The opinions expressed in this presentation are those of Mrs. Parker. Official positions of the GASB are established only after extensive public due

Transcription

1 GASB Update Lisa R. Parker, CPA Project Manager, Governmental Accounting Standards Board 22nd Governmental Accounting and Auditing Conference Alabama Society of CPA s December 2, 2010 Birmingham, Alabama

2 The opinions expressed in this presentation are those of Mrs. Parker. Official positions of the GASB are established only after extensive public due process and deliberation. 2

3 Where Are We Now?

4 Effective Dates June 30 June 30, 2011 Statement 54 Fund Balance and Governmental Fund Type Definitions Statement 59 Financial Instruments Omnibus June 30, 2012 Statement 57 OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans provisions related to the frequency and timing of measurements (paragraph 8) June 30, 2013 Statement 60 Accounting and Financial Reporting for Service Concession Arrangements Statement 61 The Financial Reporting Entity: Omnibus (an amendment of GASB Statements No. 14 and No. 34)

5 GASB Statement 54 Fund Balance and Governmental Fund Type Definitions

6 Statement No. 54 Issued February 2009

7 Origins of the Project Significant variation in how standards are applied, leading to significant divergence in practice Widespread confusion about terminology Mismatch between what governments are reporting about fund balance and what users of financial statements actually need Invitation to Comment issued October 2006 Exposure Draft issued February 2008

8 Effect of the Columns Under the current standard amounts are classified from the perspective of the column Consider a government that has $100 earmarked for capital projects by the government itself $100 in property tax revenue restricted to paying debt service $100 of cash available for any purpose

9 Reserved for: Under the current standards If the amounts constrained to specific purposes are reported in the general fund, they are shown as reserved Non-major GF SRF DSF CPF Funds Total Capital projects Debt service Unreserved $100 $100 $100 $100 $100 $100 But

10 Reserved for: Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved Non-major GF SRF DSF CPF Funds Total Capital projects Debt service Unreserved $100 $100 $100 $100 $100 $100

11 Under the current standards Reserved for: Capital projects Debt service If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved Non-major GF SRF DSF CPF Funds Total Unreserved $100 $100 $100 $300 This will change

12 Fund Balance Reporting and Disclosures

13 What Do you Need to Know About Statement 54? New fund balance presentation hierarchy is based primarily on the degree of spending constraints placed upon use of resources for specific purposes versus availability for appropriation 5 new presentation classifications go from nonspendable down through three levels of less binding spending constraints to an unassigned level, which is available for any spending of the government

14 New Fund Balance Classifications Fund Balance Reporting Nonspendable Restricted Committed * Assigned Unassigned Essentially what is now reserved Essentially what is now unreserved Essentially what is now designated *Proposal called this classification limited

15 Nonspendable Fund Balance Represents amounts that cannot be spent because they are either: Not in spendable form Inventory and prepaids Long-term receivables and loans or property acquired for sale (unless proceeds are restricted, committed, or assigned, then the receivables should be reported in those categories) Legally or contractually required to be maintained intact (Ex. Corpus of a Permanent fund)

16 Restricted Fund Balance Same definition as for net assets in Statement 34 (as amended by Statement 46) Constraints placed on the use of amounts for a specific purpose by either: Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments Imposed by law through constitutional provisions or enabling legislation

17 Committed Fund Balance Constraint on use imposed by the government itself, using its highest level of decision-making authority Amounts classified as committed are not subject to legal enforceability like restricted resources; however, the constraint can be removed or changed only by taking the same highest level action Action to constrain resources should occur prior to the end of the fiscal year, though the exact amount may be determined subsequently EX. 50% of surplus to be devoted to pay debt service

18 Assigned Fund Balance Amounts that are intended by the government to be used for a particular purpose, but are neither restricted nor commited, should be reported as assigned fund balance. Intent should be expressed by: the governing body itself or a subordinate high-level body or official possessing the authority to assign resources to be used for specific purposes in accordance with policy established by the governing body.

19 Assigned Fund Balance Amounts in governmental funds other than the general fund that are not restricted or committed are reported as assigned The act of transferring resources to another governmental fund is considered an assignment of those resources to the purpose of that fund Appropriation of existing fund balance to eliminate a projected budgetary deficit in the next year s budget is an assignment of fund balance

20 Unassigned Fund Balance Available for any purpose Reported only in the general fund, except in cases of negative fund balance Negative balances in other governmental funds are reported as unassigned (if spent more for the purpose intended than had available then the resources must have come from the unassigned resources of the general fund)

21 Stabilization (or Rainy Day) Arrangements: Before 54 Under existing standards, rainy-day or stabilization amounts generally should be reported as unreserved-undesignated, not as reserved Many stabilization amounts are not constrained in a manner that qualifies as reserved More importantly, stabilization was not previously considered a specific purpose it is a circumstance

22 Stabilization (or Rainy Day) Arrangements: Before 54 Under almost no circumstances should stabilization amounts be reported in special revenue funds under the existing standards Stabilization amounts generally are not restricted Stabilization amounts generally do not derive from a specific revenue source

23 Stabilization (or Rainy Day) Arrangements: Under 54 Stabilization can be considered a specific purpose if: Constraints on stabilization amounts meet the criteria to be reported as restricted or committed The formal action imposing the constraint on spending identifies and describes in sufficient detail the specific circumstances under which a need for stabilization arises The circumstances are not expected to occur routinely needs to be uncommon

24 Stabilization Example #1 Using its highest level of decision making authority, a government constrains $1 million to stabilization, to be used only in an emergency. Can this amount be reported as committed for stabilization? NO. There is not sufficient detail regarding what constitutes an emergency. Furthermore, without such detail, one cannot determine if the circumstances are routine or not.

25 Stabilization Example #2 Using its highest level of decision making authority, a government constrains $1 million to stabilization, to be used only in the event of a revenue shortfall. Can this amount be reported as committed for stabilization? NO. Revenue shortfalls occur routinely. However, it might be okay if specific parameters were identified that described a shortfall of a magnitude that is not expected to occur routinely.

26 Stabilization Example #3 Using its highest level of decision making authority, a government constrains $1 million to stabilization, to be used only if annual growth in certain economic indicators falls below a specified level that is close to no growth at all. Can this amount be reported as committed for stabilization? Probably. Professional judgment should be applied to determine if the circumstances do not occur routinely. What is important here is the level of specificity indicators need to be identified.

27 Stabilization Note Disclosures It is possible that many amounts previously reported as reserved for stabilization or in a separate rainy-day fund will now be reported as unassigned fund balance in the general fund. But Statement 54 requires these disclosures; Minimum fund balance policies Stabilization arrangements Authority for establishing Requirements for additions Conditions under which amounts may be used

28 Encumbrances Right now encumbrances are reported as reservations of fund balance Statement 54 does nothing to encumbrance accounting, for financial reporting purposes only Encumbrances should not be displayed separately within the restricted, committed, and assigned categories Significant encumbrances disclosed in the notes by major funds and nonmajor funds in the aggregate in conjunction with required disclosures about other significant commitments

29 Displaying Fund Balance Categories and Classifications Restricted fund balance may be displayed in a manner that distinguishes between the major restricted purposes, or it may be displayed in the aggregate Committed and assigned fund balances may be displayed in sufficient detail so that the purposes of the major limitations and assignments are evident, or each classification may be displayed in the aggregate Reader needs to be able to understand the major purposes

30 Specific purpose details displayed Major Major Major Special Revenue Funds Debt Capital General Highway School Aid Service Projects Other Fund Fund Fund Fund Fund Funds Total Fund balances: Nonspendable: Inventory $ 125,000 $ 108,000 $ 16,000 $ 249,000 Permanent fund principal $ 164, ,000 Restricted for: Social services 240, ,000 Parks and recreation 80,000 80,000 Education 55,000 55,000 Highways $ 444, ,000 Road surface repairs 24,000 24,000 Debt service reserve $ 206, ,000 School construction 301, ,000 Law enforcement 214, ,000 Other capital projects 51,000 51,000 Other purposes 30,000 30,000 Committed to: Zoning board 16,000 16,000 Economic stablization 210, ,000 Homeland security 110, ,000 Education 50, , ,000 Health and welfare 75,000 75,000 Assigned to: Parks and recreation 50,000 50,000 Library acquisitions 50,000 50,000 Highway resurfacing 258, ,000 Debt service 306, ,000 Public pool 121, ,000 City Hall renovation 60,000 60,000 Other capital projects 50, , ,000 Other purposes 80,000 73, , ,000 Unassigned: 525, ,000 Total fund balances $ 1,746,000 $ 390,000 $ 192,000 $ 512,000 $ 1,448,000 $ 554,000 $ 4,842,000 This level of detail is not required for display on the face of the balance sheet. Fund balance categories and classifications may be presented in detail or in the aggregate if sufficient detail is provided in the notes to the financial statements.

31 Classification totals displayed details disclosed in the notes Major Major Major Special Revenue Funds Debt Capital General Highway School Aid Service Projects Other Fund Fund Fund Fund Fund Funds Total Fund balances: Nonspendable $ 125,000 $ 108,000 $ 16,000 $ 164,000 $ 413,000 Restricted 405,000 24,000 $ 206,000 $ 796, ,000 1,645,000 Committed 461, , ,000 Assigned 230, ,000 73, , , ,000 1,695,000 Unassigned 525, ,000 Total fund balances $ 1,746,000 $ 390,000 $ 192,000 $ 512,000 $ 1,448,000 $ 554,000 $ 4,842,000

32 What Do You Need to Know About Statement 54 Fund Type Definitions Governmental Fund Type Definitions Special revenue Capital projects Debt service

33 Special Revenue Funds Special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. The term proceeds of specific revenues sources establishes that one or more specific restricted or committed revenues should be the foundation for a special revenue fund. Used to say just legally restricted Now need a real revenue as the funds base not a transfer Agrees with new Fund Balance categories

34 Proceeds of Specific Revenue Sources Establishes that one or more specific restricted or committed revenues should be the foundation for a special revenue fund Restricted or committed proceeds of specific revenue sources should comprise a substantial portion of the inflows reported in the fund can put other resources there But the fund may also include other restricted, committed, and assigned resources

35 Capital Projects Funds Capital projects funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays including the acquisition or construction of capital facilities and other capital assets agrees with new Fund Balance categories Now can be used to report the acquisition or construction of capital assets that clearly comprise facilities (for example, buildings, infrastructure assets) AND those that clearly do not (for example, buses, computer workstation equipment) OLD DEFINITION INCLUDED ONLY FACILITIES

36 Debt Service Funds Debt service funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest agrees with new Fund Balance categories Should be used to report resources if legally mandated in old definition Financial resources that are being accumulated for principal and interest payments maturing in future years also should be reported in debt service funds in old definition

37 Proposed Effective Date and Transition Effective for financial statements for periods beginning after June 15, 2010 Changes to the fund balance information presented in a statistical section may be made prospectively, although retroactive application is encouraged If the information for previous years is not restated, governments should explain the nature of the differences from the prior information

38 GASB Statement 57 OPEB Measurements by Agent Employers and Agent Multiple- Employer Plans

39 Statement 57 Issued December 2009

40 Types of plans Single-employer plans involve only one government Multiple-employer plans include more than one government Agent multiple-employer plans separate accounts are maintained to ensure that each employer s contributions are used to provide benefits only for the employees of that government Individual employers are responsible for benefits associated with their own employees only, and separate actuarial calculations are made for each participating government in the plan. Collection of single-employer plans Costs of administering the plan is shared by participating governments and the plan assets are pooled for investment purposes 40

41 Types of plans Multiple-employer plans include more than one government Cost-sharing multiple-employer plans governments pool (share) the costs of providing benefits and administering the plan and the assets accumulated to pay benefits A single actuarial valuation is conducted for all of the employees of the participating governments combined 41

42 OPEB Measurements by Agent Employers and agent Multiple- Employer Plans Objectives to address issues related to: The use of the alternative measurement method The frequency and timing of measurements by employers that participate in agent multipleemployer other postemployment benefit (OPEB)

43 Statement 57 Expands option for qualified agent employers to use the alternative measurement method permits an agent employer that has an individualemployer OPEB plan with fewer than 100 total plan members to use the alternative measurement method Amends agent multiple plan reporting requirements permits the requirement that a defined benefit OPEB plan obtain an actuarial valuation - be satisfied for an agent multiple-employer OPEB plan by reporting an aggregation of results of actuarial valuations of the individual-employer OPEB plans or measurements resulting from use of the alternative measurement method for individual-employer OPEB plans that are eligible

44 Statement 57 Clarifies measurement frequency and timing requirements for agent employers when actuarially determined OPEB measures are reported by an agent multiple-employer OPEB plan and its participating employers, those measures should be determined as of a common date and at a minimum frequency to satisfy the agent multiple-employer OPEB plan s financial reporting requirements

45 Statement 57 Other Postemployment Benefits Certain Implementation Issues Effective Date: Provisions related to the use and reporting of the alternative measurement method are effective immediately Provisions related to the frequency and timing of measurements are effective for actuarial valuations first used to report funded status information in OPEB plan financial statements for periods beginning after June 15, 2011 Earlier application is encouraged.

46 GASB Statement 59 Financial Instruments Omnibus

47 Statement 59 Issued June 2010

48 Financial Instruments Omnibus Exposure Draft issued in June 2009 with a comment deadline of October 30, 2009 Proposed revisions of existing financial reporting requirements to address issues that have arisen since the release of: Statement 25 Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans Statement 31 Accounting and Financial Reporting for Certain Investments and for External Investment Pools Statement 40 Deposit and Investment Risk Disclosures Statement 43 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans Statement 53 Accounting and Financial Reporting for Derivative Instruments

49 Financial Instruments Omnibus Amendments include: Statements No. 25 and 43 Amended to remove the fair value exemption for unallocated insurance contracts. Will provide that investments in unallocated insurance contracts should be reported as interest-earning investment contracts according to the provisions of paragraph 8 of Statement No. 31

50 Financial Instruments Omnibus Amendments include: Statement No. 31 Amended to indicate that a 2a7-like pool, as described in Statement 31, is an external investment pool that operates in a manner compliant with the SEC s Rule 2a7. Will provide practitioners with improved guidance on the relevance of complying with the SEC requirements! Statement No. 40 Amended to indicate that interest rate risk information should be disclosed only for debt investment pools, such as bond mutual funds that do not meet the requirements of a 2a7-like pool. Will provide better guidance regarding the applicability of interest rate risk disclosures!

51 Financial Instruments Omnibus Amendments include: Statement No. 53 Amended to clarify that the net settlement characteristic of Statement 53 that defines a derivative instrument would not be satisfied by a contract provision for a penalty payment for nonperformance. Amended to provide that financial guarantee contracts included in the scope of Statement 53 are limited to financial guarantee contracts that are considered to be investment derivative instruments entered into primarily for the purpose of obtaining income or profit.

52 Financial Instruments Omnibus Amendments include: Statement No. 53 (continued) Amended to clarify that certain contracts based on a specific volume of sales or service revenues would be excluded from the scope of Statement 53. Amended to provide that the leveraged yield criteria of Statement 53 would be met if the initial rate of return on the companion instrument has the potential for at least a doubled yield. Will refine which financial instruments are within the scope of Statement 53-Clarifies four practice issues!

53 Statement 59 Financial Instruments Omnibus Effective Date: Effective for financial statements for periods beginning after June 15, 2010 Earlier application is encouraged In the first period that this Statement is applied, changes made to comply should be treated as an adjustment of prior periods, and financial statements presented for the periods affected should be restated

54 GASB Statement 60 Accounting and Financial Reporting for Service Concession Arrangements

55 Accounting and Financial Reporting For Service Concession Arrangements What is a service concession arrangement? Public-private or public-public partnership An arrangement between a transferor (a government) and an operator (governmental or nongovernmental) in which: 1) the transferor conveys to an operator the right and related obligation to provide services through the use of infrastructure or another public asset ( a facility ) 2) the operator collects and is compensated by fees from third parties 3) the transferor is entitled to significant interest in the service utility of the facility at the end of the arrangement (a residual interest) 4) The transferor determines or has the ability to modify or approve: What services the operator is required to provide To whom the services will be provided The prices or rates that will be charged

56 Service Concession Arrangements Transferor Accounting: If facility associated with the SCA is an existing facility transferor should continue to report the facility as a capital asset If facility associated with the SCA is a new facility, purchased or constructed by the operator, or an existing facility that has been improved by the operator transferor should report: The new facility or the improvement as a capital asset at fair value when it is placed in operation, Any contractual obligations as liabilities, and A corresponding deferred inflow of resources equal to the difference between the fair value of the asset and the liabilities 56

57 Service Concession Arrangements Transferor Accounting (continued): A transferor should recognize a liability for certain obligations to sacrifice financial resources under the terms of the arrangement. Liabilities associated with the SCA should be recorded at their PRESENT VALUE if the obligation is significant and meets either of the following criteria: Contractual obligations that directly relate to the facility (for example, obligations for capital improvements, insurance, or maintenance on the facility) Contractual obligations that relate to a commitment made by the transferor to maintain a minimum or specific level of service in connection with the operation of the facility (for example, providing a specific level of police and emergency services for the facility or a minimum level of maintenance to areas surrounding the facility) 57

58 Service Concession Arrangements Transferor Accounting (continued): After initial measurement, the capital asset is subject to existing requirements for depreciation, impairment, and disclosures The capital asset should not be depreciated if the arrangement requires the operator to return the facility to the transferor in its original or an enhanced condition The corresponding deferred inflow of resources should be reduced and revenue should be recognized in a systematic and rational manner over the term of the arrangement If a liability is recorded to reflect a contractual obligation, the liability should be reduced as the transferor s obligations are satisfied. When the obligation is satisfied, a deferred inflow should be reported and the related revenue should be recognized in a systematic and rational manner over the term of the arrangement Improvements made to the facility by the operator during the term of the SCA should be capitalized as they are made and are subject to the requirements for depreciation, impairment, and disclosures 58

59 Service Concession Arrangements Transferor Accounting (continued): If an SCA requires up-front or installment payments from the operator, the transferor should report: The up-front payment or present value of installment payments as an asset Any contractual obligations as liabilities, and A deferred inflow of resources equal to the difference between the two Revenue should be recognized as the deferred inflow of resources is reduced. This revenue should be recognized in a systematic and rational manner over the term of the arrangement 59

60 Service Concession Arrangements Governmental Operator Accounting: The governmental operator would report an intangible asset for the right to access the facility and collect thirdparty fees from its operation at cost (for example, the amount of an up-front payment or the cost of construction of or improvements to the facility) Amortized over the term of the arrangement in a systematic and rational manner Improvements made to the facility during the arrangement would increase the governmental operator s intangible asset if the improvements increase the capacity or efficiency of the facility 60

61 Service Concession Arrangements Governmental Operator Accounting: If the arrangement requires a facility to be returned in a specified condition and information is prominent that indicates the facility is not in the specific condition, and the cost to restore the facility to that condition is reasonably estimable, then a liability, and generally and expense to restore the facility should be reported 61

62 Service Concession Arrangements Other provisions: Revenue-sharing arrangements Unconditional payments (regardless of revenues earned) present value of those amounts should be treated like installments at the inception of the arrangement Conditional amounts recognized when earned according to the agreement Disclosures: Description of the arrangement Nature and extent of rights retained or transferred Nature and amounts of assets, liabilities, and deferred inflows of resources 62

63 Statement No. 60 Effective Date Effective for financial statements for periods beginning after December 15, 2011 Earlier application is encouraged The provisions generally would be required to be applied retroactively for all prior periods presented. 63

64 GASB Statement 61 The Financial Reporting Entity: Omnibus (an amendment of GASB Statements No. 14 and No. 34)

65 Project Objectives Determine whether the standards for defining and presenting the financial reporting entity in Statement 14, as amended: Include the organizations that should be included Exclude organizations that should not be included Display and disclose the financial data of component units in the most appropriate and useful manner Are consistent with the current conceptual framework Amends Statement 14 and Statement 34 to better meet user needs and to address reporting issues that have arisen since their issuance

66 Inclusion Criteria Statement 14 requires inclusion if the component unit is fiscally dependant. That is, primary government has authority over: Determining the budget, or Levying taxes and charges or setting rates, or Issuing debt Statement 61 adds a requirement for a financial benefit or burden relationship to exist between the primary government and that organization for it to be included in the reporting entity as a component unit.

67 Inclusion Criteria The following circumstances set forth a primary governments financial accountability for a legally separate organization: a) The primary government is financially accountable if it appoints a voting majority of the organization s governing body and (1) it is able to impose its will on that organization or (2) there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government. b) The primary government is may be financially accountable if an organization is fiscally dependent on and there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government regardless of whether the organization has (1) a separately elected governing board, (2) a governing board appointed by a higher level of government, or (3) a jointly appointed board. 67

68 Inclusion Criteria An organization has a financial benefit or burden relationship with the primary government if ANY ONE of these conditions exist: The primary government is legally entitled to or can otherwise access the organization s resources The primary government is legally obligated or has otherwise assumed the obligation to finance the deficits of, or provide financial support to, the organization The primary government is obligated in some manner for the debt of the organization 68

69 Inclusion Criteria Statement 14 requires inclusion of a component unit if exclusion would make the reporting entity s statements misleading or incomplete

70 Blending Requirements Statement 14 requires blending if the primary government & component unit have substantively the same governing body Sufficient representation to allow complete control decisions of the primary government can not be overridden by the component unit Statement 61 expands that requirement to also require that: A financial benefit/burden relationship exists, or Management (below the elected official level) of the primary government has operational responsibility for the activities of the component unit Primary government s personnel manage activities of the component unit in essentially the same manner in which they manage their own funds, programs, or departments

71 Blending Requirements Statement 61 expands the blending criteria to include component units whose total debt outstanding is expected to be repaid entirely or almost entirely with resources of the primary government Even if the component unit provides services to constituents or other governments, rather than exclusively or almost exclusively to the primary government

72 Blending Requirements Statement 61 clarifies that for financial reporting purposes, funds of a blended component unit have the same financial reporting requirements as those of a fund of the primary government Major fund reporting not required to be separately displayed unless it meets the requirements Could be combined with primary governments other funds in the appropriate fund financial statements or combining statements

73 Blending Requirements Statement 61 clarifies how to blend a component unit if the primary government is a Business-type Activity that uses a single column presentation for financial reporting: For a single column presentation, a component unit may be blended by: Consolidating component unit data into the single column of the primary government and presenting condensed combining information in the notes, or For a multiple column Business-type Activity (same) Additional column(s), as if funds of the primary government

74 Major Component Units Statement 61 clarifies the types of relationships that should generally affect the determination of major component units: Determination that a component unit is major should be based on the nature and significance of its relationship to the primary government: The services provided by the component unit to the citizens are such that separate reporting as a major component unit is considered to be essential to financial statement users Significant transactions with the primary government Significant financial benefit/burden relationship with the primary government Eliminates the requirement that the major component unit determination include consideration of each component unit s significance relative to the other component units

75 Reporting Equity Interests An asset should be recognized for an equity interest in a discretely presented component unit: A joint venture A partnership An investment A component unit If the component unit is blended, the financial reporting entity would report the component unit rather than the asset

76 Note Disclosures Clarifies that current disclosures require: Brief description of the component units of the reporting entity and their relationship to the primary government Rationale for including each component unit Whether it is discretely presented, blended, or included as a fiduciary fund (Practical consideration: Can aggregate similar component units that have common characteristics as long as each component unit is separately identified)

77 Effective Date Effective for financial statements for periods beginning after 6/15/12 (FYE 6/30/13 and 12/31/13) Earlier application is encouraged In the first period that the Statement is applied, changes made to comply should be treated as an adjustment of prior periods, and financial statements presented for the periods affected should be restated If restatement is not practical cumulative effect should be reported as a restatement of beginning net assets for the earliest period restated

78 GASB's Comprehensive Implementation Guide Edition

79 Comprehensive Implementation Guide Includes updates, and supplements all prior guides issued through June 30, 2010 More than 1,800 questions and answers Adds more than 100 new questions and answers including the material from the Implementation Guide to Statement 53 on Derivative Instruments Also includes appendices to provide Q&As without the effects of Statement 53 for those governments for which the Statement is not yet effective Released in September 2010

80 GASB s Suggested Guidelines for Voluntary Reporting SEA Performance Information

81 Suggested Guidelines for Voluntary Reporting Issued in June

82 Suggested Guidelines For Voluntary Reporting, SEA Performance Information Conceptually based suggested guidelines for voluntary reporting of Service Efforts and Accomplishments (SEA) Performance Information What the project is: Focus on voluntary reporting Focus on suggested guidelines Focus on clarifying GASB s role What the project is not: Establishing performance measures Establishing performance benchmarks Establishing reporting standards Requiring SEA reporting

83 Suggested Guidelines For Voluntary Reporting, SEA Performance Information Sole Focus Of GASB Efforts EXTERNAL REPORTING Strategic Planning Program or Activity Planning Internal Reporting Government Performance Management System Selecting Performance Measures Evaluating Performance Performance- Based Budgeting Managing Work Processes

84 Suggested Guidelines For Voluntary Reporting, SEA Performance Information Suggested Guidelines for Voluntary Reporting, SEA Performance Information composed of three parts: Four essential components of an effective SEA report Six qualitative characteristics that are appropriate for reporting SEA performance information A discussion of how to effectively communicate SEA performance information

85 Suggested Guidelines For Voluntary Reporting, SEA Performance Information FOUR ESSENTIAL COMPONENTS Provide guidance to assist preparers of SEA reports in effectively communicating SEA performance information to users Purpose and Scope Major Goals and Objectives Key Measures of SEA Performance Discussion and Analysis of Results and Challenges

86 Suggested Guidelines For Voluntary Reporting, SEA Performance Information SIX QUALITATIVE CHARACTERISTICS Provide further guidance in the application of the essential components assist users in comprehending and assessing government programs and services Timeliness Understandability Comparability Consistency Relevance Reliability

87 Suggested Guidelines For Voluntary Reporting, SEA Performance Information EFFECTIVE COMUNICATION Provide further guidance on the effective communication of SEA performance information Intended Audiences Forms of Communication Multiple Levels of Reporting

88 Other Current Projects

89 Other Current Projects Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements Statement 62 (December) Pension Accounting and Reporting Preliminary Views Conceptual Framework Recognition and Measurement Attributes Economic Condition Reporting: Fiscal Sustainability Statement of Net Position User Guide Series

90 Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements Statement 62 anticipated issuance of December, 2010

91 Codification of Pre-November 30, 1989 FASB and AICPA Pronouncements Overview of the Project Since FASB introduced its codification, its original pronouncements are nonauthoritative Paragraph 17 of Statement 34 requires application of pre-november 30, 1989, FASB pronouncements, unless they conflict with or contradict GASB pronouncements Project objective: Specifically identify applicable provisions in FASB Statements and Interpretations, APB Opinions, ARBs, and AICPA Accounting Interpretations, and incorporate those provisions into the GASB s literature 91

92 Codification of Pre-November 30,1989 FASB and AICPA Pronouncements Statement 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting would be superseded All applicable pre-11/30/89 standards would be contained in the GASB s codification All potentially applicable post-11/30/89 non-gasb standards would be other accounting literature Guidance on 29 topics would be brought into the GASB literature, including: Capitalization of interest costs (FAS 34) Statement of net assets classification (ARB 43, APB 12 & FAS 6) 92

93 Codification of Pre-November 30,1989 FASB and AICPA Pronouncements Special and extraordinary items (APB 30) Comparative financial statements (ARB 43) Related parties (FAS 57) Prior-period adjustments (FAS 16 & APB 9) Accounting changes and error corrections (APB 20 and FIN 20) Contingencies (FAS 5 & FIN 14) Extinguishments of debt (APB 26 & FAS 76) Troubled debt restructuring (FAS 15) Inventory (ARB 43) Leases (FAS 13, 22 & 98 & FIN 23, 26 & 27) 93

94 Codification of Pre-November 30,1989 FASB and AICPA Pronouncements Sales of real estate (FAS 66) Real estate projects (FAS 67) Research and development arrangements (FAS 68) Broadcasters (FAS 63) Cable television systems (FAS 51) Insurance enterprises (FAS 60) Lending activities (FAS 91) Mortgage banking activities (FAS 65) Regulated operations (FAS 71, 90 & 101) 94

95 Effective Date Statement is expected to be issued in December 2010 Effective for financial statements for periods beginning after December 15, 2011 Earlier application is encouraged Accounting changes adopted to conform with the provisions of the Statement should be applied retroactively by restating financial statements, if practical, for all prior periods presented. 95

96 Pension Accounting and Financial Reporting by Employers Preliminary Views of the GASB Invitation to Comment issue in March 2009 Preliminary Views issued in June Public Hearings scheduled in October 2010

97 Why is the GASB looking at this topic? What has changed since the issuance of current standards? Relevant conceptual points not available when Statements 25 and 27 were developed Concepts Statement No. 4, Elements of Financial Statements Issued in June, 2007 Included the definition of a liability Concepts Statement No. 3, Communication Methods in General Purpose External Financial Statements That Contain Basic Financial Statements Issued in April, 2005 Provided definitions of communications methods including recognition/display in basic financial statements, notes to basic financial statements, and required supplementary information 9 7

98 Due process document Preliminary Views Tentative conclusions of the GASB When used? Prior to Exposure Draft Views of Board members are split Views of constituents are expected to be split (this case) Scope of this document Major issues related to employer accounting for pensions DOES NOT APPLY TO HOW GOVERNMENTS APPROACH THE FUNDING OF THEIR PENSION PLANS Not included: plan reporting, note disclosures, OPEB 9 8

99 Pension Accounting and Financial Reporting by Employers Starting point: employer s pension obligation to employees Pension benefits are compensation for employees services in financial-reporting periods Employment-exchange transactions create an obligation of employer to employees to provide pension benefits in retirement Annual exchanges, viewed by Board within context of a career-long employment relationship Most of the Issues in the PV concern employers that participate in Sole employer or Agent multiple-employer defined benefit pension plans 99

100 Does an Employer Remain Obligated for Unfunded Benefits? Traditional pension accounting assumes that an employer s obligation for pension benefits is effectively transferred to the pension plan. If for some reason the pension plan did not have sufficient resources to make benefit payments, retirees of course would turn to the employer for promised benefit payments SO, should the employer be considered to remain obligated for any difference between projected benefits payments and plan net assets American Institute available of CPAs for benefits?? 100

101 GASB s Position Primary and secondary responsibilities for the obligation Funded portion of the obligation Plan becomes primarily responsible for the obligation to employees to the extent plan assets have been accumulated to provide for payment of benefits; employer is secondarily responsible for the funded portion Unfunded portion of the obligation Employer remains primarily responsible for the obligation to employees to the extent the obligation exceeds plan assets 101

102 Is an Employer s Unfunded Benefit Obligation a Liability? GASB s position: Unfunded pension obligation should be recognized as a liability The unfunded pension obligation meets Concepts Statement 4 definition of a liability of the employer: A present obligation created by past exchanges Requires sacrifice of employer s resources Little or no discretion to avoid the sacrifice of resources generally a legally enforceable liability, but if not, in some cases, is a constructive liability 102

103 Is an Employer s Unfunded Pension Obligation Measurable with Sufficient Reliability to be Reported as a Liability?? Not enough that it meets the definition of a liability to be displayed as such Per Concepts Statement No. 3 Display as a liability is only appropriate if the amount is measurable with sufficient reliability Estimating the amount of an employer s unfunded benefit obligation involves assumptions about the probability of events into American the Institute future of CPAs 103

104 GASB s Position The liability is measurable with sufficient reliability to be recognized in the employer s basic financial statements Should be reported there are the employer s net pension liability 104

105 How should the net pension PV Proposes: liability be measured?? Total pension liability (i.e. projected benefits payments) Less: Net pension plan assets as of the reporting date Equals: Net Pension Liability 105

106 Projection of Benefits In a defined benefit pension plan, the benefit formula is applied to some future salary level Which changes in salary level should be included? GASB s Position Projection of benefits inclusive of future changes, including, potentially, ad hoc COLAs in circumstances where essentially not different from automatic 106

107 Discount Rate Projected benefit payments must be discounted to their present value, which requires the selection of a discount rate. Currently, the discount rate used for this purpose is the long term expected rate of return on plan investments, since its is those investments that ultimately will be used to make projected benefit payments 107

108 GASB s Position To extend the approach already taken for OPEB to pension benefits: Discount rate or rates (hybrid method): Long-term expected rate of return for projected benefit payments covered by current and projected future plan net assets High-quality municipal bond index rate for projected benefit payments, if any, beyond the point at which plan net assets are projected to be fully depleted 108

109 Measurement of the Net Pension Liability Attribution of the present value of projected benefit payments to periods PV requires Single method :Entry age actuarial cost method Attribution method: Level percentage of payroll Attribution period: expected service life of each employee Only for accounting and financial reporting, governments may make other choices when deciding how they wish to fund their pension plans Total liability = service costs (portion of the present value of the future pension benefits payments a government will make to its current and former employees) that are attributed to past periods Net pension liability = Total liability less the net assets set aside in the plan that are available to pay benefits (including investments at fair value) 1 0 9

110 How Should Employers Account for Changes in the Net Pension Liability? A variety of factors can affect the estimated amount of an employer s net pension liability, including differences between projected earnings on plan investment and actual earnings Under current standards, the effect of various factors on the estimated amount of projected benefit payments can be deferred and amortized over a period as long as 30 years 110

111 GASB s Position Sources of changes in the net pension liability Service cost (benefits earned by employees in exchange for their services): current-period expense Interest on beginning balance of the total liability: current-period expense Differences between actual and expected results Changes in assumptions Benefit changes To the extent they impact the total liability: Defer and recognize expense over period(s) representative of each individual s expected remaining service life: Active and inactive groups treated separately Period for each group should be average expected remaining service life (weighted) 1 1 1

112 GASB s Position (Continued) Sources of changes in the net pension liability (cont.) Changes in plan net assets available for pension benefits Expected investment returns: current-period expense Differences between actual and expected investment returns: Deferral of cumulative differences within 15% of the fair value of plan investments Deferred inflow actual returns above the expected rate Deferred outflows actual returns below the expected rate Expense portion of cumulative deferrals outside the corridor Other changes: current-period expense 1 1 2

113 Pension Accounting and Financial Reporting by Employers Sources of changes in the net pension liability (cont.) Actual returns are greater than assumed in some years and lower in others over time they are expected to offset each other GASB believes that it is not appropriate to include in the calculation of annual pension expense these differences in returns that are expected to offset one another corridor established Serves to remove normal fluctuations in investment values that, over time, are expected to have no net impact on expenses Events that have a cumulative impact on asset values that are expected to take a relatively long period to offset (am impact that exceeds the 15 percent limit), such as a large increase or decline in the stock market, WOULD BE incorporated into the expense calculation immediately 1 1 3

114 Pension Accounting and Financial Reporting by Employers Recognition by cost-sharing employers Cost-sharing is a way that employers share benefit risks and pool assets The unfunded obligation is the primary responsibility of the employers collectively Each cost-sharing employer is implicitly primarily responsible for a proportionate share of the collective unfunded obligation An employer s share of the collective unfunded pension obligation: Meets the definition of a liability Is measurable with sufficient reliability to support recognition 114

115 Pension Accounting and Financial Reporting by Employers Recognition by cost-sharing employers (cont.) Each cost-sharing employer also should recognize a proportionate share of the collective deferred outflows, deferred inflows, and pension expense Measurement approach: A single measurement at the collective level that takes into consideration the risk-sharing and asset-pooling features of a cost-sharing plan Allocation of the collective results to individual employers for financial reporting purposes 115

116 GASB s Conceptual Framework Project

117 Recognition and Measurement Attributes Concepts Statement Project Objectives: Develop recognition criteria for whether information should be reported in state and local government financial statements and when that information should be reported Consider the measurement attribute or measurement attributes (for example, historical cost or fair value) that conceptually should be used in government financial statements GASB working with Federal Accounting Standards Advisory Board (FASAB)

118 Recognition and Measurement Attributes Concepts Statement Accounting and Financial Reporting Issues: What messages are financial statements conceptually attempting to convey? (What is the story that the financial statements attempt to communicate, or what questions should be answered by reading different financial statements and financial statements prepared using different measurement focuses? For example, the statement of cash flows answers the question, What happened to cash during the year? ) What is the relationship among objectives of financial reporting (user needs), financial statements, measurement focuses, and measurement attributes at the conceptual level? How does when an element is recognized affect the meaning that is to be conveyed by a particular financial statement? What are the fundamental recognition criteria necessary to report an element in a financial statement?

119 Recognition and Measurement Attributes Concepts Statement Accounting and Financial Reporting Issues: What measurement attribute(s) best conveys the message(s) intended for financial statements? What is the role of historical cost and fair value information in conveying these messages? Is the same measurement attribute applicable in all measurement focuses? Should the application of fair value be different for the statement of net assets and the statement of activities? How does fair value relate to the cost of service model of the statement of activities? Preliminary Views Document expected to be issued in December 2010