GASB Update August 2018
Agenda GASB 75 OPEB GASB 84 Fiduciary Activities GASB 85 Omnibus 2017 GASB 87 Leases GASB 88 Certain Disclosures Related to Debt GASB 89 Accounting for Interest Cost Incurred Before the End of a Construction Period 2
Statement No. 75 Accounting and Financial Reporting for Postemployment Benefits Other than Pensions
Statement No. 75 OPEB Effective FYE June 30, 2018, and later Addresses accounting and financial reporting by governmental entities that provide other post employment benefits (OPEB) to their employees or employees of other governmental units, such as retiree health insurance, not just those administered by a Trust. Retroactively applied Requires governments to report a liability on the face of the financial statements for the OPEB they provide Replaces GASB Statements No. 45 & 57
Statement No. 75 OPEB Effective FYE June 30, 2018, and later WHAT IS OPEB? OPEB includes the following: Postemployment healthcare benefits including medical, dental, vision, hearing, and other healthrelated benefits whether provided separately from or provided through a pension plan Other forms of postemployment benefits for example, death benefits, life insurance, disability, and longterm care when provided separately from a pension plan OPEB does not include termination benefits or termination payments for sick leave.
Statement No. 75 OPEB Effective FYE June 30, 2018, and later Guidance is divided between: Governments that provide OPEB through a trust Net OPEB Liability = Total liability Plan s fiduciary net position AND Total OPEB Liability Plan Net Position Net OPEB Liability Governments that provide OPEB without a trust These plans will report the total OPEB liability related to their employees; no netting of plan assets
Statement No. 75 OPEB Effective FYE June 30, 2018, and later Further distinction in requirements for OPEB plans administered through a trust (or equivalent arrangement) Trust criteria: Contributions from employers and nonemployer contributing entities to the OPEB plan and earnings thereon are irrevocable OPEB plan assets are dedicated to providing OPEB to plan members in accordance with benefit terms OPEB plan assets are legally protected from creditors of employers, nonemployer contributing entities, OPEB plan administrator, and the plan members
Statement No. 75 OPEB Effective FYE June 30, 2018, and later School Districts TRS CARE Measurement date no earlier than the end of the employer s previous fiscal year ISDs will use 8/31/17 this year Actuarial valuation date must be performed within 30 months + 1 day of FYE; If not done on measurement date, roll-forward procedures must be performed GRS performed the valuation of TRS-CARE as of 8/31/17 Report is available on TRS website Collective Net OPEB liability: $43.5 billion Plan Fiduciary Net Position as a % of Total OPEB Liability: 0.91% Discount rate = 3.42% - essentially a pay as you go plan; used prevailing municipal bond rate
Statement No. 75 OPEB Effective FYE June 30, 2018, and later School Districts - What will TRS Provide? GASB 75 Allocation Schedules Proportionate Shares OPEB Amounts Schedule of Amortization State Auditor s Opinion Related Notes to the Schedules GASB 75 On-Behalf Contributions https://www.trs.texas.gov/pages/re_gasb_74_75.aspx
Statement No. 75 OPEB Effective FYE June 30, 2018, and later (Please see attendee handout to view details.)
Statement No. 75 OPEB Effective FYE June 30, 2018, and later Cities Those electing retiree participation in TMRS Supplemental Death Benefit Fund (SDBF) will report a Total OPEB Liability Measurement date cities will use 12/31/17 Actuarial valuation date GRS performed the valuation of the SDBF for each city as of 12/31/17 Report is available on TMRS website Eye on GASB GASB 75 Employer Reporting Guide & Employer Reporting Package Discount rate = 3.31%; Pay as you go plan used Fidelity Index s 20- Year Municipal GO AA Index rate
Statement No. 75 OPEB Effective FYE June 30, 2018, and later Cities: Employer Reporting Guide Timeline/ measurement date Accounting & disclosure requirements no sample footnote Employer Reporting Package Actuarial and financial schedules (i.e., membership, changes in TOL, sensitivity analysis, deferred inflows/outflows schedules) Implementing and reporting your OPEB amounts Actuarial assumptions
Statement No. 75 OPEB Effective FYE June 30, 2018, and later City of Weaver 9/30/2018 GASB 75 Journal Entries Example -TMRS SBDF J.E. # Description Debit Credit Comments 1 Unrestricted Net Position 352,305 Difference between deferred outflow and TOL Deferred Outflow - contributions 1,493 Contributions of retiree portion from 1/1/17-9/30/17 Total OPEB Liability (TOL) 353,798 From Actuarial and Financial Schedules - pg. 2-Total OPEB liability-beg of year (To record prior year entries) 2 OPEB Expense 46,510 From Schedule of OPEB Expense - pg 3 Deferred Outflow - Contributions 1,493 Contributions from 1/1/18-9/30/18 (estimated as same as prior year in this example) Deferred Outflow - Change in Assumptions and Other inputs 34,576 From Schedule of Outflows and Inflows - pg 5 This should be approximately equal to the reversal of the expense for retiree portion of OPEB contributions expense 1,990 the SBDF contributions made by the City during the current FY Deferred Outflow -Contributions 1,493 From Journal entry #1 - reversal of amount debited Total OPEB Liability (TOL) 79,096 From Actuarial and Financial Schedules - pg. 2-Total OPEB liability-end of year (To record current year entries)
Statement No. 75 OPEB Effective FYE June 30, 2018, and later
Statement No. 75 OPEB Effective FYE June 30, 2018, and later
Statement No. 75 OPEB Effective FYE June 30, 2018, and later
Statement No. 75 OPEB Effective FYE June 30, 2018, and later
Statement No. 75 OPEB Effective FYE June 30, 2018, and later RSI: Schedule of changes in net (total) OPEB liability Schedule of net (total) OPEB liability and related ratios Schedule of proportionate share of net OPEB liability and related ratios Schedule of Contributions and related ratios Administered through a Trust Single / Agent Cost-Sharing X X X X X Not Administered through a Trust X X
Statement No. 75 OPEB Effective FYE June 30, 2018, and later Key Points to Consider: Restatement of beginning net position Record total OPEB liability or net OPEB liability and related deferred inflows/outflows at fiscal year end Additional disclosures New RSI schedules required
Statement No. 75 OPEB Effective FYE June 30, 2018, and later Financial Reporting Considerations: Table of Contents RSI; new OPEB schedules Independent Auditor s Report EOM paragraph MD&A Financial Statements Government-wide, reconciliations Notes to Financial Statements SSAP, deferred inflows/outflows, OPEB, LT liabilities, restatement New RSI schedules required Schedule of District s Proportionate Share of Net OPEB Liability TRS Schedule of Changes in Total OPEB Liability and Related Ratios TMRS Schedule of District s/city s Contributions Notes to the RSI
Statement No. 84 Fiduciary Activities
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later Objective: to clarify when a government is required to present fiduciary fund financial statements Provides criteria to identify whether an activity is fiduciary and should be reported as a fiduciary fund. Criteria are established for: Fiduciary component units Pension and OPEB arrangements that are not component units Other fiduciary activities Nonauthoritative flowchart in standard is very helpful
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later Key Changes or Updates New definitions for pension trust funds, investment trust funds, and private purpose trust funds Trust agreement or equivalent arrangement should exist No more agency funds; new Custodial funds, which report fiduciary activities for which there is no trust or equivalent arrangement Student activity funds Unlike agency funds, custodial funds have a measurement focus and will have a statement of changes in fiduciary net position in the basic financial statements
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later From The Key Guidance in GASB Statement No. 84 in Government Finance Review, April 2017
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later Key Changes or Updates Standalone business-type activities (BTAs) should report fiduciary activities in fiduciary fund financial statements Exception provided for standalone BTAs: Resources expected to be held 3 months or less can be reported in the statement of net position, with inflows and outflows shown on the cash flow statement as operating cash Allows for pass-through grants, where the government has no administrative or direct involvement, to be presented as a fiduciary fund
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later Key Changes or Updates For custodial funds with resources expected to be held 3 months or less, the government can report additions and deductions in one aggregated line. Anything expected to be held longer than 3 months has to report disaggregated additions by source and disaggregated deductions by type For example, a county could report property taxes collected for other governments on one line for additions called property taxes collected for other governments and on one line for deductions called property taxes distributed to other governments
Statement No. 84 Fiduciary Activities Should a Government Report Assets in a Fiduciary Fund? Are the assets held by a CU? Yes No Are the assets held for pension or OPEB arrangements? Yes No Yes No A B C D
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later A CUs providing post-employment benefits are fiduciary if they are one of the following arrangements: A pension or OPEB plan administered through a trust that meets the criteria in paragraph 3 of Statement 67 (pension) or 74 (OPEB) Assets from entities that are not part of the reporting entity are being accumulated for pensions or OPEB as described in paragraph 116 of Statement 73 (pensions) or paragraph 59 of Statement 74 (OPEB)
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later B CUs NOT providing post-employment benefits are fiduciary if they have at least one of the following characteristics: The assets are held in a trust or equivalent arrangement in which the government itself IS NOT a beneficiary The assets are for the benefit of individuals and the government DOES NOT have administrative involvement or direct financial involvement with the assets The assets are for the direct benefit of organizations or other governments that ARE NOT part of the reporting entity
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later Administrative involvement? Monitors compliance with requirements of the activity that are established by the government or by a resource provider that does not receive direct benefit of the activity Determines eligible expenditures that are established by the government or by a resource provider that does not receive direct benefit of the activity Has ability to exercise discretion in how assets are allocated Direct financial involvement? Provides matching resources for the activity
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later C Post-employment benefits that are not CUs are fiduciary if: The government controls the assets AND the arrangement is one of the following: A pension or OPEB plan administered through a trust that meets the criteria in paragraph 3 of Statement 67 (pension) or 74 (OPEB) Assets from entities that are not part of the reporting entity are being accumulated for pensions or OPEB as described in paragraph 116 of Statement 73 (pensions) or paragraph 59 of Statement 74 (OPEB)
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later Control: A government controls the assets of an activity if the government: Holds the assets Has ability to direct the use, exchange, or employment of the assets in a manner that provides benefits to the specified or intended beneficiaries Note: external restrictions on the use of assets do not negate the government s control
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later D All other non-cu activities are fiduciary if all 3 criteria are met: 1. The government controls the assets 2. The assets are not derived either: Solely from the government s own-source revenues From government-mandated or voluntary non-exchange transactions (exception: pass-through grants) 3. The assets are one of the following: Administered through a trust or equivalent agreement and the government itself is not a beneficiary For the benefit of individuals and the government does not have administrative involvement or direct financial involvement For the benefit of organizations or other governments that are not part of the financial reporting entity
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later Planning for implementation: Walk through the flowchart with existing agency funds to determine if they meet the definition of custodial funds; if not, they are presented in fund financial statements Paragraph 11c discusses government s administrative role and direct financial involvement, which could result in previous agency funds becoming a part of the fund financial statements
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later Planning for implementation: Pension and OPEB trust funds First, determine if they are component units. The standard identifies payment to plan as a financial burden, a CU criteria (previously contribution was considered an exchange transaction); CU determination could then depend on appointment of voting majority of board If not a CU, consider the government s control over the assets of the plan Evaluate each plan; they could remain or become fiduciary activities
Statement No. 84 Fiduciary Activities Effective FYE December 31, 2019, and later Audit Considerations Scope of work - Agency funds have only shown inflows and outflows in the supplementary information. Moving to the basic financial statements has an audit effect, as the new statement is in the audited section of the financial statements. Internal controls Possibly more audit testing (materiality considered) Financial reporting changes As for GASB 54, evaluate funds/resources and document conclusions Additional reports? If a pension trust fund no longer meets the fiduciary definition, a standalone report is needed
Statement No. 85 Omnibus 2017
Statement No. 85 Omnibus 2017 Effective FYE June 30, 2018, and later Purpose: addresses practice issues related to: 1. Blending component units for governments that are single column business-type activities 2. Reporting goodwill and negative goodwill 3. Measuring certain money market investments and participating interest-earning investment contracts at amortized cost 4. Timing of the measurement of pension and OPEB liabilities and expenditures recognized in financial statements prepared using the current financial resources measurement focus 5. Recognizing on-behalf payments in employer financial statements
Statement No. 85 Omnibus 2017 Effective FYE June 30, 2018, and later Purpose: addresses practice issues related to: 6. Presenting payroll related measures in RSI 7. Classification of employer-paid contributions for OPEB 8. Simplifications to the alternative measurement method for OPEB 9. Accounting and financial reporting for OPEB provided through certain multiple-employer defined benefit OPEB plans
Statement No. 87 Leases
Statement No. 87 Leases Effective FYE December 31, 2020, and later Overview Unified Reporting Model for Leases no more capital vs. operating Underlying assumption that leases are financings Exceptions are a) short-term leases and b) leases that transfer ownership and do not contain termination clauses Retroactively applied, restatement likely A lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources
Statement No. 87 Leases Effective FYE December 31, 2020, and later Audit Tips Consider the implementation team: aside from finance personnel, is there anyone else to include, such as procurement, IT, legal staff? Start gathering existing leases and make a spreadsheet; include terms and start and end dates Implement controls to identify leases and lease modifications Consider your capitalization policy and its impact Consider complicated contracts with multiple components Consider your chart of accounts and how departments currently record financing arrangements Consider effects of reporting lease liabilities on your debt limitations, bond covenants and grant agreements
Statement No. 87 Leases Effective FYE December 31, 2020, and later What is in Statement No. 87? Definition of a lease: Addresses short-term leases and contracts that transfer ownership (Paragraphs 16-19) Provides lessee recognition, measurement and disclosure guidance in Paragraphs 20 39; provides lessor recognition, measurement and disclosure guidance in Paragraphs 40 60 Paragraphs 61 through 91 address lease incentives, contracts with multiple components and contract combinations, lease modifications and terminations, subleases, sale-leaseback and lease-leaseback transactions, intra-entity leases and leases between related parties
Statement No. 87 Leases Effective FYE December 31, 2020, and later Defining the term of the lease Start with noncancelable period and then add in additional periods if the lessor and lessee have the option to: Extend lease and the option is reasonably certain of being exercised Terminate the lease, if the option is reasonably certain of NOT being exercised Exclude cancelable periods, or periods when each can terminate the lease or both parties have to agree to continue (month-to-month leases) Fiscal funding/cancellation clauses not considered unless reasonably certain of being exercised
Statement No. 87 Leases Effective FYE December 31, 2020, and later Reassess the lease term if: The reasonably certain determination was incorrect, and lessee or lessor exercised an option that was not expected to be exercised or vice versa An event in the contract that requires an extension or termination of the lease takes place
Statement No. 87 Leases Effective FYE December 31, 2020 and later Reporting for Leases- Initial Year Asset Liability Deferred Inflow Intangible asset recorded Lessee at the value of lease liability plus prepayments and any costs to place into service Present value of future lease payments Lessor Lease receivable None None Equal to lease receivable plus any cash received up front that relates to future periods 46
Statement No. 87 Leases Effective FYE December 31, 2020 and later Reporting for Leases- Subsequent Years Lessee Lessor Asset Liability Deferred Inflow Reduce liability by Amortize asset over the lease payments shorter of the useful life or excluding interest lease term expense None Amortize over the lease term in a systematic manner Reduce receivable by and recognize lease payments None revenue
Statement No. 87 Leases Effective FYE December 31, 2020, and later Noteworthy: Currently, GASB s existing lease rules were derived from the FASB s original lease accounting rules After implementation of FASB and GASB Lease Standards, FASB and GASB entities will apply different accounting for operating-type leases. This may add complexity when comparing financial statements of entities in sectors comprised of both GASB and FASB reporters, such as higher education and health care. Although assets and liabilities will be measured similarly for GASB and FASB reporters on day 1, the day 2 amounts reported for the rightof-use asset and the resulting impacts on the performance and cash flow statements will differ 48
Statement No. 88 Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements
Statement No. 88 Debt Disclosures Effective FYE June 30, 2019, and later Statement No. 88 Overview: Issued in March 2018, effective for FYE 6/30/2019 and later, and earlier application is encouraged Objective: improve consistency in note disclosures and provide users with essential information that is currently not consistently provided Defines debt for purposes of disclosure in notes to financial statements and establishes additional financial statement note disclosure requirements related to debt obligations of governments, including direct borrowings and direct placements
Statement No. 88 Debt Disclosures Effective FYE June 30, 2019, and later New Note Disclosures Required by Statement 88: Summarized information about unused lines of credit, assets pledged as collateral for debt, and certain terms specified in debt agreements such as: 1) Events of default with finance-related consequences 2) Events of termination with finance-related consequences 3) Subjective acceleration clauses Debt disclosures will need to be separated between a) direct borrowings and direct placements of debt and b) other debt
Statement No. 88 Debt Disclosures Effective FYE June 30, 2019, and later Implementation Tips: Classify liabilities as debt or non-debt and review with your auditor Establish processes to identify all lines of credit and pledged assets Review debt arrangements for the specific terms required to be disclosed Identify direct borrowings and direct placements, if any
Statement No. 89 Accounting for Interest Cost Incurred Before the End of a Construction Period
Statement No. 89 Capitalized Interest Effective FYE December 31, 2020, and later Statement No. 89: Effective for FYE 12/31/2020 and later; earlier application encouraged Prospective application at transition Objective: enhance the relevance of capital asset information and simplify accounting and reporting Requirements: interest costs incurred before the end of the construction period should be recognized as an expense
For more information, contact: Sara Dempsey, CPA Partner-in-Charge, Public Sector Assurance Services 972.448.6958 sara.dempsey@weaver.com John DeBurro, CPA Partner, Assurance Services 972.448.6970 john.deburro@weaver.com