Council of State Governments Alan Conroy GASB Overview & Update

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1 Council of State Governments Alan Conroy GASB Overview & Update The views expressed in this presentation are those of Mr. Conroy. Official positions of the GASB on accounting matters are determined only after extensive due process and deliberation.

2 GASB Overview & Update Overview of the Board and its activities Postemployment Benefits Financial Reporting Model Revenue and Expense Recognition Pre-Agenda Research Activities 2

3 Standards Setting for State and Local Governments Standards setting began in 1934 on an ad hoc, voluntary basis National Council on Governmental Accounting formed in 1973 to move standards setting from an ad hoc basis to a regular activity GASB was created in 1984 by agreement between the FAF and nine prominent public sector professional associations 3 3

4 Why Are There Separate Standards for Governments? From the GASB White Paper (available at under the Reference Library tab): - Governments operate differently from other entities and in a very different regulatory environment - Governments raise revenues very differently and primarily engage in nonexchange transactions - The centrality of the adopted budget as a legally binding document - The need for accountability to taxpayers and constituents - The GASB s stakeholders are very different from those of other types of entities 4

5 Who Follows GASB Standards? 37 states require at least some of their political subdivisions to follow GASB standards Approximately 50,000 governments have outstanding municipal debt and the market prefers GAAP reporting Enforcement activities are performed by some states, but most enforcement comes down to the audit - Some governments hire a CPA firm - Others are audited by the state auditor or another auditor in government 5

6 Board Originally five members full-time chairman and four part-time members Expanded to seven members in Composition of the Board generally includes two state government preparers or auditors, two local government preparers or auditors, someone from public accounting, an academic, and a user 6 6

7 GASB Activities Pre-agenda research Standards setting Conceptual framework Implementation guidance Technical inquiries Education, outreach and communication 7 7

8 Open Due Process Similar in most respects to FASB Three-day Board meetings in Norwalk every six weeks Teleconference meeting in between each Norwalk meeting Public hearings, user forums 87 Statements, 6 Concepts Statements, numerous Technical Bulletins 8

9 GASAC Governmental Accounting Standards Advisory Council 31 members Meets three times a year No dedicated staff 9 9

10 Postemployment Benefit Standards 10

11 GASB Postemployment Benefit Standards What: significantly revises postretirement accounting & financial reporting standards. Why: review of effectiveness found significant room for improvement When: Pensions issued in Plans fiscal years ending June 30, 2014 & later - Employers fiscal years ending June 30, 2015 & later OPEB issued in Plans fiscal years ending June 30, 2017 & later - Employers fiscal years ending June 30, 2018 & later 11

12 Fundamentals of the New Postemployment Benefit Standards Views the cost within the context of an ongoing, career-long employment relationship Uses an accounting-based versus funding-based approach to measure/report any net pension liability on the statement of net position Policy makers must determine the proper level of funding not look to standards for answers Will allow evaluation of the extent to which promises have been funded 12

13 Postemployment Benefit Standards - The Big Changes Portion of the total liability not covered by plan assets will be recognized as a liability on the face of the financial statements the net pension or OPEB liability. Cost-sharing plans participating employers/nonemployer contributing entities report proportional share of the collective net pension or OPEB liability Discounting at the long-term expected rate of return is limited to the extent that assets are expected to be available to cover future benefit payments remainder discounted at the municipal bond rate Now only one actuarial valuation approach permitted (entry age, as a level percentage of payroll) 13

14 Postemployment Benefit Standards - The Big Changes Asset smoothing is eliminated from the measurement of the liability Amortization is eliminated for most changes in the liability and greatly shortened for others More robust note disclosures Much more extensive required supplementary information (RSI) schedules 14

15 Key Information in the Financial Statements Liabilities to the pension plan (payables) Liabilities to employees for pensions - Net pension liability (NPL) = total pension liability (TPL), net of pension plan s fiduciary net position - Cost-sharing employers recognize proportionate shares of collective NPL Changes in NPL - Recognized as expense immediately: service cost, interest on the TPL, changes in benefit terms, projected investment earnings - Recognized as expense over time: changes in assumptions, difference between assumed and actual demographic and economic factors, and difference between projected and actual investment earnings 15

16 Key Note Disclosures Discount rate information, including: - Long-term expected rate of return and how it was determined - Assumed asset allocation of the pension plan s portfolio and the long-term expected real rate of return for each major asset class - NPL measured at a discount rate 1 percentage point higher and 1 percentage point lower: 1% Decrease (6.75%) Discount Rate (7.75%) 1% Increase (8.75%) County's net pension liability $826,928 $751,753 $661,543 16

17 New RSI: NPL Components and Ratios Note: Only 5 years are presented here; 10 years of information will be required 17

18 New RSI: Contributions Note: Only 5 years are presented here; 10 years of information will be required 18

19 Fundamentals of the New Postemployment Benefit Standards The ARC has not disappeared it will continue to be the basis for determining funding policy for many governments It is no longer the basis for calculating pension expense for accounting and financial reporting purposes Be cautious regarding the ARC Consider the relevance of the ARC for a cost-sharing employer 19

20 Financial Reporting Model 20

21 Financial Reporting Model Reexamination What: In December 2016, the Board issued a first due process document in its reexamination of the effectiveness of the financial reporting model Why: The GASB is committed to ensuring standards remain effective; most of the requirements of Statement 34 became effective between 2002 and 2004 When: Comment deadline ended March

22 Financial Reporting Model Reexamination Invitation to comment issued December Governmental funds what should they convey? - Role of cash flows statements in governmental funds Approaches Considered - Near-term financial resources - Short-term financial resources - Long-term financial resources 22

23 Financial Reporting Model Reexamination 23

24 Additional Topics Expected to Be Addressed: Preliminary Views Format of the government-wide statement of activities Separate presentation of operating and nonoperating revenues and expenses in proprietary fund and businesstype activity (BTA) financial statements Budgetary comparisons Permanent funds 24

25 Additional Topics Expected to Be Addressed: Exposure Draft Extraordinary and special items Management s discussion and analysis Debt service funds 25

26 Revenue and Expense Recognition 26

27 Revenue and Expense Recognition What: Development of a comprehensive application model for recognition of revenues and expenses from nonexchange, exchange, and exchange-like transactions Why: Questions on how to account for revenues from transactions that are neither fully exchange or nonexchange; governmental revenue recognition standards not revised for many years; current literature doesn t provide guidance for exchange & exchange-like expenses When: Project added April

28 Topics to Be Considered Should revenue recognized at the time of sale or when the obligation is fulfilled? Should a performance obligation approach be used for transactions of a government? If so, for which transactions? Should guidance for nonexchange transactions be revised in light of the GASB Concepts Statements? Should guidance be developed for exchange expenses that are not in the scope of existing guidance? Should additional information be disclosed regarding revenue and expense transactions? 28

29 Pre-Agenda Research Activities Going Concern Disclosures Reexamination IT Arrangements including Cloud Computing Note Disclosures Reexamination Public-Private Partnerships Social Impact Bonds 29

30 Questions? Visit 30