State of North Carolina June 30, 2018

NOTES TO THE FINANCIAL STATEMENTS

NOTE 2: CHANGES IN FINANCIAL ACCOUNTING AND REPORTING

CHANGES RESULTING FROM ADOPTION OF NEW ACCOUNTING PRINCIPLES

For the fiscal year ended June 30, 2018, the State implemented the following pronouncements and implementation guides issued by the

Governmental Accounting Standards Board (GASB):

– Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions,

– Statement No. 81, Irrevocable Split-Interest Agreements,

– Statement No. 85, Omnibus 2017,

– Statement No. 86, Certain Debt Extinguishment Issues,

– Implementation Guide No. 2017-1, Implementation Guidance Update – 2017,

– Implementation Guide No. 2017-2, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans,

– Implementation Guide No. 2017-3, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and

Certain Issues Related to OPEB Plan Reporting).

Statement No. 75 improves the accounting and financial reporting by state and local governments for postemployment benefits other than

pensions (other postemployment benefits or OPEB). The Statement replaces the requirements of Statements No. 45, Accounting and

Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by

Agent Employers and Agent Multiple-Employer Plans, for OPEB. The Statement establishes standards for recognizing and measuring

liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. The Statement also identifies

methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial

present value, and attribute the present value to periods of employee service for defined benefit OPEB. Note disclosures and required

supplementary information requirements are also addressed.

Statement No. 81 improves accounting and financial reporting for irrevocable split-interest agreements by providing recognition and

measurement guidance for instances where a government is a beneficiary of the agreement. Split-interest agreements are used by donors

to provide resources to two or more beneficiaries, including governments. They can be created through trusts or other legally enforceable

agreements. The governments that are beneficiaries of split-interest agreements must recognize assets, liabilities, and deferred inflows of

resources at the inception of the agreement. The Statement also requires a government to recognize assets representing the government’s

beneficial interest in an irrevocable split-interest agreement that is administered by a third party, if the government controls the present

service capacity of the beneficial interest. Governments are also required to recognize revenue when resources become applicable to the

reporting period.

Statement No. 85 addresses issues identified during implementation of certain other GASB Statements. It enhances consistency in the

application of accounting and financial reporting requirements by providing technical clarification of issues related to blending

component units, goodwill, fair value measurement and application, and postemployment benefits.

Statement No. 86 improves consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance

for transactions in which cash and other monetary assets acquired with only existing resources (non-refunding resources) are placed in an

irrevocable trust for the sole purpose of extinguishing the debt. The Statement also improves accounting and financial reporting for debt

that is defeased in substance.

Implementation Guide No. 2017-1 addresses questions raised relative to the standards on cash flows related to pension and other

postemployment benefits (OPEB), financial reporting entity, pensions – plan and employer accounting and reporting, accounting and

financial reporting for certain investments and for external investment pools, fund balance reporting, and tax abatement disclosures.

Implementation Guide No. 2017-2 addresses questions raised relative to Statement No. 74, Financial Reporting for Postemployment

Benefit Plans Other Than Pension Plans, as amended.

Implementation Guide No. 2017-3 addresses questions raised relative to Statements No. 74 and 75. The majority of the requirements in

this guide are effective in the fiscal year ended June 30, 2018, although some of the requirements are effective in the subsequent fiscal

year.

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