GASB S RECENTLY ISSUED & CURRENTLY EFFECTIVE STANDARDS

Transcription

1 GASB S RECENTLY ISSUED & CURRENTLY EFFECTIVE STANDARDS Alan D. A.J. Bowers, Jr., CPA Senior Manager RPC CPAs + Consultants, LLP September 15, 2016 AICPA Governmental Accounting and Auditing Update GASB Update 1

2 GASB Statements Statement 72: Fair Value Measurement and Application Statement 73: Accounting and Financial Reporting for Pensions and Related Assets that are not Within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 Statements 74/75: Accounting and Financial Reporting for Postemployment Benefits other than Pensions Statement 76: The Hierarchy of GAAP for State and Local Governments Statement 77: Tax Abatement Disclosures 3 GASB Statements Statement 78: Pensions Provided through Certain Multiple- Employer Defined Benefit Pension Plans Statement 79: Certain External Investment Pools and Pool Participants Statement 80: Blending Requirements for Certain Component Units an Amendment of Statement No. 14 Statement 81: Irrevocable Split-Interest Agreements Statement 82: Pensions Issues An Amendment of GASB Statements No. 67, 68, and

3 GASB Exposure Drafts Certain Asset Retirement Obligations Fiduciary Activities Leases 5 Fair Value Measurement and Application: Statement 72 3

4 GASB Statement No. 72 Revises the definition of investment Discusses techniques to establish fair value Expands existing disclosure requirements Closely aligned with FASB requirements but not identical Effective for periods beginning after June 15, Investment Definition A security or other asset that: a) a government holds primarily for the purpose of income or profit; and b) has present service capacity based solely on its ability to generate cash or to be sold to generate cash. 8 4

5 Fair Value Definition The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. An exit price Other characteristics of fair value: Market-based Based on government s principal or most advantageous market Fair value is not an option. 9 Valuation Techniques Apply valuation techniques that best represent fair value in the circumstances market approach, cost approach, and income approach Cost The amount that would be required to replace the present service capacity of the asset. Market Focuses on quoted market prices on active market. Income The discounted present value of future cash flows. 10 5

6 Inputs Inputs: Level 1: quotes prices (unadjusted) in active markets for identical assets or liabilities; most reliable. Examples: Mutual Funds, U.S. Treasury Bonds Level 2: quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other than quoted prices that are observable. Examples: quote prices for similar assets and liabilities in active markets i.e. interest rates price/yield for a similar bond Level 3: unobservable inputs, least reliable. Examples: commercial real estate Maximize use of relevant observable inputs and minimize use of unobservable inputs. 11 Investments and Fair Value Assets that meet the definition of an investment generally should be measured at fair value. Existing exceptions to fair value (such as money market investments and investments in 2a7-like pools) would remain. Definition of an investment: A security or other asset that a government holds primarily for the purpose of income or profit and with a present service capacity that is based solely on its ability to generate cash or to be sold to generate cash. Service capacity refers to a government s mission to provide services. Held primarily for income or profit acquired first and foremost for future income and profit. 12 6

7 Disclosures The following information for each class or type of assets and/or liabilities measured at fair value should be disclosed: The fair value measurement at the end of the reporting period and for nonrecurring fair value measurements, the reasons for the measurement. The level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level, 1, 2, or 3). A description of the valuation technique(s). 13 Accounting and Financial Reporting for Pensions and Related Assets not Included within the Scope of GASB Statement No. 68 and Amendments to Certain Provisions of GASB Statement No. 67 and 68: Statement 73 7

8 GASB Statement No. 73 Establishes requirements for defined benefit pensions that are not within the scope of GASB 68. Establishes requirements for defined contribution pensions that are not within the scope of GASB 68. Amends certain provisions of Statement 67 and 68 for pensions that are in their respective scopes. 15 GASB Statement No. 73 Effective: The provisions in Statement 73 are effective for fiscal years beginning after June 15, except those provisions that address employers and governmental nonemployer contributing entities for pensions that are not within the scope of Statement 68, which are effective for fiscal years beginning after June 15,

9 Other Postemployment Benefits: Statements 74 and 75 Overview What: The Board issued Statements 74 (plans) and 75 (employers), making OPEB accounting and financial reporting consistent with the pension standards in Statements 67 and 68. Why: Pension and OPEB standards were updated subsequent to a review of the effectiveness of the standards objective was to establish a consistent set of standards for all postemployment benefits, providing more transparent reporting of the liability and more useful information about the liability and costs of benefits. When: Effective for periods beginning after June 15, 2016 (plans) and June 15, 2017 (employers). 18 9

10 Plan and Asset Reporting Scope includes defined benefit and defined contribution OPEB plans administered through trusts that meet specified criteria. Also addresses assets accumulated for purposes of providing OPEB through defined benefit OPEB plans that are not administered through trusts that meet the criteria. Assets reported as assets in employer s governmental/proprietary funds. Assets held for the government reported in an agency fund. Few changes from Statement 43 for financial statement recognition. Notes/RSI changes primarily to reflect changes in measurement of defined benefit liabilities of employers. 19 Scope and Applicability Applies same definition of OPEB as used in Statement 45. All postemployment healthcare benefits. Other forms of postemployment benefits not provided through a pension plan. Addresses both defined benefit OPEB and defined contribution OPEB. Applies to employers and nonemployer contributing entities that have a legal obligation to make contributions directly to an OPEB plan or to make benefit payments as those payments come due. Special funding situations. Other circumstances

11 Liability to Employees for OPEB Based on total OPEB liability the portion of the actuarial present value of projected benefit payments that is attributed to past periods of employee service. Is OPEB administered through a trust that meets the specified criteria? Yes recognize net OPEB liability (total OPEB liability, net of OPEB plan fiduciary net position). No recognize total OPEB liability. Employer s liability to employees for OPEB measured as of a date no earlier than the end of the employer s prior fiscal year and no later than the employer s current fiscal year. Based on an actuarial valuation obtained at least biennially no more than 30 months and 1 day earlier than the employer s most recent fiscal year-end. 21 Measurement of the Total OPEB Liability: General Approach 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

12 Measurement of the Total OPEB Liability: Projections of OPEB Payments Based on claims costs or age-adjusted premiums approximating claims costs, in accordance with Actuarial Standards of Practice. Not reduced by amounts expected to be received for making benefit payments unless payments are providing Medicare benefits. Consider legal or contractual caps if determined to be effective. Alternative measurement method may be applied if fewer than 100 employees (active and inactive) are provided benefits through plan as of the beginning of the measurement period. Generally, same simplifications to assumptions in Statement 45 can be used. - Reference to U.S. Office of Personnel Management regarding age-based turnover experience rather than default tables. 23 Changes in Liability Recognize most changes in liability for the current reporting period as OPEB expense immediately, except: Changes in total OPEB liability: - Differences between expected and actual experience with regard to economic and demographic factors in the measurement of the total OPEB liability. - Changes of assumptions in the measurement of the total OPEB liability. For OPEB administered through trust in which specified criteria are met: - Difference between projected and actual earnings on OPEB plan investments. - Employer contributions

13 Notes and RSI Similar to those required for pensions. Disclosure of effect on net OPEB liability of a discount rate +/- 1 percent. Disclosure of effect on net OPEB liability of a healthcare cost trend rate +/- 1 percent. Single and agent employers: 10-year RSI Schedules for changes in the net OPEB liability, ratios, and actuarially determined contributions (statutorily or contractually determined contributions, if no actuarially determined contribution is calculated). Cost-sharing employers: 10-year RSI schedules of proportions and ratios, and statutorily or contractually determined contributions. 25 GAAP Hierarchy: Statement 76 13

14 The GAAP Hierarchy What: In June, the Board issued Statement 76 and cleared a revised Comprehensive Implementation Guide. Why: The GAAP hierarchy was incorporated (by Statement 55) from the auditing literature essentially as is this project simplifies the hierarchy and explains how to identify the relevant literature within the hierarchy. When: Effective for periods beginning after June 15, Categories of Authoritative GAAP Category Sources Due Process A B GASB Statements GASB Technical Bulletins and Implementation Guides; AICPA literature specifically cleared by GASB Formally approved by the Board for the purpose of creating, amending, superseding, or interpreting standards, AND exposed for a period of public comment. Cleared by the Board, specifically made applicable to state and local governmental entities, AND exposed for a period of public comment

15 Comprehensive Implementation Guide (CIG) Now classified as Category B authoritative GAAP. Revised due process: Public exposure of new Q&A guidance going forward. Will continue to issue Guides to Individual pronouncements (such as Statements 74 and 75 on OPEB) and annual updates with new Q&As on various pronouncements. Board clearance of the final Implementation Guides. 29 Tax Abatement Disclosures: Statement 77 15

16 Tax Abatement Disclosures What: GASB recently issued new standards requiring disclosures about a government s tax abatement agreements. Why: Information about revenues that governments forgo is essential to understanding financial position and economic condition, interperiod equity, sources and uses of financial resources, and compliance with finance related legal or contractual requirements. When: Effective for periods beginning after December 15, Definition and Scope Does not include all transactions that reduce tax revenues. Emphasis is on the substance of the arrangement meeting the definition, not on its name or form. Applies only to arrangements meeting this definition: A 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 governments promise to forgo tax revenues to which they are otherwise entitled and (b) the 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 of the citizens of those governments

17 General Disclosures Principles A government would disclose separately (a) its own tax abatements and (b) tax abatements that are entered into by other governments and reduce the reporting government s taxes. Disclose own tax abatements by major program. Disclose those of other governments by the government and specific tax abated. May disclose individual tax abatements above quantitative threshold established by the government. Disclosure would commence in the period in which a tax abatement agreement is entered into and continue until the tax abatement agreement expires, unless otherwise specified. 33 Disclosures: Own Abatements Brief descriptive information: Name and purpose of the program and the taxes being abated. The authority under which taxes are abated. The criteria, if any, that make a recipient eligible. The mechanism for abating taxes (form and calculation). Provisions for recapturing abated taxes, if any. The types of commitments made by recipients of tax abatements. Gross amount of tax abated in the current year (and information about payments received from other governments related to the abatements, if applicable). The types of commitments made by the reporting government in tax abatement agreements (other than to reduce taxes) and the most significant individual commitments

18 Disclosures: Own Abatements A brief description of the quantitative threshold used to determine which agreements to disclose individually (if applicable). A description of the general nature of the tax abatement information omitted because the information is legally prohibited from being disclosed and the specific source of the legal prohibition (if applicable). 35 Disclosures: Other Government s Abatements Brief descriptive information: name of the government entering into the agreement and the specific taxes being abated. Gross amount of tax abated in the current year (and information about payments received from other governments related to the abatements, if applicable). A brief description of the quantitative threshold used to determine which agreements to disclose individually (if applicable). A description of the general nature of the tax abatement information omitted because the information is legally prohibited from being disclosed and the specific source of the legal prohibition (if applicable)

19 Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans: Statement 78 GASB Statement No. 78 Amends the 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 that: 1. is not a state or local governmental pension plan; 2. is 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; and 3. 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). Effective for periods beginning after December 15,

20 Certain External Investment Pools and Pool Participants: Statement 79 GASB Statement No. 79 Establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. An external investment pool qualifies for that reporting if it meets all of the applicable criteria established in this Statement. The specific criteria address (1) how the external investment pool transacts with participants; (2) requirements for portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a shadow price

21 GASB Statement No. 79 The requirements of this Statement are effective for reporting periods beginning after June 15, 2015, except for certain provisions on portfolio quality, custodial credit risk, and shadow pricing. Those provisions are effective for reporting periods beginning after December 15, Earlier application is encouraged. 41 Blending Requirements for Certain Component Units-an amendment of GASB Statement No. 14: Statement 80 21

22 GASB Statement No. 80 Statement amends the blending requirements for the financial statement presentation of component units of all state and local governments. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member. Effective for periods beginning after June 15, Irrevocable Split-Interest Agreements: Statement 81 22

23 GASB Statement No. 81 The objective of this Statement is to improve accounting and financial reporting for irrevocable split-interest agreements by providing recognition and measurement guidance for situations in which a government is a beneficiary of the agreement. Effective for periods beginning after December 15, What is a Split-Interest Agreement Split-interest agreements are a type of giving agreement used by donors to provide resources to two or more beneficiaries, including governments. Split-interest agreements 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

24 Requirements 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. Requires that a government recognize revenue when the resources become applicable to the reporting period. 47 Pension Issues An amendment of GASB Statement No. 67, 68 and 73: Statement 82 24

25 GASB Statement No. 82 Addresses certain issues that have been raised with respect to Statements 67, 68, and 73: 1) the presentation of payroll-related measures in required supplementary information; 2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes; and 3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. 49 GASB Statement No. 82 Effective for reporting periods beginning after June 15, 2016, except for the requirements of this Statement for the 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. In that circumstance, the 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,

26 Additional GASB Project Financial Reporting Model Preliminary Views or Invitation to Comment in Q4 of 2016 Reexamination of Statements 34, 35, 41, and 46 GASB Statement No. 34 (Basic financial statement and MD&A for State and Local Gov.) was first effective for periods beginning after June 15, 2001 GASB 35 - (Basic financial statement and MD&A for Public Colleges and Universities GASB 41 Budgetary Comparison Schedules Amend GASB 34 GASB 46 Net Assets Restricted by Enabling Legislation Amend GASB 34 Project scheduled out of next 4 years 52 26

27 Thank You At RPC We ACHIEVE A ppreciation C ollaboration H umanitarianism I nnovation E njoyment V igilance E xcellence Alan D. A.J. Bowers, Jr., CPA Senior Manager RPC CPAs + Consultants, LLP abowers@rpcllp.com Alamogordo Albuquerque Carlsbad Clovis El Paso Hobbs Lubbock Roswell 27