what’s new in governmental accounting and auditing
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WHAT’S NEW IN GOVERNMENTAL ACCOUNTING AND AUDITING
2014 GASB UpdatePage 2Page 2Page 2
GASB Statement No. 65, Items Previously Reported as Assets and Liabilities
Requires certain items to be reclassified as deferred outflows, deferred inflows, revenues or expense: Difference between the reacquisition price and the net carrying
amount resulting from refunding debt should be reported as deferred outflows or deferred inflows
Property taxes received before the levy period should be reported as deferred inflows
Proceeds from the sale of future revenues reported as deferred inflows
Resources received from grantor when the only eligibility criterion that hasn’t been met is a time requirement should be reported as deferred inflow
Revenue of a governmental fund that is not recognized solely because it is not yet “available” should be reported as deferred inflow
2014 GASB UpdatePage 3Page 3Page 3
GASB Statement No. 65, Items Previously Reported as Assets and Liabilities
Requires certain items to be reclassified as deferred outflows or deferred inflows (cont.): Debt issuance costs should be recognized as an expense (write off
any beginning balance upon implementation) Gain or loss resulting from sale-leaseback transactions should be
reported as deferred inflows/outflows Loan origination fees and direct loan origination costs should be
recognized as revenue and expense, but points should be deferred inflow
If loan is held for sale, everything is reported as deferred inflows/outflows
Can no longer use the term “deferred revenue” in the financial statements
Effective date: years ending December 31, 2013 (June 30, 2014)
2014 GASB UpdatePage 4Page 4Page 4
GASB Statement No. 66, Technical Corrections 2012 - an amendment of GASB Statements No. 10 and 62
Amends Statement No. 10 by removing provision that limits fund-based reporting of an entity’s risk-financing activities to the general fund and internal service fund types
Risk-financing activities can now be reported in any fund type based on the nature of the activity to be reported
Amends Statement No. 62 by modifying guidance on accounting for operating lease payments that vary from straight-line and clarifies how to apply Statement No. 13, Accounting for Operating Leases with Scheduled Rent Increases, to be consistent with Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity
2014 GASB UpdatePage 5Page 5Page 5
Pension Accounting and Financial Reporting
2014 GASB UpdatePage 6Page 6Page 6
GASB Statement No. 67, Financial Reporting for Pension Plans
Amends GASB 25, Financial Reporting for Defined Benefit Pension Plans, and applies to plan statements
Financial statements are basically the same as under GASB 25
Required to report the components of net pension liability of the employer
Net pension liability is the total pension liability less the plan’s fiduciary net position
Actuarial valuations required at least every two years
Discount rate will be long-term rate to extent of plan net position and bond rate once net position is depleted; calculate one blended rate
2014 GASB UpdatePage 7Page 7Page 7
GASB Statement No. 67, Financial Reporting for Pension Plans
Amends GASB 25, Financial Reporting for Defined Benefit Pension Plans, and applies to plan statements (cont.)
Entry age normal actuarial cost method as a level percentage of pay is required
Enhanced note disclosures
RSI to include 10 years of information as follows:1. Schedule of changes in net pension liability and related ratios
2. Schedule of employer contributions, if actuarially determined
3. Schedule of investment returns
Effective date: years ending June 30, 2014
2014 GASB UpdatePage 8Page 8Page 8
GASB Statement No. 68, Accounting and Financial Reporting for Pensions
Amends GASB 27, Accounting for Pensions by State and Local Governmental Employers, and GASB 50, Pension Disclosures, and applies to employer reporting of pension plans that are qualified trusts
Government is required to recognize the net pension liability in full accrual statements
The net pension liability is equal to total pension liability less plan fiduciary net position
Requires more expense to be recognized immediately than in the past
Changes in total pension liability resulting from current-period service cost, interest on total pension liability and changes in benefit terms must be recognized immediately
2014 GASB UpdatePage 9Page 9Page 9
GASB Statement No. 68, Accounting and Financial Reporting for Pensions
Changes in economic and demographic assumptions, differences between expected and actual experience are required to be included in pension expense in a systematic, rational manner over closed period equal to average expected remaining service lives of all employees provided benefits (active and inactive employees)
Differences between projected earnings and actual earnings to be included in pension expense over five years
For modified accrual statements, net pension liability recognized to the extent it is liquidated with available expendable resources
Significant change for cost-sharing multiple employer plans
2014 GASB UpdatePage 10Page 10Page 10
GASB Statement No. 68, Accounting and Financial Reporting for Pensions
Applies concepts of deferred inflows and outflows for any changes in net pension liability that are not included in pension expense
Employer contributions subsequent to the measurement date should be reported as deferred outflows
Enhanced note disclosure and RSI schedules required by GASB 67
Effective date: years ending June 30, 2015
2014 GASB UpdatePage 11Page 11Page 11
GASB Statement No. 69, Government Combinations and Disposals of Government Operations
Applies to mergers, acquisitions or transfers of operations, but does not apply to acquisition of another organization that continues to exist as a separate entity or acquisition of an equity interest in a separate entity
Government merger is a combination of legally separate entities where no significant consideration is exchanged, and either:
1. Two or more governments cease to exist as legally separate entities and are combined to form one new government, or
2. One or more legally separate governments cease to exist and their operations are absorbed into one or more continuing governments
If a new government is created, the assets, liabilities, and deferred inflows/outflows are measured at the carrying values of merging entities
Continuing governments report carrying values as if combination occurred at beginning of the continuing government’s year
2014 GASB UpdatePage 12Page 12Page 12
GASB Statement No. 69, Government Combinations and Disposals of Government Operations
Government merger (cont.):
Adjustments might be needed and impairment should be considered
Need to eliminate any transactions between the merging governments that occurred before the combination
Government acquisition is a combination in which one government acquires another (or the operations of another) in exchange for significant consideration
Acquired entity becomes part of the acquiring government
Measured at acquisition value except compensated absences, OPEB, pensions, termination benefit obligations, landfill closure costs, investments and derivatives must follow GASB standards
2014 GASB UpdatePage 13Page 13Page 13
GASB Statement No. 69, Government Combinations and Disposals of Government Operations
Government acquisition (cont.)
Acquisition value is a market-based entry price defined as one based on an orderly transaction and represents price that would be paid for acquiring similar assets at the acquisition date
Cannot recognize acquired goodwill
Consideration may be financial (e.g., cash) and nonfinancial (e.g., capital assets) and may exceed the net position acquired, in which case the difference is reported as deferred outflows and amortized in a rational systematic manner
2014 GASB UpdatePage 14Page 14Page 14
GASB Statement No. 69, Government Combinations and Disposals of Government Operations
Government acquisition (cont.)
If consideration paid is less than net position acquired, reduce the acquisition values of noncurrent assets. If allocation reduces the noncurrent assets to zero, the remainder will be a Special Item in the financial statements
Can recognize a contribution in certain cases when the seller intends to accept a lower price in order to provide economic aid to the acquiring government (negative book value by itself does not constitute consideration unless the intent is to make a contribution)
Acquisition costs are expensed
2014 GASB UpdatePage 15Page 15Page 15
GASB Statement No. 69, Government Combinations and Disposals of Government Operations
Transfer of operations is a government combination involving the operations of a government with no significant consideration exchanged Transfer of operations could be through annexation, redistricting or
shared service arrangements (for example – public safety) Transfer of operations to a new government, such as formation of a
library district or governments combining operations and transferring assets and liabilities to a new government
Transferee government reports net fund balance received as a Special Item in statement of revenue, expenditures and changes in fund balance
An example of an operation would be an entire fire department but not a single truck
The transferred operation must continue to provide essentially the same services as prior to transfer
2014 GASB UpdatePage 16Page 16Page 16
GASB Statement No. 69, Government Combinations and Disposals of Government Operations
Disposals of Government Operations
Disposing government recognizes gain or loss as a Special Item
Only include costs directly associated with the disposal
Examples are included in Appendix C
Effective date: years ending December 31, 2014
2014 GASB UpdatePage 17Page 17Page 17
GASB Statement No. 70, Accounting and Financial Reporting for Non-exchange Financial Guarantees
A non-exchange financial guarantee is a guarantee of an obligation of a legally separate entity, including component units, which requires guarantor to indemnify a third-party holder under specified conditions whereby guarantor does not receive anything in return (non-exchange transaction)
Does not apply to special assessment debt
Requires a government to recognize a liability when there are qualitative factors that make it more likely than not (more than 50%) that the government will make a payment on the guarantee
“More likely than not” differs from GASB 62 and FASB 5 definition with regard to contingencies which require liability if “probable”
2014 GASB UpdatePage 18Page 18Page 18
GASB Statement No. 70, Accounting and Financial Reporting for Non-exchange Financial Guarantees
Qualitative factors to consider include: Bankruptcy Breach of debt contract (failure to meet debt covenants) Financial difficulty
Amount recognized is the best estimate of the present value of future outflows expected to be incurred
If only a range is available and no probability in the range is better than another, use minimum amount of the range
Recognize expense and liability in full accrual statements but subject to expenditure recognition criteria in modified accrual statements (must be due and payable)
Expenditure classification should be same manner as for grants or financial assistance payments to others
2014 GASB UpdatePage 19Page 19Page 19
GASB Statement No. 70, Accounting and Financial Reporting for Non-exchange Financial Guarantees
For governments that issue guaranteed obligation, if required to repay a guarantor who makes payment on the obligation, the issuing government should reclassify that portion of the debt as a liability to the guarantor government
The issuing government continues to report the liability until it is legally released
If a government guarantees an obligation of a discretely presented component unit, there could be two liabilities outstanding and no receivable. However, if the component unit is blended they would record a receivable from the guarantor
Lots of disclosures required Examples are included in Appendix C
Effective date: years ending June 30, 2014
2014 GASB UpdatePage 20Page 20Page 20
GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date Amends GASB Statement No. 68, Accounting and Financial Reporting
for Pensions, which requires an employer to recognize a net pension liability at the measurement date, which must be no earlier than the end of its prior fiscal year
Once GASB 68 is implemented, contributions made between the measurement date and the end of the governments’ reporting periods would be reported as deferred outflow of resources
GASB Statement No. 68 stated that if it is not practical to determine amounts of all deferred inflows/outflows at transition, then governments will report no deferred inflows or outflows, which would result in an understatement of beginning net position
2014 GASB UpdatePage 21Page 21Page 21
GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date To correct this potential understatement, the proposed Statement
would require a state or local government, when transitioning to the new pension standards, to recognize a beginning deferred outflow of resources for its pension contributions made during the time between the measurement date of the beginning net pension liability and the beginning of the initial fiscal year of implementation
This amount would be recognized regardless of whether it is practical to determine the beginning amounts of all other deferred outflows of resources and deferred inflows of resources related to pensions
Effective date: when GASB Statement No. 68 is implemented
2014 GASB UpdatePage 22Page 22Page 22
GASB Exposure Draft, Implementation Guide No. 20XX-1
The GASB Comprehensive Implementation Guide is currently Level D GAAP and, therefore, has not been subjected to broad public exposure
This pronouncement will elevate the Guide to Level B GAAP
To accomplish this, GASB has put the Guide out for public exposure and due process
Deadline for submitting written comments is December 31, 2014
Effective date: years ending June 30, 2016, or when The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments is implemented
2014 GASB UpdatePage 23Page 23Page 23
GASB Exposure Draft, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments This pronouncement supersedes GASB Statement No. 55 and elevates
the Comprehensive Implementation Guide to Level B GAAP GASB Statements continue to be Level A GAAP Technical Bulletins, Implementation Guides and literature of the AICPA
that has been specifically cleared by GASB constitute Level B GAAP
Effective date: years ending June 30, 2016, with early application permitted
2014 GASB UpdatePage 24Page 24Page 24
GASB Exposure Draft, Measurement of Elements of Financial Statements
The objective of this concept’s statement is to identify concepts for the Board to consider when developing standards
It does not require a change in existing GAAP, nor does it amend, modify or interpret existing GAAP
This proposed concept’s statement would establish two measurement approaches to be used in financial statements as follows:
Initial transaction date-based measurement represents the price or amount assigned when an asset was acquired or liability incurred
Current financial statement date-based measurement is the amount assigned when an asset or liability is re-measured as of the financial statement date
2014 GASB UpdatePage 25Page 25Page 25
GASB Exposure Draft, Measurement of Elements of Financial Statements
Establishes four measurement attributes:
Historical cost - price paid to acquire an asset or amount received to incur liability
Fair value - price received to sell an asset or paid to transfer a liability
Replacement cost – price that would be paid to acquire an asset with equivalent service potential
Settlement amount - amount for which an asset could be realized or a liability liquidated, other than in an active market
2014 GASB UpdatePage 26Page 26Page 26
GASB Exposure Draft, Fair Value Measurement and Application
Defines fair value as 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 (same as FASB Statement No. 157)
Considered an exit price and not adjusted for transaction costs (these are expensed)
Need to use the principal market, which is the market with the greatest volume and level of activity for that asset or liability
If no principle market exists, use the most advantageous market, which is the market that maximizes the price that would be received
Valuation techniques should maximize use of relevant observable inputs and can use market, cost or income approaches
Incorporates the fair value hierarchy of inputs from FAS 157 (Level 1, 2 and 3)
2014 GASB UpdatePage 27Page 27Page 27
GASB Preliminary Views, Fair Value Measurement and Application
Takes into account the highest and best use for a nonfinancial asset
Will also apply to liabilities such as interest rate swaps, taking into account nonperformance risk
Defines an investment as a security or other asset that a government holds primarily for the purpose of income or profit, and its present service capacity is based solely on its ability to generate cash or to be sold to generate cash
Certain investments would be excluded from fair value measurement, including investments in 2a7-like pools, investments in money market instruments with maturity less than one year, investments in life insurance policies, investments in common stock that are eligible for equity method, and investments in nonparticipating interest-earning investment contracts
Additional disclosures required for investments in entities that calculate net asset value per share
2014 GASB UpdatePage 28Page 28Page 28
Current GASB Projects
Other Postemployment Benefits (OPEB) Two proposals due to be issued in June - one relates to reporting by
the OPEB Plan and the other relates to reporting by government employers
Government employers will be required to recognize on the face of the financial statements a net OPEB liability
Will follow requirements of GASB 68, Accounting and Financial Reporting for Pensions
Leases Exposure draft expected in November 2014 Will require assets and liabilities to be recorded based on present
value of future payments
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