GASB Update MGFOA 2015 Fall Conference Presented by: Joe Heffernan
Topics for Today Pronouncements Effective at June 30, 2015 or Later: • Government Combinations & Disposals (GASB 69); • Fair Value Measurement & Disclosures (GASB 72) • GAAP Hierarchy (GASB 76) • Pensions not funded by a Trust (GASB 73) • Tax Abatement Disclosures (GASB 77)
Exposure Drafts: • External Investment Pools, Split-interest Agreements, Blending certain component units, Fiduciary Funds, Leases, CIG Future Projects:
• Asset retirement obligations; Reporting model reexamination, Debt extinguishments, Going concern
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Recently Issued Pronouncements Stmt. #
Eff/ p/b/a
June Y/Es
Dec. Y/Es
Mar. Y/Es
68- Pension obligations (employer)
6/15/2014
2015
2015
2015
(2)
69- Combinations/ Disposals
12/15/2013
2015
2014
2015
(1)
71- Pension transition
6/15/2014
2015
2015
2015
(2)
72- Fair value measurement, disclosure
6/15/2015
2016
2016
2016
(1)
6/15/2016 *
2017
2017
2017
(1)
74- OPEB Plan reporting
6/15/2016
2017
2017
2017
(2)
75- OPEB obligations (employer)
6/15/2017
2018
2018
2018
(2)
76- GAAP hierarchy
6/15/2015
2016
2016
2016
(1)
77- Tax abatement disclosures
12/15/2015
2017
2016
2017
(1)
73- Pensions not in a Trust
* Certain provisions are effective one year earlier (those related to assets accumulated for pensions, pension plans within the scope of #67, or pensions within the scope of #68) (1) Statement will be covered by today’s presentation; (2) The statement will be covered in Wednesday morning’s presentation. EDIT IN MASTER: CLIENT OR PRESENTATION NAME
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GASB 69
Government Combinations & Disposals
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Government Combinations & Disposals Effective 12/31/2014
Is there significant consideration? Yes Does the combination involve the entire legal entity?
Entire entity A portion of its operations
No
Merger Acquisition
Transfer of Operations
Acquisitions: The acquiring government would report the assets at “acquisition value” (FMV); any difference between price paid would be Deferred outflow, or reduction in noncurrent asset values. Merger/ Transfer: Assets and liabilities (and deferred inflows/ outflows) would come forward at their originally reported values (subject to any corrections for misapplication of GAAP, or to bring differing accounting principles into alignment) In a transfer of operations, the government would report a special item for the amount of assets and liabilities (and deferred inflows/ outflows) received EDIT IN MASTER: CLIENT OR PRESENTATION NAME
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GASB 72
Fair Value Measurement & Disclosures
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Fair Value Measurement & Disclosures Effective 6/30/2016 Definition: The price that would be received to sell an asset (or paid to transfer a liability) in an orderly transaction between market participants at the measurement date •
This is an “exit price” concept, based on a local unit’s principal or most advantageous market, and does not consider selling costs (commissions).
Valuation techniques •
Market approach, cost approach, income approach (choose the one that best represents fair value in the circumstances)
Inputs •
Level 1: Quoted prices in active markets for identical assets or liabilities
•
Level 2: Quoted prices for similar assets or liabilities; or quoted prices for identical assets in markets that are not active; or other than quoted prices that are observable
•
Level 3: Unobservable inputs
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Investments and fair value Investments generally should be measured at fair value Some exceptions – such as 2a7-like pools Definition of investment: A security or other asset that is held primarily for the purpose of income or profit, and with a present service capacity that is based solely on its ability to generate cash or to be sold to generate cash Footnote disclosures For each class or type of asset/ liability reported at fair value: •
The amount of the fair value measurement as of the balance sheet date;
•
For nonrecurring FV measurements, the reasons for the measurement;
•
The level of the FV hierarchy (Level 1, 2 or 3), in total
•
A description of the valuation techniques
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GASB 76
GAAP Hierarchy
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GAAP Hierarchy Effective 6/30/2016 Cat.
Source
Due Process
A
GASB Statements
Significant public exposure process, public hearings; formal approval by GASB Board.
B
• • •
Exposed for a period of public comment; cleared by the Board
GASB Technical Bulletins Implementation Guides; AICPA literature specifically cleared by GASB
Nonauthoritative Guidance (may be considered if the accounting treatment for a transaction is not specified in the documents above) • • •
Concepts statements FASB. FASAB, IPSASB, IASB AICPA Issue papers
•
Practices that are widely recognized & prevalent *
• •
Literature of other associations or regulatory agencies Accounting textbooks, handbooks, articles.
* This is a demotion! EDIT IN MASTER: CLIENT OR PRESENTATION NAME
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GASB 73
Pensions Not Funded by a Trust
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Pensions Not Funded by a Trust Effective 6/30/2017
When would this ever apply? Rarely – Perhaps our city charter provides for a retirement benefit for the Mayor if they serve 10 years; and we’ve never funded this through any type of trust arrangement. How are we told to account for this? Basically – Follow GASB 68: • Actuarial valuation at least every 2 years, within 30 months of balance sheet, using measurement date within 12 months; using entry age actuarial cost method, Discount rate of a 20 year tax exempt muni bond w/ a AA rating; • Net Pension Liability becomes a full accrual liability (along with deferred outflows/ inflows) • Lots of footnote disclosures & Required Supplementary Information
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GASB 77
Tax Abatement Disclosures
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Tax Abatement Disclosures Effective 12/31/2016
Definition of “Tax Abatement Agreement” A reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which
(a) one or more governments promise to forgo tax revenues to which they are otherwise entitled and (b) the individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or the citizens of those governments. Governments would need to disclose (either individually, or in the aggregate); disclosures should separate: • Abatements that it has entered into (reported by major program, such as economic development, or film incentives); and • Abatements entered into by other governments that reduce the reporting government's taxes (reported by government that entered into the agreement and the specific tax being abated) EDIT IN MASTER: CLIENT OR PRESENTATION NAME
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Tax Abatement Disclosures – Own Abatements Own Abatements: • Brief description of name & purpose of program, taxes being abated, legal authority, eligibility criteria, mechanism for abating (form and calculation), provisions for recapturing (if any), and the types of commitments made by recipients • Gross amount of tax abated in current year (and related payments received from other governments, if applicable) • Any commitments made by the government other than to reduce taxes Abatements Entered into by Other Governments: Be thinking about providing this information to your local school districts, county, etc.)
• Brief description (name of governments entering into abatements, specific taxes) • Gross amount of tax abated (and related payments received from other governments, if applicable)
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Exposure Drafts Outstanding •
External Investment Pools
•
Split Interest Agreements
•
Blending Component Units
•
Fiduciary Funds
•
Leases
•
Comprehensive Implementation Guide
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External Investment Pools
Why? GASB 31 instituted a rule that allowed “2a7-like” investment pools to report their holdings at cost or amortized cost (or $1 NAV) In 2014 the SEC significantly amended Rule 2a7, making it difficult for government-run external investment pools to continue to qualify. The purpose of this project is to create a new set of criteria that if a pool operates within, it could continue to report its holdings at cost. The proposed effective date will be for June 30, 2016 year ends (periods beginning after June 15, 2015)
The final statement is expected in December 2015
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External Investment Pools (continued) So what are the proposed criteria? a. Transacts with its participants at a stable net asset value per share (for example, at $1.00 net asset value per share) b. Maturity requirements (weighted avg. maturity < 60 days; avg. “life” of 120 days; nothing >397 days) c. Quality requirements (U.S.$ & highest rating category) d. Diversification requirements (<5% in single issuer; 10% for demand securities)
e. Liquidity requirements (can be sold quickly) f. Shadow price requirements (FMV within 50 basis points) Footnote Disclosures GASB 31 & 40 disclosures. Also, Fair value; and information about withdrawal restrictions Options to Change This is a one-way street: you can opt out, but can not opt back in. You need to elect cost reporting in initial year, and if you do not meet the proposed criteria in a future year, generally can not opt back in (unless due to exceptional circumstances) EDIT IN MASTER: CLIENT OR PRESENTATION NAME
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Irrevocable Split Interest Agreements
What is a split-interest agreement?
• Donor gives resources to the Government, or to a 3rd party; • Income benefit: (Payments during life of the trust) o Generally
goes to non-government beneficiary (usually the donor or donor’s relative)
• Remainder benefit: (remainder assets at termination of trust) o Generally
goes to the government
o Trust
termination occurs upon the donor’s death, a set period, or some combination (7 years or donor’s death, whichever is longer)
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Irrevocable Split Interest Agreements When the government holds the assets:
• Report an asset for amounts received; • A liability for benefit of nongovernment beneficiary; • And deferred inflows of resources for the government’s beneficial interest. [Revenue to be recognized: if income benefit, as distributions are made; if remainder benefit, when agreement terminates] The income benefit (usually a liability to the donor/ relative) should be measured at the settlement amount (assume the estimated return on assets, terms of the agreement, mortality risk, & discount rate) The remainder benefit will be the residual (Assets less income benefit) When a 3rd party holds the assets (and the 7 criteria are met): • Report an asset for the beneficial interest, measured at Fair Value (P.V. of estimated future cash flows) • Report a deferred inflow [Revenue to be recognized when distributions are made] Re-measure the beneficial interest annually.
Final statement is expected in January 2016 EDIT IN MASTER: CLIENT OR PRESENTATION NAME
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Blending Component Units
The proposal’s scope is fairly narrow – applies to not-forprofit corporations in which the primary government is the sole corporate member
The proposal would require them to be blended, rather than discretely presented • Unless they meet the criteria from GASB 39 (tax exempt organization whose resources are held for the direct benefit of the PG, the PG has ability to access its resources, and amount is significant)
Final Statement is expected in March 2016
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Fiduciary Funds – a “Preliminary Views” document “Preliminary View” of a new definition of “Fiduciary:” The assets are not derived solely from the government’s own-source revenues, and one of the following criteria are met: • The assets result from a pass-through grant for which the govt. does not have administrative or direct financial involvement; • The assets are administered through a trust or equivalent arrangement in which the government itself is not a beneficiary • The assets are to be used for the benefit of individuals that are not required to be residents or recipients of the government’s goods and services as a condition of being a beneficiary; or • The assets are to be used for the benefit of organizations or other governments that are not part of the financial reporting entity. Assets meeting the above criteria should be reported in fiduciary funds when the government “controls” the assets Either by holding the assets, or if it has the ability to administer or direct the use, exchange, or employment of the present service capacity of the assets to provide those benefits. EDIT IN MASTER: CLIENT OR PRESENTATION NAME
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Fiduciary Funds (continued) Preliminary View of the reporting requirements: Funds held in a trust (or equivalent) should continue to be reported as Trust Funds: • Pension & other employee benefit trust funds; • Investment trust funds; • Private-purpose trust funds
Funds that are not in a Trust should now be reported as… Custodial Funds • “Agency” funds would be eliminated • Custodial funds would present an income statement (Additions and Deductions, in a Statement of Changes in Fiduciary Net Position) • A liability (and deduction) would be recognized when an event occurs that compels the disbursement of fiduciary resources.
Final statement is expected in July 2016 EDIT IN MASTER: CLIENT OR PRESENTATION NAME
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Leases – Preliminary Views
The “Preliminary View” is to follow the proposed new FASB rules for leases (with some modifications, of course) General rule: Leases are leases – no more differentiation between “Capital” v. “Operating” leases Lease obligations go on the books, with an offsetting deferral •
Lessees report a liability for the present value of the obligation to pay the lease;
•
And an offsetting intangible asset for the right to use the underlying asset
•
Future payments reduce the lease payable along with interest expense; the intangible asset is amortized over shorter of useful life or lease term
Lessors, on the other hand, report:
•
A lease receivable (at discounted present value), with
•
An offsetting deferred inflow of resources (including any up-front cash received)
•
Future payments received reduce the lease receivable and recognize interest income; the deferred inflow of resources is amortized into income
Lots of details, exceptions & lots of disclosures! Final statement is expected in December 2016 EDIT IN MASTER: CLIENT OR PRESENTATION NAME
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Comprehensive Implementation Guide
Implementation Guide 2015-1 was released Aug. 27, 2015 This has gone through a public exposure process, and with the adoption of GASB 76, is now “authoritative” Not much change (yeah team!)
Effective for reporting periods ending after 6/15/2015 (June 30, 2016 fiscal year ends)
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Future Projects •
Asset Retirement Obligations
•
Financial Reporting Model Re-examination
•
Debt Extinguishments
•
Going Concern
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