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102 Letter of Comment No. 45 File Reference: 3-22E Date Received: 10/14/11 February 25, 2011 Mr. David R. Bean Director of Research and Technical Activities Governmental Accounting Standards Board (GASB) Project No Merritt 7 Norwalk, CT Mount Vernon Ave Alexandria, VA (703) (703) (fax) Dear Mr. Bean: On behalf of the Association of Government Accountants (AGA), the Financial Management Standards Board (FMSB) appreciates the opportunity to provide comments to the Governmental Accounting Standards Board (GASB or the board) on the exposure draft (ED) of its proposed Statement on Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. The FMSB, comprising 24 members with accounting and auditing backgrounds in federal, state and local government, academia and public accounting, reviews and responds to proposed standards and regulations of interest to AGA members. Local AGA chapters and individual members are also encouraged to comment separately. As an overriding comment, we urge the GASB to carry out certain currently planned and documented activities relating to this topic prior to the issuance of a final standard on this subject. In this regard we note that the GASB s most recent Technical Plan includes a commitment to carry out the following project: Deferred Inflows of Resources and Deferred Outflows of Resources: Omnibus The objectives of this project are to (1) identify requirements in the existing authoritative literature to recognize balances that appear to meet the definitions of deferred outflows of resources or deferred inflows of resources and (2) determine whether those balances should continue to be recognized as assets or liabilities or reclassified as deferred outflows and deferred inflows, respectively, for financial reporting purposes. An Exposure Draft is planned for issuance in the second-third of Elsewhere in the Technical Plan, the following is noted: A net position project, Financial Reporting of Deferred Outflows and Deferred Inflows of Resources and Net Position, is currently underway that will provide statement presentation guidance for these elements; however, it would only apply to balances that have been specifically identified thus far as deferred inflows or deferred outflows. It is the recommendation of the FMSB that the separate issuance of the current ED as a standard without concurrently completing the activities anticipated for inclusion in the above planned ED for the second-third of 2011, would result in a requirement placed on preparers that they could not, in a practical sense, implement until the 1

103 Letter of Comment No. 45 File Reference: 3-22E Date Received: 10/14/11 second standard was published. It seems that such a consolidation of the current and future planned ED on this subject would be consistent with the guidance found in Concepts Statement No. 4, paragraph 38, which includes a sentence that limits recognition of deferred outflows of resources and deferred inflows of resources to those that are only identified by the GASB in authoritative pronouncements, which are established after due process. With the sharing of this overriding comment, we do have some additional comments regarding the ED as presented. They are presented as questions for the GASB to consider. 1. Should Deferred Outflows and Inflows of Resources currently be in governmental funds which use the modified accrual basis of accounting? Given that only currently expendable financial resources are supposed to be reported by a governmental fund, what kinds of deferred outflows and inflows of resources does the Board anticipate would be required in reporting for governmental funds using the modified accrual basis of accounting? 2. For reporting purposes, should Deferred Inflows of Resources be distinguished from Deferred Revenues, and if so, then how? Paragraph 2 of the ED (summarizing Concepts Statement No. 4) refers to Deferred Inflows of Resources as transactions that result in the acquisition of net assets in one period that are applicable to future periods. Paragraph 8 of the ED states, 8. Deferred outflows of resources and deferred inflows of resources that are required to be reported in a governmental fund balance sheet should be presented in a format that displays assets plus deferred outflows of resources, equals liabilities plus deferred inflows of resources plus fund balance. But for reporting purposes, how should Deferred Inflows of Resources be distinguished from Deferred Revenues, which are typically included in fund liabilities? They are defined in Codification and.115, for the modified accrual basis of accounting, as follows:.114 Material revenues received prior to normal time of receipt should be recorded as deferred revenue. For example, property taxes or other revenues may be collected in advance of the fiscal year to which they apply. Such prepayments should be recorded as deferred revenues and recognized as revenue of the period to which they apply. [NCGAS 1, 66; 1974 ASLGU, p. 15].115 When property taxes are measurable but not available, the collectible portion (taxes levied less estimated uncollectibles) should be recorded as a deferred revenue in the period when an enforceable legal claim to the assets arises or when the resources are received, whichever occurs first. [NCGAS 1, 119, as amended by GASBS 33, 17; GASBS 54, 5] The FMSB asks the GASB to consider including a clarification of whether Deferred Inflows of Resources should be distinguished from Deferred Revenues, and if so, then how. 2

104 Letter of Comment No. 45 File Reference: 3-22E Date Received: 10/14/11 3. If it is determined that Deferred Outflows and Inflows of Resources would have current application to governmental funds which use the modified accrual basis of accounting, then for clarity, would the Board consider adding a reference to the assignment of deferred outflows and inflows to Codification (a), as outlined below? The fourth sentence of Codification (a) currently reads: Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used; current liabilities are assigned to the fund from which they are to be paid; and the difference between governmental fund assets and liabilities, the fund equity, is referred to as Fund Balance. The ED proposes to change this sentence as follows (new text in italics; deleted text with strikethrough): Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used; current liabilities are assigned to the fund from which they are to be paid; and the difference between governmental fund assets and deferred outflows of resources, and liabilities and deferred inflows of resources, the fund equity, is referred to as fund balance. The FMSB suggests that the addition of a reference to assignment of deferred outflows and inflows could be as follows, or similar (new added text bolded and italic): Expendable assets and deferred outflows of resources are assigned to the various governmental funds according to the purposes for which they may or must be used; current liabilities and deferred inflows of resources are assigned to the fund from which they are to be paid or consumed; and the difference between governmental fund assets and deferred outflows of resources, and liabilities and deferred inflows of resources, the fund equity, is referred to as fund balance. As a final comment, we recommend that the illustrations beginning on page 32 be expanded to include an illustration pertaining to statements of governmental and proprietary funds with, if at all possible, an illustrative note of disclosure for instances where the various deferred outflows and/or deferred inflows are not shown on the face of the statement. We appreciate the opportunity to comment on this document and would be pleased to discuss this letter with you at your convenience. A majority of members approved the issuance of this letter. If you have questions concerning the comments in this letter, please contact Anna D. Gowans Miller, CPA, AGA s director of research and staff liaison for the FMSB, at amiller@agacgfm.org or at ext Sincerely, Eric S. Berman, CPA, Chair AGA Financial Management Standards Board cc: Lisa Casias, CPA AGA National President 3

105 Letter of Comment No. 45 File Reference: 3-22E Date Received: 10/14/11 Association of Government Accountants Financial Management Standards Board July 2010 June 2011 Eric S. Berman, Chair Katherine J. Anderson Frank D. Banda Robert L. Childree Irwin T. David Jeanne B. Erwin Jeffrey W. Green J. Dwight Hadley David R. Hancox Ruthe Holden Rashad A. Holloway David C. Horn Albert A. Hrabak Drummond Kahn Simcha Kuritzky Valerie A. Lindsey Edward J. Mazur Craig M. Murray Suesan R. Patton Clarence L. Taylor, Jr. Roger Von Elm Donna J. Walker Stephen B. Watson Sheila Weinberg Relmond P. Van Daniker, Executive Director, AGA (Ex-Officio Member) Anna D. Gowans Miller, Technical Manager, AGA, Staff Liaison 4

October 18, VIA Dear Chairman Burke:

October 18, VIA Dear Chairman Burke: October 18, 2017 Mr. Samuel L. Burke, Chair AICPA Professional Ethics Executive Committee American Institute of Certified Public Accountants, Inc. New York, NY 10036-8775 RE: Proposed Interpretation and