GASB & NFP Update November 13, 2014

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1 GASB & NFP Update November 13, 2014

2 GASB effective dates Reminders of standards already adopted GASB standards GASB 65 Items previously reported as assets and liabilities GASB 66 Technical Corrections GASB 67 Financial Reporting for Pension Plans GASB 68 Accounting and Financial Reporting for Pensions an amendment of GASB No. 27 GASB 69 - Government Combinations and Disposals of Government Operations Effective dates Periods beginning after 12/15/2012 Periods beginning after 12/15/2012 Fiscal years beginning after 6/15/2013 Fiscal years beginning after 6/15/2014 For financial reporting periods beginning after 12/15/2013 CPE Day

3 GASB effective dates More recently adopted GASB standards GASB 70 -Accounting and Financial Reporting for Nonexchange Financial Guarantees GASB 71 -Pension Transition for Contributions Made Subsequent to the Measurement Date an amendment of GASB Statement No. 68 Effective dates For reporting periods beginning after 6/15/2013 The provisions of this Statement are required to be applied simultaneously with the provisions of Statement 68. CPE Day

4 GASB technical reminders GASB 65 Items Previously Reported as Assets and Liabilities Closely related to GAS 63 ( Statement of Net Position ) Gain/loss on refunding Deferred outflow or inflow recognized as a component of interest expense in future periods Debt issuance costs - should be expensed as incurred Leases - Initial Indirect Costs (operating leases) expense as incurred - Sales leaseback transactions Deferred inflow or outflow of resources Effective date - for periods beginning after 12/15/2012 CPE Day

5 New GASB pension standards GASB 67 Financial Reporting for Pension Plans & GASB 68 Accounting and Financial Reporting for Pensions an amendment of GASB No. 27 Impact of these standards on employers and plans is expected to be significant especially for defined benefit plans including reporting of net pension liability. Impact on defined contribution plans is for enhanced disclosures including: - descriptive information about the pension plan and benefit terms, contribution rates and how they are determined, and amounts attributed to employee service and forfeitures in the current period. Effective date - for fiscal years beginning after 6/15/2013 for GASB 67 Effective date - for fiscal years beginning after 6/15/2014 for GASB 68 CPE Day

6 New GASB standards GASB 67 & 68 New Pension Standards observation: Neither standard includes other postemployment benefits (OPEB), such as retiree health care plans. Because the Board views all postemployment benefits similarly -- all involve deferred compensation for services provided -- the proposed changes in the pension standards are likely to be a bellwether for the direction the board will take with respect to OPEB standards. observation: The use of deferred inflow and deferred outflow accounts has not previously been a part of pension accounting literature under GASB. Employers will need to consider the appropriate financial reporting for these accounts, and understand the detailed rules proposed for determining the appropriate periods over which to amortize amounts initially recognized as deferred inflows/outflows. CPE Day

7 New GASB standards GASB 69 - Government Combinations and Disposals of Government Operations Provides guidance on certain forms of government combinations - Excludes many transactions entered into by Business Type Activities as underlying transactions do not fall within scope of standard. Provides guidance on disposals of operations. Does not provide guidance in which government acquires another organization that continues to exist as a separate entity. Effective date periods beginning after 12/15/2013. CPE Day

8 New GASB standards GASB 69 - Government Combinations and Disposals of Government Operations Mergers Government mergers include combinations of legally separate entities without the exchange of significant consideration - generally reported at carryover value. Merged entities would need to conform their existing accounting policies and make adjustments. There might be excess capital assets resulting from a merger. Acquisitions Government acquisitions are transactions in which a government acquires another entity, or its operations, in exchange for significant consideration - are generally reported at acquisition value. Transfers Provides guidance for transfers of operations that do not constitute entire legally separate entities and in which no significant consideration is exchanged. CPE Day

9 New GASB standards GASB 69 - Government Combinations and Disposals of Government Operations A transferor government in a combination would recognize a gain or loss as a special item based on the effective date of the transfer. When consideration exceeds the net position acquired - deferred outflow & amortize to future periods in a systematic and rational manner. When the value of the net assets acquired exceeds the consideration and transferor has not made a contribution - the excess amount is allocated to reduce proportionately the value assigned to noncurrent assets, unless the conditions of the acquisition arrangement indicate that a contribution should be recognized by the acquiring government. CPE Day

10 New GASB standards GASB 69 - Government Combinations and Disposals of Government Operations observation: Identifying the differences in accounting policies and making necessary adjustments may require additional due diligence procedures. Government entities may want to spend additional time understanding the differences in accounting policies prior to a merger. observation: Recognizing an impairment on the excess capital assets would require entities to perform an analysis to decide on the intended use. Government entities with large capital assets would need to take an inventory of the capital assets to conclude on the use. CPE Day

11 New GASB standards GASB 70 - Accounting and Financial Reporting for Nonexchange Financial Guarantees Requires a government to recognize a liability when qualitative factors and historical data, if any, indicate that it is more likely than not that the government will be required to make a payment on the guarantee. Liability to be recognized should be the discounted present value of the best estimate of the future outflows expected to be incurred. Requires a government to report the obligation until legally released as an obligor. Provides additional guidance for intra-entity nonexchange financial guarantees involving blended component units. Effective date - for reporting periods beginning after June 15, 2013 CPE Day

12 New GASB standards Concepts Statement on Measurement of Elements of Financial Statements Establishes two measurement approaches - Initial-Transaction-Date-Based Measurement (Initial Amount) - Current-Financial-Statement-Date-Based Measurement (Remeasured Amount) Establishes four measurement attributes - Historical cost - Fair value - Replacement cost - Settlement Cost CPE Day

13 Current GASB projects Technical agenda Project ED F Fair Value Measurement and Application 2Q14 1Q15 Other Postemployment Benefit Accounting & Financial Reporting 2Q14 2Q15 GAAP Hierarchy 1Q14 2Q15 Comprehensive Implementation Guide 3Q15 1Q16 Fiduciary responsibilities 4Q15 3Q16 Leases 1Q16 4Q16 Economic Condition Reporting: Financial Projections On hold On hold ED - Exposure Draft F - Final Standard CPE Day

14 Current GASB projects Fair Value Measurement and Application Board s preliminary view - the fair value of an asset or liability should be defined as 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. The objective of a fair value measurement estimate the exit price of assets and liabilities using observable or unobservable inputs. Three valuation approaches including market, cost and income approaches. Fair value hierarchy will be established - Levels 1, 2 and 3. Quoted prices obtained from third parties, such as pricing services or brokers, would be allowed if a government has determined that the quoted prices provided by such parties are developed based underlying model. The GASB used ASC 820 Fair Value Measurements and Disclosures as a starting point in their deliberations. CPE Day

15 Current GASB projects Fair Value Measurement and Application Nonfinancial assets best & highest use. Practical expedient - estimate fair value of an investment that does not have a readily determinable fair value using the NAV per share or equivalent of the investment. Fair value may also apply to certain liabilities e.g. swap in a liability position take non-performance risk into consideration. Donated assets - measure at acquisition value defined as the price that would be paid for acquiring similar assets having similar service capacity as of the acquisition date. CPE Day

16 Current GASB projects Fair Value Measurement and Application Expanded disclosures for recurring and nonrecurring fair value measurements including: - FV measurement at the end of the reporting period. - Level of FV hierarchy (Level 1.2 or 3). - Description of valuation techniques and inputs used. For recurring FV measurements within Level 3 only, a narrative description of the sensitivity of the FV measurements to changes in observable inputs. For nonrecurring measurements, disclose the reasons for the measurement. For investments values using NAV/share nature & risk. CPE Day

17 Current GASB projects Lease Accounting GASB follows the progress of the FASB/IASB leasing project to assess any proposed new or amended leasing guidance in the context of the state and local government environment on a contemporaneous basis. The Board feels that GASB research should not be completed until the FASB s proposed standards become more certain. CPE Day

18 Current GASB projects Lease Accounting Tentative Board decisions to date: Definition of a lease be revised to be a contract that conveys the right to use an asset (the underlying asset) for a period of time in an exchange or exchange-like transaction. Scope of the Leases guidance continue to include contracts not identified as leases but that meet the definition of a lease. The right to use the underlying asset be recognized as an asset by the lessee The obligation to make lease payments be recognized as a liability by the lessee. Practicality exception be made for short-term leases. The following payments be included in the initial measurement of the lease receivable: Fixed payments required for the lease term, Variable payments that depend on an index or rate and that are measured using the index or rate at the beginning of the lease, Variable lease payments that are in-substance fixed, Residual value guarantees that are in-substance equivalent to fixed lease payments CPE Day

19 NFP financial statement project - FASB CPE Day

20 NFP financial statement project - FASB CPE Day

21 NFP financial statement project - FASB CPE Day

22 NFP financial statement project - FASB CPE Day

23 NFP financial statement project - FASB CPE Day

24 NFP financial statement project - FASB CPE Day

25 Q&A Alex Vaughn PricewaterhouseCoopers LLP. All rights reserved. refers to the United States member firm, and may sometimes refer to the network. Each member firm is a separate legal entity. Please see for further details.