Recent GASB Activity - Past

Transcription

1 GASB Update 1

2 Recent GASB Activity - Past GASB 72 Fair value GASB 73 Certain pensions not administered through a trust GASB 76 GAAP hierarchy GASB 79 External investment pools 2

3 Recent GASB Activity - Present GASB 74 OPEB reporting for plans GASB 77 Tax abatement disclosures GASB 78 Certain multiple-employer defined benefit pension plans GASB 80 Blending requirements for certain component units GASB 82 Pension issues Implementation Guide No

4 Recent GASB Activity - Future GASB 81 Irrevocable split-interest agreements (2018) GASB 83 Asset retirement obligations (2019) GASB 84 Fiduciary activities (2020) GASB 85 Omnibus (2018) GASB 86 Debt Extinguishment (2018) GASB 87 Leases (2021) GASB 89 Capitalized Interest (2021) 4

5 A Brief Recap 5

6 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) 6

7 GASB 73 More Pensions Effective Years beginning after 6/15/2016 AND Years beginning after 6/15/2015 7

8 GASB 73 More Pensions Accounting and Financial Reporting For Pensions and Related Assets That Are Not Within The Scope of GASB 68, and Amendments to Certain Provisions of GASB 67 and 68 8

9 GASB 73 More Pensions Impacts pensions WITHOUT a trust If the employer does not have a special funding situation should record an obligation for the Total Pension Liability Discount rate to use yield or index rate for 20-year, tax-exempt GO municipal bonds with average rating of AA/Aa or better 9

10 GASB 73 More Pensions Assets accumulated for the payment of pension obligations that are NOT administered through a trust should NOT be accounted for as pension plan assets Required disclosures similar to requirements of GASB 67 and 68 in the notes and RSI 10

11 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,

12 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. 12

13 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. 13

14 GASB 77 Tax Abatements 14

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

16 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 16

17 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 17

18 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 18

19 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 19

20 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 20

21 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 21

22 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 22

23 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. 23

24 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,

25 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 25

26 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

27 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 27

28 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 28

29 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 29

30 Other GASB Pronouncements 30

31 GASB 78 Multiple Employer Pensions Pensions Provided through Certain Multiple Employer Defined Benefit Pension Plans Effective years beginning after December 15,

32 GASB 78 Multiple Employer Pensions Excludes certain plans from the scope of #68 Cost-sharing multiple employer defined benefit plans that are: a. not a state or local governmental plan b. used to provide benefits to both governmental and non-governmental employers, and c. plans with no predominant gov t employer 32

33 GASB 80 Blending Component Units Blending Requirements for Certain Component Units Effective years beginning after June 15,

34 GASB 80 Blended Component Units Requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member, as identified in the component unit s articles of incorporation or bylaws. Does not alter GASB #39 34

35 GASB 82 Pension Issues An Amendment of GASB Statements No. 67, 68 & 73 Effective years beginning after June 15,

36 GASB 82 Pension Issues Addresses issues regarding: a. presentation of covered payroll defines covered payroll as the payroll on which contributions to a pension plan are based & ratios that use that measure Previously, covered payroll was the payroll of employees that are provided with pensions through the plan 36

37 GASB 82 Pension Issues Addresses issues regarding: b. selection of assumptions and treatment of deviations from Actuarial Standard of Practice Deviations are not considered to be in conformity with GASB 37

38 GASB 82 Pension Issues Addresses issues regarding: c. classification of payments made by employers to satisfy employee contribution requirements as plan member contributions Requires employer s expense/ expenditures for these contributions be recognized in the period assessed Recognized as compensation other than pension (not pension expense) 38

39 39

40 Newly Applicable 40

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

42 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. 42

43 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 43

44 Will Be Here Soon 44

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

46 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. 46

47 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 47

48 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. 48

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

50 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 50

51 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. 51

52 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 52

53 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 53

54 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 54

55 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. 55

56 GASB 84 Fiduciary Activities Three words School Internal Funds 56

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

58 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 58

59 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 59

60 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. 60

61 GASB 87 Capitalized Interest Leases Effective years beginning after December 15, 2019 for all leases that existed at the beginning of the period of implementation 61

62 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 62

63 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 63

64 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) 64

65 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 65

66 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 66

67 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 67

68 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. 68

69 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 69

70 70

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

72 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 72

73 What Lies Ahead?? GASB Technical Agenda 73

74 Financial Reporting Model Reexamination of Statement 34 74

75 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: Invitation to comment redeliberations. 75

76 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 76

77 Topics Covered in the Invitation to Comment Three possible recognition approaches to replace current financial resources/modified accrual: Near-term financial resources Short-term financial resources Long-term financial resources Format of governmental funds resource flows statement Existing format v. Current and long-term activities format Governmental funds cash flows statement Could be needed for short-term and long-term financial resources approaches because the time perspective is not close to cash 77

78 Tentative Decisions for the Preliminary Views The recognition approach for governmental funds to be presented in the PV will be a based on a combination of the near-term and short-term recognition approaches with the following characteristics: One-year (operating cycle) recognition timeframe Accrued interest would be recognized when payable and normally due within one year, which may not necessarily align with the recognition of principal payments on the related debt Recognition of tax and revenue anticipation notes as liabilities Exclusion of the recognition of the current portion of long-term assets and liabilities 78

79 Tentative Decisions for the Preliminary Views (continued) Separate presentation of operating and nonoperating revenues and expenses in proprietary fund and business-type activity (BTA) financial statements Operating activities are those other than nonoperating activities Nonoperating activities include Subsidies received and provided Revenues and expenses of financing Resources from the disposal of capital assets and inventory Investment income and expenses 79

80 Tentative Decisions for the Preliminary Views (continued) Separate presentation of operating and nonoperating revenues and expenses (continued) Subsidies are resources provided by another party or fund for the purpose of keeping the rates lower than otherwise would be necessary for the level of goods and services to be provided Includes resources for purchase of capital assets Subtotal for operating income (loss) and noncapital subsidies Budgetary comparisons Would be presented in required supplementary information (no option for basic statements) Required variances would be final-budget-to-actual and originalbudget-to-final-budget 80

81 Other Topics Expected to Be Addressed in the Preliminary Views Improved format for the government-wide statement of activities Permanent funds Determine recognition approach and presentation for permanent funds when preliminary view for recognition approach in governmental funds is finalized 81

82 Topics Expected to Be Addressed in an Exposure Draft Extraordinary and special items explore options for clarifying the guidance for more consistent reporting Management s discussion and analysis (MD&A) Enhance the financial statement analysis component Eliminate boilerplate Clarify guidance for presenting currently known facts, decisions, or conditions Debt service funds explore options for providing additional information, either individually or in aggregate in the financial statements or the notes 82

83 Project Timeline Pre-Agenda Research Started April 2013 Added to Current Technical Agenda September 2015 Invitation to Comment Issued December 2016 Preliminary Views Expected September

84 Revenue and Expense Recognition 84

85 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. 85

86 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 86

87 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 87

88 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. 88

89 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. 89

90 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. 90

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

92 Questions? 92

93 David Alvarez, CPA, CVA, CGMA Partner Carr, Riggs & Ingram, LLC 93