GASB Update. By: Billy Robinson, CPA Assistant Director of Finance, Roanoke County

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1 GASB Update 42 nd Annual VGFOA Spring Conference By: Billy Robinson, CPA Assistant Director of Finance, Roanoke County Contact Information (540) ext Bernard Drive Roanoke, Virginia 24018

3 Previous GASB Standards Possibly Effective in the Current Year for Your Government Statement No. 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions Phase 1 Governments Implemented on June 30, 2008 Phase 2 Governments Will implement on June 30, 2009 Phase 3 Governments Will implement on June 30, 2010 Statement No. 49 Accounting and Financial Reporting for Pollution Remediation Obligations Effective June 30, 2009 Statement No. 51 Accounting and Financial Reporting for Intangible Assets Effective June 30, 2010

4 Recent GASB Pronouncements Statement No. 53 Accounting and Financial Reporting for Derivative i Instruments (effective for periods beginning after June 15, 2009 or June 30, 2010 for Virginia Local Governments) issued 6/08 Statementt t No. 54 Fund Balance Reporting and Governmental Fund Type Definitions (effective for periods beginning after June 15, 2010 or June 30, 2011 for Virginia Local Governments) issued 3/09 Statement No. 55 The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments (effective immediately) issued 3/09 Statement No. 56 Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statement on Auditing Standards (effective immediately) issued 3/09

5 On the Lighter Side..

6 GASB Statements The Easy Items First Statement No. 55 Statement No. 55 The Hierarchy of GAAP for State and Local Governments Effective immediately The objective is to incorporate the hierarchy into authoritative literature so that they are codified and contained in a single source No change in current practice is expected The HIERARCHY in all of its splendor APPLAUSE HERE Officially established accounting principles GASB Statements and Interpretations GASB Technical Bulletins, AICPA Industry Audit and Accounting Guides, and AICPA Statements of Position AICPA Practice Bulletins Implementation guides published by the GASB as well as practices that are widely recognized and prevalent in state and local governments

7 GASB Statements The Easy Items First Statement No. 56 Statement No. 56 Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards Effective immediately No changes in practice expected Objective is to incorporate into authoritative literature certain accounting and financial reporting guidance presented in the AICPA Auditing Standards d Done at AICPA s request Established accounting principles for three items in auditing literature not currently in financial reporting literature Related Party Transactions Going Concern Considerations Subsequent Events

8 On the Lighter Side..

GASB Statements The Harder Ones Statement No. 53 Statement No.

Definition a financial agreement that transfers risk from one party to

Statement issued because the use has become significantly more prevalent

Are derived from how market prices change in separate transactions or

9 GASB Statements The Harder Ones Statement No. 53 Statement No. 53 Accounting and Reporting for Derivative Instruments Basic Derivative Definition a financial agreement that transfers risk from one party to another and is typically used for risk management or investment purposes Statement issued because the use has become significantly more prevalent Derivatives help governments more effectively and predictably manage risk Are derived from how market prices change in separate transactions or agreements Examples include interest rate locks, futures contracts, interest rate swaps, etc.

in the governmental fund statements The fair value is either the value of its future cash flows in today s dollars or the price it would bring if it could

10 Statement No. 53 Derivatives (Continued) Statement No. 53 Derivatives Requires governments to measure most derivative instruments at fair value as assets or liabilities in their accrual based statements but not in the governmental fund statements The fair value is either the value of its future cash flows in today s dollars or the price it would bring if it could be sold on an open market Changes in fair value should be reported in the statement of activities as investment gains or losses, except for hedging derivative instruments which should be reported as deferred inflows or outflows on the statement of net assets

instrument significantly reduces financial risk by substantially offsetting

hedge) of an associated item that is eligible to be hedged Deferring the

than recognizing them in the current year Deferrals will last until the

11 Statement No. 53 Derivatives (Continued) Hedging Derivative Instruments A hedging derivative instrument significantly reduces financial risk by substantially offsetting changes in the cash flows (a cash flow hedge) or fair values (fair value hedge) of an associated item that is eligible to be hedged Deferring the charges related to these items provides a better measure of interperiod equity than recognizing them in the current year Deferrals will last until the hedging derivative instrument ends or ceases to significantly reduce risk, at which time most deferred gains or losses will be reported in the statement of activities

value hedges and cash flow hedges) Investment derivative instruments Hedging derivative instruments should include the following: The government s objective for entering into the derivative

12 Statement No. 53 Derivatives (Continued) Disclosures Requires a note disclosure that includes summary information Classified in two categories Hedging g derivative instruments (distinguishing g between fair value hedges and cash flow hedges) Investment derivative instruments Hedging derivative instruments should include the following: The government s objective for entering into the derivative instrument Significant terms of the derivative instrument Net cash flows of derivative instruments that hedge debt The disclosure should also highlight the risks including: termination, credit, interest rate, basis, rollover, market-access and foreign currency Investment derivative instruments should be disclosed in accordance with GASB No. 40 Deposit and Investment Risk Disclosures

13 On the Lighter Side.

14 GASB Statements We Save the Best for Last Statement No. 54 Statement No Fund Balance Reporting and Governmental Fund Type Definitions Project was conducted because of considerable differences in how governments interpret and apply the standards for fund balance reporting Differences existed because certain terms were not well defined, which affected the amounts that were reported as reserved and unreserved fund balance Also, the introduction of restricted net assets under Statement No. 34 led to confusion regarding its relationship to reserved fund balance The objective e is to improve the usefulness, including the understandability, of government fund balance information The statement provides more clearly defined categories to make the nature and extent of the constraints placed on a government s fund balance more transparent and clarifies fund type definitions

Statement No. 54 - Continued Statement No.

is encouraged Fund balance reclassifications should be applied retroactively by restating fund balance for all prior periods presented The statement eliminates the reserved

15 Statement No Continued Statement No. 54 Fund Balance Reporting and Fund Definitions Effective for periods beginning after June 15, 2010 or June 30, 2011 for Virginia local governments; however, early implementation is encouraged Fund balance reclassifications should be applied retroactively by restating fund balance for all prior periods presented The statement eliminates the reserved component of fund balance in favor of a restricted classification The statement will require governments to classify amounts consistently, regardless of the fund type or column in which they are presented Items presented in the statistical section may be made prospectively, although retroactive application is encouraged

specific purposes for which amounts in those funds can be spent

16 Statement No Continued Fund Balance Reporting Should be reported in classifications that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent Categories of Fund Balance Nonspendable Fund Balance Restricted Fund Balance Committed Fund Balance Assigned Fund Balance Unassigned Fund Balance

example, inventories, prepaid amounts, long-term amount of loans and notes receivable, or property acquired for resale Legally or contractually required to be maintained intact The corpus of a

17 Statement No Continued Nonspendable Fund Balance Includes amounts that cannot be spent because they are either: Not spendable in form includes items that are not expected to be converted to cash, for example, inventories, prepaid amounts, long-term amount of loans and notes receivable, or property acquired for resale Legally or contractually required to be maintained intact The corpus of a permanent fund is an example of this. On the Statement of Net Assets this should still be reported in the restricted net asset category. Restricted Fund Balance Includes amounts that have constraints placed on them on the use either: Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or other regulations of other governments Imposed by law through constitutional provisions or enabling legislation Enabling legislation authorizes the government to assess levy charge or Enabling legislation authorizes the government to assess, levy, charge, or otherwise mandate payment of resources and includes a legal enforceability requirement that those resources be used only for those specific purposes

18 Statement No. 54 Continued Committed Fund Balance Includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government s highest level of decision making authority Formal action should occur prior to the end of the reporting period, but the amount may be determined in the subsequent period Those amounts cannot be used for any other purpose unless the government removes or changes the specified use by taking the same type of action (for example, legislation, resolution, ordinance) it employed to previously commit those amounts In contrast to restricted, these amounts may be redeployed for other purposes with appropriate due process Also should incorporate contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements

19 Statement No Continued Assigned Fund Balance Includes amounts that are constrained by the government s intent to be used for specific purposes, but are neither restricted nor committed, except for stabilization arrangements Intent should be expressed by: The governing body itself or A body (a budget or finance committee, for example) or official to which the governing body has delegated the authority to assign amounts to be used for specific purposes The difference from restricted and committed is that assignment is not required by highest level of decision making authority Assigned also includes all remaining i amounts (except for negative balances) that are reported in governmental funds other than the general fund, that are not classified in the previous categories (i.e., special revenue, debt service, capital projects, etc) Assignments should not cause a deficit in unassigned fund balance to occur

Arrangements Rainy Day Funds Some governments formally set aside amounts for use in emergency situations or when revenue shortages or budgetary imbalances arise Those amounts generally are subject to

20 Statement No Continued Unassigned Fund Balance Residual classification for the general fund and should be the only fund with a positive balance Other funds may have negative unassigned Stabilization Arrangements Rainy Day Funds Some governments formally set aside amounts for use in emergency situations or when revenue shortages or budgetary imbalances arise Those amounts generally are subject to controls that t dictate t under which they can be spent Stabilization is considered a specific purpose and should be reported in the general fund as restricted or committed depending on the level of authority and structure of the arrangement Disclosure required of the authority, the requirements for addition, the condition in which amounts may be spent, and the balance if not apparent on the fact of the financial statements Minimum fund balance policies should also be disclosed

21 Statement No Continued Disclosure Categories should be presented separately in the aggregate or in detail on the face of the balance sheet (if displayed in aggregate detail should be presented in the notes) Committed fund balance should disclose the highest level of decision making authority and the formal action required to establish a fund balance commitment Assigned fund balance should disclose the body or official i authorized to assign amounts to a specific purpose and the policy established by the governing body to which that authorization is given Must disclose whether the government considers restricted or unrestricted amounts to have been spent when an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available

22 Statement No Continued Encumbrances Significant encumbrances should be disclosed in the notes by major funds and nonmajor funds in the aggregate in conjunction with required disclosures about other significant commitments Encumbering amounts for specific purposes for which resources have already have been restricted, committed, or assigned should not result in separate display of the encumbered amounts within those classifications

23 Statement No Continued Governmental Fund Type Definitions General Fund Used to account for all other financial resources not accounted for and reported in another fund Special Revenue Funds Used to account for and report the proceeds of specific revenue sources that are restricted or committed for specified purposes other than debt service or capital projects Should not be used to account for resources held in trust for individuals, private organizations, or other governments The restricted or committed proceeds should be expected to continue to comprise a SUBSTANTIAL portion of the inflows reported in the funds Other resources also may be reported Governments should discontinue use if they no longer expect that a SUBSTANTIAL portion of the inflows will derive from restricted or committed revenue sources Disclose purpose and funding source of each major special revenue fund

including the acquisition or construction of capital facilities and OTHER capital assets Debt Service Funds used to account for and report financial

24 Statement No Continued Governmental Fund Type Definitions Continued Capital Projects Funds used to account for and report financial resources for capital outlays, including the acquisition or construction of capital facilities and OTHER capital assets Debt Service Funds used to account for and report financial resources for principal and interest payments (required if legally mandated to be shown in separate fund) or if resources are being accumulated for future debt payments Permanent Funds Used to account for and report resources that are restricted to the extent that only earnings, and not principal, may be used

25 On the Lighter Side.

26 Recent GASB Exposure Drafts and Other Projects Exposure Drafts Pension Accounting and Financial Reporting Consider the possibility of improving financial accounting and reporting related to pension benefits Comment Deadline July 31, 2009 Active Projects Certain Implementation Issues OPEB Consider whether tomodify requirements related to the measurement of actuarial liabilities by agent employers Chapter 9 of the Unites States Bankruptcy Code Provide accounting and financial reporting guidance for governments that have been granted bankruptcy protection Codification of Pre-November 30, 1989 FASB Pronouncements Incorporate applicable provisions into the GASB s literature Conceptual Framework Recognition and Measurement Attributes Develop recognition criteria and measurement attributes

Recent GASB Exposure Drafts and Other Projects - Continued Active Projects (Continued) Economic Condition Reporting Consider whether any additional information useful for assessing a government s

27 Recent GASB Exposure Drafts and Other Projects - Continued Active Projects (Continued) Economic Condition Reporting Consider whether any additional information useful for assessing a government s economic condition should be required or encouraged for inclusion in the financial report Electronic Financial Reporting The effect of the electronic media on information and delivery and user needs Fair Value Measurement Review and consider alternatives for the further development of the definition, the methods used to measure, and potential disclosures Financial Instruments Omnibus Consider potential revisions to existing standards regarding investment reporting and disclosure requirements

Service Efforts and Accomplishments Encourage the reporting and use of service efforts and accomplishments Statement 14

28 Recent GASB Exposure Drafts and Other Projects - Continued Active Projects (Continued) Service Concession Arrangements (formerly Public/Private Partnerships) Provide accounting and financial reporting guidance for these arrangements Service Efforts and Accomplishments Encourage the reporting and use of service efforts and accomplishments Statement 14 Reexamination Determine the effectiveness of the current standards, including its provisions for reporting fiduciary activities

29 The Lighter Side.

30 The End!!! Questions???? Comments???? THANK YOU FOR PATIENCE AND PLEASE FEEL FREE TO CONTACT ME IF NEEDED!!!

GASB 54 Practical Application

GASB 54 Practical Application Presented by Donna Collins Milestone Professional Services GASB 54 Basics Clarified definitions of governmental fund types New classifications of Fund Balance Financial Statements