National Association of State Comptrollers GASB Update The views expressed in this presentation are those of Chair Vaudt, Vice-Chair Sylvis, and Mr. Bean. Official positions of the GASB on accounting matters are reached only after extensive due process and deliberation. Major Challenges 1
OPEB Discuss Later Statement 84 Fiduciary Activities Challenges Identifying fiduciary activities - Fiduciary component units (pensions and OPEB plans) - Other activities Assets are controlled by the government Not derived from own-sourced or most government-mandated or voluntary nonexchange transactions Meets an additional characteristic (for example, assets are for the benefit of individual and the government does not have administrative involvement or direct financial involvement) Reporting fiduciary activities - Pension (and other employee benefit) trust funds - Investment trust funds - Private-purpose trust funds - Custodial funds (non-trust fiduciary activities) 4 2
Why Are All Leases Financings? Lessee receives a legal right to use the underlying asset (the asset subject to the lease) In exchange, the lessee promises to make payments over time for that right - Therefore, the lease has financed the acquisition of that legal right There are many varieties of leases in the government environment; however, all contain a financing element - Therefore, a single approach to accounting for lease transactions was developed 5 Statement 86 Leases Challenges Identification of information - Contracts that meet the definition of a lease - Options that are reasonably certain - Nonlease components Specifically identified in the contract Not unreasonable to estimate Otherwise, practical expedient exemption - Terminations and modifications 6 3
Why Revenue and Expense Recognition? Statement 33 Nonexchange Transactions was issued almost 20 years ago - Recent FAF Postimplementation Review concluded that the Statement was achieving its objectives; however, practitioners still were facing application issues Exchange revenue guidance almost nonexistent in the GASB literature - AICPA industry audit and accounting guides were not consistent (which in part drove the new FASB revenue recognition standards) Need for consideration of symmetry (especially with nonexchange transactions), resulted in expenses being reexamined in this project 7 Major Projects Versus Practice Issues Major Projects - Fundamental to the overall financial reporting model Financial reporting model, revenue and expense recognition, potentially note disclosures in the future - Complex transactions Pensions, OPEB, leases - Long-term in nature 4-6 years on the current technical agenda Normally includes a Preliminary Views, if not also a Invitation to Comment Practice Issues - More narrowly scoped - Shorter-term in nature 1-3 years Includes Category B literature Technical Bulletins and Implementation Guides Normally only requires an Exposure Draft 8 4
Radar Worthy Recent Practice Issue Statements Statement 81 Irrevocable Split Interest Arrangements Statement 82 Pension Issues Statement 85 Omnibus 2017 9 Statement 81 Primarily a college and university issue Split-interest agreements are a type of giving agreement used by donors to provide resources to two or more beneficiaries, including agreements with characteristics that are equivalent to split-interest - Examples of these types of agreements include charitable lead trusts, charitable remainder trusts, and life-interests in real estate A government that receives resources pursuant to an irrevocable split-interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement If the government controls the present service capacity of beneficial interests that are administered by a third party, those assets should be recognized and revenue should be reported in the applicable reporting period 10 5
Statement 82 Addressed - Covered-employee payroll - Treatment of employer paid member contributions - Deviations from Actuarial Standards of Practice (ASOPs) Not addressed - Application of administrative costs as a reduction of discount rate - Timing of the measurement of liability - Disclosure of annual required contribution (ARC) as a benchmark 11 Statement 85 Focused primarily on OPEB Issues Timing of the measurement of pension and OPEB liabilities and related expenditures recognized in financial statements prepared using the current financial resources measurement focus Recognizing on-behalf payments for pensions or OPEB in employer financial statements Presenting payroll-related measures in required supplementary information for purposes of reporting by OPEB plans and employers that provide OPEB Classifying employer-paid member contributions for OPEB 12 6
Current Practice Issues Capitalization of interest cost - Should the application be expanded or eliminated Debt disclosures - Should specific disclosures regarding direct borrowing be required Implementation guides - 2017 update final in April - OPEB plan final in April - OPEB employer Exposure Draft in June 13 Implementation Guides Big Issues Application of Statement 77 to tax increment financings - Cannot always judge a book by its cover Partitioning a plan that covers OPEB and pensions - Only if allocated portion dedicated solely to providing a specific benefit (OPEB or pension) Contribution stabilization trusts - Not considered to be part of the pension or OPEB plan - Cannot be used to make benefit payments (only contributions to the plan) 14 7
Research Activities Why Should I Care? For those under 55-60 years-old the future of accounting standards Category created so that unbiased research could be conducted Also allows the Board to stop an activity if the research shows that further action is not warranted Opportunity to share information and views at a very early stage - Roundtables, surveys, interviews 15 Research Activities Conduit debt Going concern disclosures Note disclosures Social impact bonds 16 8
Conduit Debt Conduit debt what is it? - Board guidance is over 25 years old (Interpretation 2) - Came to the fork in the road and took it disclosure only or asset and liability Conceptual framework now provides a foundation to help decide the issue - Definitions of assets and liabilities Research - How have no-commitment, moral-obligation, etc. bonds changed over the years? - How do users view this type of debt? Research is scheduled to be completed in July 2017 17 Going Concern Focused on two issues - Current going concern disclosures - The potential need for disclosures related to severe financial stress uncertainities When should these disclosures be considered? What information should these disclosures potentially provide? - What information do users need? 18 9
Note Disclosures Statement 38 is over 15-years old Certain disclosures were recently reexamined pensions, OPEB, debt, leases, but over 60 specific disclosure required have not been reassessed in the past 5 years - Focus is on what are the problems and what are the potential solutions Staff have completed archival research on 500 CAFRs Currently holding roundtables around the country Results will form the basis for a broadly distributed survey Survey results may form the basis for individual interviews Research scheduled to be completed in July 2018 19 Social Impact Bonds Social Impact Bonds - Generally, repayment based on achievement of stated performance goals Research focus - What types of social impact bonds have been issued - Do these bond meet the definition of a liability - What information do users need regarding these bonds 20 10
Potential Research Topics Based on GASAC feedback at March 2017 meeting Potential projects - Information technology, including cloud computing - Public private partnerships, including reexamination of Statement 60 21 Observations From the Chair and the Vice-Chair 11
Questions? Visit www.gasb.org 23 12