GASB Update Pamela Dolan, CPA Project Manager Governmental Accounting Standards Board

Transcription

1 GASB Update Pamela Dolan, CPA Project Manager Governmental Accounting Standards Board The views expressed in this presentation are those of Ms. Dolan. Official positions of the GASB on accounting matters are reached only after extensive due process and deliberation.

2 Presentation Overview Pronouncements currently being implemented Proposals available for public comment Projects currently being deliberated by the Board GASB News Brian Caputo has replaced Marcia Taylor All GASB pronouncements are available free on the website, including Statements, Concepts Statements, Interpretations, Technical Bulletins, and Implementation Guides Online version of GARS now available through website - Basic view is free 2

3 Effective Dates June Statement 68 pension accounting for employers and nonemployer contributing entities - Statement 69 government combinations - Statement 71 pension transition Statement 72 fair value measurement and application - Statement 73 amendments to Statements 67 and 68 - Statement 76 GAAP hierarchy Statement 73 pensions not within the scope of 67/68 - Statement 74 financial reporting by OPEB plans - Statement 77 tax abatement disclosures Statement 75 OPEB accounting for employers and nonemployer contributing entities 3

4 Effective Dates December Statement 68 pension accounting for employer and nonemployer contributing entities - Statement 71 pension transition Statement 72 fair value measurement and application - Statement 73 amendments to Statements 67 and 68 - Statement 76 GAAP hierarchy - Statement 77 tax abatement disclosures Statement 73 pensions not within the scope 67/68 - Statement 74 financial reporting by OPEB plans Statement 75 OPEB accounting for employers and nonemployer contributing entities 4

5 Fair Value Measurement and Application: Statement 72 5

6 Overview What: The Board issued Statement 72 to update the existing standards on fair value (primarily Statement 31) Why: Review of existing standards found opportunities to improve the measurement of resources available to governments, and to increase comparability and accountability When: Effective for fiscal years beginning after June 15,

7 Fair Value Definition 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. - An exit price Other characteristics of fair value - Market-based - Based on a government s principal or most advantageous market Fair value is not an option 7

8 Valuation Techniques & Inputs Apply valuation technique(s) that best represents fair value in the circumstances market approach, cost approach, and income approach Inputs: - Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities, most reliable - Level 2: quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other than quoted prices that are observable - Level 3: unobservable inputs, least reliable Maximize use of relevant observable inputs and minimize use of unobservable inputs 8

9 Investments and Fair Value Assets that meet the definition of an investment generally should be measured at fair value - Existing exceptions to fair value (such as money market investments and investments in 2a7-like pools) would remain Definition of an investment: A security or other asset that a government holds primarily for the purpose of income or profit and with a present service capacity that is based solely on its ability to generate cash or to be sold to generate cash - Held primarily for income or profit acquired first and foremost for future income and profit - Service capacity refers to a government s mission to provide services 9

10 Disclosures The following information for each class or type of assets and/or liabilities measured at fair value should be disclosed: - The fair value measurement at the end of the reporting period and for nonrecurring fair value measurements, the reasons for the measurement - The level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1, 2, or 3) - A description of the valuation technique(s) 10

11 Other Postemployment Benefits: Statements 74 & 75 11

12 Overview What: The Board issued Statements 74 (plans) and 75 (employers), making OPEB accounting and financial reporting consistent with the pension standards in Statements 67 and 68 Why: Pension and OPEB standards were updated subsequent to a review of the effectiveness of the standards objective was to establish a consistent set of standards for all postemployment benefits, providing more transparent reporting of the liability and more useful information about the liability and costs of benefits When: Effective for periods beginning after June 15, 2016 (plans) and June 15, 2017 (employers) 12

13 Plan and Asset Reporting (Statement 74) Scope for plan reporting includes defined benefit and defined contribution OPEB plans administered through trusts that meet specified criteria Also addresses assets accumulated for purposes of providing OPEB through defined benefit OPEB plans that are not administered through trusts that meet the criteria - Assets reported as assets in employer s governmental/ proprietary funds - Assets held for other governments reported in an agency fund Few changes from Statement 43 for financial statement recognition Notes/RSI changes primarily to reflect changes in measurement of defined benefit liabilities of employers 13

14 Employer Scope & Applicability Applies same definition of OPEB as used in Statement 45 - All postemployment healthcare benefits - Other forms of postemployment benefits not provided through a pension plan Addresses both defined benefit OPEB and defined contribution OPEB Applies to employers and nonemployer contributing entities that have a legal obligation to make contributions directly to an OPEB plan or to make benefit payments as those payments come due - Special funding situations - Other circumstances 14

15 Liability to Employees for OPEB Based on total OPEB liability the portion of the actuarial present value of projected benefit payments that is attributed to past periods of employee service Is OPEB administered through a trust that meets the specified criteria? - Yes recognize net OPEB liability (total OPEB liability, net of OPEB plan fiduciary net position) - No recognize total OPEB liability Employer s liability to employees for OPEB measured as of a date no earlier than the end of the employer s prior fiscal year and no later than the employer s current fiscal year - Based on an actuarial valuation obtained at least biennially no more than 30 months and 1 day earlier than the employer s most recent fiscal year-end 15

16 Measurement of the Total OPEB Liability General Approach Three broad steps - Project benefit payments - Discount projected benefit payments to actuarial present value - Attribute actuarial present value to periods Methods and assumptions - Generally, assumptions in conformity with Actuarial Standards of Practice - Single attribution method entry age, level percentage of pay - Amortization periods average remaining service period 16

17 Measurement of the Total OPEB Liability: Projections of OPEB Payments Based on claims costs or age-adjusted premiums approximating claims costs, in accordance with Actuarial Standards of Practice Not reduced by amounts expected to be received for making benefit payments unless payments are providing Medicare benefits Consider legal or contractual benefit caps if determined to be effective Alternative measurement method may be applied if fewer than 100 employees (active and inactive) are provided benefits through plan as of the beginning of the measurement period - Generally, same simplifications to assumptions in Statement 45 can be used Reference to U.S. Office of Personnel Management regarding age-based turnover experience rather than default tables 17

18 Changes in Liability Recognize most changes in liability for the current reporting period as OPEB expense immediately, except: - Changes in total OPEB liability: Differences between expected and actual experience with regard to economic and demographic factors in the measurement of the total OPEB liability Changes of assumptions in the measurement of the total OPEB liability - For OPEB administered through trust in which specified criteria are met: Difference between projected and actual earnings on OPEB plan investments Employer contributions 18

19 Cost-Sharing Employers Relevant only for OPEB administered through trust in which specified criteria are met Recognize proportionate shares of collective net OPEB liability, OPEB expense, and deferred outflows of resources/deferred inflows of resources related to OPEB Proportion (%) - Basis required to be consistent with contributions - Use of relative long-term projected contribution effort encouraged - Consider separate rates related to separate portions of collective net OPEB liability Collective measure proportion = proportionate share of collective measure 19

20 Notes and RSI Similar to those required for pensions Disclosure of effect on net OPEB liability of a discount rate +/- 1 percent Disclosure of effect on net OPEB liability of a healthcare cost trend rate +/- 1 percent Single and agent employers: 10-year RSI schedules for changes in the net OPEB liability, ratios, and actuarially determined contributions (statutorily or contractually determined contributions, if no actuarially determined contribution is calculated) Cost-sharing employers: 10-year RSI schedules of proportions and ratios, and statutorily or contractually determined contributions 20

21 GAAP Hierarchy: Statement 76 21

22 The GAAP Hierarchy What: In June, the Board issued Statement 76 and cleared a revised Comprehensive Implementation Guide Why: The GAAP hierarchy was incorporated (by Statement 55) from the auditing literature essentially as is this project simplifies the hierarchy and explains how to identify the relevant literature within the hierarchy When: Effective for periods beginning after June 15,

23 Categories of Authoritative GAAP Category Sources Due Process A GASB Statements Formally approved by the Board for the purpose of creating, amending, superseding, or interpreting standards, AND exposed for a period of public comment B GASB Technical Bulletins and Implementation Guides; AICPA literature specifically cleared by GASB Cleared by the Board, specifically made applicable to state and local governmental entities, AND exposed for a period of public comment 23

24 Comprehensive Implementation Guide (CIG) Now classified as Category B authoritative GAAP Revised due process - Public exposure of new Q&A guidance going forward - Will continue to issue Guides to individual pronouncements (such as Statements 74 and 75 on OPEB) and annual updates with new Q&As on various pronouncements - Board clearance of the final Implementation Guides 24

25 Tax Abatement Disclosures: Statement 77 25

26 Tax Abatement Disclosures What: The Board issued Statement 77, which requires disclosures about a government s tax abatement agreements Why: Information about revenues that governments forgo is essential to understanding financial position and economic condition, interperiod equity, sources and uses of financial resources, and compliance with finance related legal or contractual requirements When: Effective for periods beginning after December 15,

27 Definition and Scope Does not include all transactions that reduce tax revenues Emphasis is on the substance of the arrangement meeting the definition, not on its name or form Would apply only to arrangements meeting this definition: - A reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which (a) one or more governments promise to forgo tax revenues to which they are otherwise entitled and (b) the individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or the citizens of those governments. 27

28 General Disclosure Principles A government would disclose separately (a) its own tax abatements and (b) tax abatements that are entered into by other governments and reduce the reporting government s taxes Disclosure information may be provided individually or in the aggregate Disclose own tax abatements by major program Disclose those of other governments by the government and specific tax abated Disclosure would commence in the period in which a tax abatement agreement is entered into and continue until the tax abatement agreement expires, unless otherwise specified 28

29 Disclosures: Own Abatements Brief descriptive information: - Name and purpose of the program and the taxes being abated - The authority under which taxes are abated - The criteria, if any, that make a recipient eligible - The mechanism for abating taxes (form and calculation) - Provisions for recapturing abated taxes, if any - The types of commitments made by recipients of tax abatements Gross amount of tax abated in the current year (and information about payments received from other governments related to the abatements, if applicable) 29

30 Disclosures: Own Abatements (continued) The types of commitments made by the reporting government in tax abatement agreements (other than to reduce taxes) and the most significant individual commitments A brief description of the quantitative threshold used to determine which agreements to disclose individually (if applicable) A description of the general nature of the tax abatement information omitted because the information is legally prohibited from being disclosed and the specific source of the legal prohibition (if applicable) 30

31 Disclosures: Other Government s Abatements Brief descriptive information: name of the government entering into the agreement and the specific taxes being abated Gross amount of tax abated in the current year (and information about payments received from other governments related to the abatements, if applicable) A brief description of the quantitative threshold used to determine which agreements to disclose individually (if applicable) A description of the general nature of the tax abatement information omitted because the information is legally prohibited from being disclosed and the specific source of the legal prohibition (if applicable) 31

32 Proposed Standards for Public Comment 32

33 Exposure Draft: Blending Requirements for Certain Component Units 33

34 Blending Requirements What: The GASB has proposed revising the standards regarding how certain component units should be presented in the financial statements of the primary government Why: There is diversity in practice, with some component units When: An Exposure Draft was issued in June 2015; comment deadline is October 2 34

35 Reporting Entity Standards Most component units should be included in the financial reporting entity by discrete presentation. Currently, the blending presentation is used only under the following circumstances: - Primary government and component unit have substantively the same governing body AND A financial benefit/burden relationship exists, OR Management (below the elected official level) of the primary government has operational responsibility for the activities of the component unit - Services of the component unit exclusively benefit the primary government - Debt of the component unit is expected to be repaid entirely or almost entirely with resources of the primary government 35

36 Reporting Entity Issue Many healthcare entities have asked whether blending is appropriate for certain component units These legally separate entities (mostly not-for-profit corporations) generally: - Do not have boards composed of the primary government - Provide services directly to the community - Are expected to pay for their own debt The healthcare entities are usually the sole corporate member of these not-for-profit corporations and hold specific corporate powers 36

37 Board Proposals The Board has proposed an additional blending criterion: - A component unit that is incorporated as a not-for-profit corporation, in which the primary government is the sole corporate member, should be included in the reporting entity financial statements using the blended method. Would be effective for reporting periods beginning after June 15, 2016 The Board is considering developing implementation guidance clarifying the relationship between being sole corporate member of an LLC, in which there is not a separate governing board, and substantively the same board. 37

38 Current Technical Agenda Projects 38

39 Leases 39

40 Preliminary Views on Leases What: The GASB is redeliberating its proposed revisions to existing standards on lease accounting and financial reporting (primarily Statement 162) based on public comments received on the November 2014 Preliminary Views Why: The existing standards have been in effect for decades without review to determine if they remain appropriate and continue to result in useful information; FASB and IASB have been conducting a joint project to update their lease standards; opportunity to increase comparability and usefulness of information and reduce complexity for preparers When: Exposure Draft expected first quarter

41 Scope and Approach Applied to any contract that meets the definition of a lease: A lease is a contract that conveys the right to use a nonfinancial asset (the underlying asset) for a period of time in an exchange or exchange-like transaction. All leases are financings of the right to use an underlying asset - Therefore, single approach applied to accounting for all leases except short-term leases 41

42 Initial Reporting Assets Liability Deferred Inflow Lessee Intangible asset (right to use underlying asset) value of lease liability plus prepayments and initial direct costs that are ancillary to place asset in use Lessor Lease receivable (generally including same items as lessee liability) Continue to report leased asset Present value of future lease payments (incl. fixed payments, variable payments based on index or rate, reasonably certain residual guarantees, etc.) NA NA Equal to lease receivable plus any cash received up front that relates to a future period 42

43 Subsequent Reporting Lessee Lessor Assets Liability Deferred Inflow Amortize over shorter of useful life or lease term Depreciate leased asset (unless indefinite life or required to be returned in its original or enhanced condition) Reduce receivable by lease payments (less payment needed to cover accrued interest) Reduce by lease payments (less amount of interest expense) NA NA Recognize revenue over the lease term on a systematic and rational basis 43

44 Short-Term Leases At beginning of lease, maximum possible term under the contract is 12 months or less Lessees recognize expenses/expenditures based on the terms of the contract - Do not recognize assets or liabilities associated with the right to use the underlying asset for short-term leases - Disclose short-term leases expense/expenditure recognized during the reporting period Lessors recognize lease payments as revenue based on the terms of the contract - Do not recognize receivables or deferred inflows associated with the lease 44

45 Project Timeline Pre-Agenda Research Started April 2011 Added to Current Technical Agenda April 2013 Preliminary Views Approved November 2014 Exposure Draft Expected January 2016 Final Statement Expected November

46 Fiduciary Responsibilities 46

47 Preliminary Views on Fiduciary Responsibilities What: The GASB is redeliberating proposed standards that clarify when a government has a fiduciary responsibility and is required to present fiduciary fund financial statements, based on public feedback on the November 2014 Preliminary Views, Financial Reporting for Fiduciary Responsibilities Why: Existing standards require reporting of fiduciary responsibilities but do not define what they are; use of private-purpose trust funds and agency funds is inconsistent; business-type activities are uncertain about how to report fiduciary activities When: Exposure Draft expected for fourth quarter

48 Tentative Decisions: When Is a Government a Fiduciary? An activity is a fiduciary activity of a government if (1) the government controls the assets of the activity, (2) those assets are not derived solely from the government s ownsource revenue, and (3) one of the following is met: - The assets result from a pass-through grant for which the government does not have administrative or direct financial involvement in the program - The assets are administered through a trust agreement or equivalent arrangement in which the government itself is not a beneficiary - The assets are to be used for the benefit of individuals that are not required to be residents or recipients of the government s good and services as a condition of being a beneficiary - The assets are to be used for the benefit of organizations or other governments that are not part of the financial reporting entity 48

49 Tentative Decisions: When Is a Government Controlling Resources? A government controls the assets of an activity if: - The government holds the assets. - The government has the ability to administer the use, exchange, or employment of the present service capacity of the assets. - The government has the ability to direct the use, exchange, or employment of the present service capacity of the assets. 49

50 Tentative Decisions: Other Scope Issues An entity determined to be a component unit under Statement No. 14, The Financial Reporting Entity, would be reported as a fiduciary fund if it meets one of the four criteria discussed previously. - Government does not need to be controlling the assets; the component unit criteria take precedence A government that controls pension (and other employee benefit) assets, and administers the assets through an arrangement that is within the scope of existing GASB guidance, should report those assets in accordance with the existing guidance. 50

51 Other Proposals to Be Redeliberated Fiduciary fund types: - New definitions for pension trust funds, investment trust funds, and private-purpose trust funds that focus on the resources that should be reported within each. Trust agreement or equivalent arrangement should be present for an activity to be reported in a trust fund. - Custodial funds would report fiduciary activities for which there is no trust agreement or equivalent arrangement. A stand alone BTA s fiduciary activities should be reported in separate fiduciary fund financial statements. 51

52 Other Proposals to Be Redeliberated Governments engaged in fiduciary activities should be required to present additions disaggregated by source and, if applicable, to separately display investment income and investment costs Governments engaged in fiduciary activities should be required to present deductions disaggregated by type and, if applicable, to separately display administrative costs Applies to statement of changes in fiduciary net position for all fiduciary funds except custodial funds held for three months or less - For these custodial funds, governments would be allowed to report total additions and total deductions in the aggregate, as long as the descriptions of the totals are sufficient to indicate the nature of the resource flows 52

53 Project Timeline Pre-Agenda Research Starts April 2010 Added to Current Technical Agenda August 2013 Preliminary Views Approved November 2014 Exposure Draft Expected December 2015 Final Statement Expected October

54 Financial Reporting Model Reexamination of Statement 34

55 Financial Reporting Model Research What: In September 2015, the Board decided to add a project to examine the effectiveness of the financial reporting model Statements 34, 35, 37, 41, and 46, and Interpretation 6 Why: The GASB is committed not only to establishing standards but also to ensuring that they continue to be effective; most of the requirements of Statement 34 became effective between 2002 and 2004; the provisions related to reporting existing general infrastructure assets were fully effective in 2006 and 2007 When: Initial due process document expected at the end of 2016

56 Research Activities During 2013 the following activities were conducted: - 11 research roundtables in 8 cities, focusing on either general purpose or special-purpose governments, consisting of a mix of financial statement preparers, auditors, and users - Primary purpose was to identify any major, overarching issues that have arisen since Statement 34 was implemented During 2014 the following activities were conducted: - Broad surveys of financial statement preparers, auditors, and users, as well as an additional survey of preparers using the modified approach for reporting infrastructure - Archival research with annual financial reports - Literature review - Primary purpose was to identify how Statement 34 has been implemented in practice and to explore further the issues raised in the roundtables 56

57 Topics to Be Addressed Management s Discussion and Analysis (MD&A) options for enhancing the financial statement analysis component, eliminating requirements that are boilerplate and no longer necessary for understanding the financial reporting model, and clarifying guidance for presenting currently known facts, decisions, or conditions Government-Wide Financial Statements explore alternatives for the format of the statement of activities and consider whether a government-wide statement of cash flows should be required Major Funds explore options for providing additional information about debt service funds, either individually or in aggregate in the financial statements or the notes 57

58 Topics to Be Addressed (continued) Governmental Fund Financial Statements explore a conceptually consistent measurement focus and basis of accounting and a presentation format consistent with that measurement focus and basis of accounting Proprietary Fund and Business-Type Activity (BTA) Financial Statements explore operating performance measure alternatives in conjunction with evaluating the guidance for the separate presentation of operating and nonoperating revenues and expenses. Extraordinary and Special Items explore options for clarifying the guidance for more consistent reporting 58

59 Topics to Be Addressed (continued) Fiduciary Fund Financial Statements explore where these financial statements should be presented in the basic financial statements Budgetary Comparisons explore the appropriate method of communication (either as basic financial statements or required supplementary information) and which budget variances, if any, should be required to be presented 59

60 Project Timeline Pre-Agenda Research Started August 2013 Added to Current Technical Agenda September 2015 Deliberations to Begin October 2015 Initial Due Process Document Expected December

61 Pension Benefit Issues 61

62 Pension Benefit Issues What: The GASB is considering revisions to Statements 67 and 68 on pensions to address concerns raised by stakeholders during the implementation process Why: The Board addresses requests to revisit existing standards when the concerns are significant and raise new issues When: An Exposure Draft is expected for December

63 Topics to Be Considered Governments with employees who are provided pension benefits through federally sponsored or private multipleemployer pension plans (such as Taft-Hartley plans) - These governments may have difficulty obtaining from the plans the measurements and information required by Statement 68 The definition of covered-employee payroll, which is used in the reporting of liability and contribution ratios in required supplementary information - The term in Statements 67 and 68 is synonymous with total payroll and differs from the prior covered payroll, which is pensionable pay 63

64 Project Timeline Added to Current Technical Agenda September 2015 Exposure Draft Expected December 2015 Final Statement Expected March

65 Asset Retirement Obligations 65

66 Asset Retirement Obligations What: The GASB is considering establishing accounting and financial reporting standards for legal obligations to retire certain capital assets, such as nuclear power plants Why: Existing standards (Statement 18) address only municipal landfills but governments have retirement obligations for other types of capital assets. There is diversity in practice for these other types. When: An Exposure Draft is expected for December

67 Tentative Decisions: Scope Asset retirement obligation A legal obligation associated with the retirement of a capital asset - Retirement of a tangible capital asset The other-thantemporary removal of a capital asset from service (such as from sale, abandonment, recycling, or disposal) Would include: Nuclear power plant decommissioning Coal ash pond closure (those that are not landfills) Contractually required land restoration such as removal of wind turbines Other similar obligations Would exclude: Landfills (Statement 18) Pollution remediation obligations from abnormal operation (Statement 49) Conditional obligations to perform asset retirement activities, such as most asbestos removal 67

68 Tentative Decisions: Initial Recognition ARO meets the definition of a liability Initial recognition of an ARO liability would happen when the liability is incurred and is reasonably estimable - Incurrence generally would be based on internal and external obligating events Corresponding debit meets definition of a deferred outflow of resources - Deferred outflow would be subsequently recognized as an expense in a rational, systematic manner over a period equal to the remaining useful life of the related asset 68

69 Tentative Decisions: Measurement Measurement attribute Settlement amount Measurement technique Current cost 69

70 Project Timeline Pre-Agenda Research Started December 2013 Added to Current Technical Agenda August 2014 Exposure Draft Expected December 2015 Final Statement Expected October

71 External Investment Pools 71

72 External Investment Pools What: The GASB has proposed revisions to the accounting and financial reporting standards for 2a7-like investment pools Why: Securities and Exchange Commission changes to Rule 2a7 would make it difficult for external investment pools to meet the criteria to continue to report as 2a7-like When: An Exposure Draft was issued in June 2015; comment period ended August 31 72

73 2a7-like Pools An external investment pool that is not registered with the SEC as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940 (17 Code of Federal Regulations 270.2a-7). - Rule 2a7 allows SEC-registered mutual funds to use amortized cost rather than market value to report net assets to compute share prices if certain conditions are met amendments to Rule 2a7 significantly increased the stringency of those conditions without changes to the accounting standards, 2a7-like pools would have had to meet the new conditions The proposed Statement would replace the existing concept of a 2a7-like pool in Statement 31, as amended. 73

74 Proposed Criteria and Disclosures A pool would have to meet the following in order to report investments at amortized cost: - Transact with participants at stable net asset value per share - Meet certain portfolio maturity requirements - Meet certain portfolio quality requirements - Meet certain portfolio diversification requirements - Meet certain pool liquidity requirements - Meet shadow price requirements Pools and pool participants that report at amortized cost would disclose information about withdrawal restrictions, such as withdrawal thresholds, limits, and waiting periods that can be imposed 74

75 Consequences of Noncompliance Noncompliance with a criterion may not prevent a pool from using amortized cost for that reporting period or in future reporting periods, given the following considerations: - If the noncompliance was out of the control of management - The significance of the noncompliance - If noncompliance is an isolated event - The promptness of the pool to return to compliance - If the noncompliance significantly diluted the pool or presented unfair results - Any change in credit rating to the pool - If a pool received financial or other support from a sponsoring government 75

76 Effective Date and Transition Would be effective for reporting periods beginning after June 15, 2015, except for requirements that are more stringent than SEC Rule 2a7 before the 2014 amendments. Changes made to comply with the proposed Statement should be applied on a prospective basis. 76

77 Irrevocable Split-Interest Agreements 77

78 Irrevocable Split-Interest Agreements What: The GASB has proposed standards for reporting split-interest agreements, which are particularly prevalent among public colleges and universities Why: Limited guidance exists for split-interest agreements in which the government acts as trustee (and is one of the beneficiaries); no guidance exists for situations in which a third party is the trustee and the government is one of the beneficiaries; users need information about these arrangements When: An Exposure Draft was issued in June 2015; the comment period ended September 18; would be effective for reporting periods beginning after December 15,

79 Scope Irrevocable split-interest agreements for which the government is the intermediary (trustee or agent) and a beneficiary - Donor gives resources to government that also is a beneficiary in the agreement - Lead interest: payments during the life of the agreement, generally to non-governmental beneficiary (donor or donor s relative) - Remainder interest: assets remaining at termination of the agreement; generally goes to government Beneficial interests in resources held and administered by 3rd parties - Refers to the right to receive resources in a future reporting period, from resources administered by a 3 rd party 79

80 Proposal: Irrevocable Split-Interest Agreements with Resources Held by Government Measurement Asset Liability Deferred Inflow Initial Subsequent Resources measured at fair value Investments remeasured at fair value; changes are investment income For benefit of nongovernmental beneficiary: Lead interest measure directly at settlement amount Distributions to lead interest beneficiaries reduce the liability For government s benefit in resources: Remainder interest residual amount (trust assets less income benefit) 80

81 Proposal: Reporting Beneficial Interests in Resources Held by Others Asset recognition is required if all of the following criteria are met: - Legal document specifies government by name as beneficiary - Government has unconditional beneficial interest - Donation agreement is irrevocable - Donor has not granted variance power - Intermediary is not under the control of the donor - Assigning beneficial interests is not subject to approval of the intermediary - Attempt to assign beneficial interests does not terminate the agreement 81

82 Proposal: Irrevocable Split-Interest Agreements with Resources Held by Third Party Measurement Asset Initial Subsequent Resources initially measured at fair value Changes in fair value of resources are investment income Deferred Inflow For government s benefit in resources: Initially measured at fair value 82

83 Debt Extinguishments

84 Debt Extinguishments (including refundings) What: In September 2015, the Board added a project to consider whether guidance is needed for debt refundings that use a government s current resources Why: Research found that Statements 7 and 23 on debt refundings and Statement 62 on debt extinguishments are working effectively, but that standards may be needed for refundings with current resources When: Deliberations are schedule to begin in January 2016

85 Topics to Be Considered When a government places only existing resources with an escrow agent for the purpose of an early extinguishment of debt, should the old debt be derecognized as in a refunding? Should the difference between the net carrying value of the old debt and the reacquisition price be deferred? Should governments be allowed to defer in entirety the difference between the net carrying value of the old debt and its reacquisition price, irrespective of what portion of the refunding was completed with the government s existing resources? Should additional information be disclosed when debt is extinguished using existing resources? 85

86 Project Timeline Pre-Agenda Research Started August 2013 Added to Current Technical Agenda September 2015 Deliberations to Begin January 2016 Exposure Draft Expected August 2016 Final Statement Expected May

87 Pre-Agenda Research Activities 87

88 Going Concern Disclosures: Reexamination of Statement 56

89 Going Concern Disclosures What: A review of existing standards related to going concern considerations, which were incorporated into GASB literature mostly as-is from the AICPA literative in Statement 56 Why: As it is currently defined, going concern may not be meaningful for governments, which hardly ever go out of business; AICPA and others have asked the GASB to examine the issue When: The Board added the pre-agenda research in April 2015

90 Topics to Be Considered Are the current going concern indicators presented in note disclosures appropriate for state and local governments, in light of the fact that, even under severe financial stress, few governments cease to operate even when encountering such indicators? What other criteria might better achieve the objective of disclosing severe financial stress uncertainties with respect to governments? What information do financial statement users need with respect to the disclosure of severe financial stress uncertainties? 90

91 Debt Disclosures, including Direct Borrowing

92 Debt Disclosures What: A review of existing standards related to disclosures of debt, including provisions in Statements 34, 38, and 62 Why: Stakeholders have raised concerns about the consistency and quality of notes about debt activity; particular concern has been expressed about disclosure of bank loans, which is increasing in frequency When: The Board added the pre-agenda research in April 2015

93 Topics to Be Considered What transactions constitute debt for financial reporting purposes and, therefore, would be subject to debt-related disclosures? What information about a government s outstanding debt is essential to users? Is that information currently available to users from the notes to the financial statements or other sources? What specific user needs exist regarding covenants (such as acceleration or subordination clauses) in debt transactions? Focus on disclosures related to debt in general; not disclosures related to specific debt transactions that are the subject of other projects, research, or potential topics 93

94 Exchange and Exchange-Like Revenues

95 Revenue Recognition What: A review of existing standards related to recognition of revenues from exchange transactions in Statement 62 and consider specific guidance for exchange-like transactions Why: Stakeholders have raised questions about how to account for revenues from transactions that are neither fully exchange or nonexchange; the revenue recognition standards incorporated in Statement 62 have not been revised for governments in nearly 50 years When: The Board added the pre-agenda research in September 2015

96 Topics to Be Considered What issues have arisen in practice with regard to recognition of exchange and exchange-like revenues? What transactions constitute exchange-like revenue? What types of revenue transactions having single elements do governments generally engage in for exchange and exchange-like arrangements, and how do governments account for them? What types of revenue transactions having multiple elements do governments generally engage in for exchange and exchange-like arrangements, and how do governments account for them? 96

97 Topics to Be Considered (continued) Do governments generally engage in exchange and exchange-like transactions such as those specifically addressed in FASB Topic 606, such as unexercised rights, warranty options, bill-and-hold arrangements, customer options, variable consideration, stand-ready obligations, discount allocations, and sales with financing (other than leases)? How prevalent are sales with a right of return in the governmental environment? Should paragraphs of Statement 62 be applicable to all governments? What specific user needs exist regarding revenue recognition for exchange and exchange-like revenue? 97

98 98

99 Website Resources Free download of Statements, Interpretations, Concepts Statements and other pronouncements Free access to the basic view of the Codification Free copies of proposals Up-to-date information on current projects Articles and Fact Sheets about proposed and final pronouncements Form for submitting technical questions Educational materials, including podcasts Electronic newsletter and other resources for users 99

100 Plain-Language Materials The GASB is committed to communicating in plain language with constituents about its standards and standards-setting activities. Plain-language articles accompany major proposals and final pronouncements Fact Sheets are prepared for complex projects to answer commonly raised questions - Series of 8 fact sheets on Statements 67 & 68 on pensions 100