66
GASB UPDATE John DeBurro, CPA
GASB UPDATEJohn DeBurro, CPA
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Agenda
What’s Applicable in FY14?1. Statement No. 65**2. Statement No. 663. Statement No. 674. Statement No. 70
What Applicable in FY15?5. Statement No. 68 (amended by
Statement No. 71)**6. Statement No. 69
Statement No. 65
Items Previously Reported as Assets and Liabilities
Effective for periods beginning after December 15, 2012 (FY14)
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Purpose
Statement No. 65
Establishes standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows or inflows of resources, certain items that were previously reported as assets and liabilities.
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Summary of Changes
• Terms – The use of the term deferred should be limited to items reported as deferred outflows of resources or deferred inflows of resources.
• Major Funds Calculation –Combine assets and deferred outflows and combine liabilities and deferred inflows
• Gain/loss on refunding –Reported as deferred outflow/inflow and recognized as a component of interest expense over the remaining life of the old debt or life of the new debt, whichever is shorter.
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Summary of Changes
• Debt issuance costs – Expensed in the period incurred with the exception of any portion related to prepaid insurance
• Sale–leasebacks –Gain/loss on sale of property should be reported as deferred inflow/outflow
• Imposed non-exchange transactions –Report as deferred inflow when received or receivable before the period:
- for which property taxes are levied- resources are required to be used /first
permitted for use
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Summary of Changes
• Government Mandated/Voluntary non-exchange transactions –- If received prior to eligibility requirements are met,
record as asset by provider and liabilities by recipient. - If received prior to time requirements being met but with
all other eligibility requirements being met, record as deferred outflow by provider and deferred inflow by recipient.
• Sale of future revenues – Transferor should report proceeds as a deferred inflow in both the government-wide and fund financial statements except when recognition as revenue in the period of sale is appropriate as discussed in para. 14 of Statement 48.
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Implementation
• Accounting changes should be applied retroactively by restating financial statements, if practical, for all periods presented
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GASB 65–Statement of Net Position
Example Independent School DistrictStatement of Net Position
August 31, 2014
Data 1 2 3
Control Codes
Governmental Business-type Activities Activities Total
ASSETS 1110 Cash and cash equivalents 1220 Property taxes receivables (delinquent) 1230 Allowance for uncollectible taxes (credit) 1240 Due from other governments 1290 Other receivables, net 1410 Prepaid expenses
Capital assets: 1510 Land 1520 Buildings, net 1530 Furniture and equipment, net 1580 Construction in progress 1000 Total assets - - -
DEFERRED OUTFLOWS OF RESOURCES 1700 Deferred loss on refunding - - -
Total deferred outflows of resources - - -
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GASB 65–Statement of Net Position(Con’t)
LIABILITIES 2110 Accounts payable 2140 Interest payable 2150 Payroll deductions and withholdings 2160 Accrued wages payable 2180 Due to other governments 2200 Accrued expenses 2300 Unearned revenue
Long term liabilities: 2501 Due within one year 2502 Due in more than one year 2000 Total liabilities - - -
NET POSITION
3200 Net investment in capital assets Restricted for: 3820 Federal and state programs
3850 Debt service3900 Unrestricted 3000 Total net position $ - $ - $ -
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GASB 65–Balance Sheet
Example Independent School DistrictGovernmental Funds - Balance Sheet
August 31, 2014
Data 10 50 60Control Debt Other TotalCodes General Service Capital Governmental Governmental
Fund Fund Projects Funds Funds
ASSETS1110 Cash and cash equivalents1220 Property taxes delinquent1230 Allowance for uncollectable taxes (credit)1240 Due from other governments
1260 Due from other funds
1290 Other receivables1410 Prepaid expenditures
1000 Total assets $ - $ - $ - $ - $ -
LIABILITIES2110 Accounts payable2150 Payroll deductions and withholdings2160 Accrued wages payable2170 Due to other funds2180 Due to other governments2200 Accrued expenditures2300 Unearned revenue
2000 Total liabilities - - - - -
DEFERRED INFLOWS OF RESOURCES2601 Unavailable revenue - property taxes
2600 Total deferred inflows of resources - - - - -
FUND BALANCESNonspendable:
3430 Prepaid itemsRestricted:
3450 Federal or state funds grant restrictions3470 Capital acquisitions and contractual obligations3480 Retirement of long-term debt
Committed:3510 Construction3545 Other committed fund balance
Assigned: 3590 Other assigned fund balance
3600 Unassigned
3000 Total fund balances
4000 Total liabilities, deferred inflows and fund balances $ - $ - $ - $ - $ -
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How Will it Affect You?
Government-wide Financial Statements:• Bond issuance costs – remove /
restate beginning net position• Deferred gain/loss on refunding –
reclassify from LTD to deferred outflows (loss) or inflows (gain)
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How Will it Affect You?
Fund Level Financial Statements:• Property taxes – unavailable revenues now
reported as deferred inflow rather than deferred revenue (liability)
• Deferred revenue – term will no longer be used – depending on the situation, will involve reclassification to either deferred inflow or a renamed liability (i.e. unearned revenue)
• Revenue – earned vs unavailable
Statement No. 66
Technical Corrections – an amendment of GASB
Statements No. 10 and No. 62
Effective for periods beginning after December 15, 2012 (FY14)
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Purpose
Statement No. 66To improve accounting and financial reporting by resolving conflicting guidance caused by the issuance of two recent pronouncements: Statements No. 54 & No. 62
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Summary of Changes
• Amends GASB 10 – allows for use of special revenue funds to report an entity’s risk financing activities
• Paragraphs 222 and 227b of GASB 62 include guidance on accounting for operating lease payments that vary from a straight-line basis. Those provisions were deleted to remove what could be perceived as a potential prohibition against the use of the FV method which is permitted under paragraph 6b of Statement 13
• Loans that are purchased should be recorded at the price paid
• Service fees – should not result in an adjustment to the sales price of mortgage loans
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How Will this Affect You?
• It probably won’t…
Statement No. 67
Financial Reporting for Pension Plans – an amendment of GASB
Statement No. 25
Effective for periods beginning after June 15, 2013 (FY14)
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GASB 67
Addresses accounting and financial reporting for the activities of pension plans that have the following characteristics:• Contributions and earnings on contributions
are irrevocable;• Plan assets are dedicated to providing
pensions to plan members; and• Plan assets are legally protected from the
creditors of employers, nonemployer contributing entities, and the plan administrator.
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GASB 67
• For defined pension plans:– Establishes standards of financial
reporting for separately issued financial reports
– Specifies the required approach to measuring the pension liability of employers and nonemployer contributing entities for benefits provided through the pension plan
– Details note disclosure requirements for defined contribution pension plans
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GASB 67
Financial Statements• Required to present two financial
statements:– Statement of fiduciary net position– Statement of changes in fiduciary net
position
• Required disclosures:– Description of plan– Description of plan investments– Description of investment policies and how
fair value is determined
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GASB 67
• Required disclosures (cont.):– Investment concentrations– Rate of return on plan investments– Other specific disclosures for single-
employer and cost-sharing plans
• Required supplementary information:– Sources of changes in net pension
liability – 10 years– Components of net pension liability and
related ratios – 10 years
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GASB 67
• Statement No. 67 is effective for financial statements for fiscal years beginning after June 15, 2013 (fiscal year 2014).
• Any changes to beginning fiduciary net position resulting from implementation should be treated as an adjustment of prior periods.
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GASB 67
How will this affect you?• It will only affect governments that are
responsible for their Plan’s financial reporting
Statement No. 70
Accounting and Financial Reporting for Nonexchange
Financial Guarantees
Effective for periods beginning after June 15, 2013 (FY14)
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Purpose
Statement No. 70Requires a government that extends a nonexchange financial guarantee to recognize a liability when qualitative and historical data, if any, indicate that the government will more likely than not be required to make payment on that guarantee
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Qualitative Factors
• Entering into bankruptcy/reorganization
• Breach of debt contract (i.e. rate covenants, coverage ratios, delinquent payments)
• Indicators of significant financial difficulty (i.e. drawing on reserve fund)
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Recognition
Economic Resources Measurement Focus –• Recognize liability and expense • Discounted PV –best estimate of future
outflowsCurrent Resources Measurement Focus –• Recognize fund liability and expenditure• To the extent the liability is expected to be
liquidated with expendable available financial resources
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Recognition
Governments Issuing Guaranteed Debt – • If required to repay a guarantor, reclassify
portion of previously recognized liability as liability to guarantor
• If/when legally released as obligor to the guarantor, recognize as revenue
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Disclosures
Governments that Extend Nonexchange Guarantee –• Description of guarantee – legal authority,
relationship, length of time, recovery arrangements
• Total amount of all guarantees extended• If liability recognized or payments made: a
roll-forward of balances
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Disclosures
Governments Issuing Guaranteed Obligations • Name of guarantor• Amount of guarantee • Length of time• Amount paid by guarantor during current
period and overall• Requirements to repay the entity
Statement No. 68
Accounting and Financial Reporting for Pension Plans – an amendment of GASB Statement
No. 25
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Summary
• Statement No. 68 replaces Statements 27 & 50 as they relate to governments that provide pensions primarily through plans administered as trusts.
• It requires governments that provide defined benefit pensions to recognize their long-term obligation for the pension benefit as a liability for the first time
• “Divorces” funding and reporting for pensions
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Purpose
• Statement No. 68 also requires more comprehensive and comparable measurement of the annual costs of pension benefits
• The Statement enhances accountability and transparency through revised and new footnote disclosures and RSI
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Net Pension Liability
Requires governments to report Net Pension Liability as of a Measurement Date
Total pension liability– Assets set aside in a trust and restricted to paying benefits to employees, retirees and their beneficiaries =Net Pension Liability
Total Pension Liability is the actuarial present value of projected benefit payments
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Defined Benefit Pension Plans
Requires immediate recognition of the following pension expenses:• Annual service cost and interest on
pension liability• Effect of changes in benefit terms on the
net pension liability
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Defined Benefit Pension Plans
Other components of pension expense will be recognized over a closed period including: Changes in economic and demographic
assumptions Differences between those assumptions
and actual Effects of differences between expected
and actual investment returns will be amortized over a closed 5-year period
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Defined Benefit Pension Plans
• Key changes to treatment of defined benefit pension plans by government employers:– Projections of benefit payments– Discount rate– Attribution method
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Defined Benefit Pension Plans
Projection of Benefit Payments• Based on then-existing benefit terms
and incorporate projected salary changes and service credits and projected automatic postemployment benefit changes including automatic COLAs
• New – will also include ad-hoc postemployment benefit changes, if considered substantively automatic
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Defined Benefit Pension Plans
Discount Rate• Based on a single rate that reflects:– Long-term expected ROR as long as the plan
net position is projected under specific conditions to be sufficient to pay pensions of current employees and retirees and plan assets are expected to be invested using a strategy to achieve these results
– Yield or index rate on tax-exempt 20-yr, AA-or-higher rated muni bonds to the extent that the conditions for use on LT ROR are not met
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Defined Benefit Pension Plans
Attribution Method• Governments will use a single
actuarial cost allocation method (entry age) with each period’s service cost determined as a level percentage of pay
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Defined Benefit Pension Plans
• Cost-sharing plan – i.e. TRS – all assets and liabilities are pooled – assets can be used to pay benefits of any employee of any employer
• Agent multiple-employer plan – i.e. TMRS – assets are pooled for investment purposes, but separate accounts are maintained for each employer
• Single-employer pension plan – provides pensions to employees of one employer
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Cost Sharing Employers
• Recognize proportionate share of collective NPL (net pension liability) as of measurement date
• Recognize proportion of collective plan expense and deferred outflows/inflows
• Recognize over average expected remaining service for: • Change in proportionate share • Difference between employer’s
contributions and proportionate share of all contributions
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Special Funding Situations
A special funding situation exists if a “nonemployer contributing entity” is legally responsible for making contributions directly to a pension plan on behalf of a government, and one or both of the following are true:
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Special Funding Situations(Con’t)
1. The amount the nonemployer contributing entity is required to contribute is not based on events or circumstances unrelated to pensions (such as contributing a percentage of a specific revenue source) – i.e. State (ISD’s)
2. The nonemployer contributing entity is the only entity legally required to contribute to the plan
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TRS
• State will record liability that represents approximately 70-80% of the System’s liability – based on nonemployer (for Districts) and employer (for University, etc) contributions
• Remaining liability will be allocated based on amounts paid in by Districts (employers) as a percentage of overall contributions
• State Auditor’s office will audit allocation / census data as well as the System’s financial statements
• Updated information will be posted on its website (http://www.trs.state.tx.us/)
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TRS
Annual information to be provided to ISDs will include:• Allocation percentage ( 7 decimals!)• Amounts of TRS’ liability, pension
expense, deferred inflows/outflows• Necessary disclosure information on
the System
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TRS
TRS encourages:• Districts to ensure monthly reporting
is done timely (by the cutoff of September 6th for the month of August) to avoid estimates being made by TRS
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Single and Agent Employers
• Recognize liability for NPL (net pension liability) as of measurement date (more about this later…)• Recognize pension expense and
deferred outflows/inflows
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TMRS
• Will provide GASB Reporting Package:Provides cities with data needed for
financial reporting –anticipate June issuance date. Also expecting:• Schedule of “Changes in Plan Fiduciary Net
Position,” by employer, in CAFR of PERS; plan auditor engaged to provide opinion • Will provide cities with SOC-1 Type II report
on TMRS’s controls• Has developed 4 Control Objectives for cities
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TMRS – Control Objectives
1. Controls provide reasonable assurance that reporting of participant census to the TMRS outside actuary is complete and accurate
2. Controls provide reasonable assurance that contributions received from employers are completely and accurately posted to the employee and employer accounts in the proper period
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TMRS – Control Objectives(Con’t)
3. Controls provide reasonable assurance that distributions are authorized and processed accurately, completely, and in a timely manner in accordance with employer plan provisions
4. Controls provide reasonable assurance that logical access to programs and data is granted to appropriately authorized individuals
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Actuarial Valuations
• Actuarial valuations required at least every two years• Valuation date - no more than 30
months and one day from the employer’s current FYE
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Measurement Date
• Measurement Date – no earlier than 1 year prior to employer’s fiscal year end• Cities – will use 12/31/xx (i.e. for
9/30/15 use 12/31/14)• ISDs – will use 8/31/xx (i.e. for 6/30/15
or 8/31/15 use 8/31/14)….WHY?• Employer contributions subsequent to
measurement date = deferred outflows
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Disclosures
• Descriptive information about the types of benefits provided
• How contributions are determined• Assumptions and methods used to
calculate pension liability• Additional info (single & agent
employers) such as composition of employees covered and sources of changes in the components of net pension liability
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RSI – Single and Agent Employers
Single and agent employers will also present RSI schedules covering the past 10 years regarding:• Sources of changes in the components of
net pension liability • Ratios that assist in assessing the
magnitude of the net pension liability• Comparisons of actual employer
contributions with actuarially determined contribution requirements and related ratios
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RSI – Single and Agent Employers
2015 2014 2013 2012 2011 2010 2009 2008 2007 2006Total Pension Liability:Service cost 73,034$ 71,505$ 68,503$ 66,757$ 64,380$ 60,442$ 57,245$ 50,167$ 47,420$ 39,063$ Interest 219,345 207,809 191,499 177,281 165,004 150,315 138,675 129,195 108,149 99,270 Change in benefit terms - - - - - - - - 119,513 - Difference between expected and actual experience (37,539) (15,211) (3,562) 38,438 19,927 (28,228) 34,335 13,464 30,981 35,780 Change in assumptions - - 61,011 - - 92,500 - - 32,979 - Benefit payments (119,434) (112,603) (104,403) (95,376) (88,790) (86,139) (77,185) (70,907) (66,789) (60,653) Net change in total pension liability 135,406 151,500 213,048 187,100 160,521 188,890 153,070 121,919 272,253 113,460 Total Pension Liability-beginning 2,853,455 2,701,955 2,488,907 2,301,807 2,141,286 1,952,396 1,799,326 1,677,407 1,405,154 1291694Total Pension Liability-ending 2,988,861 2,853,455 2,701,955 2,488,907 2,301,807 2,141,286 1,952,396 1,799,326 1,677,407 1,405,154
Plan Fiduciary Net PositionContributions - employer 79,713 86,607 89,828 91,963 93,541 85,681 68,866 29,849 25,086 22,826 Contributions - nonemployer 31,451 30,550 29,137 28,547 27,743 26,709 25,577 22,673 21,132 19,202 Net investment income 196,154 (44,099) (16,138) 298,260 166,826 140,132 193,107 39,142 (22,410) (5,750) Benefit payments (119,434) (112,603) (104,403) (95,376) (88,790) (86,139) (77,185) (70,907) (66,789) (60,653) Administrative income (3,373) (3,287) (2,774) (2,582) (2,086) (2,235) (1,912) (1,887) (1,509) (1,491) Other 8 (83) 173 (175) 9 75 (493) 8 - - Net change in plan fiduciary net position 184,519 (42,915) (4,177) 320,637 197,243 164,223 207,960 18,878 (44,490) (25,866) Plan fiduciary net position -beg 2,052,589 2,095,504 2,099,681 1,779,044 1,581,801 1,417,578 1,209,618 1,190,740 1,235,230 1,261,096 Plan fiduciary net position -beg 2,237,108 2,052,589 2,095,504 2,099,681 1,779,044 1,581,801 1,417,578 1,209,618 1,190,740 1,235,230
City's net pension liability -ending 751,753 800,866 606,451 389,226 522,763 559,485 534,818 589,708 486,667 169,924
Plan fiduciary net position as a % of total pension liability 74.85% 71.93% 77.56% 84.36% 77.29% 73.87% 72.61% 67.23% 70.99% 87.91%
Covered payroll 449,293$ 436,424$ 416,243$ 407,812$ 396,332$ 381,554$ 365,385$ 322,896$ 301,891$ 274,318$
City's net pension liability as a %of employee payroll 167.32% 183.51% 145.70% 95.44% 131.90% 146.63% 146.37% 182.63% 161.21% 61.94%
SCHEDULE OF SAMPLE CITY's NET PENSION LIABILITY AND RELATED RATIOSFirefighter Single Employer Plan
Last Ten Fiscal Years(Dollar amounts in thousands)
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RSI – Single and Agent Employers
2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
Statutorially required Contributions 210$ 206$ 197$ 165$ 118$ 90$ 82$ 77$ 88$ 108$
Actual contributions in relation to statutorially required contributions (210) (206) (197) (165) (118) (90) (82) (77) (88) (108)
Contribution deficiency (excess) -$ -$ -$ -$ -$ -$ -$ -$ -$ -$
City's Covered Payroll 11,512 10,412 9,715 9,553 9,522 9,299 8,709 8,175 7,909 7,659
Contributions as a percentage of City's covered payroll 1.82% 1.98% 2.03% 1.73% 1.24% 0.97% 0.94% 0.94% 1.11% 1.41%
SCHEDULE OF SAMPLE CITY'S CONTRIBUTIONSTEACHERS RETIREMENT SYSTEM
Last Ten Fiscal Years(Dollar amounts in thousands)
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RSI – Cost Sharing Employers
10-year Schedule Presenting: Employer’s % of the collective NPL Employer’s proportionate share of NPL Employer’s covered payroll Employer’s NPL as a % of covered payroll The Plan’s FNP as a % of TPL The portion of the non-employer’s proportionate
share of the collective NPL that is associated with the employer
If contributions are statutory/contractual, 10-year schedule of such amounts compared to actual contributions
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RSI – Cost Sharing Employers
2015 2014 2013 2012 2011 2010 2009 2008 2007 2006District's Proportion of the Net Pension Liability (asset) 0.020% 0.019% 0.019% 0.019% 0.020% 0.020% 0.020% 0.021% 0.021% 0.021%
District's Proportionate Share of Net Pension Liability (asset) 1,491$ 1,174$ 1,297$ 1,349$ 1,489$ 1,161$ 437$ (235)$ (126)$ (93)$
State's proportionate share of NetPension Liability associated withthe Sample ISD 13,419 10,564 11,675 12,145 13,402 10,445 3,935 (2,119) (1,137) (834)
Total 14,910$ 11,738$ 12,972$ 13,494$ 14,891$ 11,606$ 4,372$ (2,354)$ (1,263)$ (927)$
District's Covered Payroll 11,512 10,412 9,715 9,553 9,522 9,299 8,709 8,175 7,909 7,659
District's proportionate share of netpension liability (asset) as a percentageof its covered payroll 12.95% 11.28% 13.35% 14.12% 15.64% 12.49% 5.02% -2.87% -1.59% -1.21%
Plan fiduciary net position as a percentage of total pension liability 81.38% 83.20% 80.41% 78.53% 75.79% 79.74% 91.78% 104.52% 102.83% 102.10%
SCHEDULE OF SAMPLE ISD'S PROPORTIONATE SHARE OF NET PENSION LIABILITYTEACHERS RETIREMENT SYSTEM
Last Ten Fiscal Years(Dollar amounts in thousands)
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GASB 68
• Is effective for financial statements for fiscal years beginning after June 15, 2014 (fiscal year 2015)
• Any changes to beginning net position resulting from implementation should be treated as an adjustment of prior periods.
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GASB 68 Implementation Guide
• Issued January 2014• Contains 272 Q & A• Statement No. 68, as amended by
Statement No. 71• Illustrations:– Calculation of discount rate– Note disclosures and RSI under various
scenarios, as well as calculations of NPL, Deferred Outflows/Inflows, and Pension Expense
Statement No. 69
Government Combinations and Disposals of Government
Operations
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GASB 69
Government Combinations:• Mergers• Acquisitions• Transfer of operations
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GASB 69
• Defines each type of combination• Establishes methods of measurement
and recognition for each type of combination
• Establishes required footnote disclosures
• The provisions in Statement 69 are effective for fiscal years beginning after December 15, 2013 (FY15)
