APPROVED TECHNICAL PLAN FOR THE SECOND THIRD OF 2017: BACKGROUND AND HISTORICAL MATERIAL Financial Accounting Foundation, Norwalk, Connecticut

Transcription

1 APPROVED TECHNICAL PLAN FOR THE SECOND THIRD OF 2017: BACKGROUND AND HISTORICAL MATERIAL

2 Table of Contents Current Technical Agenda:... 3 Conceptual Framework... 3 Conceptual Framework: Recognition... 4 Major Projects... 6 Financial Reporting Model Reexamination of Statements 34, 35, 37, 41, and 46 and Interpretation Leases Reexamination of NCGA Statement 5 and GASB Statement Revenue and Expense Recognition Practice Issues Capitalization of Interest Cost Reexamination of Statement Certain Debt Extinguishment Issues Debt Disclosures, including Direct Borrowing Reexamination of Statements 34, 38, and Equity Interest Ownership Issues Implementation Guides for Statements 74 and 75 on Other Postemployment Benefits Implementation Guidance Update Pre-Agenda Research...28 Conduit Debt Reexamination of Interpretation Going Concern Disclosures Reexamination of Statement Information Technology Arrangements, including Cloud Computing Note Disclosures Public-Private Partnerships, including Reexamination of Statement Social Impact Bonds Monitoring Activities Electronic Financial Reporting Page 2

3 Current Technical Agenda: Conceptual Framework Page 3

4 Conceptual Framework: Recognition Project Description: The objective of this project is to develop recognition criteria for whether information should be reported in state and local governmental financial statements and when that information should be reported. This project ultimately will lead to a Concepts Statement on recognition of elements of financial statements. Background: The Board frequently must decide whether an item of information should be recognized in the financial statements and when such an item should be recognized. In the past, the Board has relied on the conceptual framework of other standards setters and analogous examples from practice or previous standards to make such decisions. This method of making decisions tends to lead to certain inconsistencies in financial reporting standards and could result in too much reliance being placed on accounting concepts that were not developed for a governmental environment. Thus, the project on recognition is needed to provide the GASB with conceptual guidance as to when elements of financial statements should be reported in particular financial statements. This will entail developing recognition criteria and will include a discussion of when elements of financial statements are recognized using different measurement focuses. For the GASB to make consistent financial reporting decisions, it is necessary to have (1) definitions of the elements of financial statements, (2) a basis for determining when elements of financial statements should be recognized in the financial statements, and (3) a basis for determining which measurement approach (for example, initial amounts or remeasured amounts) is appropriate for reporting the elements. The GASB issued a Concepts Statement on the definitions for the elements of financial statements in 2007 and on measurement of elements of financial statements in A conceptual framework project on recognition is necessary to complete the conceptual basis for reporting items in traditional financial statements. Project History: Pre-agenda research approved: August 2005 Combined with measurement project on current technical agenda: December 2005 Task force established? Yes, but replaced by the task force appointed for the reexamination of the financial reporting model Deliberations began: December 2007 Page 4

5 Preliminary Views approved: June 2011 Comment period: July September 2011 Public hearings held: October 2011 User interviews conducted regarding Preliminary Views: October November 2011 Separated from measurement project: December 2011 Project placed on hold pending financial reporting model reexamination: January 2012 Deliberations recommenced in conjunction with the Financial Reporting Model Reexamination project: October 2015 Page 5

6 Current Technical Agenda: Major Projects Page 6

7 Financial Reporting Model Reexamination of Statements 34, 35, 37, 41, and 46 and Interpretation 6 Project Description: The objective of this project is to make improvements to the financial reporting model, including Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, and other reporting model-related pronouncements (Statements No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities, No. 37, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments: Omnibus, No. 41, Budgetary Comparison Schedules Perspective Differences, and No. 46, Net Assets Restricted by Enabling Legislation, and Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements). The objective of these improvements would be to enhance the effectiveness of the model in providing information that is essential for decision-making and enhance the ability to assess a government s accounting and address certain application issues, based upon the results of the pre-agenda research on the financial reporting model. Background: Statement 34 was the culmination of 15 years of research, deliberation, and due process. In Statement 34, the GASB established the present blueprint for state and local government financial reporting the format and measurement focus of the basic financial statements, certain related notes to the financial statements, and required supplementary information including management s discussion and analysis (MD&A). Among its many features, Statement 34 introduced government-wide financial statements containing accrual information which notably included the reporting of infrastructure, other capital assets, and long-term liabilities for activities previously reported only on a modified accrual basis in the governmental funds. Statement 34 also required a narrative MD&A to precede the financial statements, added the presentation of the original budget to the budgetary comparison schedule, introduced major fund reporting in the governmental and enterprise funds, and added note disclosures related to capital asset and long-term liability activity during the reporting period. Page 7

8 Statement 34 was first effective for periods beginning after June 15, Most provisions of the Statement became effective in three phases, beginning with the largest governments. Up to an additional 4 years were allowed for Phase 1 (annual revenues of $100 million or more) and Phase 2 ($10 million to $100 million) governments to retroactively report existing infrastructure assets. Phase 3 governments (below $10 million) were allowed to report general infrastructure prospectively. The financial reporting model has a pervasive influence over the effectiveness of financial reporting by state and local governments and the ability of that reporting to achieve the objectives of financial reporting. As a result, the GASB decided that it was important, as part of its commitment to maintaining the effectiveness of its standards, to reexamine the current financial reporting model now that it has been in place for a sufficient time. The pre-agenda research showed that most of the components of the financial reporting model are effective; however, the research identified several areas for potential improvements. In conjunction with this project, the efforts to develop recognition concepts for information presented in governmental funds will be continued. The Board s conceptual framework project on recognition was put on hold pending reexamination of the financial reporting model. Feedback to the Preliminary Views issued in June 2011 included recommendations that recognition concepts for governmental funds should be developed in conjunction with a reexamination of the financial reporting model. Project History: Pre-agenda research approved: August 2013 Research results reported to the Board: July 2015 Added to current technical agenda: September 2015 Task force established? Yes Deliberations began: October 2015 Task force meeting held: June 2016 Invitation to Comment cleared: December 2016 Comment period: January March 2017 Page 8

9 Public hearing and user forum held: April 2017 Page 9

10 Leases Reexamination of NCGA Statement 5 and GASB Statement 13 Project Description: The objective of this project is to reexamine issues associated with lease accounting, considering improvements to existing guidance. Current guidance is provided by National Council on Governmental Accounting (NCGA) Statement 5, Accounting and Financial Reporting Principles for Lease Agreements of State and Local Governments, and GASB Statements No. 13, Accounting for Operating Leases with Scheduled Rent Increases, No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, and No. 65, Items Previously Reported as Assets and Liabilities. Statement 62 incorporated the provisions of FASB Statement No. 13, Accounting for Leases, as amended and interpreted, into the GASB s authoritative literature. Background: Governments routinely enter into leases. Under the current authoritative literature, many of these leases are reported as operating leases. Even though operating leases represent long-term commitments to make payments, no liabilities are reported, although there are disclosures. Likewise, no assets are reported when governments have long-term rights to receive operating lease payments. In Concepts Statement No. 4, Elements of Financial Statements, the Board established definitions of assets and liabilities. This project provides an opportunity for the Board to consider whether operating leases meet the definitions of assets and liabilities. In 2010 and 2013, the FASB and the International Accounting Standards Board (IASB) issued Exposure Drafts proposing to replace private-sector guidance for leases. The IASB and FASB issued final guidance in January and February 2016, respectively. Because of the similarities between the previous private-sector leasing guidance and the current public-sector leasing guidance, and the significant changes of the revised FASB/IASB guidance, the project staff received inquiries regarding whether there are any plans for the GASB to update its leasing guidance. The GASB undertook this project during the final stages of the similar FASB and IASB projects to maximize efficiency and timeliness. A simultaneous lease accounting project on the GASB agenda provided the opportunity to follow the progress of the FASB and IASB projects to assess, on a contemporaneous basis, new and amended leasing guidance in the context of the state and local government environment. The GASB Page 10

11 project provides an opportunity to reassess the existing GASB guidance, as well as consider improvements in the FASB and IASB projects in the context of the unique nature of governmental entities and the complexities of their leasing transactions. Finally, part of the GASB s strategic plan is to evaluate the effectiveness and impact of existing standards that have been in effect for a sufficient length of time. NCGA Statement 5 was issued in 1982 and GASB Statement 13 in Project History: Pre-agenda research approved: April 2011 Added to current technical agenda: April 2013 Task force established? Yes Deliberations began: August 2013 Preliminary Views approved: November 2014 Comment period: November 2014 March 2015 Field test completed: March 2015 Public hearings held: April 2015 Redeliberations began: April 2015 Exposure Draft issued: January 2016 Comment period: January May 2016 Public hearing held: June 2016 Redeliberations began: August 2016 Page 11

12 Revenue and Expense Recognition Project Description: The objective of this project is to develop a comprehensive application model for the recognition of revenues and expenses that arise from nonexchange, exchange, and exchange-like transactions, including guidance for exchange transactions that have not been specifically addressed in the current literature. The purpose for developing a comprehensive model is (1) to improve the information regarding revenues and expenses that users receive to make decisions and assess accountability, (2) to provide guidance regarding exchange and exchange-like transactions that have not been specifically addressed, (3) to evaluate revenue and expense recognition in the context of the conceptual framework, and (4) to address application issues identified in practice, based upon the results of the pre-agenda research on revenue for exchange and exchange-like transactions. Background: This project was prompted by three factors: (1) common exchange transactions that are not specifically addressed in existing GASB literature; (2) the results of the Financial Accounting Foundation s (FAF) Post-Implementation Review (PIR) of GASB Statements No. 33, Accounting and Financial Reporting for Nonexchange Transactions and No. 36, Recipient Reporting for Certain Shared Nonexchange Revenues; and (3) the development of the GASBs conceptual framework. Exchange Transactions That Are Not Specifically Addressed in Existing Literature GASB standards provide guidance for revenue recognition for nonexchange transactions in Statements 33 and 36. However, GASB standards provide limited guidance for exchange and exchange-like transactions and that guidance is based on pre-november 30, 1989 Financial Accounting Standard Board (FASB) and the American Institute of Certified Public Accountants (AICPA) pronouncements incorporated through Statement 62. That guidance has not been reexamined and generally has been applied through custom and practice. Additionally, the FASB recently issued FASB Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. These major changes in the FASB standards offer an opportunity to consider a performance obligation approach to Page 12

13 the GASB s standards. Therefore, the project is considering developing guidance or improving existing guidance on revenue recognition related to: Exchange and exchange-like transactions having single elements Exchange and exchange-like transactions having multiple elements The differentiation between exchange-like and nonexchange transactions. Post-Implementation Review of Statements 33 and 36 The FAF conducted a PIR of Statements 33 and 36 and published its findings in November Among those findings, the PIR report showed that Statements 33 and 36: (1) resolved the issues underlying their stated needs, (2) produced decision-useful information for users of financial statements, and (3) could be applied as intended. However, there were areas that could be considered in this project, including: Distinguishing between eligibility requirements and purpose restrictions Determining when a transaction is an exchange or nonexchange transaction Using the availability period concept consistently across governments Explaining unexpected nonexchange transactions because of the lack of disclosure requirements in Statements 33 and 36 Applying time and contingency requirements. Conceptual Framework Statements 33 and 36 were issued in the 1990s, prior to the completion of key parts of the conceptual framework through the issuance of Concepts Statement No. 4, Elements of Financial Statements, in Concepts Statement 4 includes the definition of two additional elements in financial statements, deferred inflows and deferred outflows of resources. Therefore, an evaluation of the recognition of nonexchange transactions against the conceptual framework would be necessary. History: Pre-agenda research approved: September 2015 Added to current technical agenda: April 2016 Page 13

14 Task force established? Yes Deliberations began: May 2016 Page 14

15 Current Technical Agenda: Practice Issues Page 15

16 Capitalization of Interest Cost Reexamination of Statement 62 Project Description: The objective of this project is to reconsider the accounting and financial reporting standards for capitalization of interest cost, with the goal of enhancing the relevance of capital asset information and potentially simplifying financial reporting. In particular, the guidance will be reviewed in light of the definitions of financial statement elements now established in the GASB s conceptual framework. Background: Accounting guidance for capitalization of interest cost historically has been based upon FASB Statement No. 34, Capitalization of Interest Cost, as amended, and FASB Statement No. 62, Capitalization of Interest Cost in Situations Involving Certain Tax-Exempt Borrowings and Certain Gifts and Grants. This guidance was incorporated into the GASB literature by Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. Paragraph 7 of Statement 62 requires that interest cost that is incurred during the time when a government is bringing a capital asset related to business-type activities to the condition and location necessary for its intended use should be included in the historical cost of the capital asset. Although the Board modified the FASB guidance to be consistent with GASB standards specifically, excluding capital assets related to governmental activities the guidance was essentially incorporated into Statement 62 as is, without reexamination. Concepts Statement No. 4, Elements of Financial Statements, was issued in June It defines assets as resources with present service capacity that the government presently controls. In general, interest cost is reported as an outflow of resources an expense or expenditure, depending on the basis of accounting. Concepts Statement 4 states, An outflow of resources is a consumption of net assets by the government that is applicable to the reporting period. [footnote omitted] Finally, a stakeholder requested the reexamination of the capitalization of interest guidance as a potential simplification project. Page 16

17 History: Added to current technical agenda: December 2016 Page 17

18 Certain Debt Extinguishment Issues Project Description: This project addresses certain issues identified during the preagenda research that evaluated the effectiveness of Statements No. 7, Advance Refundings Resulting in Defeasance of Debt, and No. 23, Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities, and relevant sections of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The project is considering certain improvements to the existing guidance related to debt extinguishments using existing resources. Debt extinguishments connected with troubled debt restructurings and bankruptcy, which are addressed in other pronouncements, are not included. Background: Statement 62 provides guidance for each of the following circumstances: 1. Debt is extinguished using exclusively a government s existing resources (resources that did not arise from debt proceeds) 2. The debtor is legally released from being the primary obligor under the debt. Statements 7 and 23 provide guidance for debt refundings. In a debt refunding, new debt is issued and the proceeds are used to repay old debt. Debt refundings are divided into two broad categories: Current refundings proceeds of new debt immediately repay old debt Advance refundings proceeds of new debt are placed into an irrevocable trust with an escrow agent and invested until they are used to repay the government s old debt at a future time; the amount of new debt proceeds invested in escrow must be sufficient to meet the interest and principal payments on the old debt. Advance refundings generally result in the in-substance defeasance of debt, in which debt is considered defeased for accounting and financial reporting purposes even though a legal defeasance has not occurred. Defeased debt both legal and insubstance is no longer reported as a liability on the face of the financial statements. Page 18

19 The GASB staff s review of state and local government financial reports prepared following generally accepted accounting principles (GAAP) found that a large majority of the governments examined had participated in a refunding transaction in either the reporting year or in prior years. Almost half of the governments examined had a refunding in the reporting year. Advance refundings were about twice as prevalent as current refundings in the periods studied. Issues identified by preparers, auditors, and users in interviews were explored in subsequent surveys. Many of respondents to those surveys did not identify significant issues with the existing guidance for debt extinguishments and debt refundings. Most respondents answered that the guidance generally enabled information to be reported reliably and achieves the objective of reporting the economic substance of the transaction. A variety of users benefit from information related to debt extinguishments, including debt refundings. Information about debt generally is used by a variety of financial statement users to assess the economic condition and accountability of a government. Respondents to the user survey indicated that they rely on information about debt extinguishments, including debt refundings, presented in the financial statements under existing guidance. Nearly all users surveyed indicated that they had at least some familiarity with information about debt extinguishments. User survey respondents of all types found the information reported in the financial statements useful. They did not raise major concerns about the information they currently receive. Many respondents believe that the information presented in the financial statements is understandable and results in reporting the economic substance of refundings. When presented with a list of potential additional disclosures, most respondents indicated that those disclosures would be useful for analysis or decision making. The potential disclosures presented in the survey included: Amount of debt that was legally defeased during the year Debt covenants that remain in effect after debt has been defeased in-substance Types of resources held in trust by the escrow agent. Page 19

20 User respondents of all types were divided about whether debt that had been advance refunded using only existing resources should be derecognized or continue to be reported in the financial statements. At the January 2016 Board meeting, the treatment of prepaid bond insurance related to debt that has been defeased in substance was added to the scope of the project. Additionally, at the May 2016 Board meeting, the Board added to the scope of the project by proposing a new note disclosure requirement applicable to all debt defeased in substance when a risk of substitution exists. Project History: Pre-agenda research approved: April 2014 Research results reported to the Board: July 2015 Added to current technical agenda: September 2015 Deliberations began: January 2016 Exposure Draft issued: August 2016 Redeliberations began: December 2016 Page 20

21 Debt Disclosures, including Direct Borrowing Reexamination of Statements 34, 38, and 62 Project Description: The primary objective of this project is to define debt, including direct borrowing, to distinguish it from other long-term liabilities in applying disclosure requirements for notes to financial statements. The project also will evaluate whether (1) the disclosures in notes to financial statements related to long-term debt also should be required for short-term debt and (2) whether additional disclosures for direct borrowings are essential to a user s understanding of the basic financial statements. Background: Existing guidance for notes to the financial statements requires two general disclosures for outstanding debt: Changes in the amount of outstanding debt during the reporting period, as part of the overall disclosure of changes in long-term liabilities (paragraph 119 of Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments) Debt service requirements for each of the succeeding five fiscal years and in five year increments thereafter until maturity (paragraph 10 of Statement No. 38, Certain Financial Statement Note Disclosures). Additional note disclosures required for certain debt-related transactions, include: Changes in short-term debt during the reporting period (paragraph 12 of Statement 38) Short-term obligations (paragraph 44 of Statement 62, as amended). The notes to the financial statements of a typical general purpose government with outstanding municipal bonds also are likely to contain a variety of other debt-related information such as original amounts, outstanding amounts, issuance dates, and final maturities of individual issuances of general obligation bonds, tax-backed bonds, and revenue bonds. This information is not required by GASB standards; governments may be presenting it under the general rubric to provide necessary disclosure of material items, the omission of which would cause the financial statements to be misleading Page 21

22 (NCGA Interpretation 6, Notes to the Financial Statements) or as part of their continuing disclosure under SEC Rule 15c2-12. In the period since the existing standards for debt disclosures were issued, governments have continued to innovate and diversify with respect to their debtissuance practices. In recent years, governmental borrowers have increasingly satisfied their financing needs by using direct loans from banks rather than issuing municipal bonds. Financial statement users particularly credit ratings agencies, industry groups, and bond market regulators have expressed concerns about this practice. Their concerns have centered upon governments that have either (1) provided inadequate or no disclosure regarding their direct borrowing arrangements, or (2) inappropriately classified direct loans as other types of debt in their financial statements. History: Pre-agenda research approved: April 2015 Added to the current technical agenda: August 2016 Deliberations began: October 2016 Page 22

23 Equity Interest Ownership Issues Project Description: This project addresses certain issues related to the reporting of majority equity ownership in legally separate entities. The project will consider improvements to the existing guidance in Statement No. 14, The Financial Reporting Entity, on the presentation of ownership interest in a legally separate entity. The project also will consider improvements to the recognition and measurement guidance for wholly-owned legally separate entities that are presented as component units. Background: Reporting requirements for equity ownership in legally separate entities largely are found in Statement 14. A governmental entity may report a majority ownership interest in a legally separate entity as a component unit or as an investment based on specific facts and circumstances. If the governmental entity owns less than a majority equity interest, it may report it as a component unit, an investment, or a joint venture (again, based on specific facts and circumstances). If the ownership is reported as a discretely presented component unit, the governmental entity should recognize an asset for its equity interest in the component unit, if certain conditions are present. Paragraph 20 of Statement 14, as amended, defines component units and states that a component unit may be a governmental, nonprofit, or for-profit entity. If a legally separate entity is reported as a discretely presented component unit, the primary government should recognize an asset for the equity interest in that entity, if any. Paragraph 78 of Statement 14, as amended, requires that governments recognize an equity interest in a component unit in the same manner as required for joint ventures in paragraphs Additionally, paragraph 78 emphasizes that governments that are the majority participant should follow the guidance in paragraph 55 when determining how to report an equity interest in the legally separate entity that is, as an asset in a discretely presented component unit or only as an investment. Paragraph 64 of Statement No. 72, Fair Value Measurement and Application, defines an investment as a security or other asset that (a) a government holds primarily for the purpose of income or profit and (b) has a present service capacity based solely on its ability to generate cash or to be sold to generate cash. Paragraph 55 of Statement 14 does not specifically require an assessment of the present service capacity of the equity Page 23

24 interest ownership in determining if a component unit should be reported as an investment; however, without that assessment, the result would conflict with the criterion that needs to be evaluated based on the definition of an investment in Statement 72. If the government s ownership of the majority interest in the legally separate entity meets the definition of an investment (that is, it is held primarily for income and its present service capacity is based solely on its ability to generate cash), the government s ownership is reported as an investment and is subject to the applicable note disclosure requirements for investments. Statement 72 also does not specify if a government s ownership in a legally separate entity meets the criteria of a security or other asset that is included in the definition of an investment. Majority ownership in legally separate entities that are presented as investments on the governmental entities financial statements often are measured at fair value, at net asset value (NAV) per share, or using the equity method. Statement No. 69, Government Combinations and Disposals of Government Operations, was issued in January 2013 and provides accounting and financial reporting guidance for combinations of complete entities, including government acquisitions. The definition of an acquisition in Statement 69 explicitly states that an acquired entity becomes part of the acquiring government s legally separate entity. Thus, in a government acquisition, the acquired entity ceases to exist separately from the acquiring government. That guidance on government acquisitions does not include obtaining an equity interest in another organization that remains legally separate and will be reported as a component unit of the acquiring government. Statement 14, as amended, provides the requirements for reporting the legally separate organizations that comprise a financial reporting entity. The measurement of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources of an acquired entity that becomes part of the primary government under Statement 69 is different from measurement when an acquired entity is reported as a component unit under Statement 14, as amended. Under Statement 14, the legally separate component unit is reported at carrying value on the governmental entity s financial statements. However, under Statement 69, Page 24

25 assets and liabilities of the acquired entity that becomes part of the acquiring primary government are measured at acquisition value. A variety of government types hold a majority interest ownership in a legally separate entity. The implementation of Statement 72 raised new questions about which method component unit, investment, or another asset is appropriate to reporting an equity interest in a legally separate entity. As part of the pre-agenda research, GASB staff members completed a literature review, archival research, and interviews and surveys with preparers, auditors, and users. Several findings of the research may require standards setting, including inconsistencies in financial reporting of legally separate entities and conflicts with the prioritization in the intent of ownership when determining the appropriate presentation of legally separate entities. Additionally, as government combinations are becoming more common, so have government acquisitions of wholly-owned legally separate entities that meet the criteria to be presented as a component unit. As stated above, existing standards require different measurement approaches for government acquisitions depending on whether legal separation is maintained. Some preparers and auditors that participated in the pre-agenda research do not believe there is a substantive difference between a government s acquisition of an entity that remains legally separate and an entity that ceases to exist as a separate entity. Therefore, they do not believe the difference in accounting is justified. History: Pre-agenda research approved: April 2016 Consultative group appointed? Yes Added to the current technical agenda: December 2016 Deliberations began: March 2017 Page 25

26 Implementation Guides for Statements 74 and 75 on Other Postemployment Benefits Project Description: The objective of this project is to publish guidance to assist other postemployment benefit (OPEB) plans, employers, and governmental nonemployer contributing entities as they address implementation issues associated with Statements No. 74, Financial Reporting for Postemployment Benefits Plans Other Than Pension Plans, and No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, as applicable. This project will result in the issuance of two Implementation Guides the first focused on plan implementation issues and the second focused on additional issues related to employer-specific requirements. Background: Statements 74 and 75 were approved in June Statement 74 is effective for fiscal years beginning after June 15, Statement 75 is effective for fiscal years beginning after June 15, The need for implementation guidance is indicated by the complexity of the OPEB standards, generally. History: Added to the current technical agenda: September 2015 Consultative group appointed? Yes Deliberations began: September 2016 Exposure Draft of a proposed Implementation Guide to Statement 74 cleared for issuance: October 2016 Comment period: November December 2016 Redeliberations began: March 2017 Page 26

27 Implementation Guidance Update Project Description: The objective of this project is to update implementation guidance for additional issues that come to the attention of the staff. This project will result in the issuance of an annual update to the Comprehensive Implementation Guide. Background: Implementation guidance is updated annually through the addition of new questions and answers, which are incorporated into the Comprehensive Implementation Guide. Project History: Implementation Guide No , Implementation Guidance Update 2016, cleared for issuance: March 2016 Current update project added to current technical agenda: April 2016 Deliberations began: October 2016 Exposure Draft cleared for issuance: November 2016 Comment period: December 2016 January 2017 Redeliberations began: March 2017 Page 27

28 Pre-Agenda Research Page 28

29 Conduit Debt Reexamination of Interpretation 2 Research Description: The initial objectives of this pre-agenda research are (1) to evaluate the effectiveness of GASB Interpretation No. 2, Disclosure of Conduit Debt Obligations, and (2) to consider the need for revisions to existing standards. If additional guidance is determined to be needed, another objective will be to consider the development of revised accounting and financial reporting standards for conduit debt. Background: Conduit debt obligations are certain limited-obligation revenue bonds, certificates of participation, or similar debt instruments issued by a state or local governmental entity for the express purpose of providing capital financing for a specific third party that is not a part of the issuer s financial reporting entity. Although conduit debt obligations bear the name of the governmental issuer, the issuer has no obligation for such debt beyond the resources provided by a lease or loan with the third party on whose behalf they are issued. Interpretation 2 requires issues of conduit debt to present notes to the financial statements that disclose a general description of the conduit debt transactions, the aggregate amount of all conduit debt obligations outstanding at the balance sheet date, and a clear indication that the issuer has no obligation for the debt beyond the resources provided by related leases or loans. Interpretation 2 was issued in 1995 as interim guidance pending the Board s conceptual framework project on financial statement elements. Paragraph 12 of Interpretation 2 explains the Board s reasoning: The Board concluded that issuers of conduit debt obligations should not be required to recognize a liability, but that such debt should be disclosed and quantified. The Board currently has on its agenda a conceptual framework project that will address the definition of elements of financial statements, including liabilities. Therefore, it has decided that questions relating to accounting recognition for conduit debt transactions should be reconsidered after further progress is made on that project. However, because existing disclosures of conduit debt transactions are inconsistent among issuers and often fail to adequately inform readers of these transactions significance, the Board concluded that the standardized disclosure requirements set forth in this Interpretation will improve the Page 29

30 level of readers' understanding of these transactions until recognition issues can be addressed. The conceptual framework project referenced above resulted in Concepts Statement No. 4, Elements of Financial Statements, issued in June Concepts Statement 4 defines liabilities as present obligations to sacrifice resources that the government has little or no discretion to avoid. Paragraphs elaborate on that definition: 18. An obligation is a social, legal, or moral requirement, such as a duty, contract, or promise that compels one to follow or avoid a particular course of action. A present obligation that is a liability is a duty or responsibility to sacrifice resources that the government has little or no discretion to avoid. The reason that many liabilities cannot be avoided is that they are legally enforceable, meaning that a court could compel the government to fulfill the obligation [footnote omitted] 19. Sometimes a liability will be created, not because it is legally enforceable, but because of a government's actions or conduct. In these cases, social, moral, or economic consequences leave the government little or no discretion to avoid the sacrifice of resources 20. A government has little or no discretion to avoid the sacrifice when it does not have the power to decline making the sacrifice of resources, when it cannot indefinitely defer when the sacrifice of resources will occur, or when the penalty or consequences for failing to sacrifice the resource is more than insubstantial. Further, a government's discretion to avoid a future sacrifice may be influenced as a result of actions or conduct of the government and by the reliance of others on the government's actions or conduct. Interpretation 2 has been effective for 20 years without reexamination. In particular, the standards have not been reconsidered in the context of the definitions of financial statement elements established by Concepts Statement 4. In June 2014, the GASB awarded a Gil Crain Memorial Research Grant to fund research on the current state of practice in reporting conduit debt. The research consisted of archival studies of the financial reports of state issuers of conduit debt, in general, and specifically of issuers in California both debt and selected interviews with financial statement users. The researchers concluded, in part: Overall, we find that conduit debt obligation disclosures are generally in compliance with GASB guidance [for the governments examined]. Page 30

31 Further, disclosure compliance is fairly even whether analyzing state governments, local governments, or the dedicated conduit issuers themselves. Additionally, [the interviewed] users of financial statements generally find current GASB disclosure requirements reasonable and adequate for their purposes Financial statement users [interviewed] do express some uncertainty about whether governments (at both the state and local level) serving as conduit might step in if the actual obligor defaulted on borrowing. This uncertainty exists even in the absence of legal requirements to do so Currently, users [interviewed] cannot discern if conduit debt not disclosed is immaterial or not disclosed as required Finally, financial statement users [interviewed] view conduits not just in terms of public finance, but also in terms of accountability. Multiple users expressed cynicism about the purposes and quality of conduit debt activity, especially when governments issued debt through conduits to potentially avoid debt limits History: Pre-agenda research approved: December 2016 Consultative group appointed? No Page 31

32 Going Concern Disclosures Reexamination of Statement 56 Research Description: The objective of this research is to evaluate whether the existing GASB authoritative literature has provided preparers of financial statements for state and local governments sufficient guidance about management s responsibilities for evaluating and disclosing uncertainties associated with severe financial stress (what is now referred to as going concern uncertainties). The research will provide the Board with the information it requires to consider the need for revisions to existing disclosure standards, which would be intended to reduce existing diversity in note disclosures and to more effectively meet financial statement user needs. Background: GASB Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards, incorporated into the GASB authoritative literature accounting and financial reporting guidance on three issues related party transactions, subsequent events, and going concern considerations presented in the American Institute of Certified Public Accountants (AICPA) Statements on Auditing Standards (SAS). The going concern guidance was found in U.S. Auditing Standards (AU) Section 341, The Auditor s Consideration of an Entity s Ability to Continue as a Going Concern. The note disclosure requirements related to going concern were incorporated into the GASB s literature basically as is. That guidance was issued by the AICPA in The Board discussed issues associated with inconsistencies found in practice in the application of going concern guidance with the AICPA s State and Local Government Expert Panel. Moreover, the Board discussed with the AICPA s Audit Issues Task Force (AITF) whether there is a gap between what financial statement users discern from going concern disclosures (for example, a conclusion that the government will cease to exist as a legal entity) and the actual information needed by those users (that is, for the disclosures to identify severe financial stress). At the latter meeting, members of the AITF expressed interest in working with the GASB to address how to close this gap. In June 2014, the GASB awarded a Gil Crain Memorial Research Grant to fund research on the experience with auditors issuing going concern opinions on state and Page 32

33 local governments. The final report on that research was received in August In September 2015, the GASB awarded a Crain research grant to fund research on government dissolutions. The final report on that research was received in November Lastly, in June 2016, the GASB awarded a Crain research grant to fund a comprehensive statistical analysis of the predictive power of commonly used indicators of severe financial stress. The results of the Crain research will supplement the research activities being conducted by the GASB staff. History: Pre-agenda research approved: April 2015 Consultative group appointed? Yes Page 33

34 Information Technology Arrangements, including Cloud Computing Research Description: The initial objectives of this pre-agenda research are (1) to research current practices by governments with respect to reporting cloud computing contracts and similar arrangements and (2) to identify whether there is a need for specific guidance regarding the reporting of these arrangements. If additional guidance is determined to be needed, another objective would be to consider the development of accounting and financial reporting standards for cloud computing and similar arrangements. Background: Contracts with technology providers, such as for cloud computing services, have become more prevalent among state and local governments. These transactions often involve long-term contracts wherein a government will receive the right to use certain hardware or software provided by the vendor without actually owning the technology. The features of these arrangements may make it difficult to determine whether they result in (1) an asset and a related liability or (2) a period expense. Statement No. 51, Accounting and Financial Reporting for Intangible Assets, applies to assets that lack physical substance, are nonfinancial in nature, and have an initial useful life extending beyond a single reporting period. This description could apply to the right-to-use received by governments in some cloud computing contracts. The proposed guidance in the January 2016 Exposure Draft, Leases, explicitly excludes contracts for intangible assets such as computer software. The proposed definition of a lease also excludes contracts solely for services, with no lease component. Consequently, the guidance in the forthcoming final Statement will not be applicable to cloud computing. In April 2015, FASB issued Accounting Standards Update (ASU) , Intangibles Goodwill and Other Internal-Use Software (Subtopic ), addressing customer accounting for fees paid in cloud computing arrangements. The FASB requires that if a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing Page 34

35 arrangement does not include a software license, the customer should account for the arrangement as a service contract. Page 35

36 Note Disclosures Research Description: The objective of this pre-agenda research is to evaluate whether currently required note disclosures are sufficiently meeting the information needs of the users of state and local government financial reports. The research will provide the Board with the information necessary to consider whether additional or revised guidance is needed and, if so, to support deliberations over developing specific note disclosure requirements. Background: Note disclosures represent a fundamental component of the information that financial statement users rely on to make decisions related to a government s financial health, as well as to assess whether governments have been fiscally and operationally accountable. The GASB last conducted a comprehensive review of note disclosures since That research, which led to the development of Statement No. 38, Certain Financial Statement Note Disclosures, focused on disclosure requirements effective through The GASB has developed extensive guidance on many types of financial reporting topics since that time. Existing guidance for notes to the financial statements identifies 17 distinct disclosures (including the summary of significant accounting policies, which itself comprises 13 or 14 1 required disclosures) that are essential to fair presentation (Codification Section 2300, paragraph.106) and 61 additional disclosures that should be presented if applicable (paragraph.107). Paragraph.108 further states that governments may need to present other disclosures that they determine are necessary for fair presentation in their specific circumstances. Those 78 note disclosures are included within various NCGA and GASB pronouncements through GASB Statement No. 72, Fair Value Measurement and Application. Most of those pronouncements are related to specific types of transactions or accounting and financial reporting topics, such as derivative instruments, fund 1 Budget-related disclosures are required in notes to the financial statements if the budgetary comparison is presented as a basic financial statement. Page 36

37 balance, and pollution remediation obligations. A variety of disclosure requirements also are found in Statement 38. This research is reexamining all existing disclosure requirements except the following: Note disclosures required by pronouncements that have not been effective for at least three years. Note disclosures related to leases, debt extinguishments, and outstanding debt, which currently are being reviewed by the Board. Note disclosures that currently are the subject of the pre-agenda research on going concern disclosures and conduit debt. The research encompasses the note disclosures found in the pronouncements related to the financial reporting model. Although the financial reporting model currently is being reviewed by the Board, note disclosures such as changes in capital assets and changes in long-term liabilities are not identified within the scope of that project. History: Pre-agenda research approved: April 2016 Consultative group appointed: Yes Page 37

38 Public-Private Partnerships, including Reexamination of Statement 60 Research Description: The initial objectives of this pre-agenda research would be (1) to identify public-private partnerships that may not be subject to Statement No. 60, Service Concession Arrangements, or the forthcoming Statement on leases, (2) to evaluate the effectiveness of Statement 60, and (3) to consider the need for revisions to existing standards. If additional guidance is determined to be needed, another objective would be to consider the development of accounting and financial reporting for publicprivate partnerships. Background: Public-private partnerships (P3) are transactions in which a government contracts with another entity to design, build, or operate infrastructure assets or other capital assets. These entities generally are companies, but also may be not-for-profit organizations or other governments (a public-public partnership). Service concession arrangements (SCA) are a subset of a P3 transactions, as defined in Statement 60: 4. This Statement establishes guidance for accounting and financial reporting for SCAs. As used in this Statement, an SCA is an arrangement between a government (the transferor) and an operator 1 in which all of the following criteria are met: a. The transferor conveys to the operator the right and related obligation to provide public services 2 through the use and operation of a capital asset 3 (referred to in this Statement as a "facility") in exchange for significant consideration, such as an up-front payment, installment payments, a new facility, or improvements to an existing facility. b. The operator collects and is compensated by fees from third parties. 4 c. The transferor determines or has the ability to modify or approve what services the operator is required to provide, to whom the operator is required to provide the services, and the prices or rates that can be charged for the services. d. The transferor is entitled to significant residual interest in the service utility of the facility at the end of the arrangement. 5. SCAs include, but are not limited to: a. Arrangements in which the operator will design and build a facility and will obtain the right to collect fees from third parties (for Page 38