Report on Impact of GASB Statement Nos. 63 and 65 on the Statement of Net Position (Balance Sheet)

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1 FAP Agenda Number 5. CONTACT: Doug Dunlap (623) MEETING DATE: March 20, 2014 AGENDA ITEM: Report on Impact of GASB Statement Nos. 63 and 65 on the Statement of Net Position (Balance Sheet) LINKAGE TO STRATEGIC PLAN, POLICY, STATUTE OR GUIDING PRINCIPLE: 2010 CAWCD Board of Directors Strategic Plan Finance: Maintaining CAP's Financial Health - Effectively communicate financial issues to Board and stakeholders PREVIOUS BOARD ACTION/ACTIVITY: October 24, 2013 January 23, 2014 Clifton Larson Allen presented the 2013 external audit plan to the FAP Committee. Staff reported on external audit process and schedule to the FAP Committee ISSUE SUMMARY/DESCRIPTION: Annually, the FAP Committee is requested to authorize release of the audited CAWCD Comprehensive Annual Financial Report. The external auditor provides a report which includes identification of the impact of new Governmental Accounting Standards Board (GASB) pronouncements. Typically many of the new standards do not have an impact on CAWCD financial statements. Two recent statements require modifications on certain types of accounts and how they are reported. This discussion is to provide a preview of the change of the statements. The new categories are deferred inflows and deferred outflows. In general, deferrals relate to differences in timing between cash flows and when they are allowed or required under accrual accounting rules to be recognized as revenues or expenses. Statement 63 Deferrals and Net Position: identifies the basic elements of assets, liabilities, deferred outflow of resources, deferred inflow of resources and net position and how they are to be reported. Statement 65 Deferrals (Reclassifications): identifies additional types of elements that are to be identified as deferred outflow of resources and deferred inflow of resources. It also reserves the term deferred for these elements. Previous deferred revenue is renamed to unearned revenue.

2 FAP Agenda Number 5. Attachment. GASB 63 & GASB 65 Implementation Strategic Reserve Discussion Target Recommendation March 20, 2014 Doug Dunlap March 20, 2014 Finance and Accounting Manager Doug Dunlap Finance and Accounting Manager Topics for Today Accounting Oversight Review GASB Pronouncements & Implications Example GASB 63 & 65 Discussion - 03/20/

3 Accounting Oversight Overview Who or what is GASB? Governmental Accounting Standards Board The GASB is an independent organization that establishes and improves standards of accounting and financial reporting for U.S. state and local government. Established in 1984 by agreement of the Financial Accounting Foundation (FAF) and 10 national associations of state and local government officials, the GASB is recognized by governments, the accounting industry, and the capital markets as the official source of generally accepted accounting principles (GAAP) for state and local governments. Board members are appointed by the Trustees of the FAF for a five-year term and may serve up to ten years. GASB 63 & 65 Discussion - 03/20/ Current GASB Board From left to right: William W. Fish, Michael H. Granof, Marcia L. Taylor, David A. Vaudt, Jan I. Sylvis, David E. Sundstrom, James E. Brown GASB 63 & 65 Discussion - 03/20/

4 Accounting Oversight Overview Who or what is FASB? Financial Accounting Standards Board Since 1973, FASB has been the designated organization in the private sector for establishing standards of financial accounting that govern the preparation of financial reports by nongovernmental organizations. Those standards are officially recognized as authoritative by the Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants. GASB Statement 62 implemented codification of pre-1989 accounting and financial reporting guidance that does not conflict with or contradict GASB pronouncements of FASB statements and interpretations, Accounting Principles Board and Accounting research Bulletins of the American Institute of Certified Public Accountants (AICPA) GASB 63 & 65 Discussion - 03/20/ Accounting Oversight Overview Why are separate accounting and financial reporting standards essential for governments? Due to their unique operating environment, governments have a responsibility to be accountable for the use of resources that differs significantly from that of business enterprises What are standards? Designed to provide taxpayers, legislators, municipal bond analysts, and others with information that is useful to their decisionmaking process regarding governmental entities GASB 63 & 65 Discussion - 03/20/

5 Effective Dates June 30, 2013 Statement 60 Service Concession Arrangements Statement 61 Financial Reporting Entity Statement 62 Pre-89 Codification Statement 63 Deferrals and Net Position June 30, 2014 Statement 65 Deferrals (Reclassifications) Statement 66 Technical Corrections Statement 67 Pension Plans Statement 70 Nonexchange Financial Guarantees For Statement 65, early application is encouraged. If reporting deferred inflows and outflows, it might make sense to implement earlier. GASB 63 & 65 Discussion - 03/20/ Definitions Net position The residual of all elements presented in the statement of financial position. Name change for net assets Deferred outflows of resources A consumption of net assets that is applicable to a future period. Positive effect on net position, similar to an asset e.g. Prepaying an expense for a future expense Deferred inflows of resources An acquisition of net assets that is applicable to a future period. Negative effect on net position, similar to a liability e.g. Customers sending in a payment for a future expense 8 4

6 Items Currently Reported as Assets that Remain Assets Listing: Prepayments Grants paid in advance of meeting eligibility requirements (other than timing) Rights to future revenues acquired from outside the reporting entity Regulatory assets 9 Items Currently Reported as Assets that Change to Deferred Outflows Listing: Deferred amounts from refunding of debt Grants paid in advance of meeting a timing requirement Cost of acquire rights to future revenues Deferred loss from sale-leaseback 10 5

7 Items Currently Reported as Liabilities that Remain Liabilities Listing: Resources received in advance of an exchange transaction Derived tax revenue received in advance Premium revenues (risk pools) Grants received in advance of meeting eligibility requirements (other than timing). Refunds imposed by a regulator 11 Items Currently Reported as Liabilities that Change to Deferred Inflows Commonly called deferred revenue, deferred credits, etc. Listing: Customer Deposits (e.g. rate stabilization) Deferred amounts as a result of a refunding of debt Unavailable revenue Taxes received in advance Proceeds from the sale of future revenue Deferred gain from sale-leaseback Regulatory credits 12 6

8 Some Items are No Longer Deferred at All Deferred liabilities now revenues Loan origination fees Commitment fees Fees received for sale of loans Deferred assets now expenditures Debt issuance costs Initial cost incurred by lessor in an operating lease Acquisition costs for risk pools Loan origination costs Costs to acquire loans 13 Example Comparison Assets Current assets $ 194,827 Non-current assets 1,828,503 Total assets 2,023,330 Liabilities Current liabilities 109,013 Non-current liabilities $ 1,341,268 Total liabilities 1,450,281 Total net position $ 573,049 Total Liabilities and Net Position $ 2,023,330 GASB 63 & 65 Discussion - 03/20/

9 Example Comparison Assets Current assets $ 194,827 Non-current assets 1,808,503 Total assets 2,003,330 Deferred outflows of resources 20,000 Total assets and deferred outflows $ 2,023,330 Liabilities Current liabilities $79,013 Non-current liabilities $ 1,341,268 Total liabilities $ 1,420,281 Deferred inflows of resources $ 30,000 Total net position 573,049 Total Liabilities, deferred inflows, and net position $2,023,330 GASB 63 & 65 Discussion - 03/20/