Technical Update

Mark Thomas, Partner

KPMG LLP

April 24, 2015

Learning Objective:• Be familiar with the new accounting pronouncements and

understand its effect to the California State University System financial statements

April 2015 Year-End GAAP Training 2

GASB Pronouncements• GASB Statement No. 68, Accounting and Financial

Reporting for Pensions, Issued June 2012• GASB Statement No. 69, Government Combinations and

Disposals of Government Operations• GASB Statement No. 70, Accounting and Financial Reporting for

Nonexchange Financial Guarantees• GASB Statement No. 71, Pension Transition for Contributions

Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68

• GASB Statement No. 72, Fair Value Measurement and Application

April 2015 Year-End GAAP Training 3

GASB 68 Overview• Addresses accounting and financial reporting for

pensions that are provided to the employees of state and local governmental employers• Employers should report in their financial statements a

net unfunded pension liability• Moving from a funding approach to an earned approach• An employer should recognize its proportionate share of

the collective net pension liability, pension expense, and deferred inflows/outflows of a cost-sharing plan

April 2015 Year-End GAAP Training 4

Statement No. 72

• GASB Statement No. 72, Fair Value Measurement and Application• Issued February 2015• Effective for periods beginning after June 15,

2015 (effective June 30, 2016)• Addresses accounting and financial reporting

issues related to fair value measurements.

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Investments• Investments – • Defined as a security or other asset that

(a) government holds primarily for the purpose of income or profit and

(b) has a present service capacity based solely on its ability to generate cash or to be sold to generate cash.

• GASB 72 generally requires investments to be measured at fair value

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Investments• A government is permitted in certain

circumstances to establish the fair value of an investments that does not have a readily determinable fair value by using the net asset value per share (or its equivalent)

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Fair Value definition• Fair Value – • Price that would be received to sell an asset or

paid to transfer a liability in an orderly transaction between market participants at the measurement date.• Assumes highest and best use:

• Physically possible• Legally permissible• Financially feasible

April 2015 Year-End GAAP Training 8

Valuation Techniques

Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

• Market Approach – uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets and liabilities.

April 2015 Year-End GAAP Training 9

Valuation Techniques• Cost Approach – reflects the amount that would

be required to replace the present service capacity of an asset.

• Income Approach – converts future amounts to a single current amount.

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Fair Value Hierarchy• Level 1 inputs – quoted market prices (unadjusted)

in active markets for identical assets or liabilities.• Level 2 inputs – inputs other than quoted prices –

included within level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3 inputs – unobservable inputs, such as management’s assumption of the default rate among underlying mortgages of a mortgage-backed securities.

April 2015 Year-End GAAP Training 11

Fair Value of Liabilities• Measurement of the fair value of a liability assumes

that the liability is transferred to a market participant at the measurement date.

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Fair Value Measurement ExceptionsType of Investments Measurement Applicable Guidance

Investments in nonparticipating interest-earning investment contracts

Cost-based measure Statement 31, par. 8

Investments in unallocated insurance contracts

Interest-earning investment contracts

Statement 31, par. 8Statement 59, par. 4

Money market investments and participating interest-earning investment contracts with maturity of < one year and are held by government other than external investment pools

Amortized cost Statement 31, par. 9

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Fair Value Measurement ExceptionsType of Investments Measurement Applicable

Guidance

Investments held by 2a7-like external investment pools

Amortized cost Statement 31, par. 16

Fully benefit-responsiveness synthetic guaranteed investment contracts

Contract value Statement 53, par. 67

Investments in life insurance contracts

Cash surrender value

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Fair Value Disclosures• Fair value amounts• Level of fair value hierarchy• Valuation techniques• Organize disclosures by type of asset or liability

reported at fair value• Additional disclosures regarding investments in

certain entities that calculate net asset value per share (or its equivalent).

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Coming Soon...

• GASB Statements 73-75: Accounting and Financial Reporting for Other Postemployment Benefits (Plan and Employer)

April 2015 Year-End GAAP Training 16

www.calstate.edu

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