Government Accounting Standards Board Update. GASB 65 Through GASB 70: How Do These Statements Affect Public Ports in Washington?

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1 Government Accounting Standards Board Update GASB 65 Through GASB 70: How Do These Statements Affect Public Ports in Washington?

2 Introduction FOX & COMPANY CPAs, LLC (360)

3 GASB: Background MISSION: To establish and improve standards of state and local governmental accounting and financial reporting that will: - Result in useful information for users of financial reports, and - Guide and educate the public, including issuers, auditors, and users of those financial reports. Establish Standards Useful information for users of financial reports Guide & educate - PUBLIC - ISSUERS - AUDITORS - USERS Fox & Company CPAs, LLC Slide # 3 WPPA Finance Seminar June, 2013

4 GASB: Authority AUTHORITY OF GASB: GASB is recognized by governments, the accounting industry, and the capital markets as the official source of generally accepted accounting principles for state and local governments. - Facts about GASB, About GASB Tab, page 1 Fox & Company CPAs, LLC Slide # 4 WPPA Finance Seminar June, 2013

5 GASB: Authority AUTHORITY OF GASB: Its standards are not federal laws or regulations and the organization does not have enforcement authority. Compliance with GASB s standards, however, is enforced through the laws of some individual states and through the audit process, when auditors render opinions on the fairness of financial statement presentations in conformity with GAAP. - Facts about GASB, About GASB Tab, page 1 Fox & Company CPAs, LLC Slide # 5 WPPA Finance Seminar June, 2013

6 GASB and Washington Law; BARS Authority WASHINGTON STATE LAW & GASB: The state auditor shall prescribe a standard form with which the accounts and records of costs of all local governments shall be maintained as required under RCW RCW The state auditor shall require from every local government financial reports covering the full period of each fiscal year, in accordance with the forms and methods prescribed by the state auditor, which shall be uniform for all accounts of the same class. - RCW The BARS Manual for Port Districts (GAAP) and the BARS Manual for Port Districts (Cash Basis) prescribe the methods and forms to be used for financial reporting and accounting. Fox & Company CPAs, LLC Slide # 6 WPPA Finance Seminar June, 2013

7 BARS Incorporating GASB Statements (Codification) BARS Manual (GAAP) The following principles of accounting and financial reporting are based on those set forth in the Governmental Accounting Standards Board s (GASB) Codification of Governmental Accounting and Financial Reporting Standards. The BARS Manual permits accounting and financial reporting that conforms to these principles in all respects and requires GAAP districts to account and report in conformity with these principles, except that the required annual report is not as extensive as the Comprehensive Annual Financial Report (CAFR). - BARS Manual, GAAP Principles, First Paragraph Fox & Company CPAs, LLC Slide # 7 WPPA Finance Seminar June, 2013

8 Cash Basis (BARS Cash Basis Accounting) BARS Manual (Cash Basis) For BARS Cash Basis Ports, GASB Statements only apply to the extent they are incorporated in the Cash Basis BARS Manual. Cash Basis Ports are special entities, their basis of accounting is BARS, not GAAP. Fox & Company CPAs, LLC Slide # 8 WPPA Finance Seminar June, 2013

9 6 New GASB Statements Issued in FOX & COMPANY CPAs, LLC (360)

10 Areas Covered GASB 65: Items Previously Reported as Assets and Liabilities Should these items really be assets, liabilities, revenues, expenses, or deferred inflows or outflows of resources? What is a deferred inflow or outflow and how do you show it on your financial statements? GASB 66: Technical Corrections A variety of issues, from Port perspective the recognition of deferred lease revenue is likely the only part of this Statement that is significant GASB 67: Financial Reporting for Pension Plans This changes the way WA PERS presents its net position and operations GASB 68: Accounting & Financial Reporting for Pensions Ports participants in PERS are Cost-sharing employers If a Port prepares its financial statements using the economic resources measurement focus and the accrual basis it must show a liability for its proportionate share of the collective net pension liability of PERS. Unfunded amounts are expenses, changes are deferred inflows/outflows Fox & Company CPAs, LLC Slide # 10 WPPA Finance Seminar June, 2013

11 Areas Covered GASB 69: Government Combinations and Disposals of Government Operations Covers both inter-agency and intra-entity transfers, combinations, & acquisitions Covers gain and loss recognition on dispositions, doesn t cover abandonments GASB 70: Accounting and Financial Reporting for Nonexchange Financial Guarantees Disclosure of contingent liabilities is required Rules for disclosure and accounting for actual guarantee liabilities are established Fox & Company CPAs, LLC Slide # 11 WPPA Finance Seminar June, 2013

12 GASB Statement 65 FOX & COMPANY CPAs, LLC (360)

13 Summary Establishes both accounting and reporting standards Changes what used to be accounted for and reported as an asset or liability to either: A deferred inflow or deferred outflow of resources or An inflow or outflow of resources (a/k/a: a revenue or expense) Fox & Company CPAs, LLC Slide # 13 WPPA Finance Seminar June, 2013

14 Approach Is the item an asset or liability as defined in Concepts Statement No. 4? ASSETS: Resources with a present service capacity that the government presently controls. LIABILITIES: Present obligations to sacrifice resources that the government has little or no discretion to avoid. If not, then is the item a deferred inflow or outflow of resources as defined in Concepts Stmt. No. 4? DEFERRED INFLOW: an acquisition of net assets by the government that is applicable to a future reporting period. DEFERRED OUTFLOW: a consumption of net assets by the government that is applicable to a future reporting period. If not, then the item is a revenue or expense Fox & Company CPAs, LLC Slide # 14 WPPA Finance Seminar June, 2013

15 Reporting If the Port has one of these items, then where does it get reported? On the Statement of Net Position in a new section, after assets or liabilities - Deferred outflows: following assets - Deferred inflows: following liabilities The residual amount is shown as Net Position (not Net Assets) Net Investment in Capital Assets Component is included in Net Position Restricted Component is restricted assets reduced by liabilities and deferred inflows of resources related to those assets Unrestricted Component is the remaining Net Position Fox & Company CPAs, LLC Slide # 15 WPPA Finance Seminar June, 2013

16 Reporting Summary Proprietary Funds: Assets + Deferred Outflows - Liabilities - Deferred Inflows = Net Position Governmental Funds: Assets + Deferred Outflows (optional subtotal) - Liabilities - Deferred Inflows (optional subtotal) + Fund Balance = Total Liabilities, Deferred Inflows and Fund Balances Fox & Company CPAs, LLC Slide # 16 WPPA Finance Seminar June, 2013

17 Deferred is now a defined term The only time Deferred should be used in a governmental financial statement is when it is one of the specific items on the list of deferred outflows or deferred inflows. Fox & Company CPAs, LLC Slide # 17 WPPA Finance Seminar June, 2013

18 Deferred Outflows Resources advanced to another government in a mandatory or voluntary non-exchange transaction when time is the only restriction on use by the transferee government Deferred debits from refunding of debt Purchase of future revenue within the same financial reporting entity Deferred loss resulting from sale-leaseback transactions Net balance (debit) of direct loan origination costs, including any portion related to points, for mortgage loans held for resale prior to the point of sale Fees paid to permanent investors to ensure the sale of loans prior to the point of sale Fox & Company CPAs, LLC Slide # 18 WPPA Finance Seminar June, 2013

19 Outflows Acquisition costs for insurance entities & public entity risk pools Initial direct costs incurred by the lessor for operating leases Debt issuance costs Net loan origination costs including points, related to lending activities or mortgage loans held for investment or held for resale Fees paid on purchased loans or to permanent investors to ensure the sale of loans Fox & Company CPAs, LLC Slide # 19 WPPA Finance Seminar June, 2013

20 Deferred Inflows Resources received in advance relating to imposed nonexchange transactions Resources received in advance in relation to government-mandated nonexchange transaction or voluntary nonexchange transaction when time requirements are the only eligibility requirements that have not been met by the receiving government Deferred credits from debt refunding Proceeds from sale of future revenues Unavailable revenue related to application of modified accrual accounting Deferred gain from sale leaseback transactions Net (credit) balance of loan origination fees, excluding points, for mortgage loans held for resale Resources generated by current rates intended to recover future costs Gains or cost reduction intended to reduce rates in future periods Fox & Company CPAs, LLC Slide # 20 WPPA Finance Seminar June, 2013

21 Inflows Net balance (credit) of loan origination fees, excluding points Commitment fees realized on exercise or expiration of the commitment Commitment fees charged for loan guarantees when the guarantee s exercise is considered remote Fees received related to a purchased loan or group of loans Net balance (credit) of loan origination fees, excluding points, for mortgage loans held for investment or held for resale after the sale occurs Fees realized after funding of mortgage loans or after the commitment to guarantee the funding of mortgage loans expires Fees when a commitment is arranged directly between a permanent investor and a borrower Fox & Company CPAs, LLC Slide # 21 WPPA Finance Seminar June, 2013

22 No Change Items Prepayments - are assets Resources advanced to another government in relation to a mandatory nonexchange transaction when eligibility requirements other than time requirements have not been met - are assets The purchase of future revenues from a government outside the reporting entity - are assets Initial subscriber installation costs relating to cable television systems - are assets Capitalized incurred costs related to regulated industries - are assets The amount by which a pension plan s net position exceeds the pension plan s total liability - is an asset GASB 67 & 68 define the amount by which a pension plan s total liability exceeds its net position as a liability of the pension plan and the plan participating employers, respectively Fox & Company CPAs, LLC Slide # 22 WPPA Finance Seminar June, 2013

23 No Change Items Resources received in advance related to a derived tax revenue nonexchange transaction - are liabilities Resources received in advance in relation to government mandated non-exchange transaction or a voluntary non-exchange transaction when eligibility requirements other than time requirements have not been met - are liabilities of the recipient government Resources received in advance of an exchange transaction - are liabilities Excess of initial hookup revenue over direct selling costs in relation to cable television systems - are liabilities Premium revenues for insurance entities and public entity risk pools received in advance - are liabilities Commitment fees for government guarantees, unless exercise is remote, are liabilities Refunds imposed by a regulator are liabilities Fees for guaranteeing loans or loan commitments are liabilities Fox & Company CPAs, LLC Slide # 23 WPPA Finance Seminar June, 2013

24 Revenue Recognition in Governmental Funds If an asset is recorded in a governmental type fund, but the revenue is not available for use, then the government should report a deferred inflow of resources until the revenue is available. Fox & Company CPAs, LLC Slide # 24 WPPA Finance Seminar June, 2013

25 Port Financial Statement Effects Current and advance refunding of debt Difference between the reaquisition price and the net carrying amount of the old debt is a Deferred Inflow/Outflow Debt issuance costs Prepaid bond insurance is an Asset Underwriter s fee for long-term bonds is an Expense Service concession agreements Gain or loss (fair value to obligation, or upfront payment to present value of installment payments) is a Deferred Inflow/Outflow Change in the value of derivative instruments used as (effective) hedges cause Deferred Inflow/Outflow (not income/expense) If the hedge is not effective, then the change in value is a Revenue or Expense Fox & Company CPAs, LLC Slide # 25 WPPA Finance Seminar June, 2013

26 More Examples Taxes become receivable when they are formally levied. They are taxes receivable, an Asset at that point. Until levied, they are a Deferred Inflow. Refunding of debt creates a Deferred Inflow or Outflow (as discussed before). The deferred flow is taken account as a component of interest expense (increase or reduction as the case may be) over the remaining life of the old or new debt, whichever is shorter. Bond issuance costs are Expenses in the period the bonds are issued Fox & Company CPAs, LLC Slide # 26 WPPA Finance Seminar June, 2013

27 Initial year issues Accounting changes adopted to conform to the provisions of GASB 65 should be applied retroactively by restating financial statements, if practical, for all periods presented. Fox & Company CPAs, LLC Slide # 27 WPPA Finance Seminar June, 2013

28 Initial year issues Exercise One Please see the handouts You are the Finance Director of the Port of Washington. You have to prepare the new financial statements for your Port in compliance with GASB 65. Please work on this exercise with the people you are sitting near. We will discuss your answers in 10 minutes. Fox & Company CPAs, LLC Slide # 28 WPPA Finance Seminar June, 2013

29 Final Thoughts on GASB 65 The concept of deferred inflows and outflows is similar to the use of accumulated other comprehensive accounting income in commercial accounting. If any Port is using fund accounting, make the fund determination after converting to GASB 65 (this is a partial restatement of GASB 34). Fox & Company CPAs, LLC Slide # 29 WPPA Finance Seminar June, 2013

30 GASB 66: Technical Corrections FOX & COMPANY CPAs, LLC (360)

31 Resolved Four Conflicts between Prior GASB Statements Risk financing activities can be reported in a special revenue fund other than the general fund or an internal service fund. A government lessor that has operating leases with scheduled rent increases may recognize operating lease payments either on a straight-line basis over the lease term or based on the estimated fair market value of the rental. A government that purchases receivables or future revenue streams recognizes the receivables purchased at the purchase price. A government that sells receivables (or other future revenue streams) recognizes a gain or loss on the sale equal to the difference between the book value and the sale price. Fox & Company CPAs, LLC Slide # 31 WPPA Finance Seminar June, 2013

32 GASB 67 & 68: Pension Accounting Issues FOX & COMPANY CPAs, LLC (360)

33 When will Statements 67 & 68 Take Effect? Statement 67: Plan Reporting For fiscal years beginning after June 15, WA PERS has a June 30 Fiscal Year, so for the year ending June 30, 2014, WA PERS will have to convert to the new reporting model Statement 68: Employer Reporting For fiscal years beginning after June 15, 2014 For WA Public Ports, Fiscal Year 2015 will be the year to convert to the new reporting model WA PERS usually issues financial statements in late October/early November. We will know something next fall It will effect your Port s statement of net assets (balance sheet) in 2015 It will require you to restate the 1/1/15 balance sheet to recognize your Port s proportionate share of the unfunded pension liability Fox & Company CPAs, LLC Slide # 33 WPPA Finance Seminar June, 2013

34 What do the statements change? The Old GASB 25/27 Model: The Annual Required Contribution was the plan s Normal Cost plus an amortization payment on the Unfunded Accrued Liability The PERS liability was the Net Pension Obligation (NPO) which is the cumulative difference between the ARC and the actual contribution made Assumptions were more flexible concerning rates of return and allowed actuarial cost methods and amortization method for the UAL Employers (Ports) participating in PERS did not report a liability it was PERS s liability a footnote disclosure was required at the Port level The pension expense on the Port s financial statements was, usually, the amount contributed to PERS Fox & Company CPAs, LLC Slide # 34 WPPA Finance Seminar June, 2013

35 What do the statements change? The new GASB 67/68 model PERS reports the Total Pension Liability - Requires more realistic and limited assumptions - One actuarial method is allowed - Discount rate is blended between long term rate of return and municipal bonds depending on funding levels - Must recognize COLAs - The Net Pension Liability (NPL) is the TPL minus the fair market value of the plan assets (not actuarial value) - This will be a volatile number so the NPL will fluctuate every year (constantly, really) Fox & Company CPAs, LLC Slide # 35 WPPA Finance Seminar June, 2013

36 What do the statements change? The new GASB 67/68 model Continued Ports report their proportionate share of the NPL as calculated by PERS as a liability on the Port s Statement of Net Position - By plan Ports report their Pension Expense (PE) which is their proportionate share of the total plan expense (not the PERS contribution amount) - Normal Cost, plus - Interest charge based on the TPL, plus - Amortization of experience gain/loss, change in assumptions, and change in benefits, minus - Expected return on plan assets - The difference between the PERS contribution amount and the PE is a Deferred Outflow (or Inflow) Fox & Company CPAs, LLC Slide # 36 WPPA Finance Seminar June, 2013

37 What do the statements change? The new GASB 67/68 model Continued Proportionate Share the Port s contribution ($) related to the collective contributions ($) of all employers in the plan Changes in the Port s NPL that result from a change in the Port s proportionate share compared to the prior period are recognized in PE over the remaining service lives of all employees (active and inactive) who are provided pensions Differences between the Port s PERS contribution amount and the proportionate share of the PE for the Port are a Deferred Outflow (assuming the PE exceeds the PERS Contribution amount Deferred Inflows are also recognized) and these Deferred Outflows are taken into PE (Expensed) over the remaining service lives of all employees. Fox & Company CPAs, LLC Slide # 37 WPPA Finance Seminar June, 2013

38 Reporting Requirements Financial Statement Accounts or Line Items: Statement of Net Position Total Pension Liability (the Port s share, by plan, or aggregated if not material) Total Pension Assets (possible if the plan is overfunded) Deferred outflows of resources (if the Port s cumulative contributions are less than the PE, as calculated) Deferred inflows of resources (possible, if the Port s cumulative contributions exceed the PE, as calculated) Statement of Activities Pension Expense (PE, as calculated) Cash Flow Statement Pension Contributions paid Fox & Company CPAs, LLC Slide # 38 WPPA Finance Seminar June, 2013

39 Reporting Requirements Footnote For Each PERS Plan: GASB 68, Para. 74 et. seq. Name, plan entity, & note that it is a cost-sharing multi-employer plan Terms of the plan Contribution requirements Link to the plan financial report Significant assumptions and inputs used to measure TPL Discount rate calculation details Plan fiduciary s (PERS s) Net Position Port s proportionate share of NPL (with many details) Fox & Company CPAs, LLC Slide # 39 WPPA Finance Seminar June, 2013

40 Reporting Requirements RSI For Each Plan, Separately (GASB 68, para ) 10-year schedule as of the measurement date of the NPL: - Port s proportion (%) of the collective NPL - Port s proportionate share ($) of the collective NPL - Port s covered payroll ($) - Port s proportionate share ($) of the collective NPL expressed as a percentage of the Port s covered payroll - PERS s net position as a percentage of TPL 10-year schedule as of the Port s FYE: - Port s statutory/contractual required employer contribution - Port s contribution made (as recognized by PERS) - Difference - Port s covered payroll ($) - Contributions recognized as % of covered payroll Fox & Company CPAs, LLC Slide # 40 WPPA Finance Seminar June, 2013

41 Reporting Requirements RSI Notes to RSI (GASB 68, para ) Information about factors that significantly affect trends in the amounts reported in the schedules required by paragraph 81 (last slide) should be presented as notes to the schedules Illustration Three Note Disclosures and RSI for a Cost-Sharing Employer (No Nonemployer Contributing Entities) From GASB 68 AS A HANDOUT Begins with Page 200 DISCUSSION Fox & Company CPAs, LLC Slide # 41 WPPA Finance Seminar June, 2013

42 Reporting Requirements Illustration 3 1. Paragraph in Summary of Significant Accounting Policies (Page 200) 2. Footnote on the Plan (Page ) a) Plan description b) Benefits provided c) Contributions d) Pension Liabilities, Pension Expense, and Deferred Outflows and Deferred Inflows of Resources Related to Pensions e) Actuarial assumptions i. Rate of return ii. Discount rate iii. Sensitivity analysis iv. Plan net position f) Amount payable to the plan NOTE: ALL OF THESE ITEMS FOR EACH PLAN THE PORT PARTICIPATES IN, only the Port s proportionate share, of course! Fox & Company CPAs, LLC Slide # 42 WPPA Finance Seminar June, 2013

43 Reporting Requirements Illustration 3 3. RSI a) Schedule of the Proportionate share of the net pension liability last 10 Fiscal Years (the Port will start by presenting two years (if available probably will be) and then add an additional year until the full 10 years are presented b) Schedule of Port contributions by plan, 10 years transition as above 4. Notes to RSI a) Changes of benefit terms (if any) b) Changes of assumptions (if any) Note: this will be cumulative over the 10 years and will state every change in assumptions made over the 10 year reporting period. Fox & Company CPAs, LLC Slide # 43 WPPA Finance Seminar June, 2013

44 GASB 67 & 68 Practical Guidance Probably safe to assume: The NPL adjustment will increase your Port s liabilities PERS 1 Unfunded Liability using OLD methods at 6/30/11 was $3.688 Billion PERS 2 Unfunded Liability using OLD methods at 6/30/11 was $630 Million The new method will increase the unfunded liability. Your Port will report its proportionate share of the new liability as of 1/1/15. CONSIDER: The debt covenants in your Port s bonds. Could this liability cause an issue Fox & Company CPAs, LLC Slide # 44 WPPA Finance Seminar June, 2013

45 GASB 67 & 68 Practical Guidance Probably safe to assume: The new PE will be higher than your current pension plan expense The new Pension Expense uses more conservative assumptions, uses fair value not actuarial value, and takes the unfunded liability into account faster than under the old method. All of these factors will increase the PE compared to the old method. CONSIDER: Could the increase in pension expense cause an issue on your statement of activities (income statement)? Fox & Company CPAs, LLC Slide # 45 WPPA Finance Seminar June, 2013

46 GASB 67 & 68 Practical Guidance Probably safe to assume : Your Commissioners and the public will not understand why the Pension Expense does not equal the amount your Port is paying to PERS CONSIDER: Discussing the situation with your Commission now, before the PE calculation starts for 2015 Entering into a dialog with your other advisors concerning any issues you see coming from implementing this requirement Fox & Company CPAs, LLC Slide # 46 WPPA Finance Seminar June, 2013

47 GASB 67 & 68 Practical Guidance The rationale for all of this is: PERS is responsible for paying pension benefits to the extent the plan has sufficient assets, but if the assets are not sufficient then--- Ports are responsible for paying the retirement benefits they promised to their employees from their respective general funds Fox & Company CPAs, LLC Slide # 47 WPPA Finance Seminar June, 2013

48 GASB 67 & 68 Practical Guidance The difficult calculations for Ports will involve converting the PERS liabilities to individual Port financial statements, preparing the schedules required, and customizing the general disclosures to fit your Port s needs. I don t think a template footnote will be adequate for all Ports, I believe individual Port s will need to perform individual calculations based on their individual employment situations. Fox & Company CPAs, LLC Slide # 48 WPPA Finance Seminar June, 2013

49 GASB 67 & 68 Class Exercise We are going to go over the basic calculations and Questions 1 & 2 together first, then: Please discuss Question 3 with the people you are sitting near. We will discuss your group s thoughts together in about 10 minutes. Fox & Company CPAs, LLC Slide # 49 WPPA Finance Seminar June, 2013

50 GASB 69: Government Combinations & Disposals FOX & COMPANY CPAs, LLC (360)

51 Combinations & Disposals Combinations Mergers combinations of separate entities without an exchange of significant consideration - Use carrying value to measure assets & liabilities Acquisitions transactions in which a government acquires another entity or its operations in exchange for significant consideration\ - Use acquisition value to measure assets & liabilities Transfers of Operations like a merger when there is no significant consideration, not necessary to be a separate legal entity - Use carrying value to measure assets & liabilities Fox & Company CPAs, LLC Slide # 51 WPPA Finance Seminar June, 2013

52 Combinations & Disposals Disposals Disposal removal of specific activities of a government - Whether transferred or sold All effective for years beginning after 12/15/13 Fox & Company CPAs, LLC Slide # 52 WPPA Finance Seminar June, 2013

53 Combinations & Disposals Combination The arrangement results in the continuation of a substantial portion of the services provided by the previously separate entities or their operations after the transaction has occurred. An operation is an integrated set of activities conducted and managed for the purpose of providing identifiable services with associated assets and liabilities. Fox & Company CPAs, LLC Slide # 53 WPPA Finance Seminar June, 2013

54 Combinations & Disposals Combination Types Merger a combination of legally separate entities in which no significant consideration is exchanged and either - 2 or more governments (or one or more governments and one or more nongovernmental entities) cease to exist as legally separate entities and are combined to form one or more new governments OR - One of more legally separate governments or nongovernmental entities cease to exist and their operations are absorbed into and provided by one or more continuing governments Fox & Company CPAs, LLC Slide # 54 WPPA Finance Seminar June, 2013

55 Combinations & Disposals Combination Types Acquisition a government acquires another entity, or the operations of another entity, in exchange for significant consideration. The acquired entity or operation becomes a part of the acquiring government s legally separate entity. Fox & Company CPAs, LLC Slide # 55 WPPA Finance Seminar June, 2013

56 Combinations & Disposals Accounting Merger The new government recognizes the assets, deferred outflows, liabilities, and deferred inflows as of the merger date to the extent these items were recognized by governmental entities, using the book value of the items (after eliminations, if any). Accounting Acquisition The acquiring government recognizes the assets, deferred outflows, liabilities, and deferred inflows of the operation/entity it acquired as of the acquisition date to the extent these items were recognized by governmental entities, using the acquisition value value of the items (after eliminations, if any). No goodwill is recognized (instead it is a Deferred Outflow) - Attribute to future periods in a systematic & rational manner Acquisition costs - Expensed Fox & Company CPAs, LLC Slide # 56 WPPA Finance Seminar June, 2013

57 Combinations & Disposals Disposal Accounting Disposing government recognize gain or loss on disposal of operations, as a special item in the period of disposition Include costs directly associated with the disposition in the gain and loss calculation Fox & Company CPAs, LLC Slide # 57 WPPA Finance Seminar June, 2013

58 Combinations & Disposals Reporting Footnote for all describe transaction, give date, and give the primary reasons for the combination/acquisition/disposition Merger/transfer disclosures: - Total assets, total deferred outflows, total liabilities, total deferred inflows, and total net position by component recognized in the merger/transfer - Description of nature and amount of significant accounting adjustments made, if any Acquisitions: - Description of the consideration given, total net position acquired, description of any contingent consideration arrangements Fox & Company CPAs, LLC Slide # 58 WPPA Finance Seminar June, 2013

59 Combinations & Disposals Reporting Disposals identify the operation disposed give a brief description of the facts & circumstances leading to the disposal, and disclose: - Total expenses, distinguish between operating and nonoperating, if applicable - Total revenues, distinguish between operating and nonoperating, if applicable - Total governmental fund revenue and expenditures, if applicable Fox & Company CPAs, LLC Slide # 59 WPPA Finance Seminar June, 2013

60 GASB 70: Nonexchange Financial Guarantees FOX & COMPANY CPAs, LLC (360)

61 Nonexchange Financial Guarantee Example: one government guarantees the debt of another government This GASB uses two examples: one of a State being a guarantor of school district bond debt, and one of a County being the guarantor of a special purpose district. When should the guarantor have to recognize a liability for the guarantee? In other words, when does the contingent liability become an actual liability? Fox & Company CPAs, LLC Slide # 61 WPPA Finance Seminar June, 2013

62 Nonexchange Financial Guarantee GASB 70 has a dissent the only one this year The dissenter felt that the introduction of a new standard for recognition in this situation was unnecessary and that the normal contingent liability standard should apply: - A contingency that is Probable should be recognized as a liability GASB 70 sets a new standard for recognition of liabilities for nonexchange financial guarantees: More likely than not and this standard is lower than probable so this means the guarantor government will recognize a liability sooner under this standard than it would under the general contingent liability recognition standard from GASB Statement 62, paragraph Fox & Company CPAs, LLC Slide # 62 WPPA Finance Seminar June, 2013

63 Nonexchange Financial Guarantee Consider Qualitative Factors: Assess the likelihood that the guarantor government will be required to make a payment in relation to the guarantee. Examples: - Initiation of bankruptcy or financial reorganization - Breach of a debt covenant - Indicators of significant financial difficulty (failure to make timely payments, drawing a reserve fund to make a debt payment, debt holder concessions, investment losses, loss of a revenue source) If the guarantor government extends guarantees to a group, assess the history of the group as a whole Fox & Company CPAs, LLC Slide # 63 WPPA Finance Seminar June, 2013

64 Nonexchange Financial Guarantee Accounting If the guarantor government determines it is more likely than not that it will have to make a payment related to the guarantee, then the government - Recognizes a liability and an expense - The amount is the discounted present value of the best estimate of the future outflows expected to be incurred as a result of the guarantee - If there is no best estimate only a range, the guarantor should base the amount on the minimum amount in the range - Classify the same as grants or financial assistance payments to other entities Fox & Company CPAs, LLC Slide # 64 WPPA Finance Seminar June, 2013

65 Nonexchange Financial Guarantee Accounting If the guarantor government determines it is more likely than not (more than 50%) that it will have to make a payment related to the guarantee, then the government - Recognizes a liability and an expense - The amount is the discounted present value of the best estimate of the future outflows expected to be incurred as a result of the guarantee - If there is no best estimate only a range, the guarantor should base the amount on the minimum amount in the range - Classify the same as grants or financial assistance payments to other entities Fox & Company CPAs, LLC Slide # 65 WPPA Finance Seminar June, 2013

66 Nonexchange Financial Guarantee Accounting If the guarantor receives repayment in the future it is a revenue The government that benefits from the guarantee payments made by the guarantor government should reclassify that portion of its previously recognized liability for the guaranteed obligation as a liability to the guarantor government If the defaulting government is legally released as an obligor from the obligation and from any liability to the guarantor, that government should recognize revenue to the extent of the reduction of its guaranteed liabilities. Fox & Company CPAs, LLC Slide # 66 WPPA Finance Seminar June, 2013

67 Nonexchange Financial Guarantee Disclosure For all guarantees, regardless of the likelihood of a payment being required: - Description of the guarantee identifying the legal authority and limits for extending the guarantee and the types of obligations guaranteed - The relationship of the government to the issuer of the guaranteed obligation - The length of time of the guarantee - Arrangements for recovering payments from the issuer of the obligations that are guaranteed - The total amount of guarantees outstanding at the reporting date Fox & Company CPAs, LLC Slide # 67 WPPA Finance Seminar June, 2013

68 Nonexchange Financial Guarantee Disclosure For a government recognizing a liability for a nonexchange financial guarantee (or one that has made payments on such) - A brief description of the timing of recognition and measurement of the liabilities and information about the changes in the recognized liability including: - Beginning of period balance - Increases - Payments made - End of period balance - Cumulative amounts of payments made - Amount expected to be recovered in the future Fox & Company CPAs, LLC Slide # 68 WPPA Finance Seminar June, 2013

69 Nonexchange Financial Guarantee Disclosure by Government issuer of Guaranteed Obligations Name of the entity providing the guarantee Amount of guarantee, length of time of guarantee Amount paid by the guarantor if any during the period Cumulative amount paid through the reporting date Description of requirements to repay Outstanding amounts required to be repaid, if any If payments have been made by the guarantor & the obligation is no longer outstanding: - Amount paid during the period, and cumulatively - Description of requirement to repay - Outstanding amounts required to be repaid Fox & Company CPAs, LLC Slide # 69 WPPA Finance Seminar June, 2013

70 Final Thoughts on GASB FOX & COMPANY CPAs, LLC (360)

71 GAAP for Governmental Entities: More Trend is toward More disclosure More economic measurement More financial analysis Goal seems to be Help users of financial statements see where the entity is heading Build confidence in the reliability of the information over time Fox & Company CPAs, LLC Slide # 71 WPPA Finance Seminar June, 2013

72 Accounting for Governmental Entities: Less Accounting Historical Accurate Known Consider The best rendition of the past data is only marginally useful in predicting future results At some point, more disclosure reduces transparency Increasing precision increases complexity of terminology and increases understanding but only among those who are literate in the terminology - Otherwise, increasing precision decreases general understanding Fox & Company CPAs, LLC Slide # 72 WPPA Finance Seminar June, 2013

73 You Have a Voice The Responsibility to Lead We are among the leaders of governmental accounting and finance people in our area We need to be an advocate for our governmental entities and for our profession We can influence how our work product is used in the community by people, investors, regulators, and others Fox & Company CPAs, LLC Slide # 73 WPPA Finance Seminar June, 2013

74 Submitting Comments to GASB The Finance Committee of the WPPA Your Port You, as an individual Comments are solicited on every exposure draft before it is adopted For GASB letters received, including one from the Washington Society of CPAs, and one from the Washington State Office of Financial Management, each of the WA responses were 2-page letters - OFM didn t like the new standard for liability recognition (more probable than not) - WSCPA liked the new standard Your opinion is just as valid and useful Fox & Company CPAs, LLC Slide # 74 WPPA Finance Seminar June, 2013

75 Submitting Comments to GASB Current Topics: Lease Accounting Do current operating leases meet the definitions of assets or liabilities? (August, 2013 deliberations begin) Note: FASB has an exposure draft on the same topic with a September comment due date. Other Post-Employment Benefits is on the technical plan for 2013 as well. There is a list of 16 more potential topics on the list to be considered for addition in At the GASB.ORG website, Technical Issues tab, Technical Plan page - You should consider checking this page regularly it is updated three times a year (or more) and projects are added with regularity. See the handouts for the list of topics Fox & Company CPAs, LLC Slide # 75 WPPA Finance Seminar June, 2013

76 Send Any Questions to: George Fox, Managing Partner Fox & Company CPAs, LLC Vancouver, WA FOX & COMPANY CPAs, LLC (360)