Government Finance Officers Association

22nd Annual

Governmental

GAAP Update

#GFOA

November 2, 2017

December 7, 2017

January 18, 2018

Speakers

Chris Morrill,

Executive

Director/CEO, GFOA

Todd Buikema, Acting

Director, Technical

Services, GFOA

Peg Hartnett, Senior

Manager, Technical

Services, GFOA

David Vaudt, Chairman,

GASB

Bob Scott, CFO, City of

Carrollton, Carrollton, TX

Melinda Gildart, Controller,

Chicago Public Schools,

Chicago, IL

Ted Williamson, Partner,

RubinBrown LLP, St. Louis,

MO

2

Program Overview

Topics

I. GASB Projects and Pre-Agenda Research

Activities Update

II. Final GASB Statements

• GASB Statement No. 83, Certain Asset

Retirement Obligations

• GASB Statement No. 84, Fiduciary Activities

• GASB Statement No. 85, Omnibus 2017

• GASB Statement No. 86, Certain Debt

Extinguishment Issues

• GASB Statement No. 87, Leases

4

Topics (cont.)

III. GASB Implementation Guidance

• Guide No. 2017-1, Implementation Guidance

Update-2017

• Guide No. 2017-2, Financial Reporting for

Postemployment Benefits Other Than Pension

Plans

5

Topics (cont.)

IV. GASB Exposure Drafts

• Certain Disclosures Related to Debt, including

Direct Borrowings and Direct Placements, an

amendment of GASB Statements No. 34 and No. 38

• Implementation Guide No. 201X-Z, Accounting

and Financial Reporting for Postemployment

Benefits Other Than Pensions (and Certain

Issues Related to OPEB Plan Reporting)

6

Topics (cont.)

V. Yellow Book Exposure Draft Update

VI. Uniform Grant Guidance Update

VII. Common Reporting Deficiencies – CAFR

Program

VIII. Invitation to Comment Financial Reporting

Model Improvements - Governmental

Funds

7

GASB Projects and Pre-

Agenda Research Activities

Financial Reporting Model

Reexamination Invitation to comment—issued December 2016

• Governmental funds—what should they convey?

• Role of cash flows statements in governmental funds

Approaches Considered

• Near-term financial resources

• Short-term financial resources

• Long-term financial resources

9

Financial Reporting Model

Reexamination

10

What Did We Hear from Due Process

Participants?

Feedback was diverse not only among the

preparer, auditor, and user communities, but

also within each stakeholder community

11

Participants’ Feedback on:

What the Focus of Governmental Funds Should Be

Many supported continuing to present a

shorter time perspective than the

information presented in the government-

wide financial statements

Challenge: conceptual foundation

12

Participants Voiced Some Support for:

Current financial resources with modifications

Near-term approach as presented in the ITC

Near-term approach with modifications

Short-term approach as presented in the ITC

Short-term approach with modifications

Long-term approach as presented in the ITC

Long-term approach with modifications

Economic resources approach

13

Additional Topics

to Be Addressed in Preliminary Views:

Format of the government-wide statement of activities

• Proposal—Retain current format

Separate presentation of operating and nonoperating

revenues and expenses—in proprietary fund and

business-type activity (BTA) financial statements

• Proposal—Retain distinction

• Proposal—Operating: derived from nonoperating

• Proposal—Nonoperating: subsidizes received and provided;

revenues and expenses of financing; disposals of capital assets;

and investment income and expense

Budgetary comparisons

• Proposal—Required supplementary information

Permanent funds—to be deliberated

14

Additional Topics Expected

to Be Addressed in the Exposure Draft:

Extraordinary and special items

Management’s discussion and analysis

Debt service funds

15

Revenue and Expense Recognition

What: Development of a comprehensive

application model for recognition of revenues and

expenses from nonexchange, exchange, and

exchange-like transactions

Why: Questions on how to account for revenues

from transactions that are neither fully exchange

or nonexchange; governmental revenue

recognition standards not revised for many years;

current literature does not provide comprehensive

guidance

When: Project added April 2016

16

Topics to Be Considered

Should a performance obligation approach

be used for transactions of a government?

If so, for which transactions?

Should guidance for nonexchange

transactions be revised in light of GASB

Concepts Statements?

Should guidance be developed for

exchange revenues and expenses not in the

scope of existing concept-based guidance?

17

Pre-Agenda Research Activities

Going Concern Disclosures Reexamination

IT Arrangements—including Cloud

Computing

Note Disclosures Reexamination

Public-Private Partnerships

18

Going Concern Disclosures

What: A review of existing standards related to

going concern considerations, which were

incorporated into GASB literature mostly as-is

from the AICPA literature in Statement 56

Why: As it is currently defined, going concern may

not be meaningful for governments, which hardly

ever go out of business; AICPA and others have

asked the GASB to examine the issue

When: Added April 2015

19

Information Technology Arrangements

What: Research current practices with respect to

reporting cloud computing contracts and similar

information technology (IT) arrangements and

identify whether there is a need for specific

guidance

Why: Stakeholders are concerned that these

transactions may not be covered by the guidance

in Statement 51 or the new leases standards.

When: The Board added the pre-agenda research

in April 2017.

20

Note Disclosures

What: A review of existing standards related to

note disclosures except for those (1) required by

pronouncements that have not been effective for

at least three years, and (2) related to leases,

debt extinguishments, outstanding debt, conduit

debt, and going concern (which are the subjects of

separate projects or research)

Why: A comprehensive review of note disclosures

has not been conducted since 1997

When: Added April 2016

21

Public-Private Partnerships

What: Research to identify public-private partnerships

(P3s) that may not be subject to Statement 60 on service

concession arrangements or the new leases standards

and to evaluate the effectiveness of Statement 60

Why: The GASB routinely reviews whether existing

standards are meeting their intended objectives. In

addition, stakeholders are concerned that some P3

transactions outside the scope of Statement 60 also not

covered by leasing standards.

When: Added April 2017.

22

Final GASB Statements

GASB Statement No. 83

Certain Asset Retirement Obligations

Issued November 2016

Effective Date: Periods beginning after

June 15, 2018

Background

Asset retirement obligation (ARO)

• Legally enforceable liability associated with the retirement of a tangible capital asseto Retirement = sale, abandonment, recycling, other types

of disposal

• Results from the normal operations of capital assets

Examples

• Costs associated witho Decommissioning nuclear reactors

o Dismantling and removing sewage treatment plants

o Removal and disposal of wind turbines

25

Recognition

Three criteria

• Liability incurred and reasonably estimable

• Occurrence of external obligating event

oSource of (potential) obligation

• Occurrence of internal obligating event

oCircumstances that trigger the obligation

26

External obligating events

Existing laws and regulations

Legally binding contracts

Court judgments

27

Internal obligating events

Occurrence of contamination from normal use

Events other than contamination• Obligation based on use?

oPlacing the asset into operation and consumption (mine)

• Obligation not based on use?

oPlacing the asset into operation (wind turbine)

• Permanent abandonment before ready for use?

oAbandonment (sewage treatment plant)

Acquiring an asset that has an existing ARO• Acquisition

28

Elements recognized

Credit - ARO liability

Debit

• Deferred outflow of resources

oRecognize as expense in a systematic and rational

manner over useful life

• Expense

oAbandonment before asset is ready for use

29

Initial measurement

Best estimate of current value (not present

value) of outlays expected to occur

• Probability weighting of potential outcomes

should be used if sufficient evidence is available

or can be obtained at reasonable cost

oOtherwise, use most likely amount in range of

possible outcomes

30

Initial measurement exception

for minority owner Government has minority share (<50%) in a joint operation

• Government and one or more entities jointly own a

tangible capital asset

• Each owner is liable for their share of the ARO

• Nongovernmental entity is majority owner

None of owners have majority ownership of jointly owned

capital asset

• Nongovernmental entity has operational responsibility

Use nongovernmental entity’s measurement of ARO using

that entity's accounting standards (FASB)

• Measurement date no more than one year and one day

prior to the government’s financial reporting date

31

Remeasurement

Annual adjustment for effects of inflation/deflation

Annual evaluation of effect of all other relevant factors

• Adjustment if effects on estimated asset retirement outlays are

significant

• Examples

o Change in price not attributable to inflation or deflation

o Change in technology

o Change in legal requirements

o Change in type of equipment, facilities, or service

Exception for minority ownership

• Use nongovernmental entity’s measurement of ARO using that

entity's accounting standards

• Measurement date no more than one year and one day prior to the

government’s financial reporting date

32

Treatment of changes in estimate

Prior to retirement of capital asset

• Prospective change in amortization

After retirement of capital asset

• Immediate recognition

33

Governmental funds

Recognize liabilities for goods and services

when received to the extent due and

payable

34

Financial assurance requirements

Disclose

• How those requirements are being met

• Amounts of assets restricted for payment (if

not displayed separately)

oCannot offset restricted assets against the ARO

35

Other note disclosures

Descriptive information about the nature and

timing of AROs

Methods and assumptions used to estimate

AROs

Estimated remaining useful life of associated

assets

Any liability for an ARO has not been

recognized only because it is not yet

reasonably estimable (and the reason)

36

GASB Statement No. 84

Fiduciary Activities

Issued January 2017

Effective Date: Periods beginning after

December 15, 2018

Fiduciary Activities

What: The Board issued Statement 84 in January 2017 to

clarify when a government has a fiduciary responsibility

and is required to present fiduciary fund financial

statements

Why: Existing standards require reporting of fiduciary

activities but do not define what they are; use of private-

purpose trust funds and agency funds is inconsistent; and

business-type activities are uncertain about how to report

fiduciary activities

When: Effective for reporting periods beginning after

December 15, 2018. Earlier application is encouraged.

38

Identifying fiduciary activities

GASB 84

Fiduciary Component

Units

Pension and OPEB

Arrangements That Are Not Component

Units

Other Fiduciary Activities

39

Control of assets

Two possibilities

• The primary government holds the assets, or

• Has the ability to direct the use, exchange, or employment of the assets

Clarifications

• Use – expends or consumes an asset for benefit of individuals, organizations, or other governments

• Direct – designate a third party to perform a government’s fiduciary duties without assuming themo Does not alter government's ability to direct the use,

exchange, or employment of the assets

• Unaffected by restrictions on use

40

Fiduciary component units

Meets component unit (CU) criteria of GASB 14

Fiduciary if it is one of the following arrangements:

Pension plan administered through

a trust(GASB 67 paragraph 3)

OPEB plan administered through

a trust(GASB 74 paragraph 3)

Assets accumulated for pensions not in a trust

from entities not part of the reporting entity

(GASB 73 paragraph 116)

Assets accumulated for OPEB not in a trust from entities not part of the

reporting entity (GASB 74 paragraph 59)

41

Fiduciary component units

Component unit (CU) criteria of GASB 14

Normally, Pension and OPEB plans that are in GASB 67

and 74 compliant trusts are separate legal entities

Primary government considered to have financial burden

if it makes contributions to the plan

• Legally required or assumed the obligation

Fiscal accountability

Board appointment

Financial benefit or burden

Ability to impose will

Fiscal dependence

Financial benefit or burden

42

Fiduciary component units (cont.)

If not a pension or OPEB arrangement

Considered fiduciary CU if the assets have one or more

of following characteristics:

Control of assets not a factor for determining if fiduciary

• Administered through a trust or equivalent, government not beneficiary

• Dedicated to provide benefits to recipients per the benefit terms

• Legally protected from the government’s creditors

1

• Benefit of individuals and government does not have administrative or direct financial involvement with the assets

• Not derived from provision of goods and services to those individuals

2

• Benefit of organizations or other governments not part of reporting entity

• Not derived from provision of goods and services to those organizations or other governments

3

43

Pension and OPEB that are not CUs

The government controls the assets of the

pension or OPEB arrangement

Pension plan administered through a

trust(GASB 67 paragraph 3)

OPEB plan administered through a trust(GASB 74 paragraph 3)

Assets accumulated for pensions not in a trust from

entities not part of the reporting entity

(GASB 73 paragraph 116)

Assets accumulated for OPEB not in a trust from entities not part of the reporting

entity

(GASB 74 paragraph 59)

44

Other fiduciary activities

Fiduciary if all three criteria met• Assets controlled by the government1

• Assets not derived from either:

• Own-source revenue

• Government-mandated nonexchange or voluntary nonexchange transactions

• Except pass-through grants where government has no administrative or direct financial involvement

2

• Assets have one or more characteristics:

• Administered through a trust, government not a beneficiary; dedicated to provide benefits to recipients per benefit terms; legally protected from creditors of government [paragraph 11c(1)]

• Benefit of individuals and government does not have administrative or direct financial involvement with the assets. Not derived from the government providing goods or services to those individuals

• Benefit of organizations or other governments not part of reporting entity. Not derived from the government providing goods or services to those organizations or other governments

3

45

Fiduciary Fund Types

Four types of fiduciary funds

Agency funds replaced with custodial funds

Current Fiduciary Funds GASB 87 Fiduciary Funds

Pension (and other employee benefit) trust funds

Pension (and other employee benefit) trust funds

Investment trust funds Investment trust funds

Private-purpose trust funds Private-purpose trust funds

Agency funds Custodial funds

46

Fiduciary Fund Types - Trusts

Pension (and other employee benefit) trust funds Pension and OPEB trusts compliant with GASBs 67 or

74, respectively

Other employee benefit plans

Trust complies with paragraph 11c(1)

Contributions and earnings are irrevocable

Investment trust funds External portion of investment pools and individual

investment accounts

Trust complies with paragraph 11c(1)

Private-purpose trust funds All other trust activities

Trust complies with paragraph 11c(1)

47

Fiduciary Fund Types - Custodial

Custodial funds

All other fiduciary activities not in a trust fund

External portion of investment pool not in a trust

Reported as a separate column in financial

statements

Have a measurement focus Reports all applicable financial statement elements

Assets, deferred outflows, liabilities, deferred

inflows, net position, additions, and deductions

48

Business-type activities

May report asset and liability (rather than

in a fiduciary fund) for assets held for 3

months or less

• Statement of Cash Flows – report additions

and deductions in operating activities section

49

Liability recognition

Compelled to disburse resources

• Demand for the resources has been made, or

• No further action or condition is required to be

met to be entitled to receive the resources

oExample, tax collections on behalf of other

governments

• Applicable to investment trust funds, private-

purpose trust funds, and custodial funds

Pension (and other employee benefit) trust

funds follow GASBs 67 and 74

50

Statement of change in net position –

additions and deductions – trust funds

Additions by source

• Separately report

o Investment income

o Investment costs (that is, costs that are separable from both

investment income and administrative expense)

o Net investment income

Deductions by type

• Report administrative costs

Applicable to investment trust funds and private-

purpose trust funds

Pension (and other employee benefit) trust funds

follow GASBs 67 and 74

51

Statement of change in net position –

additions and deductions – custodial funds

If resources held for three months or less

• Option to report single aggregated totals for

oAdditions

oDeductions

• Example – County collects and remits property

taxes to other taxing bodies

oAddition – Property taxes collected for other

governments

oDeduction – Property taxes remitted to other

governments

52

GASB Statement No. 85

Omnibus 2017

Issued March 2017

Effective Date: Periods beginning after

June15, 2017 (can early implement single topics)

Blending component units

Primary government is a business-type activity, uses single column for financial statements. Two options for reporting a blended component unit (CU):• Include in single column reported for the primary

government, or

• Present separate blended CU column within the primary government

Can only use blending for CUs that meet the criteria for blending• GASB 14, paragraph 53, as amended

• If CUs do not meet criteria for blending –discretely presented must be used

54

Goodwill

GASB 69 guidance for goodwill:• Goodwill: Difference between price paid and net

position acquiredo Positive amount ($ paid > net position acquired) - deferred

outflow of resources

o Negative amount ($ paid < net position acquired) -reduction in value of nonfinancial assets acquired

Acquisitions prior to GASB 69 – need to eliminate goodwill from statements of net position

o Positive goodwill = reclassify as deferred outflow of resources

o Negative goodwill = eliminate by an adjustment to net position

55

Fair value measurement and

application

Real estate held by insurance entities

• Investment vs. capital asset

oOld guidance = classify based on “predominant use”

oNew guidance = classify based on GASB 72 definition

of investment

Money market investments and interest-

earning investment contracts

• Clarify that amortized cost is an option rather

than a requirement

56

Postemployment benefits

Measurement of Pension/OPEB liabilities and expenditures in governmental funds• Liabilities to employees measured as of the end of the reporting

period

• Expenditures measured as of the end of the reporting period

o Amounts payable to Pension/OPEB plan

o Employer administrative costs for Pension/OPEB

On-behalf benefit payments for postemployment benefits in governmental funds• Issue – GASBs 68,73, and 75 did not explicitly say on-

behalf revenues/expenditures to be recorded in governmental funds

Contributions made on employer’s behalf

+/- Adjustments to nonemployer payable

+ Benefits paid on employer’s behalf

On-behalf Expenditures/revenues

57

Postemployment benefits (cont.)

Payroll-Related Measures in RSI by OPEB Plans and Employers that provide OPEB• OPEB Plan Statements

o Contributions to OPEB Plan based on pay – covered payroll

o Contributions to OPEB Plan NOT based on pay – no payroll measure disclosed

• Employers that offer OPEB

o Trust used– Contributions to OPEB Plan based on pay – covered payroll

– Contributions to OPEB Plan NOT based on pay – covered-employee payroll

o Trust not used - covered-employee payroll, regardless of how benefit payments are based

58

Employer-paid member

contributions for OPEB

OPEB Plan should treat as employee

contributions

Employer should record as salaries,

wages, or fringe benefits

59

Alternative measurement method

for OPEB

Increase in the number of simplified

assumptions permitted

• Expected point in time when employees will

exit from active service

• Employee turnover

60

OPEB provided through private-

sector plans Same approach as for pension plans

participating in cost-sharing private-sector plans

• Expense – Required contributions for the reporting

period

• Liability – unpaid required contributions at end of

reporting period

Note disclosures

• Information about the plan

• Description of benefits and contribution requirements

RSI – 10 year schedule of employer’s required

contributions to OPEB plan

61

Effective Date

All topics are effective for periods beginning after June

15, 2017

Can early implement all topics or single topics

• Blending

• Goodwill

• Fair value measurement

• Timing of the measurement of Pension/OPEB

• Measurement of Pension/OPEB liabilities and expenditures

in governmental funds and on-behalf payments

• OPEB plan financial statements payroll measure reported in

RSI

• All other OPEB employer accounting and financial reporting

topics

62

GASB Statement No. 86

Certain Debt Extinguishment Issues

Issued May 2017

Effective Date: Periods beginning after

June15, 2017

Focus on debt extinguishments using

existing resources

SOURCE OF PAYMENT

PROCEEDS OF REFUNDING DEBT

EXISTING RESOURCES

PAY

MEN

T

TO DEBT HOLDERS CURRENT REFUNDING

TO TRUST WITH LEGAL DEFEASANCE

ADVANCE REFUNDINGTO TRUST WITH

IN-SUBSTANCEDEFEASANCE

FOCUS OF GASB 86

64

In-substance defeasance of debt

using only existing resources Debt defeased in substance

• Cash and other monetary assets (not proceeds of

refunding debt) with an escrow agent in a trusto Only for principal & interest payments of defeased debt

o Possibility of government make future payments is remote

o Essentially risk-free monetary assets (U.S. government

obligations/securities): amount, timing, and collection of

interest and principal

o Cash flows for the monetary assets coincide to debt

service payments– If securities in escrow pay before scheduled maturities (i.e. callable

securities) then not risk-free as to timing. Does not qualify for

defeasance

Defeased debt no longer a liability

65

Recognition in financial statements

Economic resources (no deferral of recognition)

Reacquisition price

- Net carrying value of debt

(loss)/gain (reported separately)

Current financial resources

• Reacquisition price = debt service expenditures

66

Note disclosure

Period of defeasance

• General description of the transaction (examples)oAmount of debt extinguished

oAmount placed in trust

oReasons for defeasance

oCash flows required to service the defeased debt

Later periods

• Amount of in-substance defeased debt that remains outstandingoMay be combined with amount reported in connection

with other in-substance refundings

67

Prepaid insurance on

extinguished debt Include amount of remaining prepaid

insurance in calculating net carrying

amount of extinguished debt

• Applies to legal and in-substance defeasance

68

Note disclosure for debt defeased

“in substance”

If nothing prohibits the substitution of

essentially risk-free monetary assets with

monetary assets that are not essentially risk

free

• In the period

oDisclose that fact

• In all periods the defeased debt remains

outstanding

oDisclose the amount of outstanding defeased debt for

which the risk of substitution remains

69

GASB Statement No. 87

Leases

Issued June 2017

Effective Date: Periods beginning after

December 15, 2019

Leases

What: In June 2017, the GASB issued Statement 87,

which establishes revised standards on lease accounting

and financial reporting.

Why: The previous standards had been in effect for

decades without review; FASB/IASB joint project updated

their lease standards; opportunity to increase

comparability, usefulness of information, and reduce

complexity

When: New standards are effective for reporting periods

beginning after December 15, 2019. Earlier application is

encouraged.

71

Current lease accounting

Lessee - determines type of lease – Capital or Operating

Transfer of ownership at conclusion

Bargain purchase option

Lease term >= 75% of economic life of asset

PV of future minimum lease payments >=

90% of FMV

Capital Lease if one criteria met, otherwise Operating Lease

Lease Type Accounting – accrual basis Disclosure

Capital Debit: capital assets Credit: long-term debt for PV of future minimum payments

Disclose future minimum payments

Operating Expense payments as made Disclose future minimum payments (if noncancelable)

72

Scope

Definition of a “lease”

A contract that conveys the right to use another

entity’s nonfinancial asset (the underlying asset) as

specified in the contract for a period of time in an

exchange or exchange-like transaction

Contract – legally enforceable (written or verbal)

Right to use underlying asset• Obtain present service capacity

• Determine nature and manner of use

Nonfinancial asset – (i.e. Land, buildings, vehicles)

• Not securities lending (financial asset)

73

Scope (cont.)

No more capital or operating leases

Excluded from scope of GASB 87• Leases for intangibles (including computer software)

o Exception - Sublease of intangible right-to-use leased tangible asset

• Leases for biological assets

• Leases for inventory

• Leases where underlying asset financed with conduit debto Exception - underlying asset and conduit debt reported by lessor

• Service concession agreements

• Supply contracts – power purchase agreements

Other exclusions• Short-term leases

• Contracts that ultimately transfer ownership of the

underlying asset to the lessee

74

Lease term

Period during which lessee has

• Noncancelable right to use underlying asset

• Plus periods where

oLessee or Lessor option to extend (if exercise

is reasonably certain)

oLessee or Lessor option to terminate (if not

exercising is reasonably certain)

– Includes fiscal funding clauses

75

Lessee accounting – economic

resources measurement Initial recognition

• Lease asset – intangible right-to-use capital asset

• Lease liability

Subsequent accounting• Amortization of lease asset

oShorter of lease term or useful life of underlying asset

• Lease payments

oReduction of liability

o Interest expense

76

Measurement – lessee

Lease liability

• Present value (PV) of payments over lease term

o Interest rate charged by lessor, or

oLessee’s borrowing rate

Lease asset

• PV of payments over lease term (lease liability)

• Add: Payments made at or before the beginning of the

term to lessor

• Less: Lease incentives received from lessor beginning of

the term

• Add: Certain direct costs to put asset into service

77

Lessee accounting – current

financial resources measurement Initial recognition (same as current guidance)

• Expenditure – capital outlay

• Other financing source

Subsequent accounting (same as current guidance)

• Lease payments – debt service expenditures

78

Note disclosure – lessee

Description of leasing arrangements

Amount of lease assets

Schedule of future lease payments

• Principal and interest listed separately

79

Lessor accounting – economic

resources measurement Initial recognition

• Lease receivable o Continue to report underlying asset

• Deferred inflow of resources

Subsequent reporting

• Lease paymentso Reduction of receivable

o Interest revenue

• Reduction of deferred inflow of resources → revenue

oOver term of the lease

o Systematic and rational manner

oGovernmental funds – if available

80

Measurement – lessor

Lease receivable

• PV of lease payments over lease term

Deferred inflow of resources

• PV of lease payments over lease term

• Add: Payments received at or prior to the

beginning of the lease that relate to future

periods

81

Lessor accounting – current

financial resources measurement Initial recognition

• Lease receivable at PV of payments

• Deferred inflow of resources

Subsequent reporting

• Lease paymentsoReduction of receivable

o Interest revenue

• Reduction of deferred inflow of resources → revenueoOver term of the lease

oSystematic and rational manner, if available

82

Note disclosure - lessor

Description of leasing arrangements

Total amount of lease revenue for current

year

83

Leases excluded from GASB 87 –

Short-term leases Definition - A lease that, at its beginning, has a maximum

possible term under the contract of 12 months or less

• Includes options to extend

Accounting

• Lessee

oExpense based on the payment provisions of the

contract

oNo expense for rent holidays

• Lessor

oRevenue based on the payment provisions of the

contract

oNo revenue for rent holidays

84

Leases excluded from GASB 87 –

Contracts that transfer ownership

Defined as contract that:

• Transfers ownership of the underlying asset to

the lessee at end of contract, and

• Contains no termination options

oFiscal funding clause not applicable if reasonably

certain it will not be exercised

Treat as financed purchase of asset

85

Lease incentives

Payment to or on-behalf of the lessee from

lessor

• Lessee has right of offset – payments are

reduced

• A rebate or discount

Lessee reduces the amount of the

underlying asset and liability at beginning

lease term

86

Contracts with multiple components

Contract with lease and nonlease components

• Separate lease component from nonlease component

• Treat as separate contracts

Multiple underlying assets in same lease and assets

have different lease terms

• Each underlying asset treated as separate component

(lessee and lessor)

• Allocate contract price to each component using

reasonableness and professional judgment

o Prices for each component in the contract

o Stand-alone prices for similar assets

• If cannot determine allocation, treat as a single-lease unit

87

Contract combinations

Criteria for treating as a single contract

• Entered into at or near the same time with the

same counterparty and one of the following:

oNegotiated as a package with a single objective

oConsideration paid in one contract depends on the

price or performance of the other contract

Then, evaluate as a contract with multiple

components

88

Lease modifications

Amendments to lease contracts• Normally a modification

o If right to use reduced = partial termination

Treatment of modification• Separate lease

or

• Remeasurement of existing lease

Treat as separate lease if both exist:• Lessee receives one or more underlying assets not part

of original lease

• Increased payments for additional asset are not

unreasonable

If both not met, then remeasurement

89

Lease modifications (cont.)

Remeasurement

• Lessee

oRemeasure lease liability

oAdjust lease asset – difference between remeasured

liability and liability before lease modification

• Lessor

oRemeasure lease receivable

oAdjust deferred inflow of resources – difference

between remeasured receivable and receivable

before remeasurement

90

Terminations

Lessee’s right to use asset is reduced

• Lease term shortened

• Number of assets reduced

Treatment

• Lessee

oReduce lease liability and asset

oDifference = gain/loss

• Lessor

oReduce lease receivable and deferred inflow

oDifference = gain/loss

91

Subleases

Treated as a separate transaction

• Lessee now also the lessor

• No offset of transactions

oOriginal lessee

– Right to use asset and liability (original lease)

– Receivable and deferred inflow of resources (sublease)

92

Effective date

Periods beginning after December 15, 2019

Apply retroactively

• Facts and circumstance of the lease in period of

implementation GASB 87 (not inception of the lease)

o Use remaining lease payments at beginning of period

• Restate beginning net position in period of implementation

Begin analysis now

• Need to accumulate all lease contracts

• Potential issues with debt limits, compliance with debt

covenants, and statutes

93

Question 1

Which of the following is a criteria for

recognizing an asset retirement obligation?

A. Liability reasonably estimable

B. Occurrence of external obligating event

C. Occurrence of internal obligating event

D. All of the above

94

Question 2

Which of the following is not a fiduciary fund

type under GASB Statement 84?

A. Pension (and other employee benefit) trust

funds

B. Investment trust funds

C. Agency funds

D. Private-purpose trust funds

95

Question 3

City A administers an investment pool for its

investments and other external local governments.

The investment pool is not held in a trust that meets

the criteria of GASB 84. How should the external

portion of the investment pool be reported in City A’s

financial statements?

A. Investment trust fund

B. Private-purpose trust fund

C. Custodial fund

D. Permanent Fund

96

Question 4

City A has negative goodwill on its statement of net position as a result of an acquisition that occurred prior to the issuance of GASB 69, Government Combinations and Disposals of Government Operations. How should City A report the goodwill after it implements GASB 85, Omnibus?

A. Eliminate by an adjustment to net position

B. Reclassify to a deferred inflow of resources

C. Reduce the amount of the asset acquired

D. Do nothing; continue to report the unamortized balance

97

Question 5

GASB 86, Certain Debt Extinguishment Issues,

requires which of the following to be disclosed in the

notes to the financial statements for all in-substance

defeasances?

A. Amount of in-substance defeased debt that remains

outstanding

B. Ability to substitute essentially risk-free monetary assets

with not essentially risk free monetary assets

C. General description of the defeasance

D. Both A and B

E. All of the above

98

Question 6

Under GASB 87, Leases, which elements will a

lessee report in its government-wide statement

of net position?

A. Tangible capital asset

B. Intangible asset – right-to-use

C. Lease liability

D. None of the above

E. B and C

99

Question 7

Under GASB 87, Leases, which elements will a

lessor report in its government-wide statement

of net position?

A. Capital asset (asset being leased to lessee)

B. Lease Receivable

C. Deferred inflow of resources

D. All of the above

E. B and C

100

Question 8

Under GASB 84, Fiduciary Activities, all

pension trust funds that meet the definition of a

trust in GASB 67 should be reported in the

government employer’s fiduciary fund financial

statement?

A. True

B. False

101

GASB Implementation

Guidance

GASB Implementation Guide No.

2017-1, Implementation Guidance

Update -2017

Issued April 2017

Effective Date: Periods beginning after

June 15, 2017

Scope

41 new questions

• Pension plan and employer accounting and

reporting

• Cash flow reporting, reporting entity, certain

investments and external investment pools,

fund balance reporting, and tax abatements

33 amended questions

104

Financial reporting entity [4.2]

Use blending method for separate legal LLC in

which a government is sole corporate member, no

separate board for the LLC, the government is

responsible for managing the operations of the LLC

including approval of budgets• Blending test - substantially same governing body and financial

benefit/burden or management of primary government has operational

responsibility for the component unit

Since the LLC does not have its own board, the sole

corporate member’s board (the government) is

equivalent to the component unit having the same

board as the government

105

More than one trust [4.3]

Multiple trusts that meet criteria of GASB 67

established for a single employer pension plan

• Assets can be used interchangeably for benefit payments

• Considered in the aggregate, the fiduciary net position of

the pension plan

Unless a legal restriction that limits the use of the

assets for a specific subset of plan members, the

arrangement is one pension plan administered

using multiple trusts

106

Stabilization trusts [4.4 – 4.10]

Facts – Two trusts for one pension plan (single

employer, agent-multiple employer, or cost-sharing multiple-employer

plan)

• Trust A – complies with GASB 67/68

• Trust B

o Contributions are irrevocable

o Contributions are protected from creditors of the employer

government

o Contributions can only be used for benefit payments, government

must transfer monies to Trust A

Can both trusts be treated as the pension plan

(GASB 67) and reduce employer’s pension liability

(GASB 68)?

107

Stabilization trusts [4.4 – 4.10] (cont.)

Only Trust A is part of the pension plan and used to

offset employer’s pension liability

Trust B does not meet all three tests to be a trust

• The government has to move the monies from Trust B to

Trust A – no present service capacity to Trust A

o Assets are legally restricted for benefit payments

o Not accessible to the pension plan

Employer government should report the assets of

Trust B in its financial statements as restricted

assets

108

Pension and OPEB in same trust [4.16]

Employer makes contributions to a trust that

administers pension and OPEB benefits

• Complies with GASB 67 for pension plan

• Complies with GASB 74 for OPEB plan

Need to separate pension assets from OPEB

assets for financial reporting

• Two separate plans reported

• Employer should establish policy for how to

allocate contributions

109

Employer paid benefits [4.17]

GASB 67 trust provides pension benefits

• Employer makes contributions to trust

• Employer paid benefits to inactive employees

using employer assets

Trust should report all activity of the pension

plan, not just the trust

• Include payments made by employer to

beneficiaries as additions and deductions for the

amount paid by employer

o If not reimbursed by trust

110

No stand-alone report [4.18]

Pension plan does not issue a stand-

alone report

Government required to make all

necessary GASB 67 disclosures and RSI

in government's financial statements

111

Subsequent changes to benefits [4.21]

Significant changes made to a pension

plan after the plan’s fiscal year-end, but

before issuance of financial statements

Disclose as a subsequent event

• Not reflected in the employer’s measurement

of net pension liability as of fiscal year-end

112

No trust [4.25]

No pension plan reporting required if

there is no trust that complies with GASB

67 paragraph 3

Assets accumulated for defined benefit

pension reported as assets of the

employer

113

Component units [4.29 – 4.31]

Primary government (PG) and its component unit

(CU) provide pensions through same cost-sharing

plan

PG and CU are classified as one employer

• Recognition and measurement each a separate employer

• Apply cost-sharing requirements of GASB 68

• CU follow GASB 68 for note disclosure and RSI in its

financial statements

• Reporting entity statements – need to distinguish between

PG and discretely presented CU in notes and RSI

114

Investment in external pool

measurement and reporting [4.36]

Local government has investment in an

external investment pool

• If external pool can use amortized cost and does

so, local government reports its position at

amortized cost

oNot categorized as part of fair value hierarchy levels 1,

2, or 3

• If external pool uses fair value, local government

reports its position at fair value

oNot required to be categorized as part of fair value

hierarchy levels 1, 2, or 3

115

Fund balance reporting [4.38]

Required to disclose purposes for restricted,

committed, and assigned fund balance

• Face of balance sheet or in notes

Minimum level of detail equal to requirement

for expenditures – function level

• General government, public safety, highways

and streets, etc.

• Can provide more detail for fund balance than

expenditures

116

Tax abatement disclosure [4.39]

Government agrees to not levy property tax for a

company’s office moving into the government’s

jurisdiction

• All other property not part of agreement is levied the

maximum amount

• Overall property taxes for the government will remain the

same as previous year

Since the government is forgoing property taxes

from the company, this qualifies as a tax abatement

• Net effect on overall revenue not relevant to determine if

there is a tax abatement

117

GASB Implementation Guide No. 2017-2,

Financial Reporting for Postemployment

Benefit Plans Other Than Pension Plans

Issued April 2017

Effective Date: Periods beginning after

December 15, 2016; except questions

4.80, 4.144, and 4.151 effective periods

beginning after June 15, 2017

Scope

160 questions regarding GASB 74 – Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans

• Scope and applicability of GASB 74

• Types of OPEB and OPEB plans

• Defined benefit OPEB plans administered through trusts, including financial statement reporting

• Measurement of the net OPEB liability

Several questions same as 2016-2017 Comprehensive Guide and 2017-1 Guide

• Replace pension with OPEB

119

Scope (cont.)

Guide 2016-2017[5.60.1] Q— Does Statement 67, as

amended, require that stand-alone

financial reports be issued for defined

benefit pension plans?

[5.60.2] Q— A city reports a single-

employer defined benefit pension plan

as a pension trust fund in its basic

financial statements. The plan issues a

stand-alone financial report prepared in

conformity with the requirements of

Statement 67, as amended. Does the

city have to apply all the requirements of

Statement 67, as amended, for the

pension trust fund?

Guide 2017-2[4.1] Q— Does Statement 74 require

that stand-alone financial reports be

issued for defined benefit OPEB plans?

[4.2] Q— A city reports a single-

employer defined benefit OPEB plan

as a trust fund in its basic financial

statements. The plan issues a stand-

alone financial report prepared in

accordance with the requirements of

Statement 74. Does the city have to

apply all the requirements of

Statement 74 for purposes of reporting

the trust fund in its financial report?

Several questions same as 2016-2017 Guide - Replace pension with OPEB.

120

Scope (cont.)

Guide 2017-1[4.3] Q— If more than one trust that

meets the criteria in paragraph 3 of

Statement No. 67, Financial Reporting

for Pension Plans, has been

established to accumulate assets for

purposes of providing pensions

through a single-employer pension

plan and assets in any of the trusts

may be used interchangeably to make

benefit payments to any plan member,

does Statement 67 apply to the

separate reporting of each trust?

Guide 2017-2[4.38] Q— If more than one trust that

meets the criteria in paragraph 3 of

Statement 74 has been established to

accumulate assets for purposes of

providing OPEB through a single-

employer OPEB plan and assets in any

of the trusts may be used

interchangeably to make benefit

payments to any plan member, does

Statement 74 apply to the separate

reporting of each trust?

Several questions same as 2017-1 Guide - Replace pension with OPEB.

121

Number of entities [4.6]

Can have multiple entities responsible for handling

the functions of OPEB plan

• Investing of the funds

• Payment of benefits to beneficiaries

GASB 74 still applicable if functions of OPEB plan

handled by different entities

• If plan is a trust – entities should consult GASB 14,

paragraph 19 to determine who reports the trust

• If not a trust – reported as employer or nonemployer

contributing entity’s assets

122

Reimbursements to employer [4.11]

Employer pays beneficiaries OPEB benefits

OPEB trust reimburses the employer for benefits

paid

Reimbursements do not violate the trust criteria of

paragraph 3a “Contributions from employers and

nonemployer contributing entities to the OPEB

plan and earnings on those contributions are

irrevocable”

Payments for benefits that are due and reimbursed

to employer are deductions from OPEB trust

123

OPEB and other benefits in trust [4.12]

Single trust administers OPEB and

pensions

Can qualify as a GASB 74 OPEB trust

• Assets are allocated to OPEB (OPEB partition)

• Ensure that assets are dedicated to paying

OPEB

124

OPEB vs. pension [4.13]

Pension plan provides postemployment

health insurance subsidy to retirees and

beneficiaries

• Monthly cash payment

• No limitations on use of payment

The subsidy is retirement income

• Not limited to healthcare costs

• Retirement income is pension, not OPEB

125

OPEB vs. pension [4.14]

Postemployment benefit plan provides an amount

to retirees and beneficiaries

• Defined in dollars or a formula

• Limited to:

oOffset retiree’s healthcare premium costs, or

oReimbursement of healthcare costs – provide proof of

payment

The benefit is OPEB

• Does not matter if a fixed dollar amount or formula

• Payment is limited to postemployment healthcare cost

126

Termination benefits [4.19]

Postemployment healthcare provided to

retirees over a certain age

Government offers early retirement

incentive to get healthcare benefits at an

earlier age

Termination benefit that enhances an

existing postemployment benefit = OPEB

• Included as part of the net OPEB liability

127

Defined benefit or contribution [4.27]

Employer pays OPEB plan members a

specified dollar amount during retirement

• Only can be used for healthcare

Defined benefit plan

• Must be paid to an active plan member to

qualify as defined contribution plan

• Payments being made after termination of

employment

128

OPEB plan deductions [4.64]

A self-insured OPEB plan with inactive plan

members (retirees) that contribute to the

plan

Benefit payments to be reported by OPEB

plan

Claim costs for inactive

plan members

Amounts required to be paid by

inactive plan members

Benefit Payments

129

Question 9

City A has a single-employer pension plan for its employees that is not administered through a trust that complies with paragraph 3 of GASB Statement 67. How should City A report the assets accumulated for pension purposes?

A. Not at all

B. As assets of the employer

C. In an Agency Fund

130

Question 10

What is the minimum level of disclosure for

restricted, committed, and assigned fund

balance (face of statements or notes)?

A. Legal level of budgetary control

B. Object level (salaries, benefits, etc.)

C. Program level (police, fire, etc.)

D. Function level (general government, public

safety, etc.)

131

Question 11

A pension plan provides a monthly

postemployment cash subsidy payment to

retirees, no restrictions on how the payment

can be used. How should the payment be

classified?

A. OPEB

B. Pension

C. Either A or B

D. None of the above

132

Question 12

City A offers an early retirement incentive to employees in the form of five additional years of healthcare insurance in the City’s preexisting postemployment healthcare program. How should City A classify the early retirement incentive?

A. Termination benefits

B. Pension

C. OPEB

D. B or C

133

GASB Exposure Drafts

Certain Disclosures Related to Debt,

including Direct Borrowings and Direct

Placementsan amendment of GASB Statements No. 34 and No. 38

Issued June 29, 2017

Proposed Effective Date: Periods

beginning after June 15, 2018

Issues

Definition of debt

Additional note disclosures for debt

Separate information for direct borrowings

and direct placement of debt

Exposure Draft – Final wording may change

136

Proposed definition of debt

“A liability that arises from a contractual

obligation to pay cash (or other assets that

may be used in lieu of payment of cash) in

one or more payments to settle an amount

that is fixed at the date the contractual

obligation is established.”

Exposure Draft – Final wording may change

137

Definition of debt (cont.)

Interest that accrues or is variable does not

preclude the liability from being considered

debt

• Capital appreciation bonds

• Variable rate debt

Does not include

• Leases (GASB 87) or

• Trade accounts payable

138

Debt note disclosures

If applicable, following debt related items to be

included in notes to financial statements (in addition to

other required debt disclosures)

• Amount of unused lines of credit

• Collateral pledged as security for debt

• Terms specified in debt agreements related to significant:

o Events of default with finance-related consequences

o Termination events with finance-related consequences

o Subjective acceleration clauses

139

Debt note disclosures (cont.)

Information about direct borrowings and direct

placements should be separate from other debt

• Changes in long-term debt

• Repayment schedules

• Collateral secured for debt

• Significant of events of default with finance-related

consequences

• Termination events with finance-related consequences

• Subjective acceleration clauses

Exposure Draft – Final wording may change

140

Implementation Guide No. 201X-Z, Accounting

and Financial Reporting for Postemployment

Benefits Other Than Pensions (and Certain

Issues Related to OPEB Plan Reporting)

Issued June 28, 2017

Proposed Effective Date: Periods beginning

after June 15, 2017 (certain questions effective periods

beginning after June 15, 2018)

Scope

507 questions regarding GASB 75 – Accounting and Financial

Reporting for Postemployment Benefits Other Than Pensions

• Scope and applicability of GASB 75

• Types of OPEB

• Defined benefit OPEB, including financial statement reporting

• Measurement of the net OPEB liability

• Special funding situations

• OPEB not administered through a trust

• Alternative measurement method

Four questions deal with the GASB 74

All but 32 have not been addressed by previous

implementation guidance as related to pensions and OPEB

• Replace pension with OPEBExposure Draft – Final wording may change

142

Scope (cont.)

Guide 2016-2017[5.116.1] Q - A single or agent employer

provides pensions to its employees

through a defined benefit pension plan

that is administered through a trust that

has the characteristics identified in

paragraph 4 of Statement 68. The

employer does not have a special

funding situation (as defined by

paragraph 15 of Statement 68) and

does not have a payable to the pension

plan. If there is no requirement that the

employer make contributions to the

plan, does Statement 68, as amended,

apply to the employer?

Guide 201X-Z[4.1] Q - A single or agent employer

provides OPEB to its employees

through a defined benefit OPEB plan

that is administered through a trust that

has the characteristics identified in

paragraph 4 of Statement 75. The

employer does not have a special

funding situation (as defined by

paragraph 18 of Statement 75) and

does not have a payable to the OPEB

plan. If there is no requirement that the

employer make contributions to the

plan, does Statement 75, as amended,

apply to the employer?

Exposure Draft – Final wording may change

Several questions same as 2016-2017 Guide - Replace pension with OPEB.

143

GASB 10 for postemployment benefits [4.7]

An employer accounts for active-employee

healthcare benefits in accordance with the

requirements of GASB Statement No. 10,

Accounting and Financial Reporting for Risk

Financing and Related Insurance Issues

The employer may not use the requirements

of GASB 10 to account for postemployment

healthcare• GASB 10 excludes postemployment benefits

• Follow GASB 75 for postemployment benefitsExposure Draft – Final wording may change

144

OPEB or pension [4.14]

An employer provides pensions through a

GASB Statement 67 trust. In addition to

pension benefits, the employer also provides

life insurance and long-term care benefits

through the same trust

Life insurance and long-term care benefits

should be treated as pension benefits

• Employer to follow the guidance of GASB

Statement 68, as amended

Exposure Draft – Final wording may change

145

Administrative costs

[4.86/4.226/4.375/5.1] A government uses a third-party to administer its

postemployment healthcare program

Should the administrative fee assessed by the third-

party be classified as administrative cost or a benefit

payment?

• If the fee is classified as an administrative cost, it would

not be included in the projection of benefits for determining

the OPEB liability

If the third-party administration fee is directly related

to the payment of medical claims, it should be

classified as benefit payments, not administrative

costs Exposure Draft – Final wording may change

146

Administrative costs

[4.104/4.240/5.2] A government is required to project the OPEB plan’s

fiduciary net position in order to determine the

discount rate

As part of the projection, a government should

include administrative expenses as deductions from

the OPEB plan’s fiduciary net position

Exposure Draft – Final wording may change

147

Attribution period

[4.109/4.245/4.387/5.3] A government provides OPEB and the plan

documents specify that employees will become

ineligible for OPEB when they attain a specified age

• The government expects that employees will be employed

past the specified age

The ineligible years are not included as part of the

attribution period

• Last day of active service = day of ineligibility

Exposure Draft – Final wording may change

148

Employer fund balance [4.348]

A government provides OPEB through a plan that is

not administered through a trust that meets the

criteria in paragraph 4 of GASB Statement 75

A portion of fund balance of one of its governmental

funds is for OPEB purposes

Report the fund balance as assigned or committed

to OPEB

Exposure Draft – Final wording may change

149

Experience-rated claims [4.379]

A government provides postemployment

healthcare to retirees• Retirees are experience-rated separately from active

employees

• Retiree premiums reflect the retiree projected claim costs

• Retirees pay the full amount of the retiree premiums

The government would not have an OPEB liability

to be measured and reported under GASB

Statement No. 75 Exposure Draft – Final wording may change

Total claim costs or age-adjusted premiums

approximating claims costs

-

Amounts required to be paid by

retirees

OPEB Liability

150

Question 13

Which of the following are not included within

the scope of the proposed debt disclosures

exposure draft?

A. Fixed rate bonds

B. Leases

C. Variable rate bonds

D. Capital appreciation bonds

151

Question 14

The proposed disclosures in the exposure draft

Certain Disclosures Related to Debt, including

Direct Borrowings and Direct Placements,

does which of the following?

A. Replaces all previous existing required debt

disclosures

B. Only applies to Direct Borrowings and Direct

Placements

C. Requires additional debt disclosures

152

Question 15

If a government provides postemployment

healthcare through the GASB 67 pension trust,

how should the government measure and

report the postemployment healthcare?

A. Pension liability, GASB 68

B. OPEB liability, GASB 75

C. None of the above

153

Yellow Book Exposure Draft

Update

Background

Government Auditing Standards/ Generally Accepted

Government Auditing Standards (GAGAS)/ Yellow Book

• Issued by United States Government Accountability Office

• Provides standards and requirements for auditor and

audit organizations

o Independence

oContinuing professional education

oQuality control

oPeer reviews

oReporting

• State and local governments who require a single audit

are subject to the requirements of the Yellow Book

155

Background (cont.)

Yellow Book last updated in 2011

Exposure draft of proposed changes issued in April

2017

• New format that differentiates requirements from

application guidance

• Updated internal control requirements and guidance

• Revised CPE requirements to ensure greater auditor

proficiency in GAGAS

• Revised peer review and independence requirements

• New requirements for reporting waste that is detected

during an audit

156

Proposed changes – Independence

Auditors need to be independent of the

governmental agencies that they audit

Yellow Book identifies three nonaudit services

that impair auditor independence [3.88]

Independence impaired

Determining or changing journal entries, account codes or

classifications for transactions, or other accounting records for

the entity without obtaining management’s approval

Authorizing or approving the

entity’s transactions

Preparing or making changes to source

documents without management approval

157

Proposed changes – Independence (cont.)

Significant threats to auditor independence [3.89]

Not prohibited, but auditors need to document why independence is not

impaired if these services are provided

Significant threatsRecording transactions for which management

has determined or approved the

appropriate account classification, or posting coded transactions to an audited entity’s general

ledger

Preparing financial

statements based on information in the trial balance

Posting entries that have been approved by an audited entity’s management to the entity’s trial

balance

Preparing account reconciliations that identify

reconciling items for the audited

entity management’s

evaluation

158

Proposed changes – waste and abuse

Auditors would be required to report waste or

abuse material to financial statements [6.16]

• If they become aware, perform additional

procedures

• Also would apply to entity's operations

• Waste and abuse reporting requirements

applicable to:

oAttestation engagements and reviews of financial

statements [7.41]

oPerformance audits [9.33]

If performed under Yellow Book standards

159

Proposed changes – waste and abuse (cont.)

6.17 Waste Definition

The act of using or expending resources carelessly,

extravagantly, or to no purpose

Involves the taxpayers not receiving reasonable value for

money in connection with any government-funded activities

because of an inappropriate act or omission by parties with

control over or access to government resources

Can include activities that do not include abuse and does not

necessarily involve a violation of law

Relates primarily to mismanagement, inappropriate actions,

and inadequate oversight

160

Proposed changes – waste and abuse (cont.)

6.18 Abuse Definition

A behavior that is deficient or improper when compared with

behavior that a prudent person would consider reasonable and

necessary business practice given the facts and circumstances

Excludes fraud and noncompliance with provisions of laws,

regulations, contracts, and grant agreements

Includes misuse of authority or position for personal financial

interests or those of an immediate or close family member or

business associate

Because the determination of abuse is subjective, auditors are not

required to perform procedures to detect abuse in financial audits

• Auditors may discover that abuse is indicative of fraud or

noncompliance with provisions of laws, regulations, contracts,

and grant agreements

161

Proposed changes – findings [6.20]

If a finding, auditors required to report:

• Criteria

• Condition

• Cause

• Effect

Auditors would have to consider potential

internal control deficiencies when

developing the cause of the finding

162

Uniform Grant Guidance

Update

OMB Uniform Guidance

December 26, 2013 – Uniform Administrative

Requirements, Cost Principles, and Audit

Requirements for Federal Awards issued

Codified into Title 2, Part 200 of the Code of

Federal Regulations

Supersedes Circular A-133 and prior cost circulars

Referred to as the “Uniform Guidance” or “UG”

164

Effective Dates

Federal agencies were required to implement the

requirements by December 26, 2014

Non-Federal entities were required to implement

the new administrative requirements and cost

principles beginning December 26, 2014

• Applied to new and incrementally funded awards

issued on or after December 26, 2014

The effective date of the UG to subawards was the

same as the effective date of the federal award

from which the subaward is made

165

Effective Dates (cont.)

New Single Audit requirements were effective for

fiscal years beginning on or after December 26,

2014

• First effective for December 31, 2015, fiscal year

ends

All 2016 and later single audits should be

performed under the Uniform Guidance only

• There is no circumstance where the auditor would

perform the audit under both Circular A-133 and UG

• Should be in year 2 of the audit requirements

166

2017 Single Audit Compliance Supplement

Effective for fiscal years ending June 30 or later in

the year issued

2017 Compliance Supplement issued August 16

• https://www.whitehouse.gov/sites/whitehouse.gov

/files/omb/circulars/A133/2017/Compliance_Supp

lement_2017.pdf

2016 Compliance Supplement can be found at

https://obamawhitehouse.archives.gov/

• The former OMB website was relocated during

transition to Trump administration

167

Procurement Requirements

The UG defines five methods of procurement to be used:

• Micro purchases – less than $3,500 ($10,000 for

institutions of higher-education, not-for-profits related to

higher ed, not-for-profit research organizations,

independent research institutes)

• Small purchases – $3,500 to $150,000 (the Simplified

Acquisition Threshold)

• Sealed bid purchases – Over $150,000; preferred for

construction

• Competitive proposal purchases – Over $150,000; used

when a sealed bid is not appropriate

• Noncompetitive purchases – Special circumstances

applicable to all levels

168

Procurement Grace Period

The Federal government is providing a

grace period after the effective date for non-

Federal entities to comply with the

procurement standards

• Grace period is three full fiscal years after the

effective date of the UG, which was December

26, 2014 (implementation for fiscal years

beginning on or after December 26, 2017)

oThe non-Federal entity must document whether it is

in compliance with the old or new standard, and must

meet the documented standard

169

Procurement Grace Period (cont.)

For example, for a non-Federal entity with a June

30 year end, implementation would be required

during the year ending June 30, 2019.

The Single Audit Compliance Supplement will

instruct auditors to review procurement policies

and procedures based on the documented

standard. For future fiscal years, all non-Federal

entities will be required to comply fully with UG.

170

Other Single Audit Developments

June 15, 2017, COFAR (Council on Financial

Assistance Reform) was rescinded

• Existing FAQs remain in force, and new FAQs were added

in July

Possible change to format of CFDA #’s effective

October 1, 2018

• Change from ##.### format to ###.#### format

• Prefix will align with 3-digit Common Government-

wide Accounting Classification (CGAC) agency

code used in the Treasury Account Symbol (TAS)

listed in Circular A-11, Appendix C

171

Other Single Audit Developments

(cont.) Pilot project ongoing to evaluate using Data

Collection Form to replace SEFA

OMB single audit quality study

• Required by UG Section 200.513 to be conducted

every 6 years and the results made public

• Will cover submissions to clearinghouse in 2018

• Study likely to take place in 2019 or 2020

Ongoing AICPA peer review oversight for

single audit engagements

172

Single Audit Resources

Single Audit Compliance Supplement

Code of Federal Regulations (CFR)

• Available at www.govregs.com

• Also can simply enter relevant CFR section into

Google

Council on Financial Assistance Reform (COFAR)

• Frequently asked questions are available at

COFAR/COFAR resources

• https://cfo.gov/wp-content/uploads/2017/08/July2017-

UniformGuidanceFrequentlyAskedQuestions.pdf

173

Question 16

Under the proposed Yellow Book changes, which of the following would not impair an auditor’s independence?

A. Posting journal entries to a government’s general ledger without management’s approval

B. Preparing the government's financial statements

C. Authorizing transactions

D. Making changes to the capital assets subledger without management’s approval

E. All of the above

174

Question 17

How many years is allowed by the UG for non-

Federal entities to implement the procurement

requirements?

A. 1

B. 2

C. 3

D. 5

E. None

175

Common Reporting

Deficiencies

CAFR Program

Letter of Transmittal

Government is transmitting the audited financial

statements

Cannot transmit something you do not have

Date of transmittal letter cannot be before the

date of the independent auditor’s report

• Dated on or after independent auditor’s report date [GAAFR, 592]

177

MD&A

GASB 34 requires “An analysis of balances

and transactions of individual major funds.”• Reasons for significant changes in fund

balance/fund net position – not just dollar amount

or percentage of changes

• Any restrictions, commitments, or other limitations

significantly affect fund resources for future use

Missing the analysis

Not addressing all major funds with significant

changes in fund balance/net position

178

MD&A

Deferred outflows and inflows are separate elements

Governments combining deferred outflows with assets and

deferred inflows with liabilities in condensed statement of net

position. Governmental Activities

2017 2016

Assets

Current and other assets 100$ 85$

Capital asset, net 90 88

Total Assets 190$ 173$

Deferred outflows of resources 50$ 48$

Liabilities

Current and other liabilities 45$ 46$

Long-term liabilities 60 55

Total Liabilities 105$ 101$

Deferred inflows of resources 44$ 40$

179

MD&A

Condensed statement of activities

• Need to include the ending net position

Amounts in MD&A should agree with

amounts reported in financial statements

180

Calculation of net investment in

capital assets Should include

• All the capital assets (e.g., land and construction in progress, intangibles)

• Capital related debt (e.g., retainage payable)

• Deferred amounts from refundings in the calculation

Should exclude unspent debt proceeds

• The liability related to the unspent portion of a debt issuance should be included in the same component of net position as the unspent proceeds

181

Calculation of net investment in

capital assetsCapital Assets, net of accumulated

depreciation 100,000$

Less outstanding amounts of:

Bonds (50,000)

Mortgages (10,000)

Notes (15,000)

Other borrowings/liabilities (20,000)

Deferred inflows of resources related

to refunding capital debt (450)

Add deferred outflows of resources

related to refunding capital debt 250

Net investment in capital assets 4,800$

Debt used to acquire,

construct or improve

capital assets

182

Major Funds

Funds that meet the 10% and 5% test are not

being reported as major funds

• Governments are excluding deferred outflows and

inflows of resources from the calculation

183

Other financing sources and uses

Only items defined by GASB can be other

financing sources and uses

• Governments including other items in the

governmental funds statement of revenues,

expenditures, and changes in fund balances

Other Financing Sources Other Financing Uses

1. Issuance of long-term debt2. Inception of a capital lease3. Sales of capital assets4. Insurance recoveries5. Transfers in

1. Original issue discount on debt2. Payments to advance refunding

escrow agent3. Transfers out

184

Other financing sources and uses

Amounts of long-term debt issuances in the

governmental funds statement of revenues,

expenditures, and changes in fund balances

=

Amounts of the related additions to long-

term debt disclosed in the notes to the

financial statements

185

Fund balance

Only the general fund should report

nonspendable fund balance for

• long-term loans and notes receivable

• long-term interfund receivables

• property held for resale

Only the general fund should report

positive unassigned fund balance

186

Proprietary funds – capital contributions

Capital contributions should be reported

on the statement of revenues, expenses,

and changes in net position if they are

reported as capital grants and

contributions on the statement of activities

187

Proprietary funds – statement of cash

flows

Cash receipts and cash disbursements

generally should be reported gross rather

than net

• Transfers in and out

• Investment purchases and sales

The noncash portion of the capital

contributions should be included in the

schedule of noncash investing and

financing activities

188

Proprietary funds – statement of cash

flows

Cash flows not properly reported in some

other category should be included as part of

cash flows from operating activities

Noncapital Financing

Grants

Taxes

Transfers/Interfunds

Borrowings

Capital and Related Financing

Capital outlays

Sale/Disposition of capital assets

Grants and Taxes (must be restricted for capital items)

Capital borrowings

Investing

Investment income

Purchases and Sales of Investments

189

Component unit disclosures

Need to describe why a component unit is

discretely presented – both factors need to

be disclosed

• Fiscal dependence + Financial benefit or burden

relationship

• Board appointment + Financial benefit or burden

relationship

• Board appointment + Ability to impose will

190

Component unit disclosures

Need to describe why a component unit is blended

• Substantively the same governing body + financial benefit

or burden

• Substantively the same governing body + operational

responsibility

• Service or benefit (almost) exclusively to the primary

government

• Total debt repayable (almost) entirely from resources of

the primary government

• Primary government is sole corporate member of not-for-

profit corporation

Governments will not report the second factor for same

governing body

191

Pension disclosures

Need to disclose the primary government’s

pension note disclosures separately from the

discretely presented component units’ notes

disclosures

Description of the plan: disclose whether the

pension plan is a single-employer, agent

multiple-employer, or cost-sharing multiple-

employer defined benefit plan

Separate disclosures for each plan

192

Pension disclosures

Disclose the amounts of the of deferred outflows and inflows of resources

for each plan• Totals should equal amounts

in basic statements

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

separately for each plan that will be recognized in the employer's pension

expense for each of the

subsequent five years, and, at a minimum,

in the aggregate for subsequent years.

Should not include amount of contributions

made subsequent to measurement date

2018 458,200$

2019 303,510

2020 303,510

2021 303,510

2022 303,510

Thereafter 755,811

Total 2,428,051$

Deferred Deferred

outflows inflows

of resources of resources

Difference between expected and

actual experience -$ 152,300$

Changes in assumptions 130,251 -

Earnings on pension plan investments 2,450,100 -

Contributions made subsequent to

the measurement date 458,622 -

Total 3,038,973$ 152,300$

193

Pension disclosures

Contributions made subsequent to

measurement date

• Need to disclose the amount

• It is not part of expense in subsequent

years

• Disclose that it will be recognized as a

reduction of the net pension liability in the

subsequent fiscal year

194

Other note disclosures

Donated capital assets are reported at

acquisition value, not fair value. Need to

update the Summary of Significant

Accounting Policies

The government should disclose information

for each type of asset measured at fair value

• Not required for positions in external investment

pools

195

Required Supplementary Information

GASB 68 requires schedule of employer

contributions

• Information should be as of the most recent

fiscal year end, not measurement date

2017 2016 2015 2014

Actuarially determined contribution 79,713$ 86,607$ 89,828$ 91,963$

Contributions in relation to the actuarially

determined contribution 79,713$ 86,607$ 89,828$ 91,963$

Contribution deficiency (excess) -$ -$ -$ -$

Covered payroll 449,293$ 436,424$ 416,243$ 407,812$

Contributions as a percentage of covered

payroll 17.74% 19.84% 21.58% 22.55%

196

Combining and individual fund

statements and schedules

Budgetary reporting – CAFR Program

Include budgetary comparisons for nonmajor

special revenue funds, debt service funds,

capital projects funds, and permanent funds

that have legally adopted annual budgets

Report at the legal level of budgetary control

• Including general fund & major special revenue

funds if not presented in basic statements or RSI

197

Statistical section

The amounts presented in the debt

capacity schedules should be the same

amounts reported in the basic financial

statements

• Include premiums and discounts on bonds

Include all the governmental activities debt

for the direct debt in the direct and

overlapping debt statistical table

198

Statistical section

The ratio of debt service as a percentage

of noncapital expenditures is not calculated

correctly

• Capital outlay is the amount from the

reconciliation of the statement of revenues,

expenditures, and changes in fund balances to

the statement of activities

Principal + Interest

Total Expenditures - Capital Outlay

199

Invitation to Comment

Financial Reporting Model

Improvements – Governmental

Funds

Financial Reporting Model

In December 2016, GASB issued Invitation to Comment

(ITC) on Financial Reporting Model Improvements –

Governmental Funds

The ITC provides options for:

• Recognition approaches – measurement focus and

basis of accounting

o What to measure and when to measure it

• Format of the governmental funds statement of resource

flows

• Specific terminology

• Reconciliation to the government-wide statements

• For certain recognition approaches, a statement of cash

flows

201

Recognition approaches

Three approaches presented in ITC to

replace current financial resources/modified

accrual

• Near-term financial resources

• Short-term financial resources

• Long-term financial resources

202

Recognition approaches: Near-term

approach

Governmental funds focus on balances and

flows of resources relevant to near-term

spending

• near-term = collected or normally paid within 60

to 90 days of the end of the fiscal year

Financial resources – resources that are

expected to be converted into cash

203

Recognition approaches: Near-

term approach

Changes to governmental funds – balance sheet

No capital assets and long-term debt

No longer report on balance sheet

• Inventories and prepaids (the use of the “consumption method” would no longer be permitted).

• Receivables that are notcollectible within 60 to 90 days.

• Revenue anticipation notes (RANs) and tax anticipation notes (TANs) that are not due within 60 to 90 days.

Begin to report on balance sheet

• Accrued interest (if payable at fiscal year end and due within 60 to 90 days).

• Compensated absences (if payable at fiscal year end and due within 60 to 90 days).

• Postemployment benefits (if payable at fiscal year end and due within 60 to 90 days).

204

Recognition approaches: Near-

term approach

Changes to governmental funds

• Outflows of resources – payments made during

year and normally made after fiscal year end

(60 – 90 days)

oSalaries and wages, purchased services, inventories,

capital outlay

o Interest (has accrued and is due either during the

period or within the near term)

oPrincipal on matured debt.

– Not principal due January 1, 2018, for a December 31, 2017,

year-end

205

Recognition approaches: Near-

term approach

Changes to governmental funds

• Inflows of resources – payments received

(cash or near-term receivable) during year

oDo not result in a liability

oAvailable for spending in reporting year

oExamples:

– Property taxes levied for the period and collected in the

year or the near term

– Proceeds from all borrowings including TANs and RANs

No depreciation

No statement of cash flows

206

Recognition approaches: Short-

term approach Short-term approach, similar to near-term

except focuses on collections and payments

normally due within the operating cycle (12

months), rather than just the first 60 to 90

days

Financial resources are cash, claims to

cash, claims to goods or services (such as

prepaid items), consumable goods (such as

inventory), and equity securities of another

entity

207

Recognition approaches: Short-

term approach

Changes to governmental funds – balance sheet

No capital assets

No longer report on balance sheet

• Receivables that are not collectible within 12 months.

• RANs and TANs that are not due within 12 months.

Begin to report on balance sheet

• Inventories and prepaids (the use of the “purchases method” would no longer be permitted).

• Accrued interest (if payable at fiscal year end and due within 12 months).

• Compensated absences (if payable at fiscal year end and due within 12 months).

• Postemployment benefits

• if paid through a trust or equivalent arrangement = the cumulative excess of actuarially determined contributions over amounts contributed + interest

• if not paid through a trust = amount normally due within 12 months.

208

Recognition approaches: Short-

term approach Changes to governmental funds

• Outflows of resources – underlying transaction

occurs and the cash payment made during year

or due within subsequent operating cycle

o Salaries and wages, goods and services, use of

inventories, capital outlay

o Interest - accrued and is due either in the period or

within the subsequent operating cycle

o Principal on debt - capital or operating due in

subsequent operating cycle

No depreciation

209

Recognition approaches: Short-

term approach Changes to governmental funds

• Inflows of resources – underlying transaction

occurs and the cash is collected or is due within

the subsequent operating cycle

oExamples:

– Property taxes levied for the period and collected in the year

or due within the subsequent operating cycle

– Sales and income taxes

– Proceeds from borrowings not due in current year or

subsequent year including TANs and RANs

Statement of cash flows would be required

210

Recognition approaches: Long-term

approach

Governmental funds focus on balances and

flows of resources when they occur

• Does not consider timing of cash collections

• Similar to governmental activities (government-

wide financial statements)

Financial resources – Cash, claims to cash,

claims to goods or services (prepaid items),

consumable goods (inventory), and equity

securities of another entity

211

Recognition approaches: Long-term

approach

Governmental funds would continue to report

all the assets and liabilities they currently

report, but they also would report:• Inventories and prepaids (the use of the “purchases

method” would no longer be permitted)

• Operating debt

• Accrued interest

• Compensated absences (full amount)

• Postemployment benefits (full amount)

Would not record capital assets and capital-

related debt

212

Recognition approaches: Long-

term approach Changes to governmental funds

• Outflows of resources – Recognized when

underlying transaction takes place

oSalaries and wages including postemployment

benefits and compensated absences

oUse of goods and services

o Interest

oPrincipal on capital-related debt

No depreciation

213

Recognition approaches: Long-

term approach Changes to governmental funds

• Inflows of resources – recognized when

underlying transaction occurs. Examples:– Property taxes levied for the period

– Sales and income taxes

– Proceeds from capital-related borrowings

Statement of cash flows would be required

214

GFOA's Response to the ITC

– Governmental Funds

Committee on Accounting, Auditing,

and Financial Reporting (CAAFR)

Overall Position

Supportive of the concept

• Make the accounting more consistent

• Governmental fund financial statements still basic

financial statements

Governmental fund financial statements

should:

• Present results for a shorter time frame

• Convey how government performed in context of

the budget

216

Proposed Approaches

Governmental fund financial statements

should focus on fiscal accountability

• “How did we do this year?”

Short-term and Long-term Approaches

• Inconsistent with GFOA’s premise that funds

present financial results within the context of the

budget

• Difficult to measure fiscal accountability

217

Proposed Approaches (cont.)

Near-term approach provides most relevant

information

Closely resembles the current basis of

accounting used by majority of governments

Able to assess how the government did this

year

218

Financial Statement Presentation

Maintain the existing format for statement of

resource flows

Reconciliations, as presented, from fund

financial statements to government-wide, too

condensed

No statement of cash flows

Governments should be given option to

present budgetary comparisons as basic

statement

219

Project Calendar

GASB is reviewing feedback provided

Issue a Preliminary Views document in

July 2018

Issue an Exposure Draft in April 2020

Issue Final Statement in November 2021

220

Question 18

The ITC requires a statement of cash flows for

which of the proposed three models for

governmental funds?

A. Near-term financial resources

B. Short-term financial resources

C. Long-term financial resources

D. All of the above

E. Only B and C

221

Question 19

The ITC requires capital assets to be reported

in which of the proposed three models for

governmental funds?

A. Near-term financial resources

B. Short-term financial resources

C. Long-term financial resources

D. None of the above

E. All of the above

222

Question 20

Under the three proposed models in the ITC,

which of the following would report non-capital

long-term debt?

A. Near-term financial resources

B. Short-term financial resources

C. Long-term financial resources

D. None of the above

E. All of the above

223