief description of the quantitative threshold the government used to determine which agreements to disclose individually Crowe Horwath LLP 62

63 GASB 77 Tax Abatement Disclosures - Example Note X. Tax Abatements The Village enters into property tax abatement agreements with local businesses under the state Economic Development Opportunity Act of 20X1. Under the Act, localities may grant property tax abatements of up to 50 percent of a business property tax bill for the purpose of attracting or retaining businesses within their jurisdictions. The abatements may be granted to any business located within or promising to relocate to the Village. For the fiscal year ended June 30, 20X7, the Village abated property taxes totaling $146,480 under this program, including the following tax abatement agreements that each exceeded 10 percent of the total amount abated: A 40 percent property tax abatement to a grocery store chain for purchasing and opening a store in an empty storefront in the business district. The abatement amounted to $97,500. A 50 percent property tax reduction for a local restaurant increasing the size of its restaurant and catering facility and increasing employment. The abatement amounted to $21, Crowe Horwath LLP 63

64 GASB 80 Blending Requirements for Certain Component Units Effective for periods beginning after June 15, 2016 (6/30/17, 9/30/17, 12/31/17, 4/30/18) Amends the blending requirements of GASB 14 for the financial statement presentation of component units of all state and local governments 2018 Crowe Horwath LLP 64

65 GASB 80 Blending Requirements for Certain Component Units GASB 14 as amended by GASB 61criteria include any of: Component unit's governing body is substantively the same as the governing body of the entity Component unit provides services entirely, or almost entirely, to the entity or otherwise exclusively, or almost exclusively, benefits the primary government even though it does not provide services directly to it Component unit s total debt outstanding, including leases, is expected to be repaid entirely or almost entirely with resources of the entity 2018 Crowe Horwath LLP 65

66 GASB 80 Blending Requirements for Certain Component Units Additional criterion requires blending of a component unit incorporated as a notfor-profit corporation in which the government is the sole corporate member. Does not apply to component units included in the financial reporting entity pursuant to the provisions of GASB Crowe Horwath LLP 66

67 GASB 80 Blending Requirements for Certain Component Units GASB 39 includes all of: Economic resources received or held by the separate organization are entirely or almost entirely for the direct benefit of the government, its component units, or its constituents Government, or its component units, is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the separate organization Economic resources received or held by an individual organization that the government, or its component units, is entitled to, or has the ability to otherwise access, are significant to that government 2018 Crowe Horwath LLP 67

68 GASB 80 Blending Requirements for Certain Component Units Transition Requirements Restatement for all periods presented, if practicable If not practicable Cumulative effect, if any, reported as a restatement of beginning net position (fund balance, fund net position, as applicable) for the earliest period restated Notes should disclosure the nature of the restatement and it s effect in the first period of application Also disclose reason for not restating prior periods 2018 Crowe Horwath LLP 68

69 GASB 81 Irrevocable Split-Interest Agreements A type of giving agreement used by donors to provide resources to two or more beneficiaries, including governments Can be created through trusts or other legally enforceable agreements with characteristics that are equivalent to split-interest agreements in which a donor transfers resources to an intermediary to hold and administer for the benefit of a government and at least one other beneficiary Examples of these types of agreements include charitable lead trusts, charitable remainder trusts, and life-interests in real estate 2018 Crowe Horwath LLP 69

70 GASB 81 Irrevocable Split-Interest Agreements Requires that a government that receives resources pursuant to an irrevocable split-interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. Requires that a government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party, if the government controls the present service capacity of the beneficial interests Crowe Horwath LLP 70

71 GASB 81 Irrevocable Split-Interest Agreements Requires that a government recognize revenue when the resources become applicable to the reporting period. Effective for financial statements for periods beginning after December 15, 2016 and should be applied retroactively (12/31/17, 4/30/18, 6/30/18, 9/30/18). Earlier application is encouraged Crowe Horwath LLP 71

72 GASB 83 Certain Asset Retirement Obligations Effective date - are effective for financial statements for periods beginning after June 15, (6/30/2019, 9/30/2019, 12/31/2019, 4/30/20) 2018 Crowe Horwath LLP 72

73 GASB 83 Certain Asset Retirement Obligations Definition of Asset Retirement Obligations (ARO) : A legally enforceable liability associated with the retirement of a tangible capital asset Crowe Horwath LLP 73

74 GASB 83 Certain Asset Retirement Obligations Establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources Requires the measurement occur when the liability is both incurred and reasonably estimable Crowe Horwath LLP 74

75 GASB 83 Certain Asset Retirement Obligations Requires the measurement of an ARO to be based on the best estimate of the current value of outlays expected to be incurred Requires that a deferred outflow of resources associated with an ARO be measured at the amount of the corresponding liability upon initial measurement 2018 Crowe Horwath LLP 75

76 GASB 83 Certain Asset Retirement Obligations ARO recognized when the liability is incurred and reasonably estimable. Incurrence of a Liability: External obligating event Internal obligating event 2018 Crowe Horwath LLP 76

77 GASB 83 Certain Asset Retirement Obligations Should disclose the following (except for minority share of an ARO) General description of the ARO and related tangible asset Methods and assumptions Estimated remaining useful life Legal funding and assurance provisions Restricted assets to pay liability If ARO or portion has been incurred but not yet recognized, should disclose that fact and the reasons. Minority share disclosures are similar to the first item above and includes the governments share and the other minority owners Crowe Horwath LLP 77

78 GASB 84 Fiduciary Activities Effective for periods beginning after December 15, 2018 (12/31/19, 4/30/20, 6/30/20, 9/30/20) Improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported 2018 Crowe Horwath LLP 78

79 GASB 84 Fiduciary Activities Criteria for identifying fiduciary activities of all state and local governments Focus of the criteria: (1) whether a government is controlling the assets of the fiduciary activity (2) the beneficiaries with whom a fiduciary relationship exists Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities 2018 Crowe Horwath LLP 79

80 GASB 84 Fiduciary Activities Activity meeting the criteria should be reported in a fiduciary fund in the basic financial statements Governments with activities meeting the criteria should present a statement of fiduciary net position and a statement of changes in fiduciary net position Exception is provided for a business-type activity that normally expects to hold custodial assets for three months or less 2018 Crowe Horwath LLP 80

81 GASB 84 Fiduciary Activities Four fiduciary funds that should be reported Pension (and other employee benefit) trust funds Investment trust funds Private-purpose trust funds Custodial funds 2018 Crowe Horwath LLP 81

82 GASB 84 Fiduciary Activities Fiduciary component unit should: Combine its information with its component units that are fiduciary component units Aggregate that combined information with the primary government s fiduciary funds 2018 Crowe Horwath LLP 82

83 GASB 84 Fiduciary Activities Provides for recognition of liability to the beneficiaries in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources Events that compel a government to disburse fiduciary resources occur when a demand for the resources has been made or when no further action, approval, or condition is required to be taken or met by the beneficiary to release the assets 2018 Crowe Horwath LLP 83

84 GASB 85 Omnibus 2017 Effective for periods beginning after June 15, 2017 (6/30/18, 9/30/18, 12/31/18, 4/30/19) NOTE: Entities are able to early implement single topics Topics include: Component unit blending for entities that are BTAs Goodwill Fair Value Measurement and Application OPEB topics 2018 Crowe Horwath LLP 84

85 GASB 85 Omnibus 2017 Component unit blending for entities that are BTAs Primary government is a business-type activity Option 1) Include in single column reported for the primary government Option 2) Present a separate blended component unit column within the primary government Blending only available for certain component units GASB 14, paragraph 53 (as amended) Discrete presentation mandatory if blending criteria not met 2018 Crowe Horwath LLP 85

86 GASB 85 Omnibus 2017 Goodwill (GASB 69) Compare the amount paid to the net position acquired Positive = deferred outflow Negative = reduction in value of noncurrent nonfinancial assets acquired (e.g. no deferred inflow) Contribution recognition in certain circumstances Issue: Classification of goodwill for acquisitions prior to the effective date of GASB 69 Positive Reclassify to deferred outflow of resources Negative Eliminate via adjustment to net position 2018 Crowe Horwath LLP 86

87 GASB 85 Omnibus 2017 Fair Value Measurement and Application Real estate assets Prior guidance classification based on asset s predominant use New guidance classification based on if the asset meets GASB 72 definition of an investment Unit of account Investment in External Investment Pools MM Investments and participating interest-earning contracts at amortized cost Use of amortized cost is permitted, but not required 2018 Crowe Horwath LLP 87

88 GASB 85 Omnibus 2017 OPEB topics Measurement of pension and OPEB liabilities in governmental funds At end of the reporting period Liabilities to employees Payables to pension/opeb plan Administrative costs On-behalf payments in governmental funds Intent of GASBs 68, 73 & 75 to retain effects of GASB 24 Reflect contributions (benefit payments) made on behalf of the employer In addition to revenue for financial support from nonemployer contributing entities 2018 Crowe Horwath LLP 88

89 GASB 85 Omnibus 2017 OPEB topics (cont.) Payroll related measures in RSI Plan Statements - Are contributions based on pay? Yes = RSI disclosures based on covered payroll No = Payroll measures not disclosed Employers - Trust or no trust Trust Contributions based on pay, RSI disclosures based on covered payroll Contributions not based on pay, use covered employee payroll No trust Always use covered employee payroll Employer paid member contributions Treat as EE contributions Consistency with treatment with pension benefit existing guidance 2018 Crowe Horwath LLP 89

90 GASB 85 Omnibus 2017 OPEB topics (cont.) Alternative Measurement Method Certain simplified assumptions are permitted When active plan members will begin to receive benefits Multi Employer OPEB Plans Plans not established primarily by/for the government Parallel guidance for pension in GASB 78 regarding inability to access cost-sharing information 2018 Crowe Horwath LLP 90

91 GASB 86 Certain Debt Extinguishment Issues In-Substance Defeasance of Debt Using Only Existing Resources When to derecognize the debt liability Assets placed in trust solely for debt repayments (P&I) Remote chance of additional payments by the government Monetary assets essentially risk-free (amount, timing, collection of interest and principal) Monetary assets denominated in same currency as debt payments Monetary assets required cash flows coincide with scheduled debt P&I payments Callable securities in escrow are not risk-free due to timing of collection of interest and principal Disqualification for defeasance purposes 2018 Crowe Horwath LLP 91

92 GASB 86 Certain Debt Extinguishment Issues In-Substance Defeasance of Debt Using Only Existing Resources (cont.) Financial Statement Recognition Economic Resources Measurement Focus Reacquisition price less net carrying value of old debt = (loss)/gain Financial Statement Recognition Current Financial Resources Measurement Focus Report debt service expenditures when payments are made to escrow agent Note Disclosures General description of the transaction in period of defeasance Amount of debt Amount of cash/other assets acquired w/ existing resources places with escrow agent Reasons for defeasance Cash flows required to service defeased debt Periods following defeasance Amount of the debt defeased in substance that remains outstanding at year-end (if any) 2018 Crowe Horwath LLP 92

93 GASB 86 Certain Debt Extinguishment Issues In-Substance Defeasance of Debt Using Only Existing Resources (cont.) Prepaid Insurance Include amount in the net carrying amount for purposes of calculating the difference between the reacquisition price and the net carrying amount of the extinguished debt. Additional Disclosures If there is a risk of substitution of essentially risk-free monetary assets with monetary assets that are not essentially risk-free is not prohibited In period of defeasance disclose Post-period of defeasance amount of debt defeased in substance that remains outstanding, if any, for which the substitution is not prohibited 2018 Crowe Horwath LLP 93

94 GASB 87 Leases Lease definition A contract that conveys control of the right to use another entity s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction. Examples of nonfinancial assets Buildings Land Vehicles Equipment Short-term leases A lease that, at the commencement of the lease term, has a maximum possible term under the lease contract of 12 months (or less), including any options to extend, regardless of their probability of being exercised. Lessees and lessors should recognize short-term lease payments as outflows of resources or inflows of resources, respectively, based on the payment provisions of the lease contract Crowe Horwath LLP 94

95 GASB 87 Leases Lease Term The period during which a lessee has a noncancelable right to use an underlying asset, plus the following periods, if applicable: Periods covered by a lessee s option to extend the lease if it is reasonably certain, based on all relevant factors, that the lessee will exercise that option Periods covered by a lessee s option to terminate the lease if it is reasonably certain, based on all relevant factors, that the lessee will not exercise that option Periods covered by a lessor s option to extend the lease if it is reasonably certain, based on all relevant factors, that the lessor will exercise that option Periods covered by a lessor s option to terminate the lease if it is reasonably certain, based on all relevant factors, that the lessor will not exercise that option A fiscal funding or cancellation clause should affect the lease term only when it is reasonably certain that the clause will be exercised 2018 Crowe Horwath LLP 95

96 GASB 87 Leases Lease Term (Reassessment) The lessee or lessor elects to exercise an option even though it was previously determined that it was reasonably certain that the lessee or lessor would not exercise that option The lessee or lessor elects not to exercise an option even though it was previously determined that it was reasonably certain that the lessee or lessor would exercise that option An event specified in the lease contract that requires an extension or termination of the lease takes place 2018 Crowe Horwath LLP 96

97 GASB 87 Leases (Lessee Accounting) Lease liability and a lease asset at the commencement of the lease term Unless short-term lease or transfer of ownership of the underlying asset Lease liability measured at the present value of payments expected to be made during the lease term (less any lease incentives). Lease asset should be measured at the amount of the initial measurement of the lease liability, plus any payments made to the lessor at or before the commencement of the lease term and certain direct costs Reduce the lease liability as payments are made and recognize an outflow of resources (for example, expense) for interest on the liability Amortize the lease asset in a systematic and rational manner over the shorter of the lease term or the useful life of the underlying asset Footnotes - include a description of leasing arrangements, the amount of lease assets recognized, and a schedule of future lease payments to be made 2018 Crowe Horwath LLP 97

98 GASB 87 Leases (Lessor Accounting) Recognize a lease receivable and a deferred inflow of resources at the commencement of the lease term Exceptions for leases of assets held as investments, certain regulated leases, short-term leases, and leases that transfer ownership of the underlying asset. Do not derecognize the asset underlying the lease Lease receivable measured at the present value of lease payments expected to be received during the lease term Deferred inflow of resources measured at the value of the lease receivable plus any payments received at or before the commencement of the lease term that relate to future periods Recognize interest revenue on the lease receivable and an inflow of resources (for example, revenue) from the deferred inflows of resources in a systematic and rational manner over the term of the lease Notes should include a description of leasing arrangements and the total amount of inflows of resources recognized from leases 2018 Crowe Horwath LLP 98

99 GASB 87 Leases Effective Date and Transition Reporting periods beginning after December 15, 2019 (i.e. year-ends 12/31/2020; 3/31/20201; 6/30/2021; 9/30/2021) Recognition/Measurement Use facts and circumstances that exist at the beginning of the period of implementation (or, if applied to earlier periods, the beginning of the earliest period restated) Lessors should not restate the assets underlying their existing sales-type or direct financing leases. Any residual assets for those leases become the carrying values of the underlying assets. Exclusions under GASB 87 Most intangibles (including computer software) Inventory Biological assets Service concession agreements Supply contracts (power purchase agreements) Leases with the underlying asset financed with conduit debt * 2018 Crowe Horwath LLP 99

100 On the Horizon Issues Financial Reporting Model (Open for comments on redeliberations) Touches entire financial statements; intended to reduce complexity Revenue and Expense Recognition (Open for comments) Exchange transaction guidance - follow FASB model??? Capitalization of Interest Costs (ED comment period open) Should cap interest be reported as a DO? Conduit Debt (Initial Deliberations) Definition of a conduit debt obligation; should it be reported as a liability Debt Disclosures (ED redeliberations) Specific reporting/disclosures for direct debt borrowings (i.e. bank loans) Equity Interest Ownership Issues (ED comment period open) Majority ownership reporting investment vs. component unit Implementation Guides GASB 84 (Fiduciary Activities; Agenda item) GASB 87 (Leases; Agenda item) (Open for comment period) 2018 Crowe Horwath LLP 100

101 Thank you For more information, contact: Christopher M. Davis, CPA, MBA, CFST Direct Mobile Crowe In accordance Horwath with International applicable professional is a leading standards, international some network firm services of separate may not and be available independent to attest accounting clients. and consulting firms that may be licensed to use "Crowe," "Crowe Horwath" or "Horwath" in connection with the provision of accounting, auditing, tax, consulting or other professional services to their clients. Crowe Horwath International itself is a nonpracticing entity and does not provide professional services in its own right. Neither Crowe Horwath International nor any member is liable or responsible for the professional services performed by any other member. This material is for informational purposes only and should not be construed as financial or legal advice. Please seek guidance specific to your organization from qualified advisers in your jurisdiction Crowe Horwath LLP Crowe Horwath LLP, International. an independent member of Crowe Horwath International crowehorwath.com/disclosure 101