David Alvarez, CPA, CVA, CGMA Partner Carr, Riggs & Ingram, LLC

Transcription

1 GASB Update

2 David Alvarez, CPA, CVA, CGMA Partner Carr, Riggs & Ingram, LLC Alan Jowers, CPA Partner Carr, Riggs & Ingram, LLC 2

3 GASB Activity - Past GASB 72 Fair value GASB 77 Tax abatement disclosures GASB 79 External investment pools 3

4 GASB Activity - Present GASB 75 OPEB GASB 81 Irrevocable split-interest agreements GASB 85 Omnibus 4

5 GASB Activity - Future GASB 83 Asset retirement obligations (2019) GASB 84 Fiduciary activities (2020) GASB 87 Leases (2021) GASB 89 Capitalized Interest (2021) GASB 90 Majority Equity Interests (2020) Financial Reporting Model Revenue and Expense Recognition 5

6 GASB Activity - Past 6

7 GASB 72 Fair Value Measurements Exceptions to Fair Value measurement Nonparticipating interest-earning investment contracts Example: Certificates of Deposit Money market investments < 1 year Includes commercial paper, banker s acceptances, and US Treasuries External investment pools which meet certain requirements (GASB 79) 7

8 GASB 77 Tax Abatements Tax Abatement Disclosures Effective years beginning after December 15,

9 GASB 77 Tax Abatements Requires disclosures about a government s tax abatement agreements WHY? Information about revenues that governments agree to forgo is essential to understanding the financial position, economic condition, interperiod equity, sources and uses of financial resources and compliance with finance-related legal or contractual requirements 9

10 GASB 77 Tax Abatements Emphasis is on the substance of the arrangement meeting the definition in GASB 77, not on its name or form Does not include all transactions that reduce tax revenues some actions can cause a reduction in taxes but are not abatements 10

11 GASB 77 Tax Abatements Applies only to arrangements that meet this definition: A reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which: (a) One or more governments promise to forgo tax revenues to which they are otherwise entitled ---AND 11

12 GASB 77 Tax Abatements (b) the individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or the citizens of those governments 12

13 GASB 77 Tax Abatements Disclosure Principles Disclosure info for similar tax abatements may be provided either individually or in the aggregate Disclose separately (a) its own tax abatements and (b) tax abatements that are entered into by other governments that reduce the reporting government s tax revenues 13

14 GASB 77 Tax Abatements Must disclose own tax abatements by major program Disclose those of other governments by the government and the specific tax that was abated May disclose individual abatements above the quantitative threshold established by the government 14

15 GASB 77 Tax Abatements Disclosure commences in the period in which a tax abatement agreement is entered into and continues until the tax abatement expires, unless otherwise specified 15

16 GASB 77 Tax Abatements NOTE (X): Tax Abatements The County enters into property tax abatement agreements with local businesses under the State Economic Development Opportunity Act of 20X1. Under the Act, localities may grant property tax abatements of up to 40 percent of a business property tax bill for the purpose of attracting or retaining businesses within their jurisdictions. The abatements may be granted to any business located within or promising to relocate to the County. 16

17 GASB 77 Tax Abatements Note (X): Tax Abatement For the fiscal year ended September 30, 20X7, the County abated property taxes totaling $347,620 under this program, including the following tax abatement agreements that each exceeded 10 percent of the total amount abated: A 40 percent property tax abatement to a grocery store chain for purchasing and opening a store in an empty storefront in the business district. The abatement amounted to $97,500. A 40 percent property tax reduction for a local restaurant increasing the size of its restaurant and catering facility and increasing employment. The abatement amounted to $38,

18 Scope: Tax Increment Financings (TIF) IG , Question 4.77 Government uses TIF to encourage economic development Bonds issued by government to finance infrastructure in specific area Baseline for sales tax revenues for the area, including proposed development, is established prior to the start of the project Additional sales tax revenues above baseline are set aside for payment of the bonds Disclose under 77? NO IG , Question 4.40 Government enters into agreement with developer to stimulate economic growth Developer will construct building Baseline for property tax revenues for the specific area will be established prior to the start of the project Developer will receive amount from additional property tax revenues above baseline, based on certain costs incurred by the developer related only to the developer s building. Disclose under 77? YES 18

19 Scope: Existence of Property Tax Cap Government is subject to a property tax cap that limits the growth of property tax levy to 2 percent per year. Full amount allowed under the cap is levied on properties that are not subject to agreements to lower taxes of individual taxpayers. Therefore, overall tax revenues will not be reduced. Are those agreements tax abatements under Statement 77? Yes, if they meet the other parts of the definition. It is not necessary that the government forgo tax revenue in the aggregate. The fact that the government may effectively recoup the tax revenue associated with the agreements from other taxpayers is not relevant to determining whether the agreement meets the definition of a tax abatement. Source: IG , Question

20 General Disclosure Principles A government would disclose separately (a) its own tax abatements and (b) tax abatements that are entered into by other governments and reduce the reporting government s taxes Disclose own tax abatements by major program Disclose those of other governments by the government and specific tax abated May disclose individual tax abatements above quantitative threshold established by the government Disclosure would commence in the period in which a tax abatement agreement is entered into and continue until the tax abatement agreement expires, unless otherwise specified 20

21 GASB 77 Tax Abatements Name of program Brief Descriptive Info Purpose of program Name of government Government s Own Abatements X X Other Government s Abatements Tax being abated X X Authority to abate taxes Eligibility criteria Abatement mechanism Recapture provisions Types of recipient commitments X X X X X X 21

22 GASB 77 Tax Abatements Other Disclosures Government s Own Abatements Other Government s Abatements Dollar amount of taxes abated X X Amounts received or receivable from other governments associated with the abated taxes Other commitments by the government Quantitative threshold for individual disclosure Information omitted (if any) due to legal prohibitions X X X X X X X 22

23 GASB 79 External Investment Pools Effective years beginning after June 15, 2015 except provisions on portfolio quality, custodial credit risk & shadow pricing which are effective for years after December 15,

24 GASB 79 External Investment Pools Establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. If an external investment pool measures its investments at amortized costs, the pool s participants should measure their investments in the pool at amortized costs. 24

25 GASB 79 External Investment Pools Establishes additional note disclosure requirements for pools that measure their investments at amortized costs. Disclosures for both the qualifying external investment pools & their participants include information about any limitations or restrictions on participant withdrawals. 25

26 GASB Activity - Present 26

27 GASB 75 - OPEB Effective years beginning after June 15,

28 GASB 75 - OPEB GASB issued #75 (employers) to make OPEB accounting & financial reporting consistent with the pension standards Purpose provide more transparent reporting of the OPEB liability and more useful information about both the obligation and the costs of benefits 28

29 GASB 75 - OPEB Scope and Applicability to Employers: Same definition of OPEB as used in GASB 45 (all post-employment healthcare benefits and other benefits that are not provided through a pension plan) 29

30 GASB 75 - OPEB Liability based on the total OPEB liability the portion of actuarial present value of projected benefit payments that is attributable to past periods of employee service 30

31 GASB 75 - OPEB Is OPEB administered through a trust that meets specified criteria? If yes, recognize the net OPEB liability (total OPEB liability minus OPEB plan fiduciary net position) If no, recognize the total OPEB liability 31

32 GASB 75 - OPEB Measurement date The employer s liability to employees is measured as of a date no earlier than the end of the employer s prior fiscal year and no later than the employer s current fiscal year Based on an actuarial valuation obtained at least biennially no more than 30 months and 1 day earlier than the employer s most recent fiscal year-end 32

33 33

34 GASB 75 - OPEB Steps in measurement of the total OPEB liability 1. Project the benefit payments to be paid 2. Discount the projected benefit payments to their actuarial present value 3. Attribute the actuarial present value to periods 34

35 GASB 75 - OPEB Alternative measurement method may be applied if there are fewer than 100 employees (active and inactive) who are provided benefits through the plan as of the beginning of the measurement period Generally the same simplifications to the assumptions per GASB 45 can be utilized 35

36 GASB 75 - OPEB Changes in the OPEB liability Will record most changes in the liability for the current financial reporting period as immediate OPEB expense except: 1. Changes in the total OPEB liability: a. Differences between expected and actual experience related to economic and demographic factors in the measurement of the total OPEB liability b. Changes of assumptions in the measurement of the total OPEB liability 36

37 GASB 75 - OPEB 2. For OPEB administered through a trust in which specified criteria are met: a. Difference between projected and actual earnings on plan investments b. Employer contributions 37

38 GASB 75 - OPEB Cost-sharing employers: Recognize proportionate share of collective net OPEB liability, OPEB expense, and deferred outflows/inflows related to OPEB 38

39 GASB 75 - OPEB RSI and Note Disclosures Similar to those required for pensions: Effect on net OPEB liability of a discount rate +/- 1 percent Effect on net OPEB liability of a healthcare cost trend rate +/- 1 percent 10 year schedules liability, ratios, contributions, etc. Standalone OPEB plan only presents Schedule of Changes in Total OPEB Liability and Related Ratios, will not have same schedules as FRS Pension RSI schedules 39

40 GASB 75 - OPEB Sensitivity of the net OPEB liability to changes in the discount rate. The following presents the net OPEB liability of the school districts, as well as what the school districts net OPEB liability would be if it were calculated using a discount rate that is 1-percentagepoint lower (6.5 percent) or 1-percentage-point higher (8.5 percent) than the current discount rate: 40

41 GASB 75 - OPEB Sensitivity of the net OPEB liability to changes in the healthcare cost trend rates. The following presents the net OPEB liability of the school districts, as well as what the school districts net OPEB liability would be if it were calculated using healthcare cost trend rates that are 1-percentage-point lower (8.5 percent decreasing to 4.5 percent) or 1-percentage-point higher (10.5 percent decreasing to 6.5 percent) than the current healthcare cost trend rates: 41

42 Comparison to GASB 45 Actuarial Cost Method GASB 45 GASB 74 GASB 75 Multiple Permissible Actual Cost Methods Valuation Date Not more than 24 months prior to the beginning of the biennial or triennial valuation cycle Valuation Frequency Biennial for employers with > 200 covered participants Triennial for employers < 200 participants Entry Age Normal Cost Method Required No more than 24 months prior to fiscal year-end No more than 30 months & 1 day prior to fiscal year-end Once every 2 years regardless of size 42

43 Comparison to GASB 45 Alternative Measurement Method Discount Rate Net OPEB Obligation (Total OPEB Liability) GASB 45 GASB 74 GASB 75 Available for plans with < 100 participants Set by actuary in conjunction with Plan sponsor Accrued normal cost & amortization less benefit payments Single equivalent discount rate: A blended rate based on plan assets, funding policy & investment policy to the extent that the plan is funded & a 20-year tax-free municipal bond index rate for unfunded periods Net OPEB Obligation replaced by Net OPEB Liability (total current liability less Plan assets) or the Unfunded OPEB Liability 43

44 Comparison to GASB 45 Recognition of Changes in Liability Implicit Subsidy GASB 45 GASB 74 GASB 75 Changes amortized in gains/losses over a period of 30 years or less Community rated plans not required to recognize an implicit subsidy Investment gains & losses are recognized or phased in over 5 years while changes in liability due to experience & assumption changes are amortized over the average remaining lifetime of the population All Plan types must recognize an implicit subsidy 44

45 45

46 GASB 81 Split-Interest Agreements Irrevocable Split- Interest Agreements Effective years beginning after December 15,

47 GASB 81 Split-Interest Agreements Giving agreements used by donors to provide resources to two or more beneficiaries, including governments Created through trusts or other legally enforceable agreements Donor transfers resources to an intermediary to hold & administer for the benefit of the government & at least 1 other beneficiary. 47

48 GASB 81 Split-Interest Agreements Requires that a government records assets, liabilities & deferred inflows at the agreement inception Revenue is recognized when the resources become applicable to the reporting period Standard should be applied retroactively 48

49 GASB 85 Omnibus 2017 Omnibus 2017 Effective years beginning after June 15,

50 GASB 85 Omnibus 2017 Addresses a variety of practice issues identified during the implementation & application of certain GASB statements Blending a component unit in which the primary government is a business-type activity with a single column for FS presentation Reporting amounts previously reported as goodwill Classifying real estate held by insurance entities 50

51 GASB 85 Omnibus 2017 Measuring certain investments at amortized cost Timing of measurement of pension or OPEB liabilities for entities using the current financial resources measurement focus Recognizing on-behalf payments for pensions or OPEB Presenting payroll-related measures in RSI Classifying employer paid member contributions for OPEB 51

52 GASB 85 Omnibus 2017 Simplifying certain aspects of alternative measurement method for OPEB Accounting & financial reporting for OPEB provided through certain multiple-employer defined benefit OPEB plans. 52

53 Will Be Here Soon 53

54 GASB 83 Asset Retirements Obligations Certain Asset Retirement Obligations Effective years beginning after June 15,

55 GASB 83 Asset Retirement Obligations ARO a legally enforceable liability associated with the retirement of a tangible capital asset. Establishes criteria for determining the timing, pattern of recognition & corresponding deferred outflows for ARO s. Recognition occurs when liability is both incurred & reasonably estimable. 55

56 GASB 83 Asset Retirement Obligations Laws & regulations may require governments to take specific actions to retire certain capital assets, like sewage treatment plants. May also result from contracts or court judgements Internal events include the occurrence of contamination or placing into operation an asset that is required to be retired 56

57 GASB 83 Asset Retirement Obligations ARO is based on best estimate of the current value of outlays to be incurred Should include probability weighting of all potential outcomes Alternative measure if probability weighting is not financially feasible Deferred outflows reduced & recognized as outflows in a systematic manner over the life of the capital asset. 57

58 GASB 84 Fiduciary Activities Fiduciary Activities Effective years beginning after December 15,

59 GASB 84 Fiduciary Activities Focus is on: Whether a government is controlling the assets of the fiduciary activity; and The beneficiaries with whom a fiduciary relationship exists Establishes the criteria on which a fund should be reported as a fiduciary fund 59

60 GASB 84 Fiduciary Activities Four fiduciary funds: Pension (and OPEB) trust funds Investment trust funds Private-purpose trust funds Custodial funds Liability recognized in the fiduciary fund when an event has occurred that requires the government to disburse fiduciary resources. 60

61 GASB 84 Fiduciary Activities Liability recognized in the fiduciary fund when an event has occurred that requires the government to disburse fiduciary resources May result in net position balances for custodial funds Exception for some fiduciary funds of businesstype activities that normally expect to hold assets for 3 months or less 61

62 GASB 84 Fiduciary Activities Presentation of additions and deductions on the statement of changes in fiduciary net position for all fiduciary funds, including custodial funds Additions should be disaggregated by source, and if applicable, separately present investment earnings and costs Deductions should be disaggregated by type Same exception for custodial funds that are expected to be held for 3 months or less 62

63 GASB 84 Fiduciary Activities Activities are fiduciary funds if the 3 following conditions are met: The government controls the assets Those assets are not derived either: Solely from the government s own-source revenues, or From government-mandated nonexchange transactions or voluntary nonexchange transactions with the exception of pass-through grants and for which the government does not have administrative or direct financial involvement One of the criteria on the next slide is met 63

64 GASB 84 Fiduciary Activities The assets are (1) administered through a trust agreement or equivalent arrangement in which the government itself is not a beneficiary, (2) dedicated to providing benefits to recipients in accordance with the benefit terms, and (3) legally protected from the creditors of the government. The assets are for the benefit of individuals and the government does not have administrative involvement with the assets or direct financial involvement with the assets. In addition, the assets are not derived from the government s provision of goods or services to those individuals. The assets are for the benefit of organizations or other governments that are not part of the financial reporting entity. In addition, the assets are not derived from the government s provision of goods or services to those organizations or other governments. 64

65 GASB 84 Fiduciary Activities Three words School Internal Funds The key component for School Internal Funds is administrative involvement Substance over form consideration is appropriate If school board, school administrator, faculty advisor or third party establishes how the resources can be spent, administrative involvement would be met 65

66 GASB 84 Fiduciary Activities If students (beneficiaries) or parents of students are responsible for establishing how the resources can be spent, administrative involvement would not be met 66

67 GASB 84 Fiduciary Activities Other examples of administrative involvement No school board or administrative policy in how funds can be spent but disbursements are approved by a faculty advisor School board establishes policy related to the receipt, disbursement and holding of funds State establishes how the resources can be spent through administrative policy School board matching club s funds when a disbursement is approved If school board is only approving fees charged by clubs to its members, assuming school board has no other policies in place related to disbursement, NOT CONSIDERED ADMINISTRATIVE INVOLVEMENT 67

68 GASB 87 Leases Leases Effective years beginning after December 15, 2019 for all leases that existed at the beginning of the period of implementation 68

69 GASB 87 - Leases The existing standards had been in effect for decades without review to determine if they remain appropriate in light of GASB conceptual framework and continue to result in useful information; FASB and IASB conducted a joint project to update their lease standards; opportunity to increase comparability and usefulness of information and reduce complexity for preparers 69

70 GASB 87 - Leases 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 70

71 GASB 87 - Leases Scope Exclusions: Intangible assets (mineral rights, patents, software, copyrights), except for the sublease of an intangible right-to-use asset Biological assets (including timber, living plants, and living animals) Inventory Service concession arrangements (Statement 60) Assets financed with outstanding conduit debt, unless both the asset and the debt are reported by the lessor Supply contracts (such as power purchase agreements that do not convey control of the right to use the underlying power generating facility) 71

72 GASB 87 Leases Short-term exception At beginning of lease, maximum possible term under the contract is 12 months or less (including any options to extend, regardless of probability) 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 72

73 GASB 87 Leases 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 73

74 GASB 87 Leases Subsequent reporting Lessee Assets Liability Deferred Inflow Amortize the intangible lease asset over shorter of useful life or lease term Reduce by lease payments (less amount for interest expense) NA Lessor 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) NA Recognize revenue over the lease term in a systematic and rational manner 74

75 GASB 87 Leases 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. 75

76 GASB 87 Leases 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 76

77 77

78 GASB 89 Capitalized Interest Accounting for Interest Cost Incurred before the End of a Construction Period Effective years beginning after December 15,

79 GASB 89 Capitalized Interest Interest incurred during the construction period will be expensed as incurred for business-type and enterprise funds Governmental funds keep same requirement of interest costs being included in debt service as paid Prospective application Early application is encouraged 79

80 What Lies Ahead?? GASB Technical Agenda 80

81 Financial Reporting Model Reexamination of Statement 34 81

82 Financial Reporting Model Reexamination What: The Board is redeliberating over comments received in response to the December 2016 Invitation to Comment, the first due process document in the project reexamining the effectiveness of the financial reporting model Statements 34, 35, 37, 41, and 46, and Interpretation 6. Why: A review of these standards found that they generally were effective, but that there were aspects that could be significantly improved. Status: Preliminary Views have been issued. 82

83 Concerns with Governmental Funds Financial Statements Lack of conceptual consistency in recognition of assets and liabilities Lack of foundation from which to develop standards for complex transactions Some consider it ineffective in conveying that the information is related to fiscal accountability (rather than operational accountability) Focus on financial resources, rather than on economic resources Shorter time perspective than information in government-wide financial statements 83

84 Topics Covered in the Preliminary Views Recognition Concepts and Application for Governmental Funds Presentation of Governmental Fund Financial Statements Proprietary Fund Financial Statements Budgetary Comparison Information Communication of Major Component Unit Information Schedule of Government-Wide Expenses by Natural Classification 84

85 Recognition Concepts and Application for Governmental Funds Short-term financial resources measurement focus would replace current financial resources management focus Period of availability would be 1 year 85

86 Recognition Concepts and Application for Governmental Funds (continued) Assets Liabilities Recognized in the Short-term Financial Resources Measurement Focus Cash, Accounts Receivable Property tax receivable Prepaid expenses Inventory Notes and other long-term receivables that have become due Accounts payable and accrued payroll Accrued interest payable Tax and revenue anticipation notes Any unpaid balances on general obligations and other long-term debt that became due during the period Not included in Short-term Financial Resources Measurement Focus Notes and other long-term receivables that have not become due Capital assets including intangible assets Compensated absences General obligation and other long-term debt Net pension and OPEB liabilities Asset retirement obligations and leases 86

87 Recognition Concepts and Application for Governmental Funds (continued) Revenues and expenditures would be replaced with Inflows of resources and outflows of resources Governmental funds would now present a Statement of Short-Term Financial Resource Flows Main change to Statement of Short-Term Financial Resource Flows is period of availability (1 year) 87

88 Example Short-Term Financial Resources Balance Sheet 88

89 Example Statement of Short-Term Financial Resource Flows 89

90 Presentation of Proprietary Fund Financial Statements Operating revenues and expenses should be defined as revenues and expenses other than nonoperating revenues and expenses Nonoperating revenues and expenses include: Subsidies received and provided Revenues and expenses related to financing Resources from the disposal of capital assets and inventory Investment income and expenses 90

91 Budgetary Comparison Information Budgetary comparison information should be presented using a single method of communication and as a part of RSI Comparison schedules should present variances between final budget and actual, and original budget and final budget 91

92 Communication of Major Component Unit Information If it is not feasible to present major component unit financial statements in a separate column(s) in the reporting entity s statement of net position and statement of activities, the financial statements of the major component units should be presented in the reporting entity s basic financial statements as combining financial statements after the fund financial statements 92

93 Schedule of Government-Wide Expenses by Natural Classification Entity s that present a CAFR should report a schedule of natural classification of government-wide expenses by function or program for governmental activities and by different identifiable activity for business-type activities Would be presented as supplementary information 93

94 Schedule of Government-Wide Expenses by Natural Classification, continued 94

95 Project Timeline Pre-Agenda Research Started Added to Current Technical Agenda Invitation to Comment Issued April 2013 September 2015 December 2016 Preliminary Views Issued September 2018 Deadline for Written Comments February 15,

96 Revenue and Expense Recognition 96

97 Revenue and Expense Recognition What: The Board is developing a comprehensive application model for recognition of revenues and expenses from all types of transactions. Why: Stakeholders have raised questions about how to account for revenues from transactions that are neither fully exchange or nonexchange; the revenue recognition standards incorporated in Statement 62 have not been revised for governments in nearly 50 years; current literature does not provide guidance for exchange and exchange-like expenses. Status: Public hearings. 97

98 Tentative Decisions: Project Scope The project scope broadly encompasses revenue and expense recognition but excludes the following: Topics with guidance developed considering the current conceptual framework, such as pensions and other post-employment benefits Topics related to financial transactions, such as investments, derivatives, leases, and insurance Topics related to transactions arising from recognition of capital assets or certain liabilities, such as depreciation, asset retirement obligations, and pollution remediation obligations 98

99 Tentative Decisions: Revenue and Expense Recognition Models The Invitation to Comment will present comprehensive application models for the recognition of revenue and expense. Two primary models have been identified for inclusion in the Invitation to Comment: Performance obligation/no performance obligation model Exchange/nonexchange model 99

100 Tentative Positions: Performance Obligation A performance obligation is a promise in a binding arrangement between a government and another party to provide distinct goods and services to a specific beneficiary. 100

101 Tentative Positions: Performance Obligation Recognition For revenue and expense transactions that have a performance obligation, revenue and expense would be recognized as the performance obligation is satisfied, either at a point in time or over time. For transactions that do not have a performance obligation, revenue and expense would be recognized with respect to key characteristics of those transactions, many of which are reflected in current guidance for recognition of revenue and expense from nonexchange transactions. 101

102 Tentative Positions: Exchange/Nonexchange Recognition For transactions classified as exchange revenue and expense transactions, the earnings recognition approach would be applied. The government controls an asset or has incurred a liability, the right of return has expired, and the increase or decrease in net assets is applicable to the reporting period. Transactions classified as nonexchange revenue and expense would be recognized with respect to key characteristics of those transactions, many of which are reflected in current guidance for nonexchange transactions. 102

103 Project Timeline Pre-Agenda Research Started September 2015 Added to Current Technical Agenda April 2016 Invitation to Comment January 2018 Public Hearings May

104 Questions? 104