Implementation Guidance Update 2019

November 14, 2018 Comments Due: January 31, 2019 Proposed Implementation Guide of the Governmental Accounting Standards Board Implementation Guidance Update 2019 This Exposure Draft of a proposed Implementation Guide is cleared by the Board for public comment. Written comments should be addressed to: Director of Research and Technical Activities Project No. 24-16d

IMPLEMENTATION GUIDANCE UPDATE 2019 WRITTEN COMMENTS Deadline for submitting written comments: January 31, 2019 Written comments. We invite your comments on the implementation guidance in this proposed Implementation Guide. Because this proposed Implementation Guide may be modified before it is cleared as a final Implementation Guide, it is important that you comment on any aspects with which you agree as well as any with which you disagree. To facilitate our analysis of comment letters, it would be helpful if you explain the reasons for your views, including alternatives that you believe the GASB should consider. Comments should be addressed to the Director of Research and Technical Activities, Project No. 24-16d, and emailed to director@gasb.org. OTHER INFORMATION Public files. Written comments will become part of the Board s public file and are posted on the GASB s website. This Exposure Draft may be downloaded from the GASB s website at www.gasb.org. Final GASB publications may be ordered at www.gasb.org. Copyright 2018 by Financial Accounting Foundation. All rights reserved. Permission is granted to make copies of this work provided that such copies are for personal or intraorganizational use only and are not sold or disseminated and provided further that each copy bears the following credit line: Copyright 2018 by Financial Accounting Foundation. All rights reserved. Used by permission. ii

Proposed Implementation Guide of the Governmental Accounting Standards Board Implementation Guidance Update 2019 November 14, 2018 CONTENTS Paragraph Numbers Introduction... 1 Implementation Guidance... 2 5 Applicability of This Implementation Guide... 2 3 New Questions and Answers... 4 Amendments to Previously Issued Questions and Answers... 5 Effective Date and Transition... 6 Appendix A: Background... A1 A3 Appendix B: Amendments to Previously Issued Questions and Answers Marked for Changes... B1 Appendix C: Codification Instructions... C1 C2 iii

INTRODUCTION 1. The objective of this Implementation Guide is to provide guidance that clarifies, explains, or elaborates on GASB Statements. IMPLEMENTATION GUIDANCE Applicability of This Implementation Guide 2. The requirements of this Implementation Guide apply to the financial statements of all state and local governments unless narrower applicability is specifically provided for in the pronouncement addressed by a question and answer. 3. This Implementation Guide amends Implementation Guide No. 2015-1, Questions 4.17.1, 5.74.1, and 10.46.10, and Implementation Guide No. 2017-2, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, Question 4.53. New Questions and Answers 4. Questions and answers in this paragraph are new Category B guidance in the hierarchy of generally accepted accounting principles. Cash Flows Reporting 4.1. Q In the statement of cash flows, how should a government report resources received pursuant to an irrevocable split-interest agreement? A Resources received pursuant to irrevocable split-interest agreements should not be divided between the lead and remainder interests in the statement of cash flows, regardless of whether the government is the lead interest beneficiary or the remainder interest beneficiary. Absent a donor-imposed restriction for capital purposes, resources received pursuant to an irrevocable split-interest agreement should be classified as noncapital financing activities in the statement of cash flows. In accordance with the provisions of paragraph 21b of Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and Question 2.20.3 in Implementation Guide 2015-1, contributions that are not restricted for capital purposes should be classified as noncapital financing activities. That would be the case even in circumstances in which the government s intent is to use its beneficial interests for capital purposes. However, if the donor restricts the government s beneficial interest to capital purposes, the resources received pursuant to an irrevocable split-interest agreement should be classified as capital and related financing activities in the statement of cash flows. 1

Postemployment Benefits Plan and Employer Accounting and Reporting 4.2. Q If an index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher is used in the determination of the discount rate for purposes of measuring a total pension liability or total OPEB liability in accordance with Statement No. 67, Financial Reporting for Pension Plans, or Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as applicable, can an average of index rates at different dates be used? A No. The index rate is an input into the measurement of the total pension liability or total OPEB liability and, as such, is required to be a rate at the pension or OPEB plan s fiscal year-end. Therefore, an average of rates at different dates is not permitted. 4.3. Q If an index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher is used in the determination of the discount rate for purposes of measuring the total pension liability or (collective) total OPEB liability in accordance with Statement No. 68, Accounting and Financial Reporting for Pensions, or Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, as applicable, can an average of index rates at different dates be used? A No. The index rate is an input into the measurement of the total pension liability or (collective) total OPEB liability and, as such, is required to be a rate at the measurement date of the liability. Therefore, an average of rates at different dates is not permitted. 4.4. Q For purposes of paragraph 44, paragraph 68, or paragraph 105 of Statement 75, if benefit payments for OPEB are implicit in amounts paid by an employer for active employee benefits (sometimes referred to as an implicit rate subsidy ), should the amount of the deferred outflow of resources related to OPEB reported for contributions to the OPEB plan from the employer subsequent to the measurement date of the (collective) net OPEB liability and before the end of the employer s reporting period include the amount of the implicit payments made during that period? A Paragraph 25 of Statement 75 requires that, for purposes of paragraphs 26 139 of Statement 75, contributions include amounts that are paid by (or payable from) the employer for OPEB as benefits come due if those amounts will not be reimbursed to the employer using OPEB plan assets. Consistent with the requirements of Statement 75 regarding the projection of benefit payments for purposes of measuring the employer s liability to employees for defined benefit OPEB, benefit payments, including amounts paid by (or payable from) the employer for OPEB as benefits come due, should include the implicit rate subsidy. (See Question 4.122 in Implementation Guide No. 2017-3, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and 2

Certain Issues Related to OPEB Plan Reporting) for a discussion of additional considerations related to the measurement of benefit payments.) Therefore, the amount reported as the deferred outflow of resources for contributions from the employer to the OPEB plan subsequent to the measurement date of the (collective) net OPEB liability and before the end of the employer s reporting period should include the implicit rate subsidy to the extent that the subsidy will not be reimbursed to the employer using OPEB plan assets. 4.5. Q For purposes of applying paragraph 159 or paragraph 199 of Statement 75, if benefit payments for OPEB are implicit in amounts paid by an employer for active employee benefits (sometimes referred to as an implicit rate subsidy ), should the amount of the deferred outflow of resources related to OPEB reported for amounts paid by the employer for OPEB as the benefits come due subsequent to the measurement date of the (collective) total OPEB liability and before the end of the reporting period include the amount of the implicit payments made during that period? A Yes. Consistent with the requirements of Statement 75 regarding the projection of benefit payments for purposes of measuring the employer s liability to employees for defined benefit OPEB, benefit payments (which are amounts paid for OPEB as the benefits come due), should include the implicit rate subsidy. (See Question 4.397 in Implementation Guide 2017-3 for a discussion of additional considerations related to the measurement of benefit payments.) Therefore, the amount reported as the deferred outflow of resources related to OPEB for amounts paid by the employer for OPEB as the benefits come due subsequent to the measurement date of the (collective) total OPEB liability and before the end of the employer s reporting period should include the implicit rate subsidy. 4.6. Q For purposes of applying paragraph 181 of Statement 75, if benefit payments for OPEB are implicit in amounts paid by a government for active employee benefits (sometimes referred to as an implicit rate subsidy ), should the amount of the deferred outflow of resources related to OPEB reported for amounts paid by the government for OPEB as the benefits come due subsequent to the measurement date of the collective total OPEB liability and before the end of the reporting period include the amount of the implicit payments made during that period? A Yes. Consistent with the requirements of Statement 75 regarding the projection of benefit payments for purposes of measuring the government s liability to employees for defined benefit OPEB, benefit payments (which are amounts paid for OPEB as the benefits come due), should include the implicit rate subsidy. (See Question 4.397 in Implementation Guide 2017-3 for a discussion of additional considerations related to the measurement of benefit payments.) Therefore, the amount reported as the deferred outflow of resources related to OPEB for amounts paid by the government for OPEB as the benefits come due subsequent to the measurement date of the collective total OPEB liability and 3

before the end of the government s reporting period should include the implicit rate subsidy. Accounting and Financial Reporting for Derivative Instruments 4.7. Q A government terminates an interest rate swap that is an effective hedge against interest rate risk associated with a variable-rate bond. How should the government account for the termination of the swap? A A government is released from the rights and obligations of the interest rate swap agreement on the termination date, even if settlement occurs on a different date. At the termination date, in addition to reporting the balance of the deferred outflow of resources or deferred inflow of resources related to changes in fair value of the swap on the flow of resources statement within the investment revenue classification, the government should report a receivable or payable for the amount to be received or paid at the settlement date. Other Implementation Guidance Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions 4.8. Q A city government with a June 30 fiscal year-end incurred costs for debris clearing and increased public safety protection as a result of a natural disaster that occurred on May 30, 20X8. The President of the United States declared a natural disaster and approved funding for the region affected. The city applied for federal funding, and it received a notice of award on July 31, 20X8. The city executed the grant agreement at that time. Can the city recognize voluntary nonexchange revenue as of June 30, 20X8, for the reimbursement of costs incurred related to the natural disaster that occurred that fiscal year? A No. Paragraph 15 of Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, identifies expenditure-driven grant provisions to be a form of stipulation that is considered an eligibility requirement... and affects the timing of recognition. That is, there is no award... the recipient has no asset (receivable) until the recipient has met the provider s requirements by incurring costs in accordance with the provider s program. In other words, in the absence of a grant agreement before the end of the reporting period, the resource recipient cannot establish that it has incurred allowable costs, and, therefore, the recipient does not have control over a resource (an asset) at June 30, 20X8. Assets and revenue should be recognized for allowable costs only after the grant agreement is executed. 4

Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries 4.9. Q Should insurance recoveries related to cleanup costs for storm damage, such as removal of downed trees and other debris, be netted against the related cleanup expenditures in governmental funds? A Insurance recoveries that are related to cleanup of storm damage and are realized or realizable in the same year as the related cleanup expenditures should be netted against those expenditures. Insurance recoveries that are related to cleanup of storm damage and are recognized in subsequent periods should be reported as other financing sources or extraordinary items, as appropriate. Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues 4.10. Q A government owns a building that it reports as a capital asset. The building has a carrying value of $3 million and an appraised value of $10 million. If the government transfers ownership of the building to a pension plan that it reports as a fiduciary component unit, how should the pension plan report the transaction in its separately issued financial statements? A In accordance with paragraph 15 of Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues, because the government and the pension plan are part of the same reporting entity, the pension plan should report a capital asset of $3 million (the government s carrying value of the building) and an addition (a contribution) of $3 million (the carrying value of the building, less the amount paid by the pension plan in this case, zero). 4.11. Q A county government owns a parcel of land that it classifies as a capital asset with a carrying value of $150,000. The county has agreed to transfer the land to the county redevelopment agency (RDA), a discretely presented component unit of the county. The RDA has obtained an independent appraisal valuing the land at $1.7 million. Management of the RDA believes that, after the transfer, its intent is to sell the parcel at its appraised value. When the asset is transferred, can the RDA reclassify the land as an investment measured at fair value? A No. Paragraph 15 of Statement 48 requires that an asset transferred within a financial reporting entity continue to be reported at the transferor s carrying value. Paragraph 68 of Statement No. 72, Fair Value Measurement and Application, provides that... an asset that is initially reported as a capital asset and later is held for sale should not be reclassified as an investment. Furthermore, paragraph 68 of Statement 72 requires that the initial classification of an asset be retained for financial reporting purposes, even if the government s usage of the asset changes over time. The requirement to retain the original asset classification for financial reporting purposes applies even if the asset changes legal ownership within the 5

financial reporting entity. Therefore, the RDA should retain the classification of the land as a capital asset and should report the transferred land at its retained carrying value of $150,000. Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions 4.12. Q Paragraph 6 of Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, states that the long-term portion of notes receivable should be included in nonspendable fund balance unless the use of the proceeds from the collection of those receivables is restricted, committed, or assigned. Should amounts related to the long-term portion of notes receivable from revenue transactions that have not been recognized as revenue be included in fund balance? A No. As discussed in paragraph 30 of Statement No. 65, Items Previously Reported as Assets and Liabilities, because amounts related to the long-term portion of notes receivable from revenue transactions that have not been recognized as revenue are not available, those amounts should be reported as a deferred inflow of resources and not included in fund balance. The amount that should be reported in fund balance related to the long-term portion of notes receivable is the amount, if any, of the long-term portion of notes receivable, reduced by the amount of the related deferred inflow of resources. Statement No. 77, Tax Abatement Disclosures 4.13. Q A state government offers an economic development incentive that provides an exemption from local property taxes to individuals or entities that invest at least $50,000 in a new business. The tax exemption lasts for five years after the qualifying investment has occurred. The incentive does not apply, however, to individuals and entities that currently are in agreements with local governments to pay fees in lieu of taxes (FILOT). The FILOT agreement meets the definition of a tax abatement in paragraph 4 of Statement No. 77, Tax Abatement Disclosures. For purposes of the disclosure requirement in paragraph 7(b) of Statement 77, how should a local government compute the gross dollar amount by which its tax revenues were reduced during the reporting period as a result of tax abatement agreements? A The gross dollar amount is the difference between (a) the amount of tax revenue the government was entitled to, absent any incentive or agreement, and (b) the amount it is entitled to pursuant to the FILOT agreement. The fact that the individual or entity would have qualified for the state economic development exemption if it had not entered into the FILOT agreement is irrelevant to the calculation of the amount of tax revenue forgone by the reporting government because Statement 77 does not allow for the consideration of alternative incentives or agreements that were available to, but ultimately rejected by, the entity. 6

Statement No. 81, Irrevocable Split-Interest Agreements 4.14. Q A university receives resources pursuant to an irrevocable split-interest agreement. The agreement stipulates that at the termination of the agreement, the remainder interest benefit should be used by the university to establish a permanent endowment. Should the university recognize the remainder interest benefit as revenue at the inception of the irrevocable split-interest agreement? A No. In this circumstance, there are two separate transactions. The first transaction is an irrevocable split-interest agreement for which recognition should follow the requirements of paragraph 10 of Statement No. 81, Irrevocable Split- Interest Agreements. Paragraph 10 requires that the university recognize a deferred inflow of resources for its remainder interest benefit. The university should recognize revenue for the second transaction the establishment of the permanent endowment at the termination of the irrevocable split-interest agreement. Revenue recognition provisions for permanent endowments are set forth in paragraph 22 of Statement 33. 4.15. Q A state government receives resources pursuant to an irrevocable split-interest agreement that establishes that the state is the lead interest beneficiary and a relative of the donor is the remainder interest beneficiary. The agreement is created for a fixed term of 10 years and stipulates that the lead interest be used by the state for park improvements. The state records the transaction in the general fund. Should the state recognize a fund liability for the remainder interest? A Yes. Paragraph 5 of Statement 81 specifies that the provisions of Statement 81 apply to financial statements prepared using the economic resources measurement focus and the current financial resources measurement focus, unless noted otherwise in the Statement. The only requirements of Statement 81 that apply to only the economic resources measurement focus are the provisions of paragraphs 22 24 for resources received pursuant to a life interest in real estate that is classified as a capital asset. Therefore, the state should recognize a general fund liability for the remainder interest in accordance with the requirements of paragraph 16c of Statement 81. Amendments to Previously Issued Questions and Answers 5. Questions and answers in this paragraph amend questions and answers in previously issued Implementation Guides. 7

The Financial Reporting Entity Question 4.17.1 in Implementation Guide 2015-1, as Amended by Statement No. 90, Majority Equity Interests 5.1. Q What is financial accountability? A The underlying concept for the definition of the financial reporting entity, as embodied in Statement No. 14, The Financial Reporting Entity, is that elected officials are accountable for their actions, including the acts of those whom they appoint to govern other organizations, and that the financial statements should report this accountability. Although elected officials are accountable for the actions of all appointees, Statement 14, as amended, establishes financial accountability as the threshold for including an organization in the financial statements of the reporting entity. Generally, financial accountability results from one of the following determinations: a. The primary government is financially accountable if it appoints 1 a voting majority of the organization s governing body and (1) it is able to impose its will on that organization or (2) there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government. b. The primary government is financially accountable if a special-purpose government is fiscally dependent on the primary government and there is a potential for the special-purpose government to provide specific financial benefits to, or impose specific financial burdens on, the primary government, regardless of whether the special-purpose government has (1) a separately elected governing board, (2) a governing board appointed by a higher level of government, or (3) a jointly appointed board. (See Sections 4.9 4.12 of Implementation Guide 2015-1 for the discussion of fiscal dependency.) c. The primary government is financially accountable for a legally separate organization if the primary government s holding of a majority equity interest in that organization does not meet the definition of an investment. Pensions Plan and Employer Accounting and Reporting Question 5.74.1 in Implementation Guide 2015-1 5.2. Q A PERS administers numerous defined benefit pension plans for state employees. These plans remit money to an investment pool for operating expenses of the pool. Also, movements of member account asset balances occur between 1 Note that appointment includes primary government officials serving as required by law and, thus, technically not appointed by the primary government. Note also that in the absence of continuing appointment authority, the ability of a primary government to unilaterally abolish an organization also provides the basis for ongoing accountability. Thus, a primary government that creates an organization (creation is tantamount to initial appointment of the governing body) is accountable for the organization if the primary government can unilaterally abolish it. 8

plans when members change employment from one state department or agency to another and, thereby, from one plan to another. In the plan s statement of changes in fiduciary net position, should an additional section, below the additions and deductions sections, be added for transfers? If not, how should these types of transactions be reported? A All changes in fiduciary net position should be reported either in the additions section or in the deductions section of the statement of changes in fiduciary net position. The term transfer implies activity internal to an entity, whereas, from the standpoint of Statement 67, each defined benefit pension plan is effectively a separate entity. Thus, with the exception of transactions that are addressed in paragraph 15 of Statement 48, for purposes of financial reporting under Statement 67, movements of resources between a defined benefit pension plan and any other plan, fund, government, company, or individual are external transactions, rather than transfers. With regard to the particular types of resource movements in question: a. Those to an investment pool for operating expenses of the pool should be reported by the plan as investment expense. b. Those that move member account asset balances from one pension plan to another may be reported as separate line items within the deductions and additions sections, respectively, of each plan s statement of changes in fiduciary net position. Postemployment Benefits Other Than Pensions: Plan and Employer Accounting and Reporting Question 4.53 in Implementation Guide 2017-2 5.3. Q A PERS administers more than one defined benefit OPEB plan for state employees. Those plans remit money to an investment pool for operating expenses of the pool. Also, movements of member account asset balances occur between OPEB plans when members change employment from one state department or agency to another and, thereby, from one plan to another. In each OPEB plan s statement of changes in fiduciary net position, should an additional section, below the additions and deductions sections, be added for transfers? If not, how should these types of transactions be reported? A All changes in fiduciary net position should be reported either in the additions section or in the deductions section of the statement of changes in fiduciary net position. The term transfer implies activity internal to an entity, whereas, from the standpoint of Statement 74, each defined benefit OPEB plan is effectively a separate entity. Thus, with the exception of transactions that are addressed in paragraph 15 of Statement 48, for purposes of financial reporting under Statement 74, movements of resources between a defined benefit OPEB plan and any other plan, fund, government, company, or individual are external transactions, 9

rather than transfers. With regard to the particular types of resource movements in question: a. Those to an investment pool for operating expenses of the pool should be reported by the OPEB plan as investment expense. b. Those that move member account asset balances from one OPEB plan to another may be reported as separate line items within the deductions and additions sections, respectively, of each plan s statement of changes in fiduciary net position. Accounting and Financial Reporting for Derivative Instruments Question 10.46.10 in Implementation Guide 2015-1 5.4. Q To hedge its exposure to changing interest rates arising from its variable-rate debt, the government enters into a pay-fixed, receive-variable interest rate swap. Paragraph 10a of Statement No. 38, Certain Financial Statement Note Disclosures, indicates that principal and interest requirements to maturity, presented separately, should be disclosed for each of the five subsequent fiscal years and in five-year increments thereafter. Interest requirements for variable-rate debt should be determined using the rate in effect at the financial statement date. When there is a hedging derivative instrument, Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, indicates that the net cash flows of that derivative instrument also should be disclosed (paragraph 74). The fair value of a receive-variable leg of an interest rate swap represents the present value of future payments based on expected future rates. For purposes of the disclosure of net cash flows required by paragraph 74 of Statement 53, should the net cash flows of the hedging derivative instrument be based on the rate in effect at the financial statement date, consistent with the requirements of Statement 38 for variable-rate debt, or the expected future rates? A In order to be consistent with the variable-rate debt disclosure required by Statement 38, the variable rate in effect for the hedging swap s variable-rate payment at the financial statement date should be used for purposes of the disclosure of net cash flows required by paragraph 74 of Statement 53. A separate column may be presented to depict the effect of the hedging swap s variable rate payments on the variable rate debt payments assuming current interest rates on the variable rate bonds and the current reference rates on the hedging derivative will remain the same. See Illustration 5.5 in nonauthoritative Appendix B10-2 of Implementation Guide 2015-1. EFFECTIVE DATE AND TRANSITION 6. The requirements of this Implementation Guide are effective for reporting periods beginning after June 15, 2019. Earlier application is encouraged if the pronouncement addressed by the question and answer has been implemented. Changes adopted to conform 10

to the provisions of this Implementation Guide should be applied retroactively by restating financial statements, if practicable, for all prior periods presented. If restatement for prior periods is not practicable, the cumulative effect, if any, of applying this Implementation Guide should be reported as a restatement of beginning net position (or fund balance or fund net position, as applicable) for the earliest period restated. In the first period that this Implementation Guide is applied, the notes to financial statements should disclose the nature of the restatement and its effect. Also, the reason for not restating prior periods presented should be disclosed. The requirements in this Implementation Guide need not be applied to immaterial items. 11

Appendix A BACKGROUND A1. In June 2015, the GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. As a result of that Statement, GASB Implementation Guides were elevated to Category B in the hierarchy of generally accepted accounting principles. Since that time, the GASB has cleared additional implementation guidance to assist its stakeholders by clarifying, explaining, or elaborating on the requirements of its Statements. A2. New questions and answers are included in this Implementation Guide to address issues raised by the GASB s stakeholders through inquiries posed to the GASB. Others address issues identified by the GASB in anticipation of questions that will arise during implementation of GASB pronouncements. A3. In addition to new questions and answers, this Implementation Guide includes amendments to previously issued implementation guidance to address issues identified by the GASB subsequent to the clearance of those Implementation Guides. 12

Appendix B AMENDMENTS TO PREVIOUSLY ISSUED QUESTIONS AND ANSWERS MARKED FOR CHANGES B1. This appendix presents in marked form the substantive amendments to previously issued questions and answers that are proposed in paragraph 5 of this Implementation Guide. Text that is proposed to be added is underlined, and text that is proposed to be deleted is struck out. Editorial modifications are not marked. The Financial Reporting Entity Question 4.17.1 in Implementation Guide 2015-1, as Amended by Statement 90 5.1. Q What is financial accountability? A The underlying concept for the definition of the financial reporting entity, as embodied in Statement No. 14, The Financial Reporting Entity, is that elected officials are accountable for their actions, including the acts of those whom they appoint to govern other organizations, and that the financial statements should report this accountability. Although elected officials are accountable for the actions of all appointees, Statement 14, as amended, establishes financial accountability as the threshold for including an organization in the financial statements of the reporting entity. Generally, financial accountability results from one of the following determinations: a. The primary government is financially accountable if it appoints 1 a voting majority of the organization s governing body and (1) it is able to impose its will on that organization or (2) there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government. b. The primary government is may be financially accountable if a specialpurpose government is fiscally dependent on the primary government and there is a potential for the special-purpose government to provide specific financial benefits to, or impose specific financial burdens on, the primary government, regardless of whether the special-purpose government has (1) a separately elected governing board, (2) a governing board appointed by a higher level of government, or (3) a jointly appointed board. (See 1 Note that appointment includes primary government officials serving as required by law and, thus, technically not appointed by the primary government. Note also that in the absence of continuing appointment authority, the ability of a primary government to unilaterally abolish an organization also provides the basis for ongoing accountability. Thus, a primary government that creates an organization (creation is tantamount to initial appointment of the governing body) is accountable for the organization if the primary government can unilaterally abolish it. 13

Sections 4.9 4.12 of Implementation Guide 2015-1 for the discussion of fiscal dependency.) c. The primary government is financially accountable for a legally separate organization if the primary government s holding of a majority equity interest in that organization does not meet the definition of an investment. Pensions Plan and Employer Accounting and Reporting Question 5.74.1 in Implementation Guide 2015-1 5.2. Q A PERS administers numerous defined benefit pension plans for state employees. These plans remit money to an investment pool for operating expenses of the pool. Also, movements of member account asset balances occur between plans when members change employment from one state department or agency to another and, thereby, from one plan to another. In the plan s statement of changes in fiduciary net position, should an additional section, below the additions and deductions sections, be added for transfers? If not, how should these types of transactions be reported? A All changes in fiduciary net position should be reported either in the additions section or in the deductions section of the statement of changes in fiduciary net position. The term transfer implies activity internal to an entity, whereas, from the standpoint of Statement 67, each defined benefit pension plan is effectively a separate entity. Thus, with the exception of transactions that are addressed in paragraph 15 of Statement 48, for purposes of financial reporting under Statement 67, movements of resources between a defined benefit pension plan and any other plan, fund, government, company, or individual are external transactions, rather than transfers. With regard to the particular types of resource movements in question: a. Those to an investment pool for operating expenses of the pool should be reported by the plan as investment expense. b. Those that move member account asset balances from one pension plan to another may be reported as separate line items within the deductions and additions sections, respectively, of each plan s statement of changes in fiduciary net position. Postemployment Benefits Other Than Pensions: Plan and Employer Accounting and Reporting Question 4.53 in Implementation Guide 2017-2 5.3. Q A PERS administers more than one defined benefit OPEB plan for state employees. Those plans remit money to an investment pool for operating expenses of the pool. Also, movements of member account asset balances occur between OPEB plans when members change employment from one state department or agency to another and, thereby, from one plan to another. In each OPEB plan s 14

statement of changes in fiduciary net position, should an additional section, below the additions and deductions sections, be added for transfers? If not, how should these types of transactions be reported? A All changes in fiduciary net position should be reported either in the additions section or in the deductions section of the statement of changes in fiduciary net position. The term transfer implies activity internal to an entity, whereas, from the standpoint of Statement 74, each defined benefit OPEB plan is effectively a separate entity. Thus, with the exception of transactions that are addressed in paragraph 15 of Statement 48, for purposes of financial reporting under Statement 74, movements of resources between a defined benefit OPEB plan and any other plan, fund, government, company, or individual are external transactions, rather than transfers. With regard to the particular types of resource movements in question: a. Those to an investment pool for operating expenses of the pool should be reported by the OPEB plan as investment expense. b. Those that move member account asset balances from one OPEB plan to another may be reported as separate line items within the deductions and additions sections, respectively, of each plan s statement of changes in fiduciary net position. Accounting and Financial Reporting for Derivative Instruments Question 10.46.10 in Implementation Guide 2015-1 5.4. Q To hedge its exposure to changing interest rates arising from its variable-rate debt, the government enters into a pay-fixed, receive-variable interest rate swap. Paragraph 10a of Statement 38 indicates that principal and interest requirements to maturity, presented separately, should be disclosed for each of the five subsequent fiscal years and in five-year increments thereafter. Interest requirements for variable-rate debt should be determined using the rate in effect at the financial statement date (paragraph 10a of Statement 38). When there is a hedging derivative instrument, Statement 53 indicates that the net cash flows of that derivative instrument also should be disclosed (paragraph 74). The fair value of a receive-variable leg of an interest rate swap represents the present value of future payments based on expected future rates. For purposes of the disclosure of net cash flows required by paragraph 74 of Statement 53, should Should the net cash flows of the hedging derivative instrument be based on the rate in effect at the financial statement date, consistent with the requirements of Statement 38 for variable-rate debt, or the expected future rates? A In order to be consistent with the variable-rate debt disclosure required by Statement 38, the variable rate in effect for the hedging swap s variable-rate payment at the financial statement date should be used for purposes of the disclosure of net cash flows required by paragraph 74 of Statement 53. A separate column may be presented to depict the effect of the hedging swap s variable rate 15

payments on the variable rate debt payments assuming current interest rates on the variable rate bonds and the current reference rates on the hedging derivative will remain the same. See Illustration 5.5 in nonauthoritative Appendix B10-2 of Implementation Guide 2015-1. 16

Appendix C CODIFICATION INSTRUCTIONS Codification of Governmental Accounting and Financial Reporting Standards June 2019 Update C1. The instructions that follow update the June 30, 2018 Codification of Governmental Accounting and Financial Reporting Standards (Codification) for the effects of this Implementation Guide. The instructions for Section 2100, Defining the Financial Reporting Entity, also include the effects of Statement No. 90, Majority Equity Interests, which is effective for reporting periods beginning after December 15, 2018. Only the question number from this Implementation Guide is listed if the question and answer will be cited in full in the Codification. [Update cross-references throughout.] REPORTING CAPITAL ASSETS SECTION 1400 Sources: [Add GASBIG 2019-X.] [Insert new Question.754-4 as follows; renumber subsequent question.].754-4 [GASBIG 2019-X, Q4.9] CLASSIFICATION AND TERMINOLOGY SECTION 1800 Sources: [Add GASBIG 2019-X.] [Insert new Question.741-6 as follows; renumber subsequent questions.].741-6 [GASBIG 2019-X, Q4.12] DEFINING THE FINANCIAL REPORTING ENTITY SECTION 2100.712-2 [Replace current Question.712-2 with GASBIG 2019-X, Q5.1; retain footnote 5.] [GASBIG 2015-1, Q4.17.1, as amended by GASBS 90, 7 and GASBIG 2019-X, Q5.1] 17

5 [Add GASBIG 2019-X, fn1 to the sources.] CASH FLOWS STATEMENTS SECTION 2450 Sources: [Add GASBIG 2019-X.] [Insert new Question.707-6 as follows; renumber subsequent questions.].707-6 [GASBIG 2019-X, Q4.1] DERIVATIVE INSTRUMENTS SECTION D40 Sources: [Add GASBIG 2019-X.] [Insert new Question.708-8 as follows:].708-8 [GASBIG 2019-X, Q4.7].730-5 [Replace current Question.730-5 with GASBIG 2019-X, Q5.4.] [GASBIG 2015-1, Q10.46.10, as amended by GASBIG 2019-X, Q5.4] INVESTMENTS SECTION I50 Sources: [Add GASBIG 2019-X.] [Insert new Question.706-2 as follows:].706-2 [GASBIG 2019-X, Q4.11] IRREVOCABLE SPLIT-INTEREST AGREEMENTS SECTION I70 Sources: [Add GASBIG 2019-X.] [Insert new headings.701.711 and text as follows:] 18

GASB IMPLEMENTATION GUIDES.701 Scope and Applicability of This Section No questions assigned..702 Irrevocable Split-Interest Agreements No questions assigned..703 A Government Is the Intermediary No questions assigned..704 A Government Is the Remainder Interest Beneficiary See Question.706-7 in Section 2450, Cash Flows Statements, regarding issues related to reporting irrevocable split-interest agreements in the statement of cash flows..704-1 [GASBIG 2019-X, Q4.14].705 A Government Is the Lead Interest Beneficiary See also Question.706-7 in Section 2450 regarding issues related to reporting irrevocable splitinterest agreements in the statement of cash flows..705-1 [GASBIG 2019-X, Q4.15].706 Life-Interests in Real Estate No questions assigned..707 A Third Party Is the Intermediary No questions assigned..708 Beneficial Interests No questions assigned..709 Recognition No questions assigned..710 Asset Recognition Criteria No questions assigned. 19

.711 Measurement No questions assigned. NONEXCHANGE TRANSACTIONS SECTION N50 Sources: [Add GASBIG 2019-X.] [Insert new Question.711-4 as follows; renumber subsequent questions.].711-4 [GASBIG 2019-X, Q4.14] [Insert new Question.711-6 as follows:].711-6 [GASBIG 2019-X, Q4.8] PENSION ACTIVITIES REPORTING FOR BENEFITS PROVIDED THROUGH TRUSTS THAT MEET SPECIFIED CRITERIA DEFINED BENEFIT SECTION P20 Sources: [Add GASBIG 2019-X.] [Insert new Question.716-2 as follows:].716-2 [GASBIG 2019-X, Q4.3; exclude reference to Statement 75 and references to the (collective) total OPEB liability.] [Insert new Question.745-2 as follows:].745-2 [GASBIG 2019-X, Q4.3; exclude reference to Statement 75 and references to the (collective) total OPEB liability.] POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS REPORTING FOR BENEFITS PROVIDED THROUGH TRUSTS THAT MEET SPECIFIED CRITERIA DEFINED BENEFIT SECTION P50 Sources: [Add GASBIG 2019-X.] [Insert new Question.716-2 as follows:] 20

.716-2 [GASBIG 2019-X, Q4.3; delete (collective) from the phrase (collective) total OPEB liability; exclude reference to Statement 68 and references to total pension liability.] [Insert new Question.718-29 as follows; renumber subsequent questions.].718-29 [GASBIG 2019-X, Q4.4; delete (collective) from the phrase (collective) net OPEB liability; exclude references to paragraphs 68 and 105.] [Insert new Question.736-2 as follows; renumber subsequent questions.].736-2 [GASBIG 2019-X, Q4.4; delete parentheses around (collective); exclude references to paragraphs 44 and 105.] [Insert new Question.745-2 as follows:].745-2 [GASBIG 2019-X, Q4.3; exclude reference to Statement 68 and references to total pension liability.] [Insert new Question.766-2 as follows; renumber subsequent questions.].766-2 [GASBIG 2019-X, Q4.4; delete parentheses around (collective); exclude references to paragraphs 44 and 68.] POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS REPORTING FOR BENEFITS NOT PROVIDED THROUGH TRUSTS THAT MEET SPECIFIED CRITERIA DEFINED BENEFIT SECTION P52 Sources: [Add GASBIG 2019-X.] [Insert new Question.712-2 as follows:].712-2 [GASBIG 2019-X, Q4.3; delete (collective) from the phrase (collective) total OPEB liability; exclude reference to Statement 68 and references to total pension liability.] [Insert new Question.714-25 as follows; renumber subsequent question.].714-25 [GASBIG 2019-X, Q4.5; delete (collective) from the phrase (collective) total OPEB liability; exclude reference to paragraph 199.] [Insert new Question.732-2 as follows:].732-2 [GASBIG 2019-X, Q4.6] [Insert new Question.750-2 as follows:] 21

.750-2 [GASBIG 2019-X, Q4.5; delete parentheses around (collective); exclude reference to paragraph 159.] SALES AND PLEDGES OF RECEIVABLES AND FUTURE REVENUES AND INTRA-ENTITY TRANSFERS OF ASSETS AND FUTURE REVENUES SECTION S20 Sources: [Add GASBIG 2019-X.] [Insert new Questions.708-3.708-4 as follows; renumber subsequent question.].708-3.708-4 [GASBIG 2019-X, Q4.10 Q4.11] TAX ABATEMENTS SECTION T10 Sources: [Add GASBIG 2019-X.] [Insert new Question.703-3 as follows:].703-3 [GASBIG 2019-X, Q4.13] PENSION PLANS ADMINISTERED THROUGH TRUSTS THAT MEET SPECIFIED CRITERIA DEFINED BENEFIT SECTION Pe5 Sources: [Add GASBIG 2019-X.] [Insert the following sentence under heading.705:] See also Question.708-3 in Section S20, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues, for a discussion of reporting assets acquired through intra-entity transactions. [Insert the following sentence under heading.711:] See also Question.708-3 in Section S20 for a discussion of reporting contributions for assets acquired through intra-entity transactions..711-1 [Replace current Question.711-1 with GASBIG 2019-X, Q5.2.] [GASBIG 2015-1, Q5.74.1, as amended by GASBIG 2019-X, Q5.2] 22

[Insert new Question.729-2 as follows:].729-2 [GASBIG 2019-X, Q4.2; exclude reference to Statement 74 and references to OPEB and OPEB plans.] POSTEMPLOYMENT BENEFIT PLANS (OTHER THAN PENSION PLANS) ADMINISTERED THROUGH TRUSTS THAT MEET SPECIFIED CRITERIA DEFINED BENEFIT SECTION Po50 Sources: [Add GASBIG 2019-X.].713-2 [Replace current Question.713-2 with GASBIG 2019-X, Q5.3.] [GASBIG 2017-2, Q4.53, as amended by GASBIG 2019-X, Q5.3] [Insert new Question.732-2 as follows:].732-2 [GASBIG 2019-X, Q4.2; exclude reference to Statement 67 and references to pensions and pension plans.] Comprehensive Implementation Guide June 2019 Update C2. The instructions that follow update the June 30, 2018 Comprehensive Implementation Guide for the effects of this Implementation Guide. Only the question number from this Implementation Guide is listed if the question and answer will be cited in full in the Comprehensive Implementation Guide. [Update cross-references throughout.] [Insert the following new questions:] 2.20.6. [GASBIG 2019-X, Q4.1] 5.110.2. [GASBIG 2019-X, Q4.2; exclude reference to Statement 74 and references to OPEB and OPEB plans.] 5.139.2. [GASBIG 2019-X, Q4.3; exclude reference to Statement 75 and references to the (collective) total OPEB liability.] 5.181.2. [GASBIG 2019-X, Q4.3; exclude reference to Statement 75 and references to the (collective) total OPEB liability.] 23

8.156.2. [GASBIG 2019-X, Q4.2; exclude reference to Statement 67 and references to pensions and pension plans.] 8.215.2. [GASBIG 2019-X, Q4.3; delete (collective) from the phrase (collective) total OPEB liability; exclude reference to Statement 68 and references to total pension liability.] 8.219.5. [GASBIG 2019-X, Q4.4; delete (collective) from the phrase (collective) net OPEB liability; exclude references to paragraphs 68 and 105.] 8.245.4. [GASBIG 2019-X, Q4.4; delete parentheses around (collective); exclude references to paragraphs 44 and 105.] 8.264.2. [GASBIG 2019-X, Q4.3; exclude reference to Statement 68 and references to total pension liability.] 8.288.4. [GASBIG 2019-X, Q4.4; delete parentheses around (collective); exclude references to paragraphs 44 and 68.] 8.350.2. [GASBIG 2019-X, Q4.3; exclude reference to Statement 68 and references to total pension liability.] 8.355.3. [GASBIG 2019-X, Q4.5; delete (collective) from the phrase (collective) total OPEB liability; exclude reference to paragraph 199.] 8.378.2. [GASBIG 2019-X, Q4.6] 8.397.2. [GASBIG 2019-X, Q4.5; delete parentheses around (collective); exclude reference to paragraph 159.] 10.15.10. [GASBIG 2019-X, Q4.7] Z.33.27. [GASBIG 2019-X, Q4.8] Z.42.15. [GASBIG 2019-X, Q4.9] Z.48.17 Z.48.18. [GASBIG 2019-X, Q4.10 Q4.11] Z.54.66. [GASBIG 2019-X, Q4.12] Z.77.15. [GASBIG 2019-X, Q4.13] [After Question Z.77.15, insert new heading and Questions Z.81.1 Z.81.2 as follows:] Z.81 Statement No. 81, Irrevocable Split-Interest Agreements Z.81.1 Z.81.2. [GASBIG 2019-X, Q4.14 Q4.15] 24