FSFOA GASB Update. November 14, 2017

Transcription

1 FSFOA GASB Update November 14, 2017

2 Course Topics Investments Fair Value OPEB Tax Abatements Pension Amendments Blending Criteria Irrevocable Split Interest Agreements Asset Retirement Obligations Fiduciary Activities Leases GASB Projects Other Matters 2

3 3 GASB 72 & 79

4 GASB 72 and 79 Follow Up GASB 72 provides fair value accounting and disclosure considerations for investments Considerable inconsistencies in implementation Paragraph 69 specifies certain investments to be at cost Paragraph 82 provides certain disclosure requirements GASB 79 addresses accounting and disclosure considerations for investment pools 2a7-like pools accounted for at amortized cost; otherwise NAV 4

5 5 GASB 72-Investments at Cost Nonparticipating contracts, such as nonnegotiable certificates of deposit with redemption terms that do not consider market rates Synthetic guaranteed investment contracts Money market investments and participating interestearning investment contracts that have a remaining maturity at the time of purchase of one year or less Money market investments are short-term, highly liquid debt instruments including commercial paper, banker s acceptances, and U.S. Treasury and agency obligations

6 GASB 72-Investments at FV Level of hierarchy-which level applies Level 1 includes actively traded securities, such as stocks, mutual funds and exchange traded funds Level 2 includes less actively traded securities, including U.S. Treasuries, bonds and, if LIBOR-based quoted values, swaps Level 3 includes private equity funds and other investments that do not have readily determined fair values and require appraisals or other means of valuation 6

7 GASB 72-Investments at FV If valued at net asset value (NAV), do not disclose in any of the hierarchy levels If at NAV, GASB 72, paragraph 82, disclosures apply, including significant investment strategies, redemption provisions and unfunded commitments If at cost, do not include in fair value hierarchy levels (investments recorded at cost and NAV should be included in the investment summary but not categorized by level) 7

8 GASB 79 Provides that the pool may be recorded at amortized cost if it meets 2a7-like criteria; otherwise NAV Paragraph 43 requires disclosures regarding limitations or restrictions on withdrawals Participants in investment pools should follow the same accounting as the pool itself for its investment Polls at NAV should disclose GASB 72, par 82 information 8

9 9 GASB 74 & 75

10 GASB 74 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans Issued: June 2015 Effective: For fiscal years beginning after June 15, Applies to the Plan set up with an irrevocable trust Specifies presentation and disclosure requirements, similar to GASB 67 for pension plan trusts 10

11 GASB 75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions Issued: June 2015 Effective: For fiscal years beginning after June 15, 2017 Addresses the Employer reporting Addresses both OPEB plans that have assets in a trust as well as those that do not 11

12 Net OPEB Liability Total OPEB Liability Plan Fiduciary Net Position Net OPEB Liability 12

13 Total OPEB Liability Project Discount Attribute 13

14 Project Actuarial Valuation Based on claims costs, or age-adjusted premiums approximating claims costs, and the benefit terms and legal agreements existing at the measurement date Incorporate Projected salary changes and service credits Projected automatic postemployment benefit changes Ad hoc postemployment benefit changes if they are considered to be substantively automatic 14

15 Discount Blended Long term rate of return 20 year tax exempt bond 15

16 Attribute Entry Age Normal Level Percentage of Pay Employee by employee basis 16

17 Key Dates Fiscal Year End Measurement Date Valuation Date 17

18 Liability Single & Agent Plan Net OPEB Liability Cost Sharing Plans Proportionate Share of Collective Net OPEB Liability 18

19 Change in Liability Expense Immediately Current Period Service Cost Interest on Liability Change in Benefits Defer & Recognize over Average Remaining Service Life Change in economic or demographic assumptions Difference between estimated and actual experience Defer & Recognize Over Five Year Period Difference between projected earnings and actual experience 19

20 Cost Sharing Changes Defer & Recognize over Average Remaining Service Life Change in proportionate share Difference between contributions & proportionate share 20

21 Not in a Trust Use of Insured Benefits Expense premiums Disclose Not Insured Similar methodology Exceptions Total OPEB Liability Discount Rate 21

22 22 GASB 77

23 GASB 77 Tax Abatement Disclosures Issued: August 2015 Effective: For reporting periods beginning after December 15, 2015 Establishes financial reporting standards for tax abatement agreements entered into by state and local governments 23

24 Definition A reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which one or more governments promise to forgo tax revenues to which they are otherwise entitled and 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 24

25 Principles Entered into on own vs other governments Individual vs aggregate Organization Start & End 25 25

26 Disclosures Descriptive Info Gross dollar amount (accrual basis) Amounts received (or receivable) from other government Other commitments Quantitative threshold Legal Omission 26

27 27 GASB 78

28 GASB 78 Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans Issued: December 2015 Effective: For reporting periods beginning after December 15, 2015 Addresses a practice issue for GASB 68 28

29 Exception to 68 Not a State or Local Government Plan Both government and nongovernmental Employees No predominant government employer 29

30 30 GASB 80

31 GASB 80 Blending Requirements for Certain Component Units, an amendment of GASB Statement No. 14 Issued: January 2016 Effective: For reporting periods beginning after June 15, 2016 Establishes an additional blending requirement for the financial statement presentation of component units 31

32 Blend Government is sole corporate member of a NFP corporation Included in the financial reporting entity pursuant to the provisions in paragraphs of Statement 14, as amended 32 32

33 33 GASB 81

34 GASB 81 Irrevocable Split-Interest Agreements Issued: March 2016 Effective: For periods beginning after December 15, 2016 Provides recognition and measurement guidance for situations in which a government is a beneficiary of an agreement 34

35 Definition Specific type of giving arrangement used by donors to provide resources to two or more beneficiaries 35

36 Intermediary Government Has a Remainder Interest Assets for resources received or receivable A liability for the lead interest that is assigned to other beneficiaries A deferred inflow of resources for the government s unconditional remainder interest 36

37 Intermediary (continued) Government Has a Lead Interest Assets for resources received or receivable A deferred inflow of resources for the government s unconditional lead interest A liability for the remainder interest that is assigned to other beneficiaries

38 Not an Intermediary Recognize an asset and a deferred inflow of resources when the government becomes aware of the agreement and has sufficient information to measure the beneficial interest 38

39 39 GASB 82

40 GASB 82 Pension Issues an amendment of GASB Statements No. 67, No. 68, and No. 73 Issued: April 2016 Effective: For reporting periods beginning after June 15, 2016 Except for the section on actuarial assumptions - Effective in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017 Addresses Practice Issues 40

41 Implementation Issues Covered payroll RSI Actuarial assumptions Classification of employer pickup 41

42 42 GASB 83

43 GASB 83 Certain Asset Retirement Obligations Issued: November 2016 Effective Date: For reporting periods beginning after June 15, 2018 Recognition and measurement for AROs besides landfills 43

44 Definition A legally enforceable liability associated with the retirement of a tangible capital asset 44

45 Recognition Recognize liability if both incurred reasonably estimable Recognize deferred outflow of resources Amount of the corresponding liability upon initial measurement Expense in systematic and rational manner over the estimated useful life of the tangible capital asset 45

46 Incurred External laws, regulations, contracts, or court judgments Internal events 46

47 Measurement Best estimate (probability weighted average) If not feasible - the most likely amount 47

48 48 GASB 84

49 GASB 84 Fiduciary Activities Issued: January 2017 Effective: For reporting periods beginning after December 15, Improves guidance regarding the identification of fiduciary activities 49

50 Types of Funds Pension/OPEB trust funds Investment trust funds Private-purpose trust funds Custodial funds 50

51 Pension / OPEB Component Unit Fiduciary activity if it is one of the following: A pension plan that is administered through a trust that meets the criteria in paragraph 3 of Statement 67 An other postemployment benefit (OPEB) plan that is administered through a trust that meets the criteria in paragraph 3 of Statement 74 A circumstance in which assets from entities that are not part of the reporting entity are accumulated for pensions as described in paragraph 116 of Statement 73 A circumstance in which assets from entities that are not part of the reporting entity are accumulated for OPEB as described in paragraph 59 of Statement 74 51

52 Not Pension/ OPEB Component Unit Fiduciary activity if one or more of the following: The assets are administered through a trust agreement or equivalent arrangement (hereafter jointly referred to as a trust) in which the government itself is not a beneficiary, dedicated to providing benefits to recipients in accordance with the benefit terms, and legally protected from the creditors 52

53 Not Pension/ OPEB Component Unit (continued) Fiduciary activity if one or more of the following: The assets are for the benefit of individuals and the government does not have administrative involvement with the assets or direct financial involvement with the assets. not derived from the government s provision of goods or services to those individuals. The assets are for the benefit of organizations or other governments that are not part of the financial reporting entity. not derived from the government s provision of goods or services to those organizations or other governments. 53

54 All Others The assets associated with the activity are controlled by the government The assets associated with the activity are not derived either: Solely from the government s own-source revenues From government-mandated nonexchange transactions or voluntary nonexchange transactions with the exception of pass-through grants for which the government does not have administrative involvement or direct financial involvement 54

55 All Others (continued) The assets associated with the activity have one or more of the following characteristics: The assets are (a) administered through a trust in which the government itself is not a beneficiary, (b) dedicated to providing benefits to recipients in accordance with the benefit terms, and (c) legally protected from the creditors of the government. 55

56 All Others (Cont d) The assets are for the benefit of individuals and the government does not have administrative involvement with the assets or direct financial involvement with the assets. not derived from the government s provision of goods or services to those individuals. The assets are for the benefit of organizations or other governments that are not part of the financial reporting entity. not derived from the government s provision of goods or services to those organizations or other governments. 56

57 57 GASB 85

58 Omnibus 2017 GASB 85 Issued: March 2017 Effective: For reporting periods beginning after June 15, 2017 Addresses practice issues 58

59 Impacts Blending business type activity that reports in a single column Previously reported goodwill and negative goodwill Money market investments at amortized cost OPEB Current financial resources measurement focus On behalf payments for pensions and OPEB Payroll RSI Alternative measurement method Multiple Employer OPEB exception 59

60 GASB 86 Certain Debt Extinguishment Issues Issued: May 2017 Effective: For reporting periods beginning after June 15, 2017 Improves consistency in accounting and financial reporting for in substance defeasance of debt when resources other than refunding proceeds are used to extinguish debt. It requires debt be considered defeased when cash or other monetary assets acquired with refunding debt proceeds are placed in an irrevocable trust to be used solely for payment of principal and interest. In addition, it requires prepaid insurance existing for the extinguished debt to be included in gain or loss in the period of defeasance and it provides additional disclosures if the trust is permitted to replace essentially risk free assets with assets not essentially risk free. 60

61 GASB 87-Leases What Is GASB 87? Lessee Accounting Lessor Accounting Transition Conclusions 61

62 When? Reporting periods beginning after December 15, 2019 Early adoption encouraged 62

63 What? Lease A lease is defined as a contract that conveys control of the right to use another entity s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction. 63

64 Nonfinancial asset? Examples of nonfinancial assets: Buildings Land Vehicles Equipment Any contract that meets this definition should be accounted for under the leases guidance, unless specifically excluded in the Statement. 64

65 What Is Control? Need both: Right to obtain the present service capacity from the underlying asset Right to determine the nature and manner of use of the underlying asset Contracts that fit this definition need to use lease guidance. 65

66 Changes Old: Capital and Operating Leases New: Substantially all leases are treated as Financing Leases (Similar to Capital Lease) 66

67 Lessee Accounting Right of use ASSET (intangible) Amort over shorter of useful life or lease term LIABILITY for PV of future lease payments Reduced by lease payments Straightline typically Effective interest rate 67

68 Lease Payments 68 Fixed payments Variable payments that depend on an index or a rate Variable payments that are fixed in substance Amounts that are reasonably certain of being required to be paid by the lessee under residual value guarantees The exercise price of a purchase option if it is reasonably certain that the lessee will exercise that option Payments for penalties for terminating the lease Any lease incentives receivable from the lessor Other payments that are reasonably certain of being required

69 Discount Rate Interest rate charged by lessor (first choice) Estimated incremental borrowing rate (if first choice is not readily available) 69

70 Lease Asset The initial measurement of the lease liability Payments made to the lessor at or before the commencement of the lease term Initial direct costs 70

71 Lessor Accounting Lease receivable (generally will match Lessee s liability) Deferred inflow Underlying asset remains on books Reduce by lease payments Recognize revenue systemically Depreciate as appropriate 71

72 Summary Initial Recognition Lessee Asset Liability Deferred Inflow Intangible Asset (PV Lease Payments, Prepaids, Initial Direct Costs) Present Value Future Lease Payments None Lessor Lease Receivable None Lease Receivable, Up Front Pymts, 72

73 Summary Subsequent Measurement Lessee Lessor Asset Liability Deferred Inflow Amortized (Shorter of Useful life or Lease Term) Reduced by payments Reduced by payments (after interest) None None Amortized over lease term (straightline) 73

74 Exceptions Investments Assets Rental property Regulated leases Airports and air carriers Service concession arrangements GASB 60 Donated Assets 74 Intangible Assets Software licenses Biological assets Timber, animals, plants Inventory Supply contracts Power supply arrangements Intra-entity leases Less than 1 year

75 Ownership Transfer Transfer of Ownership Financed purchase of underlying asset by lessee Sale by lessor of the asset 75

76 Short-term Leases Less than 1 year, month-tomonth, year-to-year Lessee Recognize expense, no asset/liability Lessor Recognize revenue, no receivable/deferred inflow No resource flow during rent holidays No required disclosure 76

77 Multiple Component Lease/non-lease components Multiple leased assets Separate and treat as different contracts Separate as practicable If cannot be readily separated, treat as one 77

78 Lease Incentives Payments made to lessee or concessions to lessee Payments to lessee at or before commencement Include in initial measurement of the lease asset After commencement Should be consistent with liability (lessee) or receivable (lessor) Variable/contingent not included in initial measurement 78

79 Lease Terms Non-cancelable period, plus options to: Extend lease, if reasonably certain to exercise Terminate, if reasonably certain NOT to exercise Excludes cancelable periods: Periods each have the option to term Both parties have to agree to extend Rolling month-to-month 79

80 Reassessment of Lease Term Only if one of the following: Lessee or lessor newly elects to exercise an option Lessee or lessor newly elects to not exercise an option An event specified in contract that triggers extension or termination 80

81 Subleases Sublease Sale-leaseback Lease-leaseback Separate from the original lease Separate transactions Reported as net transaction 81

82 Disclosure Lessee General description Lease assets & Accum Amort Amount of outflows Principal &interest 5 years, then 5-year increments Commitments Impairment Lessor General description Inflows Lessee s options to term Future payments (if primary operation) 82

83 Example Multiple Component Assume boat lease payment schedule of $5,000; $5,500; $6,000 (judgment) Therefore, warehouse payments will be $15,000; $16,500; $18,000 83

84 New Implementation Guides Annual update of questions and answers GASB 74 questions and answers GASB 75 Implementation Guide--in process Questions and answers for employer implementation of GASB 75 in fiscal

85 Projects Debt Disclosures Financial Reporting Model Conceptual Framework Recognition Revenue & Expense Recognition 85

86 ED-Certain Disclosures Related to Debt Exposure Draft comments provided September 2017 To be applicable in fiscal 2019, if finalized as is To provide more consistency and enhancements to debt disclosures, requiring disclosures of Unused lines of credit Pledged collateral Terms in debt agreements for events of default, acceleration clauses and termination events with financial consequences 86

87 ITC-Financial Reporting Model Invitation to comment issued December 2016 and comments provided by March 2017 Currently being redeliberated 87

88 88 ITC-Financial Reporting Model Reexamination of MD&A Exploring alternatives to statement of activities and considering government-wide statement of cash flows Considering additional information on debt service funds Considering inclusion of fiduciary funds in basic financial statements Reviewing operating versus nonoperating presentation of revenues and expenses in enterprise funds Reviewing budgetary information

89 ITC-Financial Reporting Model Reviewing budgetary information presentation Consideration of changes to presentation and accounting for governmental funds, including reevaluation of operating statement format and reevaluation of accounting from 3 perspectives Near-term approach Short-term approach Long-term approach 89

90 ITC-Financial Reporting Model Near term approach Most closely aligns with budgetary accounting Excludes prepaid items, inventory and long-term receivables as assets, since they would not be convertible to cash near-term (60-90 days) Includes liabilities that would normally be liquidated within days, including any portion of accrued interest, compensated absences, matured long-term debt, pensions and OPEB Would not require a statement of cash flows 90

91 ITC-Financial Reporting Model Short term (working capital) approach Focused on one year operating cycle Assets include prepaid items, inventory and other assets due within the subsequent operating cycle (generally 1 year) Includes liabilities that would normally be liquidated within the subsequent operating cycle Would require a statement of cash flows 91

92 ITC-Financial Reporting Model Long term approach Disregards timing of conversion to cash Focuses on occurrence of underlying event Excludes capital assets and long-term debt related to capital assets Would require a statement of cash flows 92

93 ITC-Financial Reporting Model Two forms of governmental fund operating statements under consideration The format presently used The current and long-term activity format This format separates capital asset and long-term debt activity from other activity 93

94 Concepts Statement-Recognition To be drafted late in 2018 Will address recognition concepts for governmental and economic resources measurement focuses Follows up on previously issued concepts statements in 2007 and 2014 that defined elements of financial statements and their measurement 94

95 95 Revenue and Expense Recognition Reexamination to provide a comprehensive model for recognition of nonexchange, exchange and exchangelike transactions Considers FASB revenue recognition standards coming into effect To include additional guidance for exchange transactions where not currently provided Considering additional disclosures related to revenue and expense transactions Considering when the timing of an exchange takes place

96 Other Matters SSAE 18, Attestation Clarity Standard Uniform Guidance 96

97 SSAE 18, Attestation Clarity Standard Applies to all attestation reports issued May 1, 2017 or thereafter, including the report on compliance with investment policies Changes examination report wording and further clarifies required documentation for examinations 97

98 Uniform Guidance Updates Corrective action plans must be on District letterhead Procurement deferral allowed to fiscal 2019 (starting July 1, 2018) If deferred, must have the deferral documented in District policies 98

99 99 Questions & Comments?