GASB Update. Rob Churchman, Partner. April 9, 2013

Transcription

1 GASB Update Rob Churchman, Partner April 9, 2013

2 Agenda GASB 60: Service Concession Arrangements GASB 61: The Financial Reporting Entity GASB 62 & 66: Pre-1989 FASB/AICPA Pronouncements & Technical Corrections GASB 63 & 65: Statement of Net Position and Items Previously Reported as Assets and Liabilities GASB 67 & 68: Pensions GASB 69 Business Combinations and Disposals Proposed Changes to OMB Circular A-133 2

3 GASB Effective Dates Periods beginning after December 15, 2011 GASB 60: Service Concession Arrangements GASB 62: Pre-1989 FASB/AICPA Pronouncements GASB 63: Statement of Net Position Periods beginning after June 15, 2012 GASB 61: The Financial Reporting Entity Periods beginning after December 15, 2012 GASB 65: Previously Reported as Assets and Liabilities GASB 66: Technical Corrections for GASB 10 & 62 Periods beginning after June 15, 2013 GASB 67: Financial Reporting for Pension Plans Periods beginning after June 15, 2014 GASB 68: Accounting & Financial Reporting for Pensions Periods beginning after December 15, 2013 GASB 69: Government Combinations and Disposal of Government Operations 3

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

5 GASB 60: Service Concession Arrangements (SCAs) Applies only to financial statements that use the economic resources measurement focus Type of public-private or public-public partnership The term public-private partnership is used to refer to a variety of: Service arrangements Management arrangements SCAs 5

6 Benefits of an SCA Ability to leverage existing public assets to generate additional resources up-front from operator for right to operate such assets Facilitate construction and financing of new public assets and transfer the construction and maintenance risks to a private entity Provide services in a more efficient and costeffective manner 6

7 Requirements for an SCA SCAs must meet all of these criteria: Transferor conveys to operator the right and related obligation to provide public services through the use and operation of a capital asset in exchange for significant consideration Operator is collects and is compensated by fees from third parties Transferor is entitled to significant residual interest at the end of the arrangement Transferor has the ability to modify or approve what services the operator provides, to whom they are provided, and the prices or rates that will be charged 7

8 Examples of SCAs The operator will design and build a facility and will obtain the right to collect fees from third parties (for example, construction of a municipal complex for the right to lease a portion of the facility to third parties) The operator will provide significant consideration in exchange for the right to access an existing facility (for example, a parking garage) and collect fees from third parties for its usage The operator will design and build a facility (for example, a new toll way), finance the construction costs, provide the associated services, collect the associated fees, and convey the facility to the government at the end of the arrangement 8

9 Transferor Accounting Existing facility - Continue to report as a capital asset New facility or improvements to existing facility: Report a new facility or improvements at fair value when placed into operation Report any contractual obligations as liabilities at present value Any differences between the new facility or improvement and the contractual obligations should be reported as a deferred inflow of resources 9

10 Transferor Accounting (continued) Upfront or Installment Payments Report up-front payment or present value of installment payments as an asset Report any contractual obligations as liabilities at present value Any differences between the asset from the upfront or installment payments and the contractual obligations should be reported as a deferred inflow of resources 10

11 Transferor Accounting (continued) A liability is recorded at present value if a contractual obligations exists and it meets either of the following criteria: (1) The contractual obligation directly relates to the facility (for example, capital improvements, insurance, or maintenance) OR (2) The contractual obligation relates to a commitment by the transferor to maintain a minimum or specific level of service in connection with the operation of the facility (for example, police or emergency services, maintenance around the facility) 11

12 Transferor Accounting (continued) Revenue is recognized in a systematic and rational manner over the term of the arrangement as the deferred inflow is reduced Liability is reduced as transferor s obligations are satisfied When obligation is satisfied, a deferred inflow is reported and related revenue is recognized in a systematic and rational manner over the term of the arrangement 12

13 Transferor Accounting (continued) After initial measurement, the capital asset is subject to existing requirements for depreciation, impairment, and disclosures Improvements made to the facility during the arrangement would increase the transferor s asset Facility does no depreciation if arrangement requires operator to return facility to transferor in its original or enhanced condition 13

14 Governmental Operator Accounting Report an intangible asset for the right to access and use the property Measured by the amount of the upfront payment or contributed asset Amortized over the life of the arrangement Improvements made to the facility by the government operator increase the government operator s intangible asset if the improvements increase the capacity or efficiency of the facility Reports a liability to restore the facility to a specified condition if required by agreement and the facility is not in the expected condition 14

15 Revenue Sharing Arrangements Transferor reports only its portion of revenues and expenses Recognized when earned in accordance with the terms of the arrangement Unconditional payments to transferor treated like installment payments discussed earlier Governmental operator reports all revenues earned and expenses incurred 15

16 Note Disclosures Both the transferor and the governmental operator are required to disclose: A general description of the arrangement including management s objectives for entering into the arrangement and the status of the project Nature and amounts of assets, liabilities, and deferred inflows of resources related to the SCA Nature and extent of rights retained by the transferor or granted to the government operator If applicable, any guarantees and commitments, including identification, duration, and significant contract terms of the guarantees or commitments May be disclosed individually or in aggregate for SCAs with similar facilities and risk 16

17 GASB Statement 61 The Financial Reporting Entity: Omnibus

18 Objectives Amend standards for defining and presenting the financial reporting entity in Statement 14 to ensure that financial statements: Include the organizations that should be included Exclude organizations that should not be included Display and disclose the financial data of component units (including equity interests) in the most appropriate and useful manner 18

19 Overview The most significant effects of Statement 61: Increase the emphasis on financial relationships Raises the bar for inclusion Refocus and clarify the requirements to blend certain component units Improve the recognition of ownership interests Component units Joint ventures Investments 19

20 Inclusion criteria Statement 14 requires inclusion if PCU is fiscally dependant. That is, PG has authority over: Budget, or Setting taxes and charges, or Issuing debt Statement 61 adds a requirement for a financial benefit or burden before inclusion is required Effect: PCU needing PG approval for its budget, levies, or debt issuances is no longer a sufficient reason, on its own, to include it 20

21 Inclusion criteria Statement 14 requires inclusion of a PCU if exclusion would make reporting entity s statements misleading or incomplete Statement 61 eliminates incomplete, and emphasize that the determination would generally be based on: Nature and significance of financial relationship with PG Generally financial in nature, such as significant financial benefit to/burden on the PG that is other than temporary Based on preparer professional judgment 21

22 Blending requirements Statement 14 requires blending if PG & CU have substantively the same governing body, allowing complete control Statement 61 additionally requires either of the following relationships to qualify for blending: A financial benefit/burden relationship, or PG has operational responsibility for CU PG s personnel manage activities of the CU like a fund, program, or department of the primary government 22

23 Blending requirements Statement 61 expands the blending criteria to include CUs whose total debt outstanding is expected to be repaid entirely or almost entirely by resources of the PG This criteria applies even if the CU provides services to constituents or other governments, rather than exclusively or almost exclusively to the PG 23

24 Note disclosures Clarifies that current disclosures require: Rationale for including each component unit Identification of the component unit as discretely presented, blended, or included as a fiduciary fund 24

25 GASB Statements 62 & 66 Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements Technical Corrections

26 GASB 62: Pre-1989 FASB/AICPA Pronouncements Primary objective is to directly incorporate the applicable provisions in FASB and AICPA pronouncements issued on or before November 30, 1989 into GASB literature Since FASB introduced its codification, its original pronouncements are nonauthoritative GASB 34, p. 17 requires application of pre- November 30, 1989, FASB statements, APB opinions, and ARBs for governmental and businesstype activities unless they conflict with or contradict GASB pronouncements. The same is required for proprietary funds in GASB 20, p. 6 26

27 GASB 62: Pre-1989 FASB/AICPA Pronouncements Does not significantly affect practice as accounting and financial reporting should not change; Only the source of the guidance is different Applies to accounting and financial reporting for governmental, business-type activities, and proprietary funds, except as identified otherwise No longer need to disclose use of pre-november 30, 1989 FASB and AICPA literature No longer need to elect to apply post-november 30, 1989 FASB and AICPA literature Now nonauthoritative and can apply when it does not conflict with GASB guidance 27

28 GASB 62: Pre-1989 FASB/AICPA Pronouncements Guidance brought into GASB literature includes: Capitalization of interest costs (FAS 34) Statement of net assets classification (ARB 43, APB 12 & FAS 6) 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 & FIN 20) Extinguishments of debt (APB 26 & FAS 76) Troubled debt restructuring (FAS 15) Inventory (ARB 43) Contingencies (FAS 5 & FIN 14) Leases (FAS 13, 22 & 98 & FIN 23, 26 & 27) Regulated operations (FAS 71, 90 & 101) 28

29 GASB 66: Technical Corrections to GASB 10 & GASB 62 Amendments to GASB 10 Use of special revenue funds to report risk financing activities Restricted revenues dedicated to risk financing can be presented as a special revenue fund Amendments to GASB 62 Operating leases Appropriate to recognize uneven rent using a fair value or straight-line approach Purchase of a loan or group of loans Recognize purchase of loans at acquisition cost Servicing fees Do not have follow the guidance in GASB 62 for sales of mortgage loans with servicing retained. Follow guidance in GASB

30 GASB Statements 63 & 65 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position Items Previously Reported as Assets and Liabilities

31 GASB 63: Statement of Net Position & GASB 65: Previously Reported as Assets and Liabilities Background Concepts Statements 4 and 5 identified 5 elements that make up a statement of financial position: Assets Liabilities Deferred outflows of resources Deferred inflows of resources Net position This differs from the composition currently required by Statement 34, which requires the presentation of assets, liabilities, and net assets in a statement of financial position 31

32 GASB 63: Statement of Net Position & GASB 65: Previously Reported as Assets and Liabilities Deferred outflows of resources A consumption of net assets by the government that is applicable to a future period Has a positive effect on net position, similar to assets Deferred inflows of resources An acquisition of net assets by the government that is applicable to a future period Has a negative effect on net position, similar to liabilities Net position The residual of all elements presented in a statement of financial position Assets + deferred outflows liabilities deferred inflows 32

33 GASB 63: Statement of Net Position & GASB 65: Previously Reported as Assets and Liabilities Deferred outflows of resources should be reported in a separate section following assets Deferred inflows of resources should be reported in a separate section following liabilities Net position components resemble net asset components under Statement 34, but include the effects of deferred outflows and deferred inflows Net investment in capital assets Restricted Unrestricted Governmental funds continue to report fund balance 33

34 GASB 63: Statement of Net Position & GASB 65: Previously Reported as Assets and Liabilities Statement of Net Position Primary Government Governmental Business-type Component Activities Activities Total Units ASSETS Cash and cash equivalents $ 11,712,829 $ 10,516,820 $ 22,229,649 $ 303,935 Investments 29,250,291 64,575 29,314,866 7,428,952 Derivative instrument--rate swap 1,040,482 1,040,482 Receivables (net) 11,792,650 3,609,615 15,402,265 4,042,290 Internal balances 313,768 (313,768) Inventories 322, , ,823 83,697 Equity interest in MSA joint venture 2,303,256 2,303,256 Capital assets: Land, improvements, and construction in progress 28,435,025 6,408,150 34,843, ,239 Other capital assets, net of depreciation 141,587, ,980, ,568,336 36,993,547 Total capital assets 170,022, ,388, ,411,511 37,744,786 Total assets 226,758, ,392, ,150,852 49,603,660 DEFERRED OUTFLOWS Accumulated decrease in fair value of hedging derivatives 127, ,520 LIABILITIES Accounts payable and accrued expenses 7,538, ,592 8,198,135 1,803,332 Advances from grantors 1,435,599 1,435,599 38,911 Forward contract 127, ,520 Long-term liabilities: Due within one year 9,236,000 4,426,286 13,662,286 1,426,639 Due in more than one year 83,302,378 74,482, ,784,651 27,106,151 Total liabilities 101,512,520 79,695, ,208,191 30,375,033 DEFERRED INFLOWS Accumulated increase in fair value of hedging derivatives 1,040,482 1,040,482 Unamortized service concession arrangement payments 4,467,536 4,467,536 Total deferred inflows 1,040,482 4,467,536 5,508, NET POSITION Net investment in capital assets 103,711,386 79,088, ,799,960 15,906,392 Restricted for: Transportation and public works 10,655,737 10,655,737 Debt service 3,076,829 1,451,996 4,528,825 Housing and community redevelopment 6,845,629 6,845,629 Other purposes 1,483,387 1,483, ,445 Unrestricted (deficit) (1,567,785) 6,816,410 5,248,625 2,829,790 Total net position $ 124,205,183 $ 87,356,980 $ 211,562,163 $ 19,228,627

35 GASB 63: Statement of Net Position & GASB 65: Previously Reported as Assets and Liabilities There are few items that GASB standards require to be reported as deferred outflows/inflows of resources as of today: Statement 53 Derivative Instruments Statement 60 Service Concession Arrangements But Statement 65, 67, and 68 also have items that are reported as deferred outflows/inflows of resources as do some current GASB projects. 35

36 GASB 63: Statement of Net Position & GASB 65: Previously Reported as Assets and Liabilities Transactions in which the resulting item should be classified as deferred outflows of resources include: Resources advanced to another government in relation to a government-mandated nonexchange transaction or a voluntary nonexchange transaction when time requirements are the only eligibility requirements that have not been met by the other government Deferred debit amounts resulting from the refunding of debt 36

37 GASB 63: Statement of Net Position & GASB 65: Previously Reported as Assets and Liabilities Transactions in which the resulting item should be classified as outflows include: Debt issuance costs Initial direct costs incurred by the lessor for operating leases Net balance (debit) of direct loan origination costs, including any portion related to points, related to lending activities and for mortgage loans held for investment or for resale after the sale occurs Fees paid related to a purchased loan or a group of loans Fees paid to permanent investors to ensure the ultimate sale of loans after ultimate sale occurs 37

38 GASB 63: Statement of Net Position & GASB 65: Previously Reported as Assets and Liabilities Transactions in which the resulting item should be classified as deferred inflows of resources include: Resources received in advance in relation to an imposed nonexchange transaction Resources received in advance in relation to a government-mandated nonexchange transaction or a voluntary nonexchange transaction when time requirements are the only eligibility requirements that have not been met by the receiving government Deferred credit amounts resulting from the refunding of debt Unavailable revenue related to the application of modified accrual accounting 38

39 GASB 63: Statement of Net Position & GASB 65: Previously Reported as Assets and Liabilities Transactions in which the resulting item should be classified as inflows include: Net balance (credit) of loan origination fees, excluding any portion related to points, related to lending activities Commitment fees realized upon exercise or expiration of the commitment Commitment fees charged for entering into an agreement that obligates the government to make or acquire a loan or to satisfy an obligation of the other party under a specified condition when exercise is considered remote Fees received related to a purchased loan or a group of loans 39

40 GASB 63: Statement of Net Position & GASB 65: Previously Reported as Assets and Liabilities Transactions in which the resulting classification was not changed and should continue to be classified as an asset include: Prepayments Resources advanced to another government in relation to a government-mandated transaction or a voluntary nonexchange transaction when eligibility requirements other than time requirements have not been met 40

41 GASB 63: Statement of Net Position & GASB 65: Previously Reported as Assets and Liabilities Transactions in which the resulting classification was not changed and should continue to be classified as a liability include: Resources received in advance in relation to a derived tax revenue nonexchange transaction Resources received in advance in relation to a government-mandated nonexchange transaction or a voluntary nonexchange transaction when eligibility requirements other than time requirements have not been met Resources received in advance of an exchange transaction 41

42 GASB 63: Statement of Net Position & GASB 65: Previously Reported as Assets and Liabilities Revenue recognition in governmental funds Revenues and other governmental fund financial resources should be recognized in the accounting period in which they become both measurable and available When an asset is recorded in governmental fund financial statements, but the revenue is not available, the government should report a deferred inflow of resources until such time as the revenue becomes available A grant received in advance of time period it can be spent A donation received in advance of time period it can be spent 42

43 GASB Statements 67 & 68 Financial Reporting for Pension Plans Accounting and Financial Reporting for Pensions

44 Scope and Applicability Applies to plans administered through trusts or equivalent arrangements: Contributions to the plan and earnings on those contributions are irrevocable Plan assets are dedicated to providing pensions to plan members Plan assets are legally protected from creditors Does not apply to OPEB Statement No. 67 (Plans) is effective for fiscal years beginning after June 15, 2013 Statement No. 68 (Employers) is effective for fiscal years beginning after June 15,

45 Type of Plan Defined contribution pension plans Individual account for each plan member Define contributions employer is required to make Pension received by plan member depends only on the contributions, earnings, and effects of forfeitures and administrative costs to the plan member s account Defined benefit pension plan Benefit after separation is defined by benefit terms May be stated as a dollar amount or a calculated about based on other factors (age, years of service, salary) 45

46 Type of Plan Special funding situation Legally responsible for making contributions Contributions are made directly to the pension plan Either: Contributions are not dependent on one or more events or circumstances unrelated to pensions Dependent: Contributions determined as percentage of a specific revenue source Not Dependent: Contributions determined as a defined percentage of payroll or a statutorily defined proportion of employer s required contribution Nonemployer is the only entity with legal obligation to make contributions directly to the plan Does not include circumstances where resources are provided to the employer 46

47 Type of Plan Single-employer plans - pensions are provided to employees of one employer (primary government and component units) Multiple-employer plans Agent plans - plan assets are pooled for investment purposes, but separate accounts are maintained for each individual employer. Employer s share is legally available to pay the benefits of only its employees Cost-sharing plans - pension obligations to employees of more than one employer are pooled. Assets can be used to pay benefits of employees of any employer in the plan 47

48 Plan Financial Statement Presentation Statement of Fiduciary Net Position Assets Plus: Deferred Outflows of Resources Less: Liabilities Less: Deferred Inflows of Resources Fiduciary Net Position (Net Position Restricted for Pensions) Statement of Changes in Fiduciary Net Position Additions Contributions Net investment income (investment income & investment expense) Less: Deductions Net Increase (Decrease) in Fiduciary Net Position 48

49 Employer Net Pension Liability Measurement of the Net Pension Liability Total pension liability Less: Plan s fiduciary net position Net Pension Liability Total pension liability - actuarial PV of projected benefit payments attributed to past service Determined by valuation no more than 30 months and 1 day earlier than employer s fiscal year-end Net pension liability is required to be measured no earlier than end of employer s prior fiscal year-end, consistently applied (measurement date) 49

50 Measurement of Total Pension Liability GASB 67/68 (new) GASB 25/27 (old) Only entry age actuarial cost method Fair value of investments used to determine employer s net pension liability Projected benefits also includes ad hoc postemployment benefits if substantively automatic Discount rate based on long-term expected rate of return only for period that plan s net position is projected to be sufficient to make benefit payments Several different actuarial cost methods Actuarial valuation of investments used to determine employer s ARC Projected benefits only included plan or contractually agreed to benefits Discount rate based on investment return assumption 50

51 51 Year Projected Beginning Fiduciary Net Position Projected Benefit Payments Funded Portion of Benefit Payments Unfunded Portion of Benefit Payments 1 $1,431,956 $109,951 $109,951 $ - 2 1,500, , , ,565, , , ,628, , , , , , , , , , , , , , , , , Total $5,778,244 $7,924,284 Discount rate 7.5% 4.0% Discounted $2,109,333 $1,724,534 Funded Portion is discounted at the long-term expected rate of return Unfunded Portion is discounted at the 20-year tax-exempt municipal bond rate with rating of AA/Aa or higher Result is a blended discount rate of 5.29%

52 Employer Financial Statements Single or agent employers without a special funding situation recognize a liability equal to the net pension liability Single or agent plans with special funding situations and cost-sharing plans recognize proportionate share of the collective net pension liability Proportionate share is determined by comparing employer s projected long-term contribution effort to the collective projected long-term contribution effort Can also used an actuarially determine proportion Also recognize proportionate share of pension expense, deferred inflows of resources, and deferred outflows of resources 52

53 Changes in Net Pension Liability Include in pension expense immediately Changes in total pension liability resulting from current-period service cost and interest on total pension liability Changes in benefit terms Changes in projected earnings on plan s investments Defer recognition over a closed period based on service lives of all active and inactive employees Changes of economic and demographic assumptions Differences between actual and expected experience Change in employer s proportionate share of the collective net pension liability Difference between employer s contributions and proportionate share of total contributions 53

54 Changes in Net Pension Liability Defer recognition over a five-year closed period Difference between projected earnings on plan investments and actual experience Defer recognition for one year only Contributions made subsequent to the measurement date of the net pension liability, but before the end of the reporting period Contributions to the plan from the employer should not be recognized in pension expense 54

55 Note Disclosures and RSI Note disclosures are expanded to include: More descriptive information about the plan and assumptions Information on the changes in the total pension liability and net pension liability Detail of deferred inflows of resources and deferred outflows of resources Calculation of discount rate Target allocation and long-term expected real rate of return for asset classes Net pension liability with a discount rate 1% higher and 1% lower than the discount rate used 55

56 Note Disclosures and RSI New 10-year RSI tables will show trends: Schedule of changes in the net pension liability and related ratios If contributions are actuarially or contractually determined, a schedule of contributions compared to required contributions and related ratios Plans will show a schedule of the money-weighted rate of return 56

57 Transition Early application is encouraged To the extent practical, changes should be reported as an adjustment of prior periods Beginning balances for deferred outflows of resources and deferred outflows of resources may not be practical If not practical for all balances, prior periods should be adjusted by the cumulative effect of applying the statements 57

58 GASB #69 Government Combinations and Disposals of Government Operations

59 Purpose Objective is to improve financial reporting by addressing accounting and financial reporting for government combinations and disposals of government operations Guidance previously applied to government combinations was developed for nongovernmental entities and, therefore, addressed conditions and circumstances that would generally not be present in government combinations 59 59

60 Background Transactions may involve: Combinations of legally separate entities, such as a governmental entity with other governmental entities Governmental entity with not-for-profit or for-profit entities if the new or continuing organization is a government Government combinations also include mergers and acquisitions of activities that comprise less than an entire legally separate entity and involve only the assets and liabilities previously used by an entity to provide specific goods or services An operation is an integrated set of activities conducted and managed for the purpose of providing identifiable services with associated assets or liabilities 60

61 Combinations To be considered a government combination, an arrangement should result in the continuation of a substantial portion of the services provided by the previously separate entities or their operations after the transaction has occurred. Types include: Government merger - combination of legally separate entities in which no significant consideration is exchanged and either: Two or more governments cease to exist as legally separate entities and are combined to form one or more new governments, or One or more legally separate governments cease to exist and their operations are absorbed into, and provided by, one or more continuing governments Government acquisition - combination in which a government acquires another entity, or the operations of another entity, in exchange for significant consideration. The consideration provided should be significant in relation to the assets and liabilities acquired. The acquired entity or operation becomes part of the acquiring government s legally separate entity 61

62 Combinations, Continued Transfer of operations is a government combination involving the operations of a government or nongovernmental entity, rather than a combination of legally separate entities, in which no significant consideration is exchanged Transfer of operations to an existing - government transfers operations (e.g., a public safety function) to another existing government Transfer of operations to a new government occurs in shared service arrangements in which governments agree to combine operations and transfer assets and liabilities to a new government. Similarly, the transfer of operations to a new government occurs when an operation of a single government is reorganized as a new government created to provide those services (e.g., formation of a library district that was formerly a department of a general purpose government) 62

63 Government Mergers New government - results from a merger, the merger date is the date on which the combination becomes effective The combined assets, deferred outflows of resources, liabilities, and deferred inflows of resources of the merging entities should be: Recognized and measured in the statement of net position as of the beginning of that initial reporting period and At carrying values as reported in the separate financial statements of the merging entities 63

64 Government Mergers, Continued Continuing government merger - the merger date is the beginning of the reporting period in which the combination occurs, regardless of the actual date of the merger Recognize and measure the combined assets, deferred outflows of resources, liabilities, and deferred inflows of resources, results of operations, and cash flows, if applicable, of the merging entities for the reporting period in which the combination occurs as though the entities had been combined at the beginning of the continuing government s reporting period Financial balances are measured as of the merger date at the carrying values as reported in the separate financial statements of the merging entities 64

65 Government Acquisitions Acquisition Date - acquiring government obtains control of the assets and becomes obligated for the liabilities (date the acquiring government provides consideration) Acquiring government should recognize all balances at the acquisition date and at acquisition value: Market-based price, assumed to be based on an orderly transaction entered into on the acquisition date Acquisition value represents the price that would be paid for acquiring similar assets, having similar service capacity, or discharging the liabilities assumed as of the acquisition date 65

66 Exceptions to Acquisition Value Measure assets, deferred outflows of resources, liabilities, or deferred inflows of resources related to the acquired entity s financial statements as follows: Employment benefit arrangements, such as compensated absences, pensions, other postemployment benefits, or termination benefits use the accounting and financial reporting requirements for state and local governments that are applicable to those transactions to the extent such benefits are not terminated Municipal solid waste landfill closure and postclosure care costs or obligations for pollution remediation use the accounting and financial reporting requirements for state and local governments that are applicable to those transactions Investments, including derivatives that are required to be reported at fair value, using the accounting and financial reporting requirements for state and local governments that are applicable to those transactions Deferred outflows of resources and deferred inflows of resources should be measured at the carrying values previously reported by the acquired government, except for those that relate to effective hedging arrangements as provided for in paragraph 20 of Statement No. 53, Accounting and Financial Reporting for Derivative Instruments 66

67 Transfer of Operations The effective transfer date is the date the transferee government obtains control of the assets and becomes obligated for the liabilities of the operation transferred Continuing government - report a transfer of operations as a transaction in its financial statements for the reporting period in which it occurs New government - initial reporting period begins at the effective transfer date Transferee government should recognize the carrying values of balances of the transferor government as of the effective transfer date Transferee governments should recognize the net fund balance of an operation it receives as a special item in the period in which the transfer occurs 67

68 Disposal of Operations Disposing government should recognize a gain/loss on the disposal of operations, if applicable, and be reported as a special item in the period in which the disposal occurs, based on either the effective transfer date of a transfer of operations, or the date of sale for operations that are sold Gain/loss on the disposal of operations should not include adjustments and costs associated with the normal operating activities of the operation up to the measurement date Disposing government only includes costs directly associated with the disposal of operations when determining gain/loss 68

69 Note Disclosures For each government combination, the government should include the following information in the notes to financial statements: A brief description of the government combination, including identification of the entities involved in the combination and whether the participating entities were included within the same financial reporting entity The date of the combination A brief description of the primary reasons for the combination Government Mergers and Transfers of Operations - new government or continuing government also should disclose the following information: The amounts recognized as of the merger date or the effective transfer date as follows: (1) Total assets distinguishing between current assets, capital assets, and other assets (2) Total deferred outflows of resources (3) Total liabilities distinguishing between current and long-term amounts (4) Total deferred inflows of resources (5) Total net position by component A brief description of the nature and amount of significant adjustments made to bring into conformity the individual accounting policies or to adjust for impairment of capital assets resulting from the merger or transfer 69

70 Note Disclosures, Continued Government Acquisitions - In the period in which an acquisition occurs, the acquiring government also should disclose the following information: A brief description of the consideration provided The total amount of net position acquired as of the date of acquisition A brief description of contingent consideration arrangements, including the basis for determining the amount of payments that are contingent Disposals of Government Operations - In the period in which operations are transferred or sold: Disposing government should identify the operations and provide a brief description of the facts and circumstances leading to the disposal. Disposing government should identify and disclose the following about the disposed government operations, if not separately presented in its financial statements: Total expenses, distinguishing between operating and nonoperating, if applicable Total revenues, distinguishing between operating and nonoperating, if applicable Total governmental fund revenues and expenditures, if applicable 70