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Transcript of 1 Office of the Utah State Auditor GASB UPDATE. 2 Office of the Utah State Auditor New GASB...
1
Office of the
Utah State Auditor
GASB UPDATE
2
Office of the
Utah State Auditor
New GASB Pronouncements
Statement Title 12/31 6/30
65 Items Previously Reported as Assets and Liabilities 13 14
66 Technical Corrections 13 14
67 Pensions (Plan) 14 14
68 Pensions (Employer) 15 15
69 Disposals of Government Operations 14 15
70 Accounting and Financial Reporting for Nonexchange Financial Guarantees
14 14
71 Pension Transition For Contributions Made Subsequent to the Measurement Date – an amendment of GASB 68
15 15
3
Office of the
Utah State Auditor
Items Previously Reported as Assets and Liabilities
GASB STATEMENT NO. 65
4
Office of the
Utah State Auditor
GASB 65
• Background– GASB Concepts Statement No. 4
introduces:• Deferred outflows of resources• Deferred inflows of resources
– GASB will identify which items should be classified in these categories
5
Office of the
Utah State Auditor
Deferred Outflows
• Definition – a consumption of net assets by the government that is applicable to a future reporting period. – Positive effect on net
position, similar to assets.
– (Debit)
• Definition – resources with present service capacity that the government presently controls.– Prepaid rent – Yes– Advance to grantee
(time requirement not met) – No
Deferred Outflow Asset
6
Office of the
Utah State Auditor
Deferred Inflows
• Definition – an acquisition of net assets by the government that is applicable to a future reporting period.– Negative effect on net
position, similar to liabilities.
– (Credit)
• Definition – present obligations to sacrifice resources that the government has little or no discretion to avoid.– Payment for services
not yet performed? – Yes
– Proceeds from sale of future revenues? – No
Deferred Inflows Liabilities
7
Office of the
Utah State Auditor
Decisions to date
• GASB 53– Hedging Derivatives
• Deferred Outflow – decrease in value• Deferred Inflow – increase in value
• GASB 60– Service concession arrangements
• Deferred Inflow – Consideration received up front
8
Office of the
Utah State Auditor
Goal
• Review items currently reported as assets or liabilities
• Three options:1. Continue to report as asset/liability
2. Report as a deferred outflow/inflow of resources
3. Report as an outflow/inflow of the period
9
Office of the
Utah State Auditor
Asset Deferred Outflow
• Resources provided by a grantor to a grantee when the only eligibility criterion that has not been met by the recipient is a time requirement– If other eligibility requirements are not
met = receivable
10
Office of the
Utah State Auditor
Asset Deferred Outflow
• Excess of the reacquisition price of refunded debt over its net carrying amount.$ 95 Outstanding debt
$100 New debt issued
$ 5 Deferred outflow (amortize in a systematic and rational manner)
11
Office of the
Utah State Auditor
Asset Deferred Outflow
• Payments made within the financial reporting entity to purchase the right to future revenue
• A loss on a sale-leaseback transaction
• Certain items associated with lending activities and mortgage banking activities
12
Office of the
Utah State Auditor
Asset Outflow
• Debt issuance costs (other than prepaid insurance)
• Initial direct costs of operating leases
• Acquisition costs related to insurance activities
• Certain items associated with lending activities and mortgage banking activities
13
Office of the
Utah State Auditor
Liability Deferred Inflow
• Revenue of a governmental fund that is not recognized solely because it is not yet considered to be available
• Property taxes received or recognized as a receivable prior to the period they were intended to finance
14
Office of the
Utah State Auditor
Liability Deferred Inflow
• The excess of the net carrying amount of refunded debt over its reacquisition price$100 Outstanding debt
$ 95 New debt issued
$ 5 Deferred inflow
15
Office of the
Utah State Auditor
Liability Deferred Inflow
• Other imposed non-exchange revenues received or recognized as a receivable prior to the period when the use of the resources is either required of first permitted
• Resources received from a grantor when the only eligibility criterion that has not been met by the recipient is a timing requirement – If other eligibility criteria not met =
liability• Proceeds from the sale of future revenues
16
Office of the
Utah State Auditor
Liability Deferred Inflow
• A reduction in the present value of the payments due from the lessee under a capital lease as a result of the lessor’s passing on the economic advantages of a refunding of tax-exempt debt
17
Office of the
Utah State Auditor
Liability Deferred Inflow
• Payments received within the financial reporting entity for the right to future revenues
• Gain on sale-leaseback transaction• Certain items associated with
lending activities and mortgage-banking activities
18
Office of the
Utah State Auditor
Liability Inflow
• Loan origination fees received (other than the portion related to points) in connection with lending activities
• Certain items associated with lending activities and mortgage banking activities
19
Office of the
Utah State Auditor
Determination of Major Funds (10 percent and 5 percent tests) Application of 10 percent and 5
percent tests (use the combination)• Assets + deferred outflows of
resources• Liabilities + deferred inflows of
resources
20
Office of the
Utah State Auditor
Use of term “deferred”
• Future practice – Use limited to deferred outflows/inflows
of resources
21
Office of the
Utah State Auditor
Note Disclosure
• This used to be classified as an asset, but is now classified as a deferred outflow.
OR• This used to be classified as an
asset, but is now classified as an outflow.
22
Office of the
Utah State Auditor
Effective Date
• Financial statement periods beginning after December 15, 2012.
• Earlier application encouraged.
23
Office of the
Utah State Auditor
Technical Corrections
GASB STATEMENT NO. 66
24
Office of the
Utah State Auditor
GASB’s Objective
Resolve conflicting guidance• Issuance of GASB 54 – Conflicts with
GASB 10• Issuance of GASB 62 – Conflicts with
GASB 13 and 48
25
Office of the
Utah State Auditor
Conflicting Guidance
• Requires risk financing activities to be accounted for in either a general fund or internal service fund, if a single fund is used.
• Allows for certain risk financing activities to be reported in a special revenue fund.
GASB 10 GASB 54
26
Office of the
Utah State Auditor
Resolution
• GASB 10 language limiting risk financing activities to general fund and internal service fund was deleted.
• Governments should base their fund type decision on the nature of the activity to be reported.
27
Office of the
Utah State Auditor
Conflicting Guidance
• Provides guidance on accounting for operating lease payments with scheduled rent increases that could be perceived as a prohibition against the use of the fair value method.
• Permits the fair value method of accounting for operating lease payments.
GASB 62 GASB 13
28
Office of the
Utah State Auditor
Resolution
• GASB 62 was amended to specifically allow for recognition based on the fair value of the rental payments.
• Professional judgment should be used to determine whether rental payments are based on economic factors relating to the property or, instead are an inducement to the lessee.
29
Office of the
Utah State Auditor
Effective Date
• Financial statement periods beginning after December 15, 2012.
• Earlier application encouraged.
30
Office of the
Utah State Auditor
Accounting and Financial Reporting for Pensions
GASB STATEMENT NO. 67 & 68
31
Office of the
Utah State Auditor
Introduction
• Statements affect only proprietary statements
• No effect on governmental funds
• Affects defined benefit pensions through plans administered as trusts or equivalent arrangements– Replaces GASB 27
32
Office of the
Utah State Auditor
Plan Types
• Single Employer – pay according to experience (State has two)
• Agent Plan – each plan has own rates based on experience, but plan managed by someone else (State plus five cities)
• Cost Sharing – everyone pays same rate regardless of experience (Nearly all)
33
Office of the
Utah State Auditor
Key Changes – Single and Agent Plans
1. Employer liability (What should the employer show)
2. Employer expense
3. Discount rate
4. Actuarial method (spread cost over service life of employee)
5. Amortization (how many years to defer, what is the amortization period)
34
Office of the
Utah State Auditor
Employer Liability
Current:Annual required contribution
(ARC) (Mortgage payment supposed to pay for year)
Less: Actual contributions (What you did pay on your mortgage for the year)
Net pension obligation (NPO)
New:Total pension liability (TPL) (What have employees earned)
Less: Fiduciary net position (FNP)
(How much has the employer set aside)
Net pension liability (NPL) (Employer liability will be the unpaid mortgage)
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Office of the
Utah State Auditor
Employer liability – illustration
Current: Annual required contribution (ARC)
$100
Less: Actual contributions (80)
Net pension obligation (NPO) $ 20
Liability reported by employer: $ 20
New:
Total pension liability (TPL) $10,000
Less: Fiduciary net position (FNP) (8,500)
Net pension liability (NPL) $ 1,500
Liability reported by employer:$1,500
36
Office of the
Utah State Auditor
Employer Expense
Current:• Calculation tied to
funding– ARC adjusted for the
cumulative effect of prior differences between required contributions and actual contributions
New:• Calculation tied to
cost– Changes in the net
pension liability (NPL)
37
Office of the
Utah State Auditor
Components of Expense
• Annual service cost• Interest on the net pension liability• Projected earnings on plan
investments• The full effect of any changes in
benefit terms• Amortization of deferred
outflows/inflows of resources
38
Office of the
Utah State Auditor
Discount rate
Current:• Estimated long-term
investment yield for the plan
New:• Modification necessary if it
is expected that FNP will not be sufficient to pay benefits to active employees and retirees– Single blended rate
39
Office of the
Utah State Auditor
Discount Rate – Single Blended Rate
• Single rate equivalent to the combined effect of using the following rates:– For projected cash flows (including future
contributions) up to the point the FNP will be sufficient• Long-term expected rate of return on plan
investments
– For projected cash flows beyond that point• A yield or index rate on tax-exempt 20-year, AA or
higher rated municipal bonds.
40
Office of the
Utah State Auditor
Actuarial Method
Current:• Whatever actuarial
method is used for funding– Six acceptable methods– Must be applied within
parameters defined by GASB
New:• No tie to actuarial method
used for funding– All employers will use
the entry age method for accounting and financial reporting purposes
41
Office of the
Utah State Auditor
Amortization
Circumstances that could affect the net pension liability (NPL)– Changes in benefit terms– Changes in economic and demographic
assumptions– Differences between economic and
demographic assumptions and actual experience (other than investment returns) (i.e. changes in life expectancy, inflation etc.)
– Differences between expected and actual investment returns
42
Office of the
Utah State Auditor
Amortization
Current:• Amortize over a
period not to exceed 30 years
New:• Amortize over a much
shorter period– Different periods,
depending on the circumstances
43
Office of the
Utah State Auditor
Amortization
• Amortization period– Changes in benefit terms
• Immediate recognition
– Changes in economic and demographic assumptions (ie. People retire later than expected)• Closed period equal to the average
remaining service period of plan members– Average remaining service period of retirees = 0
44
Office of the
Utah State Auditor
Amortization
• Periods (continued)– Differences between economic and
demographic assumptions and actual experienced (other than investment returns)• Closed period equal to average remaining
service period of plan members– Average remaining service period of retirees = 0
– Differences between expected and actual investment returns• Closed 5-year period
45
Office of the
Utah State Auditor
Cost Sharing Plans
Key changes:
1. Employer liability
2. Employer expense
46
Office of the
Utah State Auditor
Employer liability (cost-sharing)
Current• Liability only if
employer contribution is less than the contractually required amount
New• Liability equal to the
employer’s proportionate share of the total NPL of all participating employers
47
Office of the
Utah State Auditor
Employer expense (cost-sharing)
Current• Expense =
contractually required contribution
New• Expense = employer’s
proportionate share of total pension expense of all participating employers
48
Office of the
Utah State Auditor
Note Disclosure (cost Sharing)
• Plan description• Information about the employer’s
proportionate share of the collective net pension liability (NPL)– Assumptions and other inputs– Fiduciary net position (FNP)
• Other information
49
Office of the
Utah State Auditor
RSI (cost Sharing)
• 10-year schedules– Schedule of funding progress– Employer contributions– Agent and Single – Net Asset Schedule
• URS will provide templates for notes and schedules
50
Office of the
Utah State Auditor
Potential Impact Considerations
• How much work will implementation be?– URS implements many of the difficult
elements of the standards– URS will provide amounts to be
reported– URS will provide footnote and RSI
templates
51
Office of the
Utah State Auditor
Potential Impact Considerations
• What if the additional liability creates a deficit fund balance or net position?– Pension standards apply to funds using the economic
resources measurement focus (entity wide and proprietary fund). Entity wide statements do not adopt a budget.
– State law prohibits a local government from making an appropriation in excess of the estimated expendable revenue for the budget period.
• Estimated Expendable Revenue = Estimated Revenue + Net Position Money Available to Spend – Required Reserve (usually 5% of total revenue from last completed fiscal year).
52
Office of the
Utah State Auditor
Auditing Guidance
• Cost Sharing– Sufficient and Appropriate Audit
Evidence
• Plan Auditor Must Express Opinion on Schedules– Schedule of Employer Allocations– Schedule of Pension Amounts by
Employer
53
Office of the
Utah State Auditor
Auditing Guidance
• Evaluate that plan’s schedules and reports are adequate
• Evaluate plan auditor’s – Competence– Independence
• Verify and recalculate amounts
54
Office of the
Utah State Auditor
Auditing Guidance
• Single Employer and Cost Sharing• URS Auditor’s Will Test• Census Data
– Date of Birth– Date of Hire– Years of Service– Eligible Compensation
55
Office of the
Utah State Auditor
Effective Date
• GASB 67 (Plans) Financial statement periods beginning after June 15, 2013.
• GASB 68 (Employers) Financial statement periods beginning after June 15, 2014.
• Earlier application encouraged.– URS plans to early implement
56
Office of the
Utah State Auditor
Government Combinations and Disposals of Operations
GASB STATEMENT NO. 69
57
Office of the
Utah State Auditor
Three Types of Combinations
• Merger • Acquisition • Transfer of operations
58
Office of the
Utah State Auditor
Merger
• At least one entity ceases to exist– A+B=C (new entity)– A+B=B+ (B becomes larger)
• Service continuation (substantial portion of services)
• No exchange of significant consideration
59
Office of the
Utah State Auditor
Acquisition
• At least one entity ceases to exist– A+B=C (new entity)– A+B=B+ (B becomes larger)
• Service continuation (substantial portion of services)
• Exchange of significant consideration (Difference from a merger)
60
Office of the
Utah State Auditor
Transfer of Operations
• Identifiable services (ie. library, museum, etc.)
• Move the whole service• Related assets and liabilities• Service continuation (substantial
portion of services)• No significant consideration
61
Office of the
Utah State Auditor
Treatment of Financial Statement Elements
• Merger– Carrying value (with adjustments -- if the two
entities had different useful lives for the same assets you can adjust the useful lives for consistency.)
• Acquisition– Acquisition value
• Price to acquire similar assets• Price to discharge liabilities as of acquisition date
• Transfer of operations– Carrying value (with adjustments)
62
Office of the
Utah State Auditor
Consideration Not Equal to Net Position
• Consideration > net position acquired– Deferred outflow of resources
• Consideration < net position acquired– Meant to assist acquiring government?
• Yes = Recognize contribution• No = Reduce acquisition value of
noncurrent assets (other than investments reported at fair value)
– Remainder = special item (if noncurrent assets are reduced to zero, the remainder should be recognized as a special item)
63
Office of the
Utah State Auditor
Disposals
• Transferred operation = gain or loss on disposal
64
Office of the
Utah State Auditor
Note Disclosures
• All combinations– A brief description of the government combination,
including identification of the entities involved in the combination and whether the participating entities were included within the same financial reporting entity
– The date of the combination– A brief description of the primary reasons for the
combination
• Additional disclosures depending upon the type of combination.
65
Office of the
Utah State Auditor
Effective Date
• Financial statement periods beginning after December 15, 2013.– Prospective implementation
• Earlier application encouraged.
66
Office of the
Utah State Auditor
GASB STATEMENT NO. 70
Accounting and Financial Reporting for Nonexchange Financial Guarantees
67
Office of the
Utah State Auditor
Definition of Financial Guarantee
• Agreement to indemnify a third party if the issuer of the guaranteed obligation does not fulfill its obligation.
• Three separate parties– Issuer of the obligation being
guaranteed– Those entitled to payment pursuant to
the obligation– Guarantor
68
Office of the
Utah State Auditor
Need for Guidance
• Private Sector– Financial guarantees almost always
arise from exchange transactions
• Public Sector– Financial guarantees frequently arise
independently (nonexchange financial guarantees)
69
Office of the
Utah State Auditor
Scope
• Excludes:– Obligations related to revenue-
supported debt– Obligations related to special
assessments– “Joint and several” obligations– Obligations that are not legally binding
70
Office of the
Utah State Auditor
Guarantors – Recognition
• Two-step approach– Consider qualitative factors and
historical data that indicate likelihood of payments.
– Point of recognition = “more likely that not” to occur.
71
Office of the
Utah State Auditor
Guarantors – Qualitative Factors
• Issuer bankruptcy or financial reorganization
• Issuer breach of debt covenant
72
Office of the
Utah State Auditor
Guarantors – Qualitative Factors (Continued)
• Indicator of significant financial difficulty– Issuer receipts intercepted – Debt holder concessions– Significant investment losses– Loss of a major revenue source– Significant increase in noncapital
disbursements– Issuer subject to financial supervision
73
Office of the
Utah State Auditor
Obligations with Similar Characteristics
• Example = student loan receivables• Treatment
– May need to consider qualitative factors and historical data from perspective of group as a whole.
74
Office of the
Utah State Auditor
Guarantors – Point of Recognition
• “More likely than not”– Likelihood as little as 51 percent
• Contrast with normal treatment of contingencies– “Probable” (I would be surprised if it
didn’t happen)• Likelihood well in excess of 50 percent
75
Office of the
Utah State Auditor
Guarantors – Valuing the Liability
• Discounted present value of estimated future payments– Range of possible values? Normal rules
apply• One amount = “best estimate”
– Recognize that amount
• No amount better than any other– Recognize the minimum amount of the range.
76
Office of the
Utah State Auditor
Guarantors – Governmental Funds
• Report an expenditure only when due and payable– Classify in the same manner as
grant/financial assistance payments
77
Office of the
Utah State Auditor
Guarantors – Disclosure
• Description– Legal authority for extending guarantees– Limits on extending guarantees – Types of obligations guaranteed– Relationship of guarantor to issuers– Length of guarantees– Arrangements for recovering payments from
issuers
• Total guarantees outstanding
78
Office of the
Utah State Auditor
Guarantors – Disclosure (Contintued)
• If liability recognized or payments made– Description of
• Timing of recognition• Measurement of liability
79
Office of the
Utah State Auditor
Guarantors – Disclosure (Contintued)
• Changes in liabilities– Beginning balances– Increases (including initial recognition)– Adjustments that increase estimates– Payments– Adjustments that decrease estimates– Ending balances
80
Office of the
Utah State Auditor
Guarantors – Disclosure (Contintued)
• Cumulative payments on outstanding guarantees– Amounts expected to be recovered from
issuers
81
Office of the
Utah State Auditor
Issuer Accounting – Reporting
• Guaranteed obligation– Continue to report until legally released
as obligor• Ultimate decrease = revenue
– Reclassify payments that must be reimbursed to guarantor
82
Office of the
Utah State Auditor
Issuer Accounting – Reporting
• Receivable recognition– Normal rule against recognizing gain
contingencies• Exception = guarantees within the primary
government (blended component unit)– Liability to issuer matched by issuer receivable
83
Office of the
Utah State Auditor
Issuer – Note Disclosure
• If guaranteed obligations outstanding– Name of guarantor– Amount of guarantee – Length of guarantee– Amount paid during the current period– Cumulative amount paid on outstanding
obligations– Requirement to repay the guarantor
• Outstanding amounts to be repaid
84
Office of the
Utah State Auditor
Issuer – Note Disclosure (Continued)
• If payments made by guarantor during the current period (even if obligation is no longer outstanding)– Amount paid during the current period– Cumulative amount paid by the
guarantor on guaranteed obligations outstanding
– Requirements to repay guarantor• Outstanding amounts to be repaid
85
Office of the
Utah State Auditor
Effective Date
• Financial statement periods beginning after June 15, 2013– Earlier application encouraged
• Application generally retroactive – Exception
• Prospective disclosure for cumulative payments
– Disclose starting date
86
Office of the
Utah State Auditor
GASB STATEMENT NO. 71
Pension Transition for Contributions Made Subsequent to the Measurement Date
87
Office of the
Utah State Auditor
Background
• Transition guidance (employers) for pension related deferred outflows/inflows of resources (paragraph 137)– Beginning balances
• Reporting not required if impractical• Must report all balances or none at all
88
Office of the
Utah State Auditor
Net Pension Liability Measurement Date
12/31/11 6/30/12 6/30/13 6/30/14
Actuarial Valuation must be within this period. (30 months and 1 day)
Actuarial Valuation must be updated to a measurement
date within this period. (12 months and 1 day)
89
Office of the
Utah State Auditor
Practical Challenge
• Potential Situation– Employer makes contribution for year
prior to transition following the measurement date
• Result if the employer contribution is not reported as a deferred outflow of resources– Significant understatement of
• Beginning net pension liability• Pension expense
90
Office of the
Utah State Auditor
Solution
• Eliminate “all or nothing” approach– Report a deferred outflow of resources
for employer contribution for the prior year made after the measurement date
– Do not report any other pension-related deferred outflows or inflows of resources, if impractical to do so for all.
91
Office of the
Utah State Auditor
Effective Date
• Apply simultaneously with the provisions of GASB 68.
• GASB 68 (Employers) Financial statement periods beginning after June 15, 2014.
92
Office of the
Utah State Auditor
Contact Information
(801) 538-1394
Van Christensen