GASB Update NASACT. July 18, 2018

Transcription

1 NASACT GASB Update July 18, 2018 The views expressed in this presentation are those of the presenters. Official positions of the GASB are reached only after extensive due process and deliberations. 1

2 Opening Remarks MODERATOR R. Kinney Poynter Executive Director NASACT SPEAKER David Vaudt Chairman GASB SPEAKER David Bean Director of Research and Technical Activities GASB SPEAKER Michelle Czerkawski Senior Project Manager GASB SPEAKER Jialan Su Project Manager GASB SPEAKER Lisa Parker Senior Project Manager GASB SPEAKER Wesley Galloway Senior Project Manager GASB 2

3 Presentation Overview OPEB and Pension Implementation Issues Asset Retirement Obligations Fiduciary Activities Debt Disclosures Leases Debt Extinguishments Split-Interest Agreements Capitalization of Interest Questions and Wrap-up 3

4 OPEB and Pension Implementation Issues Statements and 85 4

5 OPEB Plan Reporting Plan reporting is based on the activities of the plan, which might be broader than the activities of the trust - If assets are accumulated in a trust that meets the criteria specified in Statements 74/75 and OPEB provided through the same OPEB plan is paid with assets other than those from that trust Employer contributions and benefit payments include amounts for OPEB as the benefits come due that are not reimbursed to the employers using OPEB plan assets 5

6 OPEB Plan Reporting (cont.) Benefit payments exclude amounts paid by inactive plan members - Example: Total benefit-related costs = $10,000 Retirees pay $8,000 Benefit payments reported by the plan = $2,000 - Consistent with the requirements for projection of benefit payments for purposes of measuring the total OPEB liability 6

7 Circumstances Involving More Than One Trust Scenario #1: - Assets in more than one trust may be used interchangeably to make benefit payments to any plan member - Each of the trusts meets the criteria specified in the Statements Conclusion: - If no legal restriction limits the use of the assets of any of the trusts to paying benefit for a specific subset, this is one OPEB plan - Net position of all the trusts (in the aggregate) = fiduciary net position of the OPEB plan 7

8 Circumstances Involving More Than One Trust (cont.) Scenario #2: - OPEB plan administered through trust (Trust A) that meets the criteria specified in the Statements - Second trust (Trust B) established by employer that can be used only for contributions to Trust A upon employer instruction - Assets in Trust B are irrevocable by the employer and are protected from creditors of the employer Conclusion: - Assets in Trust B are not OPEB plan assets - Continue to report Trust B assets as employer assets 8

9 Insured Benefits Insured benefits exclusion from Statement 75 applies only in circumstances in which payments are made to an insurer when an employee is in active service in exchange for which the insurer unconditionally undertakes obligation to pay the OPEB of those employees If benefits are provided to retirees through payment of insurance premiums during retirement, the arrangement is NOT an insured benefit 9

10 Cost-Sharing OPEB Characteristics - Multiple-employer plan in which employers pool the total OPEB liability and OPEB plan assets - Administered through a trust that meets the criteria specified in the Statements If both characteristics not present, not a cost-sharing plan for financial reporting purposes - Obtaining insurance for multiple employers retirees through the same insurance pool is not necessarily cost-sharing Employer reporting each employer as individual (not as cost-sharing employer) 10

11 Benefit-related Costs (including Implicit Subsidy ) Total insurance premiums for active and inactive employees of a single employer rated together = $1,440,000 - Based on blended premium: Total active employee premiums = $1,152,000 Total inactive employee premiums = $288,000 o Not used for Statements 74/75 (nor for active employee healthcare accounting) 11

12 Benefit-related Costs (including Implicit Subsidy ) (cont.) Total insurance premiums for active and inactive employees of a single employer rated together = $1,440,000 - If age-adjusted: Total active employee premiums = $959,000 Total inactive employee premiums = $481,000 - Age-adjusted premium for inactive employees, less portion paid by inactive employees, used for the following purposes: o As the basis for the projection of benefit payments for purposes of measuring the total OPEB obligation o To report actual employer contributions/benefit payments, including amounts subsequent to the measurement date» Example If inactive employees pay total amount of their blended premiums: $481,000 $288,000 = $193,000 12

13 Discount Rate Pay-Go with Trust Discount rate calculation requires projection of plan fiduciary net position - Includes projections of employer contributions/benefit payments for OPEB for current plan members as the benefits come (if not reimbursed to the employers using OPEB plan assets) o Projected contributions should exclude an amount for service cost of future plan members o Result is that projected contributions will not equal projected benefit payments unless the plan is closed to new entrants o Also consider ability and willingness of employer to make benefit payments from own resources for all periods in the projection (potential limiting factor in the projection) 13

14 Discount Rate Timing for Municipal Bond Rate Component Total OPEB liability required to be determined as of the measurement date Assumptions and other inputs, including municipal bond rate component of the discount rate, should be established as of the measurement date - Municipal bond rate used in the measurement should not be an average of rates over a period 14

15 Current Financial Resources Measurement Focus Clarifications For defined benefit pensions or OPEB: - Liabilities to employees measured as of the end of the reporting period - All expenditures measured for the reporting period, including: Amounts for payables to a pension or OPEB plan Amounts for administrative costs incurred by the employer (if plan is not administered through a trust that meets the criteria specified in the Statements) On-behalf payments employer reporting Recognize expenditures and revenue for reporting period to which an on-behalf payment (contribution/benefit payment) relates 15

16 Certain Asset Retirement Obligations Statement 83 16

17 Definitions and Scope Asset retirement obligation Legally enforceable liability associated with the retirement of a tangible capital asset Retirement of a tangible capital asset The permanent removal of a capital asset from service (such as from sale, abandonment, recycling, or disposal) Examples: Nuclear power plant decommissioning Contractual obligation for a lessee to restore a leased property that is not part of the lease payments Contractually required land restoration, such as removal of wind turbines 17

18 Recognition and Measurement Initial Recognition Subsequent Recognition ARO liability when incurred and reasonably estimable. Incurrence manifested by both external and internal obligating events. Measured based on the best estimate of the current value of outlays expected to be incurred. At least annually, adjust for general inflation or deflation At least annually, evaluate relevant factors to determine if there is a significant change in the estimated outlays; remeasure liability when significant Deferred outflow of resources same amount as the ARO liability An outflow of resources (such as expense) in a systematic and rational manner over the estimated useful life of the capital asset. Immediately expense if capital asset is abandoned. 18

19 Effects of Funding and Assurance If legally required to provide funding and assurance, disclose that fact Do not offset ARO with assets restricted for payment of the ARO Costs to comply with funding and assurance provisions are period costs separate from the ARO expense 19

20 Disclosures General description of ARO and associated tangible capital assets - Include source of AROs (federal, state, or local laws and regulations, contracts, or court judgments) Methods and assumptions used to measure ARO liabilities Estimated remaining useful life of tangible capital assets How financial assurance requirements, if any, are being met Amount of assets restricted for payment of ARO liabilities, if not separately displayed in financial statements If a government has an ARO (or portions of an ARO) that is incurred but not yet recognized because it cannot be reasonably estimated, that fact and the reasons therefor 20

21 Potential Implementation Issues If a lessee's contractual obligation to retire the leased tangible capital asset is not included in the lease payment, and that obligation is legally enforceable, then an ARO should be recognized by the lessee. - Generally, such contractual obligations are included in lease payments. If so, no separate ARO. - However, in situations where those asset retirement associated obligations are not included in the lease payments, recognize an ARO. - No guidance is provided but Basis for Conclusions explains why no guidance (paragraph B12). 21

22 Potential Implementation Issues (cont.) Can an obligation be both an ARO and an PRO (Pollution Remediation Obligations) at the same time? - No. Statement 83 amends Statement 49 paragraph 4. - If pollution remediation is part of the asset retirement activities, such as nuclear decommissioning activities, the obligation is an ARO. - If an ARO is recognized, then later on something out of norm happens that compels the government to take pollution remediation action to remedy the situation with little or no discretion, then there may be a PRO that is independent of the ARO. Recognition criteria in Statement 49 would come into play. (See an example in Implementation Guide , Question Z.49.2) 22

23 Potential Implementation Issues (cont.) Differentiate obligations addressed in Statement 83 (AROs), Statement 49 (Pollution Remediation Obligations), and Statement 18 (municipal solid waste landfill closure and postclosure costs). - An ARO: Governments are required to recognize an ARO when the liability is incurred, typically when an asset is put to use, not when the asset is retired. - A PRO: Governments are required to recognize a PRO when one or more obligating events occurs, not when the payment for a PRO becomes due. A PRO is an obligation to remediate existing pollution rather than to retire assets. - Landfill closure and postclosure care costs, including those not covered by Statement 18 are excluded from Statement 83, the ARO standard. 23

24 Implementation Guidance for Statement 84, Fiduciary Activities 24

25 Key Issues of Statement 84 How the standards may impact Statement No. 14, The Financial Reporting Entity, as amended Applying the fiduciary activities criteria to pension and other postemployment benefit (OPEB) arrangements, including deferred compensation plans and defined contribution plans Applying the fiduciary activities criteria to activities that are not pension or OPEB arrangements 25

26 Key Issues of Statement 84 (continued) Determining which fiduciary fund type should be used to report a fiduciary activity Reporting fiduciary activities in fiduciary fund financial statements Reporting of fiduciary activities by stand-alone businesstype entities. 26

27 Fiduciary Component Units Pension and OPEB plans with trusts that meet the criteria in paragraph 3 of Statements 67 and 74 - various scenarios including: - Whether they should be considered "legally separate" from the sponsoring government - Implications if the sponsoring government appoints a majority of the board - Implications if the sponsoring government has a financial dependency - Clarification that being legally obligated to make contributions rises to the level of a financial burden for these purposes - When has a government "otherwise assumed" the obligation 27

28 Pension and OPEB Arrangements That Are Not Component Units Deferred compensation plan scenarios implementation of the control criteria - Those administered through a trust and those that are not If a legally separate entity is not a component unit, is control considered to determine if it is a fiduciary activity 28

29 Other Fiduciary Activities Administrative involvement and direct financial involvement with assets that are for the benefit of individuals various scenarios - Student activity funds - Scholarship funds - Inmate funds Activities that are for the benefit of individuals versus an organization Section 529 plans - various scenarios - Tuition savings plans - Prepaid tuition plans 29

30 Other Fiduciary Activities Own-source revenue (exchange transactions) - various scenarios - Contractor deposits - Performance bonds - Payroll withholding accounts - Retainage payable - Fees received 30

31 Which Fiduciary Fund? Individual investment accounts - Investment trust fund Private-purpose trust funds - Trust (meeting the criteria) should be in place External portion of an investment pool not held in a trust - Custodial fund in a separate column labeled "external investment pool fund" 31

32 Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position Liability recognition criteria for beneficiaries Custodial funds assets not always being equal to liabilities Disaggregation exception for additions and deductions 32

33 Reporting Fiduciary Component Units Roll up of a fiduciary component unit that has its own fiduciary component unit in the primary government's fiduciary fund financial statements Use of separate columns to report each fiduciary fund category 33

34 Stand-Alone Business-Type Activities Business-type activity assessment of whether custodial fund assets are expected to be held for 3 months or less - How often and when Impacts on single column presentation if stand-alone BTA has fiduciary component units of their own - Fiduciary fund financial statements unless 3-month exception applies 34

35 Project Timeline Added to Current Technical Agenda December 2017 Exposure Draft Expected December 2018 Comment Deadline February 2019 Final Implementation Guide Expected May

36 Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements Statement 88 36

37 Definition of Debt for Disclosure Purposes A liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of payment of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established - For purposes of this determination, interest to be accrued and subsequently paid (such as variable-rate interest) or added to the principal amount of the obligation, such as capital appreciation bonds, would not preclude the amount to be settled from being considered fixed at the date the contractual obligation is established. Leases and accounts payable are excluded from the definition of debt for disclosure purposes. 37

38 New Disclosure Requirements Direct borrowings and direct placements of debt should be distinguishable from other types of debt for all disclosures In addition to existing debt disclosures, governments should disclose the following about all types of debt: - Amount of unused lines of credit - Assets pledged as collateral for debt - Terms specified in debt agreements related to significant: Events of default with finance-related consequences Termination events with finance-related consequences Subjective acceleration clauses. 38

39 Leases Statement 87 39

40 Scope and Approach Applied to any contract that meets the definition of a lease: A lease is a contract that conveys control of the right to use another entity s nonfinancial asset (the underlying asset) for a period of time in an exchange or exchange-like transaction. - The right-to-use asset is that specified in the contract - Control is manifested by (1) the right to obtain present service capacity from use of the underlying asset and (2) the right to determine the nature and manner of use of the underlying asset Leases are financings of the right to use an underlying asset - Therefore, single approach applied to accounting for leases with some exceptions, such as short-term leases 40

41 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 Lessors recognize lease payments as revenue based on the payment provisions of the contract - Do not recognize receivables or deferred inflows associated with the lease 41

42 Initial Reporting Lessee Lessor Assets Liability Deferred Inflow Intangible lease asset (right to use underlying asset) value of lease liability plus prepayments and initial direct costs that are ancillary to place asset in use Lease receivable (generally includes same items as lessee s liability) Continue to report the 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 the intangible lease asset 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 amount needed to cover accrued interest) Reduce by lease payments (less amount for interest expense) NA NA Recognize revenue over the lease term in a systematic and rational manner 43

44 Implementation Ideas Implement internal controls to identify leases and lease modifications Update accounting systems for new information needs Consider impact on capitalization policy Consider effects of reporting lease liabilities on - Debt limitations - Bond covenants - Grant agreements 44

45 General Lessee Disclosures General description of leasing arrangements Total amount of lease assets (by major classes of underlying assets), and the related accumulated amortization Amount of outflows of resources recognized for the period for variable payments and other payments (such as residual value guarantees or penalties) not previously included in the measurement of the lease liability Principal & interest requirements to maturity for each of the next 5 fiscal years and in 5-year increments thereafter Commitments under leases that have not yet begun (other than short-term leases) Components of any net impairment loss recognized on the lease asset during the period. 45

46 General Lessor Disclosures General description of leasing arrangements Total amount of inflows of resources (such as lease revenue and interest revenue, if not otherwise displayed Amount of inflows of resources recognized for the period for variable payments and other payments (such as residual value guarantees or penalties) not previously included in the measurement of the lease receivable The existence, terms, and conditions of options by the lessee to terminate the lease or abate payments if the lessor government has issued debt for which the principal and interest payments are secured by the lease payments 46

47 Other Topics Covered by Statement 87 Lease term Contracts with multiple components Contract combinations Lease modifications & terminations Lease incentives Subleases Sale-leasebacks Lease-leasebacks 47

48 Certain Debt Extinguishment Issues Statement 86 48

49 In-Substance Defeasance Using Only Existing Resources Debt is considered defeased in substance (like advance refundings) if only existing resources are used to fund an irrevocable trust that is restricted to owning only essentially risk-free monetary assets (like for refundings) Recognize the difference between the net carrying amount of the debt and the reacquisition price as a gain or loss in the period of defeasance (unlike advance refundings, which defer and amortize the difference) 49

50 In-Substance Defeasance Using Only Existing Resources (cont.) Notes to the financial statements: - Describe the transaction in the period it occurs (like refundings) - Disclose remaining outstanding balance in each period the defeased debt remains outstanding (may combine with refunded amount) 50

51 Prepaid Insurance for All Debt Extinguishments At the time debt is extinguished/defeased, any related prepaid insurance that remains should be included in the net carrying amount of the debt for the purpose of calculating the difference between its reacquisition price and net carrying amount 51

52 Note Disclosure on Substitution Risk Applies to all in-substance defeasances If substitution of the essentially risk-free monetary assets in escrow with monetary assets that are not essentially riskfree is not prohibited, a government should disclose in the notes to the financial statements: - In the period of the defeasance: the fact that substitution is not prohibited - In subsequent periods: the amount of debt defeased in substance that remains outstanding for which that risk of substitution exists 52

53 Irrevocable Split-Interest Agreements Statement 81 53

54 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 54

55 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 in assets will be reflected in deferred inflow 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 (assets less liability) 55

56 Irrevocable Split-Interest Agreements with Resources Held by Third Party Measurement Asset Deferred Inflow Initial Subsequent Resources initially measured at fair value Changes in fair value of resources reflected in the deferred inflow Same as the asset 56

57 Accounting for Interest Cost Incurred before the End of a Construction Period Statement 89 57

58 Recognizing Interest Cost Financial statements prepared using the economic resources measurement focus: - Interest cost incurred before the end of a construction period should be recognized as an expense in the period incurred. Financial statements prepared using the current financial resources measurement focus: - Interest cost incurred before the end of a construction period should be recognized as an expenditure consistent with governmental fund accounting principles. Prospective application at transition 58

59 Questions and Answers MODERATOR R. Kinney Poynter Executive Director NASACT SPEAKER David Vaudt Chairman GASB SPEAKER David Bean Director of Research and Technical Activities GASB SPEAKER Michelle Czerkawski Senior Project Manager GASB SPEAKER Jialan Su Project Manager GASB SPEAKER Lisa Parker Senior Project Manager GASB SPEAKER Wesley Galloway Senior Project Manager GASB 59

60 Further Questions? Visit 60