GASB Update. Objectives. Government Treasurers Organization of Texas. Current and Upcoming Standards

Transcription

1 2016 Hilltop Securities Inc. Richard Konkel Director 1201 Elm Street, Suite 3500 Dallas, Texas Direct GASB Update Current and Upcoming Standards December 5, 2016 Government Treasurers Organization of Texas Objectives Identify effective dates and key points of final GASB standards for implementation in 2016, 2017 and 2018 Identify effective dates and key points of Exposure Drafts Discuss best practices related to current/upcoming pronouncements KEY CONCEPTS 1 1

2 Final Standards GASB Updates 2016 and beyond 2016 Statement No. 72, Fair Value Measurement and Application Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments Statement No. 77, Tax Abatement Disclosures Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans Statement No. 79, Certain External Investment Pools and Pool Participants IG Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans Statement No. 80, Blending Requirements for Certain Component Units an amendment of GASB Statement No. 14 Statement No. 82, Pension Issues an amendment of GASB Statements No. 67, No. 68, and No. 73 IG Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions Statement No. 81, Irrevocable Split-Interest Agreements 3 2

3 GASB 72 Fair Value Measurement and Application Fiscal years beginning after June 15, Earlier application is encouraged Requires state and local governments to measure investments at fair value using a consistent definition and valuation techniques Defines what assets and liabilities governments should measure at fair value and expands fair value disclosures in financial disclosure notes 4 GASB 72 What is Fair Value? Fair Value 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 Unit of account Market-based Fair value measurement is mandatory, not optional Valuation methods: Market approach Cost approach Income approach Inputs Level Hierarchy Level 1 (best): quoted prices/transactions for identical assets or liabilities Level 2 (better): quoted prices/transactions for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable (yield curves, volatilities, credit spreads) Level 3: unobservable inputs (adjustments, management judgement) 5 3

4 GASB 72 Assets (Investments) and Liabilities Assets that meet the definition of an investment generally should be measured at fair value 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 Primarily for income or profit acquired first and foremost for future income and profit Service capacity means related to the government s mission to provide services Liabilities that are already measured at fair value must include, if applicable, nonperformance risk adjustment Government s own credit risk Affects discounted cash flows (e.g., interest rate derivatives) Governments cannot rely on counterparty statements 6 GASB 72 Implementation Considerations Reevaluate asset classifications Determine if any income-producing assets meet the new definition of investment requiring measurement at fair value Review valuation methods Prepare for expanded disclosures Fair value measurements and level of the fair value hierarchy Discussion of valuation techniques Additional disclosures regarding investments in certain entities that calculate net asset value per share Upon implementation restate prior periods (if presented and practical) or restate beginning net position/fund balance/fund net position and disclose the restatement. 7 4

5 GASB 73 Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 Fiscal years beginning after June 15, 2015, or June 15, 2016, depending on whether the pension assets are within the scope of GASB Establishes guidance for employers and nonemployer contributing entities (NCEs) that sponsor defined benefit or defined contribution plans not within the scope of GASB 68 Not within scope typically means the plans are not administered through trusts that meet GASB s trust criteria Should have minimal impact on governments 8 GASB 74 & 75 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans (74) and Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (75) Fiscal years beginning after June 15, 2017 (No. 74) and June 15, 2018 (No. 75). Earlier application is encouraged. GASB 75 Applies to employers who provide defined OPEB benefits. Recognition of the net OPEB liability (total OPEB liability less the OPEB plan s fiduciary net position); think GASB 68 but for OPEB benefits Liability to be determined as of the measurement date, will be similar to the audit work papers for GASB 68 Could have significant impact for clients (liabilities could be almost as big as the GASB 68 pension liability) 9 5

6 GASB 76 The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments Fiscal years beginning after June 15, Earlier application is encouraged. Supersedes Statement No. 55 Reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. Will provide consistency for reporting to allow for more usefulness of reporting information for decision makers and allow more comparability of financial information between governments 10 GASB 76 Authoritative and Nonauthoritative Sources Authoritative GAAP The sources of authoritative GAAP are categorized in descending order of authority as follows: Category A - officially established accounting principles GASB Statements Category B - GASB Technical Bulletins; GASB Implementation Guides; and literature of the AICPA cleared by the GASB If an accounting treatment is not specified by Category A or Category B, first consider accounting principles for similar transactions or events within a source of authoritative GAAP, then may consider non-authoritative sources that do not conflict with or contradict authoritative GAAP Nonauthoritative Sources Nonauthoritative accounting literature include: GASB Concepts Statements Pronouncements from other accounting bodies (FASB, IASB, etc.) Practices that are widely recognized and prevalent in state and local government Literature of other professional associations or regulatory agencies; and accounting textbooks, handbooks, and articles. 11 6

7 GASB 77 Tax Abatement Disclosures Reporting periods beginning after December 15, Earlier application is encouraged. Requires new disclosures about a government s tax abatement program including: The purpose of the abatement, the tax being abated and dollar amount, and commitments made by tax-abatement recipients Also applies to abatements entered into by other governments that reduce the reporting government s (our client s) tax revenues Will provide information to better assess a government s financial health and more clearly show the impact of these abatements 12 GASB 78 Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans Fiscal years beginning after December 15, Earlier application is encouraged. Amended GASB 68 to provide for exclusions related to cost-sharing multiple-employer defined benefit pension plans that are the following: Not a State or local government pension plan Used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers Has no predominant state or local governmental employer Provides requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and RSI for pensions that meet the above criteria. 13 7

8 GASB 79 Certain External Investment Pools and Pool Participants Reporting periods beginning after June 15, 2015, except certain provisions which are effective for reporting periods beginning after December 15, Earlier application is encouraged. Permits qualifying external investment pools to measure pool investments at amortized cost for financial reporting purposes; essentially, updates existing guidance for the new regulatory rules Replaces the reference in existing GASB literature to SEC Rule 2a7 with criteria that are similar in many respects to those in Rule 2a7 Requires additional note disclosures for qualifying pools and for governments that participate in those pools Must disclose information regarding limitations or restrictions on participant withdrawals 14 GASB 80 Blending Requirements for Certain Component Units an amendment of GASB Statement No. 14 Fiscal years beginning after June 15, Earlier application is encouraged. Requires blending of component units incorporated as not-for-profit corporations when the primary government is the sole corporate member of the corporation. 15 8

9 GASB 81 Irrevocable Split-Interest Agreements Periods beginning after December 15, 2016, and should be applied retroactively. Earlier application is encouraged. Split-interest agreements are a type of giving agreement used by donors to provide resources to two or more beneficiaries, including governments (prevalent in the not-for-profit world) Provides expanded guidance for circumstances in which the government holds the assets Requires that a government that receives resources pursuant to an irrevocable split-interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement Government recognizes revenue when the resources become applicable to the reporting period 16 GASB 82 Pension Issues an amendment of GASB Statements No. 67, No. 68, and No. 73 Fiscal years beginning after June 15, 2016, except for the requirements of paragraph 7 in a circumstance in which an employer s pension liability is measured as of a date other than the employer s most recent fiscal year-end. If that is the case, the requirements of paragraph 7 are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017 Addresses issues related to: The presentation of payroll-related measure in required supplementary information (RSI) The selection of assumptions as well as how to treat deviations from the guidance in the Actuarial Standard of Practice for financial statement purposes Classification of payments made by employers to satisfy plan member contribution requirements period 17 9

10 Exposure Drafts Fiduciary Activities Projected If finalized, it would become effective for periods beginning after December 15, Earlier application would be encouraged. Would delineate specific criteria for identifying activities governments should report as fiduciary activities Clarifies whether business-type activities should report their fiduciary activities Qualifying entities would be required to present a statement of fiduciary net position and a statement of changes in fiduciary net position Requires that a government recognize a liability to the beneficiaries in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources 19 10

11 Leases Projected If finalized, it would become effective for periods beginning after December 15, If finalized, it would become effective for periods beginning after December 15, Establishes a single model for lease accounting based on the principle that leases are financings of the right to use an underlying asset Under the proposed Statement, a lessee would be required to recognize a lease liability and an intangible right-to-use lease asset Does have an exclusion for certain airport leases (paragraph 36 of exposure draft), particularly with airport-airline leases 20 Asset Retirement Obligations Projected If finalized, it would become effective for periods beginning after December 15, Earlier application would be encouraged. Liabilities related to AROs would arise from the occurrence of both an external obligating event and an internal obligating event External would be laws and regulations Internal would be in the normal operation of a capital asset Would establish criteria for determining the timing and pattern of the recognition of a liability and the corresponding deferred outflow of resources Provides additional guidance on footnote disclosures 21 11

12 Questions 1. GASB GASB GASB GASB GASB GASB 81 a. Like GASB 68, but for employers OPEB b. Affects tax abatement disclosures c. Redefines hierarchy of GAAP d. Addresses reporting related to certain donations e. Requires assessment of nonperformance risk f. Certain investment pools can continue to measure investments at amortized cost