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WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING

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GASB Update & Lessons Learned

May 5 & 6, 2016

Learning Objectives

• Review lessons learned from 6/30 year end implementation of GASB 68 and 71

• Understand requirements of upcoming statements 72, 73, 76, 77, 78, 79, 80, 81, and 82

• Identify current exposure drafts, preliminary views, and other GASB projects on the horizon

Effective Dates – Years beginning after

• June 15, 2014 (implement 9/30/15) – Statement 68 – Accounting and Financial Reporting for Pension Plans - an

amendment of GASB Statement No 27

– Statement 71 - Pension Transition for Contributions Made Subsequent to Measurement Date - an amendment of GASB Statement No. 68

• June 15, 2015 (implement 9/30/2016) – Statement 72 – Fair Value Measurement and Application

– Statement 73 – Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68

– Statement 76 – The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments

– Statement 79 – Certain External Investment Pools and Pool Participants

• December 15, 2015 (implement 9/30/17) – Statement 77 – Tax Abatement Disclosures

– Statement 78 – Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans

• June 15, 2016 (implement 9/30/17) – Statement 74 – Financial Reporting for Postemployment Benefit Plans Other

Than Pension Plans

– Statement 80 – Blending Requirements for Certain Component Units – an amendment of GASB Statement No. 14

– Statement 82 – Pension Issues, an amendment of GASB Statement No. 67,68, and 73

• December 15, 2016 (implement 9/30/18 ) – Statement 81 – Irrevocable Split-Interest Agreements

• June 15, 2017 (implement 9/30/18 ) – Statement 75 – Accounting and Financial Reporting for Postemployment

Benefit Plans Other Than Pensions

GASB No. 68

Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27

Background

• Effective for periods beginning after June 15, 2014

• Replaces requirements of GASB 27 and GASB 50

• Accounting and financial reporting for pension plans

– Provided to employees of state and local government employers

– Administered through a trust ◊ Contributions are irrevocable

◊ Plan assets are dedicated to providing pension payments to plan members in accordance with benefit terms

◊ Plan assets are legally protected

Background (continued)

• Requires recognition of a net pension liability (asset) measured as of a date no earlier than the end of its prior fiscal year

– NPL = Actuarial present value of projected benefit payments net of plan’s fiduciary net position

• Actuarial valuation date can be no more than 30 months and 1 day earlier than employer’s most recent fiscal year end

– Update procedures to roll forward to measurement date

• Presentation with multiple plans

– Separate liabilities and assets

• If a contribution is made between the measurement date and the end of the reporting period, its recognized as a deferred outflow of resources

• Recognition of deferred outflows and inflows of resources for other pension-related events:

– Differences arising between expected and actual experience in relation to economic and/or demographic factors

– Effects of changes of assumptions about future economic or demographic factors

– Differences between projected and actual investment earnings

• GASB 68 – At transition, if it’s not practical to determine the amounts of all deferred outflows and inflows, no beginning balances for deferred outflow/inflows should be reported

– Potential for significant misstatement of net position and subsequent expense

• GASB 71 – Employers should recognize a beginning deferred outflow for contributions made subsequent to measurement date

– No beginning balances for other deferred outflows and inflows should be recognized

• Different types of plans:

– Single and agent employers ◊ Recognize liability equal to net pension liability

– Cost-sharing employers ◊ Recognize liability for proportionate share of the collective net

pension liability

– Special funding situations ◊ Recognize additional revenue and expense

◊ Present additional note disclosures

Pension Expense Tool

GASB 68 Pension Expense Tool

Note Disclosures

• Plan description

– Benefit terms

– Number of employees covered

– Contribution requirements

– Whether plan issues stand-alone financial report and how to obtain the report

• Net pension liability

– Assumptions and other inputs to measure TPL

– Discount rate

– Changes in NPL (single employer)

• Plan’s fiduciary net position

• Employer’s proportionate share (cost-sharing)

Note Disclosures (continued)

• Measurement date

• Changes in assumptions or other inputs

• Changes in benefit terms

• Amount of benefit payments

• Amount of pension expense recognized in reporting period

• Employer’s balances of deferred outflows and inflows

• Schedule of net amount of deferred outflows and inflows of resources

Note Disclosures (continued) Discount Rate Sensitivity

Note Disclosures (continued) Changes in Net Pension Liability – Single Employers

Note Disclosures (continued) Deferred Outflows and Inflows – Single Employers

Note Disclosures (continued) Deferred Outflows and Inflows – Cost-Sharing Employers

Note Disclosures (continued) Net Amount of Deferred Outflows and Inflows

Required Supplementary Information (RSI)

• 10-year schedule of changes in net pension liability and related ratios (single employers)

• 10-year schedule of proportionate share (cost-sharing employers)

• 10-year schedule of contributions

RSI (continued) 10-Year Schedule of Changes in Net Pension Liability (single employers)

RSI (continued) 10-Year Schedule of Proportionate Share (cost-sharing employers)

RSI (continued) 10-Year Schedule of Contributions (single employers)

RSI (continued) 10-Year Schedule of Contributions (cost-sharing employers)

GASB No. 72

Fair Value Measurement and Application

Background

• Fair value – the price that would be received to sell an asset or paid to transfer a liability

• Investment – security or other asset that

– A) a government holds primarily for the purpose of income or profit, and

– B) has a present service capacity based on its ability to generate cash

Background

• Valuation approaches:

– Market

– Cost

– Income

• Valuation techniques

– Observable vs unobservable inputs

– Apply consistently with some exceptions: ◊ New markets develop

◊ New information becomes available

◊ Information previously used is no longer available

◊ Valuation techniques improve

◊ Market conditions change

GASB No. 73

Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68

Background

– Requirements within the scope of GASB 67 and GASB 68

– Pensions not within the scope of GASB 68

• Establishes requirements for defined benefit and defined contribution pensions not within the scope of GASB 68

• Supersedes GASB 25, GASB 27, and GASB 50

• Recognize a liability for the total pension liability

– Actuarial present value of projected benefit payments attributed to past periods of employee service

• Measurement date no earlier than the end of the employer’s prior fiscal year

• Actuarial valuation date as of a date no more than 30 months and 1 day earlier than the employer’s most recent fiscal year-end

– Update procedures to roll forward to measurement date

Note Disclosures Change in Total Pension Liability

GASB No. 76

The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments

Background

• Applied retroactively

• Supersedes GASB 55 and amends GASB 62

• Reduces GAAP hierarchy to two categories of authoritative GAAP (descending order of authority):

– GASB Statements

– GASB Technical Bulletins, GASB Implementation Guides, and literature of the AICPA cleared by the GASB

Background

• Authoritative GAAP (continued) - Codification of Governmental Accounting and Financial Reporting Standards (Codification)

• Nonauthoritative guidance –

– GASB Concepts Statements, pronouncements and other literature of the FASB, FASAB, IPSASB, and IASB, and AICPA literature not cleared by GASB

– Practices widely recognized and prevalent

– Literature of other professional associations or regulatory agencies

– Accounting textbooks, handbooks, and articles

GASB No. 77

Tax Abatement Disclosures

Background

• Effective for periods beginning after December 15, 2015

• Financial statement users need information about certain limitations on a government’s ability to raise resources

• Tax abatement –

– An agreement between one or more governments and an individual or entity in which the government promises to forgo tax revenues

– Individual or entity promises to contribute to economic development or otherwise benefits the government or its citizens

Disclosures

• Description –

– Names and purpose of program

– Tax being abated

– Authority under which abatement is provided

– Eligibility criteria

– Mechanism of abatement

– Provisions for recapturing abated taxes

– Types of commitments made by tax abatement recipients

• Gross dollar amount of taxes abated during the period

• Other commitments of tax abatement agreement

Disclosures (continued)

• Agreements entered into by other governments

• Individually or in the aggregate

– Individually only those that meet or surpass a quantitative threshold

• Organized by each major program (economic development, television and film production incentive program, etc)

Example

Example (continued)

Note X. Tax Abatements

The Village 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 50 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 Village.

For the fiscal year ended December 31, 201X, the Village abated property taxes

totaling $146,480 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 50 percent property tax reduction for a local restaurant increasing the size

of its restaurant and catering facility and increasing employment. The

abatement amounted to $21,750.

GASB No. 78

Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans

Background

• Addresses practice issues regarding scope and applicability of GASB 68

• Establishes reporting standards for defined benefit pensions provided to employees of state or local government employers through a cost-sharing multiple-employer plan that:

– Is not a state or local government pension plan

– Is used to provide defined benefit pensions to employees of both state and local government employers and not state and local government employers

– Has no predominant state or local government employer (either individually or collectively)

Note Disclosures

• Description

– Name of plan

– Identification of entity that administers the plan

– Identification as a cost-sharing plan

• Whether plan issues financial report that is publicly available and how to obtain the report

• Benefit terms

– Number of government’s employees covered

– Types of benefits provided

– Authority under which benefits are established or amended

• Contribution requirements

– Basis for determining contributions

– Authority under which they are established or amended

– Required contribution rates

– Amount of employer’s required contributions

– Expiration date of any collective-bargaining agreement

– Description of any minimum contributions required for future periods by collective-bargaining agreement, statutory obligations, or other contractual obligations

– Whether employer is subject to any provisions regarding withdrawal from the plan

• Employer’s payables –

– Balance of payables

– Significant terms of the payables

– Description of reason for payables (required contributions to the plan, contractual arrangement for contributions to the plan related to past service, etc)

• Required Supplementary Information (RSI)

– 10-Year schedule of employer’s required contributions

GASB No. 79

Certain External Investment Pools and Pool Participants

Background

• Establishes criteria for an external investment pool to qualify for making the election to measure all its investments at amortized cost

• Amends GASB 31

– If it does not qualify under the criteria set forth, then apply GASB 31

• Must meet all of the following criteria:

– Transacts with participants at a stable net asset value per share

– Portfolio maturity requirements ◊ 397 days or less

◊ Maintain weighted average of 60 days or less

◊ Maintain weighted average life of 120 days or less

– Portfolio quality requirements ◊ Presents minimal credit risk – denominated in U.S. dollars and

rated in highest category

• Must meet all of the following criteria (continued):

– Portfolio diversification requirements ◊ Hold no more than 5 percent of its total assets in investments of

any one issuer of securities

– Portfolio liquidity requirements ◊ Can hold no more than 5 percent of total assets in illiquid

investments

◊ Illiquid – cannot be sold or disposed of in the ordinary course of operations at the amortized cost value within five business days

– Shadow pricing requirements ◊ Net asset value per share of a qualifying external investment pool,

calculated using total investments measured at fair value at the calculation date

GASB No. 80

Blending Requirements for Certain Component Units – an amendment of GASB Statement No. 14

Background

• Establishes additional blending requirement

– Requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member

• Apply retroactively

GASB No. 81

Irrevocable Split-Interest Agreements

Background

• Establishes accounting for split-interest agreements where:

– The government is the intermediary and: ◊ The remainder interest beneficiary

◊ The lead interest beneficiary

◊ There is a life-interest in real estate

– There is a third party intermediary

• Apply retroactively

GASB No. 82

Pension Issues – an amendment of GASB No. 67, No. 68, and No 73

Background

– Possibly June 15, 2017 for the requirements of paragraph 7

• Addressed issues regarding:

– The presentation of payroll-related measures in RSI

– The selection of assumptions and the treatment of deviations

– The classification of payments made by employers to satisfy employee contribution requirements

• Changes required by paragraph 8 applied retroactively

• Changes required by paragraph 7 applied prospectively

Current GASB Projects

Exposure Drafts and Preliminary Views

• Certain Asset Retirement Obligations

• Fiduciary Activities

• Financial Reporting Model

• Leases

Certain Asset Retirement Obligations • Comment period: January – March 2016

• Expected effective date for fiscal year beginning after December 15, 2017

• ARO – a legally enforceable liability associated with the retirement of a tangible capital asset

• Addresses capital assets other than landfills

– Such as nuclear power plants, coal-fired power plants, or sewage treatment facilities

• Recognize a liability for an ARO when liability is incurred and reasonably estimable

– Measured on best estimate of current value of expected outlays

Fiduciary Activities

• Comment period: January – March 2016

• Expected effective date for fiscal year beginning after December 15, 2017

• Includes pension (and other employee benefit) trust funds, investment trust funds, private-purpose trust funds, and custodial funds

• Establishes criteria for identifying activities that should be reported as fiduciary activities

• Clarifies whether a business-type activity should report their fiduciary activities

Financial Reporting Model

• Initial deliberations – began October 2015

• Expected final statement not until 2021

• Specific issues being explored:

– Management’s Discussion and Analysis (MD&A)

– Government-wide financial statements

– Major funds

– Governmental fund financial statements

– Proprietary fund and business-type activity statements

– Fiduciary fund statements

– Budgetary comparisons

– Other issues

Leases

• Current stage - exposure draft

• Expected final statement in December 2016

• Does an operating lease meet the definition of an asset or liability?

• Leases > 1 year would be placed on the balance sheet

Leases (continued)

• Accounting treatment for leases > 1 year

– Lessee: ◊ Intangible asset for right to use the leased asset

◊ Liability for lease payments

◊ Amortization expense for recognizing the asset amount over the term of the lease

◊ Interest expense related to lease liability

– Lessor: ◊ Receivable for the right to receive payments

◊ Deferred inflow to reflect resources related to future periods

◊ Lease revenue over the term of the lease

◊ Interest revenue related to lease receivable

Other Projects

• Debt extinguishments using existing resources

• Debt disclosures, including direct borrowing

• Going concern disclosures

• Revenue recognition for exchange and exchange-like transactions

GASB Resources and Feedback

• Website:

http://gasb.org/

• Respond during comment periods

– GFOA

– NASBA

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Michael Carter, CPA Principal, State and Local Government Mike.carter@CLAconnect.com 863-680-5600

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