GASB Update....and Other Fun Topics WV Department of Education - - PDF document

6/27/2012 1

GASB Update....and Other Fun Topics

WV Department of Education Office of School Finance Presented by Gregory S. Allison, CPA UNC School of Government

Today’s Torture

• It’s GASB, not me

– 54 (Fund Balance) – 61 (Financial Reporting Entity) – 62 (GASB Codification) – 63 (Deferrals) – 65 (Items Previously Reported as Assets and Liabilities) – 66 (Technical Corrections) – Pension Projects

The Torture Continues....

• GASB Comprehensive Implementation Guide
• Common Accounting and Financial Reporting

Problems

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Components of Fund Balance

• Nonspendable
• Restricted
• Committed
• Assigned
• Unassigned

Nonspendable Fund Balance

• Portion of fund balance/net resources not in

spendable form or nonspendable for foreseeable future

– Inventories – Prepayments – Long‐term receivables

• Portion of fund balance/net resources

required to remain intact

– Permanent fund principle

Restricted Fund Balance

• Resources in a governmental fund subject

to externally enforceable constraints on spending

– Debt covenants – Grantors – Contributors – Enabling legislation (e.g., taxes raised for a particular purpose)

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Committed Fund Balance

• Formal legal constraints placed by the

governing board

– Formal action necessary to create OR rescind

• Constraints have to be in place no later than

the end of the fiscal period

• Similar to a high level designation
• Ability to rescind differentiates committed

from restricted net assets

Assigned Fund Balance

• Reflects a government’s intended use of

resources (i.e., earmarking – neither restricted or committed)

– Assignments may occur anytime before the issuance

• f financial statements
• Assignment ability may be delegated by the

board (commitments may not be)

– Less formal

• Default category for governmental funds except

general fund (unless those amounts are negative)

Unassigned Fund Balance

• Residual category for general fund
• Reflects deficit fund balance for other

governmental funds

• Impossible to report positive assigned fund

balance and negative unassigned fund balance

– Assigned amount has to be eliminated before negative unassigned may be reported

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Why do we need fund balance?

• Volatility of revenues, expenditures, and the

economic environment in general

• Exposure to significant one‐time outlays (e.g.,

disasters, capital needs, budget cuts)

• Need for general fund to provide availability to
• ther funds (or vice versa)
• Liquidity needs
• Commitment/assignment policies

Fund Balance Policy Sources

• GFOA Best Practices
• Local policies
• Local laws/ordinances
• State laws/ordinances

GFOA Best Practices

• Appropriate Level of Unrestricted Fund

Balance in the General Fund

– Adopted 2002, updated 2009 – Recommends adoption of formal policy – Committee, assigned, and unassigned categories represent unrestricted fund balance – Focus of most policies will be the general fund – Recommends a minimum of no less than 2 months revenues or expenditures, regardless of size (~ 16%)

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GFOA Best Practices (cont.)

• Appropriate Level...(cont.)

– Choice of revenue vs. expenditure should be based on most reliable/predictable measure – Laws or policies may actually dictate higher amounts – Some policies may focus on unassigned, rather than including commitments and/or assignments – Recognize the difference between GAAP and budgetary fund balance

GFOA Best Practices (cont.)

• Replenishing Fund Balance in the General

Fund

– Adopted 2011 – Reiterates the two‐month recommendation of unrestricted fund balance – Addresses how to replenish fund balance when minimum amounts are breached – Recommends governments adopt formal fund balance policy

GFOA Best Practices (cont.)

• Replenishing...(cont.)

– Identify purposes for which portions of fund balance are intended (e.g., working capital, stabilization, unexpected events) – Potentially identify sources of replenishment (e.g., non‐recurring revenues, surpluses, excess resources in other funds) – Policy should reiterate that fund balance replenishment a priority when conditions allow (generally within one to three years)

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GFOA Best Practices (cont.)

• Replenishing...(cont.)

– Factors that influence rate and time periods of replenishment

• Budgetary reasons/volatility of revenues
• Recovery from an extreme event
• Political continuity
• Financial planning horizons
• Long‐term forecasts and economic conditions
• Milestones for replenishment
• External financing expectations

Common Elements of a Fund Balance Policy

• Policy purpose

– General purpose – Applicability to funds

• Definitions and classifications

– Governmental fund structure (if policy extends past the general fund) – Fund balance components

• Restricted vs. unrestricted
• Specific policy

Fund Balance Policy Guidance

• New questions in 2011/12 Comprehensive

Implementation Guide

– Z.54.23 (stabilization versus minimum fund balance) – Z.54.24 (levels of specificity required) – Z.54.25 (laws dictating minimum fund balance) – Z.54.29 (disclosure details related to minimum fund balance being violated)

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Stabilization Funds

• Represents formal arrangements “setting

aside” funds for budget/revenue stabilization, working capital, contingencies, emergencies, etc.

– May be restricted or committed – Funds can only be accessed under specified circumstances that are not considered routine – Minimum fund balance policies generally do not qualify

Selected Fund Balance Disclosures

• Committed and assigned policies and procedures

– Identify highest level of authority – Formal actions to commit – Policies that relate to assignment authority

• Stabilization arrangements
• Minimum fund balance policies

– Only where governing bodies have formally adopted a policy (i.e., not if it is imposed upon the government)

Disclosures (cont.)

• Order in which government considers

restricted versus unrestricted amounts to be spent when both are available

• Order in which committed, assigned, or

unassigned amounts are considered to be spent

• Any aggregate displays on B/S should be

disaggregated in sufficient detail in notes

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GASB Statement No. 61 The Financial Reporting Entity: Omnibus – an amendment of GASB Statements No. 14 and No. 34

Component Units

• Primary government versus component units
• Component units, by definition, must be

legally separate

• Blending versus discrete presentation
• GASB Statement Nos. 14 and 61 provide

accounting and financial reporting guidance

Imposition of Will ‐ PG has ability to….

• Remove appointed board members at will
• Approve/modify budget
• Approve/require changes affecting revenues
• Veto/override/modify governing board

decisions

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Imposition of Will ‐ PG has ability to….(cont.)

• Appoint/hire/reassign/dismiss management
• Take other actions to impose will

Financial Benefit Financial Burden

• Accessing resources without dissolution
• Obligated to finance deficits or provide

support

• Obligated in some manner for the debt of the

potential component unit

Financial Reporting

• Blending
• Discrete presentation
• Note disclosure

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Blending

• Required if….

– Boards are substantially the same and there is financial benefit/burden relationship or PG has

• perational responsibility of CU

– CU provides services almost exclusively to PG or provides benefits almost exclusively to PG – CU’s debt is expected to be entirely or almost entirely by resources of the PG

Discrete Presentation

• Required for CU’s that cannot be blended
• Shown in columns to the right of the PG
• BFS reporting requirements

– Must show major CU’s in BFS – CU’s as individual columns in BFS – Columns with combining statements

GASB Statement No. 62

Codification of Accounting and Financial Reporting Guidance Contained in Pre‐November 30, 1989 FASB and AICPA Pronouncements

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GASB Statement No. 62

• Incorporates into GASB literature certain

accounting/financial reporting guidance issued on or before November 30, 1989

– FASB Statements and Interpretations – Accounting Principles Board Opinions – Accounting Research Bulletins of the AICPA

GASB Statement No. 62 (cont.)

• Supersedes GASB Statement No. 20

– Eliminates election provided in paragraph 7 for enterprise funds and business‐type activities to apply post‐11/30/89 FASB Statements/Interpretations that do no conflict or contradict GASB guidance

• These entities may continue to apply, as other

accounting literature, post‐11/30/89 FASB pronouncements that do not conflict with GASB

GASB Statement No. 62 (cont.)

• Codification includes all accounting standards

within levels A through D of current GAAP hierarchy

• Codification simply reorganizes US GAAP

pronouncements topically

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Purposes of New Codification and Implementation

• Reduce amount of time and effort required to

research an accounting issue

• Improve usability of the literature (thus

mitigating the risk of noncompliance)

• Enhances opportunity for real‐time updates
• Effective for FYs that begin after December 15,

2011

GASB Statement No. 63

Financial Reporting of Deferred Outflows of Resources, Deferred Inflows

• f Resources, and Net Position

Statement 63 Overview

• Issued June 2011
• Provides guidance for reporting deferred
• utflows and inflows of resources and defines

economic equity as net position

• Currently only applies to GASB Statement Nos.

53 and 60

• Effective for fiscal periods that begin after

December 15, 2011

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Brief History

• Concepts Statement No. 4, Elements of

Financial Statements, defines five elements of financial position

– Assets – Liabilities – Deferred outflows of resources – Deferred inflows resources – Net position

Brief History (cont.)

• Deferred outflows of resources

– Defined as a consumption of net assets by a government that is applicable to a future period

• Deferred inflows of resources

– Defined as an acquisition of net assets by the government that is applicable to a future period

Current Applicability in GASB Statements

• GASB Statement No. 53, Accounting and

Financial Reporting for Derivative Instruments, provides for reporting of deferred outflows of resources and deferred inflows of resources for the changes in fair value of qualified hedging derivatives

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Current Applicability in GASB Statements (cont.)

• GASB Statement No. 60, Accounting and

Financial Reporting for Service Concession Arrangements includes a requirement to report deferred inflows of resources in specific cases for consideration received in a service concession arrangement

• Board is currently deliberating applicability of
• ther projects (Exposure Draft)

Reporting Guidelines

• Deferred outflows of resources should be

reported in a separate section following assets

• Deferred inflows of resources should be

reported in a separate section following liabilities

• Added to respective totals of assets and

liabilities

Reporting Guidelines (cont.)

• Statement of Net Position

– Reports assets, deferred outflows, liabilities, and deferred inflows – Net position format encouraged (assets plus deferred outflows, less liabilities less deferred inflows) – Net position, rather than net assets, reported for proprietary, fiduciary, and government‐wide positions

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Elements of Net Position

• Net investment in capital assets

– Includes deferred outflows/inflows that are attributable to capital assets

• Restricted net position

– Includes unspent related debt proceeds or deferred inflows that are unspent

• Unrestricted net position

Financial Reporting for Governmental Funds

• Deferred outflows and deferred inflows should

be presented in the following format for governmental funds: Assets plus Deferred Outflows of Resources equals Liabilities plus Deferred Inflows of Resources plus Fund Balance

Disclosures

• Deferred outflows and inflows may be

aggregations of different types of deferrals

• Note disclosures should disaggregate any

material aggregations from the financial statements (only required if not obvious on the face of the statements)

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GASB Statement No. 65 Items Previously Reported as Assets and Liabilities

Existing Deferred Inflows and Outflows

• GASB Statement No. 53 requires deferred inflows and deferred outflows

to be reported – Reported for hedged derivatives for fair value adjustments – Reported on government‐wide statements and economic resources, accrual statements – Not reported for governmental funds

• GASB Statement No. 60 requires deferred inflows of resources in some

situations – Service concession arrangements – Deferred inflows when government receives up‐front payment from a entity it has contracted with to operate a major capital asset – Becomes effective for periods beginning after 12/15/11

Deferred Inflows of Resources

• Grants received prior to meeting of any timing requirement
• Resources received in advance related to an imposed

nonexchange transaction (e.g., prepaid property taxes)

• Deferred amounts (credits) on current and advance

refundings

• Proceeds from sales of future revenues

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Deferred Outflows of Resources

• Grant paid in advance of meeting time requirements
• Deferred amounts (debits) from debt refunding
• Amount paid in an intra‐entity transfer of future

revenues by transferee government – also applies to governmental funds

Assets

• Grants paid in advance of eligibility requirements
• Purchase of future revenues from a government outside of

the financial reporting entity

• Prepayments
• Pension plan’s net position exceeds total pension liability

Liabilities

• Derived tax revenues received in advance
• Premium revenues (applicable to risk pools)
• Grants received in advance of eligibility

requirements

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Outflows of Resources (Expenses)

• Debt issuance costs (except for prepaid

insurance)

• Initial direct costs of operating leases by lessor
• Acquisition costs for insurance entities and public

entity risk pools

• Loan origination costs

Inflows of Resources (Revenues)

• Loan origination fees
• Commitment fees

Other Items

• “Deferred” should only be for deferred outflows and inflows
• f resources
• Major Fund criteria amended

– Assets + deferred outflows of resources – Liabilities + deferred inflows of resources

• For deferred inflows and deferred outflows of resources – no

distinction between current and noncurrent is needed

• Effective date – fiscal years beginning after 6/15/12 – normal

requirements on retroactive restatement apply

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GASB Statement No. 66 Technical Corrections ‐ 2012 Overview of Statement No. 66

• Technical corrections of a several statements

needed as a result of the issuance of two specific statements

– Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions – Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre‐ November 30, 1989 FASB and AICPA Pronouncements

• Effective date in NC FYE 6/30/14

Highlights of Particular Note

• Removes requirement in GASB Statement No.

10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, that an entity’s risk financing activities be accounted for in either the general fund or an internal service fund

– Now any government funds, specifically special revenue funds, may be used

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Highlights (cont.)

• Amendments to Statement No. 62 of note

– Wording adjusted to removed potential perceived prohibition against using the fair value method of accounting for operating leases – The purchase of a loan or group of loans should be at purchase price (initial investment should include amount paid to seller plus any fees paid or less any fees received)

Exposure Draft Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27

Introduction / Background

• GASB’s periodic review of standards (GASB 25 and 27)
• Much discussion of government underfunding of pensions

and OPEB in the mainstream press

• Addresses pensions but would eventually lay the groundwork

for EDs for OPEB changes

• Invitation To Comment issued in 2009
• Preliminary Views issued in 2010
• Exposure Drafts issued in 2nd quarter of 2011
• Final statements scheduled for June 2012

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Introduction / Background

• GASB’s periodic review of standards (GASB 25 and 27)
• Much discussion of government underfunding of pensions

and OPEB in the mainstream press

• Addresses pensions but would eventually lay the groundwork

for EDs for OPEB changes

• Invitation To Comment issued in 2009
• Preliminary Views issued in 2010
• Exposure Drafts issued in 2nd quarter of 2011
• Final statements scheduled for June 2012

Definition of a Pension Plan

• Trust or other fund used to accumulate and manage assets for

payment of pension benefits when they become due

• Qualified trust has the following characteristics:

– Contributions to the plan by employer governments or

• ther entities and earnings are irrevocable

– Sole purpose of assets in the plan – provide pensions under the benefit terms – Assets in plan protected from creditors of employer governments, administrator, contributors, plan members

What Do the EDs Cover?

• Defined benefit and defined contribution

plans under a qualified trust arrangement

• Some special funding situations
• Includes other benefits (e.g., life insurance,

disability) handled through a defined benefit plan

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What Is NOT Covered?

• OPEB

– GASB believed it would slow the pension projects – Will be handled in future separate project(s) – This project will be the template – Continue to follow GASB Statements No. 43 and 45

• Pensions not meeting definition of qualified trust

– Future GASB guidance – Continue to follow GASB Statements 25, 27, and 50

• Termination benefits

Cut to the Chase....

• Concept that employer is responsible for the

unfunded pension obligation resulting for an employment exchange

• Difference between the total pension liability

and the plan net position would be reported as a net pension liability in the financial statements of the government

Basic Concepts

• Current standards – pension accounting based on

pension funding – same actuarial methods used

• Proposed standards – pension accounting and

funding separated

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Pension Benefit Relationships

• Exchange transaction between employer and

employee ‐ recognized as liability when work provided, not paid

• Cost generally recognized when services received
• Employer primarily responsible for unfunded
• bligations
• Net Pension Liability = Total Pension Liability –

Pension Plan Assets (Employer reports as a statement liability)

Measuring Total Pension Liability

• 3 steps:

– Project benefit payments – Discount projected benefit payments to current present value (PV) – Attribute PV to past years (total pension liability) and future years

Projecting Benefit Payments

• Requires actuarial assumptions – assumptions should conform

to actuarial standards of practice

• Should include future employment events (salary increases,

continuing employment, etc.)

• Automatic COLAs included
• Ad hoc COLAs and other postemployment benefit changes

included if past practices indicate that they are effectively automatic (this would not be the case if events change and it is clear that COLAs will not be offered in the future)

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Discounting Projected Benefit Payments

• Projections of plan assets would include assumptions for

earnings rates, contribution rates, etc. based on past experience and any changes in policy

• As long as assets are sufficient to pay benefits, discount rate

would be long‐term expected rate of return on plan assets

• If assets are not sufficient to pay benefits, use tax‐exempt,

AA‐rated, 30‐year municipal bond index

• Discount rate is the blend of the 2 items above

Attribute Present Value To Specific Periods

• Single attribution method – entry age normal
• Applied as a level percentage of payroll over periods

beginning in the first period where employee’s services lead to benefits and ending in last period of employee’s service

• Actuarial valuations would need to be conducted within

2 years of the fiscal year end being reported – would have to roll forward information to fiscal year‐end

• A new actuarial valuation might be needed if there were

significant changes in the plan

Inputs of Pension Expense

• 1. Work from current employees
• 2. Interest on the outstanding liability
• 3. Changes in Total Pension Liability from:

– a. Actual economic & demographic changes differ from actuarial assumptions – b. Changes in economic and demographic assumptions – c. Changes in terms of pension benefits (e.g., formula increase)

• 4. Changes in the amount of plan assets due to:

– a. Changes in projected investment earnings – b. Effects other than investment earnings, such as receiving contributions and paying benefits – c. Difference between actual and projected investment earnings

6/27/2012 25

Measuring Pension Expense

• Current practice: Items 1, 2, 4b incorporated into expense immediately –

almost everything else amortized into expense over a period of up to 30 years

• Proposed in ED:

– Items 1, 2, 3c, 4a, 4b incorporated into pension expense immediately – Portions of Items 3a and 3b attributed to inactive employees incorporated into pension expense immediately – Portions of Items 3a and 3b attributed to active employees – deferred inflows and outflows of resources and amortized over the remaining weighted average service of the active employees – Item 4c would be deferred into pension expense over a 5‐year period

Liability and Expense / Expenditure Recognition

• Economic resources measurement focus and accrual basis of

accounting

• Current financial resources measurement focus and modified

accrual basis of accounting – Net pension liability – recognized to extent that liability is to be liquidated with expendable available resources – Pension expenditure – amounts contributed to the plan + amounts normally expected to be liquidated with expendable available resources

Cost‐sharing Multiple‐Employer Defined Benefit Plans

• Additional information disclosed and reported in EMPLOYERS’

financial statements – Previously included only in PLAN’S financial statements – Similar to what is currently required for agent multiple‐ employer and single employer plans

• Proportionate share of net pension liability for the cost

sharing plan reported in employer’s financial statements

6/27/2012 26

Note Disclosures – DB Plans

• Continuing disclosures for such items as:

– Descriptions of plan, benefits provided, authority establishing plan and requiring contributions – Numbers of retirees, beneficiaries, etc. – Policy for determining contributions

• New disclosures for items such as:

– Significant assumptions in measuring total pension liability – Descriptions of benefit changes and changes in assumptions – Discount rate – assumptions about contributions and projected cash flows, rates selected, basis for selecting long‐term earnings rate, municipal bond index rate, projection period to which rates applied, sensitivity analysis of +/‐ 1% change in discount rate – Plan net position if not available in a separate report – Net pension liability (including the effects of many components), deferred inflows and outflows, and pension expense

Note Disclosures – DB Plans (cont.)

• For single and agent multiple‐employer plans

– For current period the beginning and ending balances of the total pension liability, plan net position, the net pension liability, and the effects on these amounts of changes in assumptions, service costs, benefit changes, etc. – Components of current period pension expense – Detailed reconciliation of beginning and ending balances

• f deferred inflows and outflows

RSI – DB Plans – 10‐year Schedules

• Single and Agent Multiple‐employer

– A. 1 schedule is the same as the first bullet point for the note disclosure on the previous slide except for 10 years – B. 1 schedule with:

• 1. Total pension liability
• 2. Plan’s net position
• 3. Net pension liability
• 4. 2 divided by1
• 5. Covered employee payroll
• 6. 3 divided by 5

6/27/2012 27

RSI – DB Plans – 10‐year Schedules

(cont.)

• Single and Agent Multiple‐employer (cont.)

–

• C. If pension contribution is actuarially determined pension contribution, 1 schedule

with:

• 1. Actuarially calculated employer contribution
• 2. Amount of employer contribution made
• 3. 2 minus 1
• 4. Covered employee payroll
• 5. 2 divided by 4
• Cost‐sharing multiple‐employer plan

– Both Schedule A and Schedule B for participants as a whole – Schedule B for employer’s proportionate share of the aggregate amount – If contributions made on an actuarially‐determined basis, Schedule C would be presented for its contributions and also for participants in the aggregate

• Notes are required on RSI for all types of plans’ significant assumptions and factors that affect

trends in the schedules if not otherwise disclosed

Other Items

• Special funding situations ‐ extensive disclosures and RSI required

– Unconditional

• Nonemployer reports share of employer’s net pension liability, deferrals, and

pension expense

• Employer reports revenue equal to nonemployer’s pension expense

– Conditional – employer reports revenue equal to contribution (similar to grant)

• Cost‐sharing plans – when there are changes in proportions among participants – amounts

are deferrals and are amortized over future periods

• Defined contribution plans – continues existing requirements
• Implementation

– Single employer with single employer plan of more than $1 billion in assets for fiscal year ending after 6/15/10 – implement for fiscal year ending after 6/15/12 – All others – fiscal year ending after 6/15/13 – Prior period adjustments recommended, but are probably not possible – restate beginning balances of earliest year presented and disclose nature of restatement – RSI should only be in conformity with statement – if less than 10 years, present what is available

Overview of the GASB’s Comprehensive Implementation Guides

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CIG Background

• GASB updates/expands guidance for its

Comprehensive Implementation Guide (CIG) annually

– Level “d” GAAP in accordance with GASB Statement

• No. 55, The Hierarchy of Generally Accepted

Accounting Principles for State and Local Governments – 2010/11 edition reflects guidance issued through June 30, 2010 – 2011/12 edition reflects guidance issued through June 30, 2011

Basic CIG Structure

• Chapter 1 – Disclosures Related to Deposits

with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements

• Chapter 2 – Cash Flows Reporting
• Chapter 3 – Risk Financing and Related

Insurance Issues

• Chapter 4 – The Financial Reporting Entity

Basic CIG Structure (cont.)

• Chapter 5 – Pensions‐Employer and Plan

Accounting and Reporting

• Chapter 6 – Accounting and Financial

Reporting for Certain Investments and for External Investment Pools

• Chapter 7 – Basic Financial Statements and

Management’s Discussion and Analysis

6/27/2012 29

Basic CIG Structure (cont.)

• Chapter 8 – Postemployment Benefits Other

Than Pensions‐Employer and Plan Accounting and Reporting

• Chapter 9 – The Statistical Section
• Chapter 10 – Derivative Instruments
• Chapter Z – Other Implementation Guidance

Current “Chapter Z” Topics

• GASB Statement Nos.

– 16 (Compensated Absences) – 18 (Landfills Closure/Postclosure) – 20 (Applicability of FASB) – 23 (Refundings in Proprietary Funds) – 24 (Grants) – 32 (457 Plans) – 33 (Nonexchange Transactions)

“Chapter Z” (cont.)

• GASB Statement Nos.

– 38 (Note Disclosures) – 42 (Impairment of Capital Assets) – 47 (Termination Benefits) – 48 (Sales/Pledges of Receivables/Future Revenues) – 49 (Pollution Remediation) – 51 (Intangible Assets) – 54 (Fund Balance/Governmental Fund Types)

6/27/2012 30

Reclassifying the General Fund of a Blended Component Unit (4.30.6)

• General fund of a blended component unit is

to be reported as a special revenue fund within the reporting entity

• It is possible for such a fund to not meet the

technical definitions of a special revenue fund as per GASB Statement No. 54

• Regardless of definition, the blending rule still

applies

• 2011/12 edition

Single Governmental Activity with Pension Trust Fund (7.3.5)

• Stand‐alone entities reporting a single

governmental activity are permitted to combine government‐wide and fund financial statements into a single presentation

• Assume such an entity has a pension trust
• The combined presentation is still acceptable,

however additional fiduciary fund financial statements would be required

MD&A with Comparative Financial Statements (7.5.4)

• Basic MD&A requirements include a

comparison of the current year with the prior year (i.e., two years)

• If comparative statements are presented, the

MD&A must include a comparison of three years

– Current year to prior year – Prior year to preceding year

6/27/2012 31

Interest Capitalization Voluntary? (7.10.6)

• Government uses an enterprise fund

voluntarily

• Would interest capitalization still apply or

could it be voluntary?

• It would apply – even if an enterprise fund is

used voluntarily, all reporting requirements of such funds should be followed.

Federally Subsidized Taxable Debt and Interest Capitalization (7.10.7)

• Enterprise funds required to capitalize

appropriate interest

• In tax exempt issuances, typically interest

expense eligible for capitalization netted against interest earnings during same period

• Certain federal programs subsidize taxable

issuances, effectively reducing interests costs similar to tax exempt issuances

• Netting is NOT appropriate for subsidized taxable

debt

• 2011/12 edition

Retainage Payable (7.23.13 and 7.23.14)

• Should construction retainage payable be

considered related debt for purposes of calculating “invested in capital assets, net of related debt”?

• Yes – whether or not the liability was financed

with bond proceeds.

6/27/2012 32

Net Asset Classifications (7.24.28)

• Should unrestricted net assets in an enterprise

fund (e.g., water fund) be reclassified as restricted net assets at the government‐wide level because the scope is broader at that level?

• No – net assets classifications at the

government‐wide level should mirror the classifications at the fund level.

Individual Enterprise Funds for Separate Utilities (7.50.10)

• GAAP require the use of an enterprise fund for

any activity “...financed with debt...secured solely by pledge of net revenues...of the activity”

• This does not require separate enterprise

funds if an entity has multiple such activities

– Activities s/b separately identifiable – Segment disclosures would most likely apply

Interfund Loan Terminology (7.62.2)

• This question was updated in the new Guide

to reflect GASB 54 terminology.

• Historically, “due to/from” was often used for

short‐term interfund loans and “advance to/from” was used for long‐term portions.

• Is this terminology required?
• No – it is allowed (and often used), but GAAP
• nly requires “interfund receivable/payable”

terminology.

6/27/2012 33

Transfers of Capital Assets (7.74.4)

• Reporting of such activities has always

troublesome between government‐wide and fund financial statements

• CIG guidance

– Reassignment at government‐wide level is reported as a transfer – Reassignment at fund level

• EF to GF...nonoperating expense in EF
• GF to EF...capital contribution in EF

Proprietary Fund Debt Refunding (Z.23.2)

• The difference between the reacquisition

price and net carrying amount of the refunded debt should be deferred and amortized the shorter of the remaining life of the refunded debt or the new debt.

• Does the remaining life of the refunded debt

extend to its call date or normal maturity date?

• Answer – the normal maturity date.

Accounting for BABS (Z.33.25)

• Federal government reimburses governments

for part of the interest expense on their taxable bonds, such as BABS.

• The reimbursement is considered a separate

nonexchange transaction.

• Thus, the payment of the interest is reported

gross, not netted with the federal reimbursement.

6/27/2012 34

Impairment Losses (Z.42.14)

• Impairment losses are reported as program or
• perating expense, special item, or an

extraordinary item.

• Impairment losses should be reported net of

recoveries in the same year.

• How should recoveries in excess of loss be

reported?

• Special/extraordinary – net gain or loss reported

the same

• If net gain is program/operating, then report it as

program (charges) or operating revenue

Pollution Remediation if Conducted or Paid by Another (Z.49.14)

• Assume that a county and a private‐sector

entity are both named as potentially responsible parties in a pollution mitigation situation...further assume the private‐sector entity is ultimately deemed legally obligated.

• Who recognizes the pollution remediation
• bligation liability?

– There is no recognition for an entity that has no anticipated cash outflows.

Nonspendable Fund Balance in Special Revenue Fund? (Z.54.45)

• Resources in a special revenue fund are, by

definition, at least assigned for the purpose of the fund

• Only resources that are permanently in

nonspendable form is appropriate for a special revenue fund

• 2011/12 edition

6/27/2012 35

Encumbrance Disclosure Requirements (Z.54.47)

• Level of detail of disclosure for

encumbrances?

– Encumbrances disclosed in total

• For each individual major governmental fund
• For nonmajor governmental funds in the aggregate
• 2011/12 edition

Reclassifying Unassigned GF Fund Balance of Blended Component Unit (Z.54.50)

• What if general fund of a blended component

unit has unassigned fund balance?

• How should this be reclassified when it is

reported as a special revenue fund when blended?

• Restricted, committed or assigned, depending
• n circumstances
• 2011/12 edition

Action Necessary for a Commitment of Fund Balance (Z.54.51)

• Possible “commitment” actions

– Ordinance (codifying decision) – Resolution (“memorializing” decision) – “Other”

• Commitments have to be a board’s “most

binding” method

• If all three available, the ordinance would be

the only way to commit

• 2011/12 edition

6/27/2012 36

Common Accounting and Financial Reporting Problems

Letter of Transmittal and Independent Auditor’s Report

• Date of the letter of transmittal should be no

earlier that the date of the independent auditor’s report

• Auditor’s opinion should opine on budgetary

comparison information when presented as part of basic financial statements

Letter of Transmittal Specifics

• GFOA encourages governments to adopt

financial policies

– Costing methodologies

• Such policies should be explained in the letter
• f transmittal

6/27/2012 37

Audit Opinion Specifics

• CAFRs include information on an entity’s

nonmajor funds, as well as budgetary information for funds other than general or major special revenue

– Most often considered “other” supplementary info – Opinion should at least be “in relation to”

• Level of responsibility for other sections

MD&A

• Scope of analysis should be comprehensive

(and an actual analysis)

– Governmental and business‐type activities – General fund and other major funds – Budgetary variances (original, final, and actual)

• 3 years of condensed financial data if

comparatives are presented

• Include appropriate discussions of capital

asset and long‐term debt activity

Component Units

• Avoid blending component units that should be

discretely presented

• Component unit data should be complete and

consistent

• Fiduciary component units should not be referred

to as blended or discrete

6/27/2012 38

Statement of Net Assets

• Calculate the net pension /OPEB obligation

correctly (e.g., include all contributions)

• Pension or OPEB liabilities are long‐term, not

current

• Debt should be reported net of related

premiums or discounts

Statement of Net Assets (cont.)

• Invested in capital assets, net of related debt

should be calculated correctly

– Unexpended bond proceeds (restricted) – Bond issuance costs (not part of calculation) – Internal borrowings (not part of calculation) – Intangible capital assets (part of calculation) – Refunding bonds (part of calculation, assuming they are replacing capital related debt)

Statement of Activities

• Levied taxes versus “shared” taxes
• Significant revenues should be reported

separately

• Refrain from using the term “capital outlay” in

accrual‐based statements

6/27/2012 39

Statement of Activities (cont.)

• Intergovernmental expenses should be

reported within the appropriate functional category

• Only significant amounts should be reported

as special items

– It is possible for special items to be reported at

• ne level of reporting and not another (i.e.,

government‐wide versus fund level)

Fund Financials

• All major funds should be reported properly
• Reconciliations to the government‐wide

statement of activities should focus only on changes during the reporting period

Governmental Funds

• Certain accrued liabilities should only be

reported in governmental funds “to the extent that the liabilities mature each period”

– Claims and judgments – Compensated absences – Termination benefits – Landfill closure and postclosure care costs – Pollution remediation obligations – Operating leases with scheduled rent increases

6/27/2012 40

Governmental Funds (cont.)

• New debt issuances (including refundings)

– Face value of debt as other financing source – Premium reported as other financing source – Discount reported as other financing use – Bond issuance costs reported as expenditures

Governmental Funds (cont.)

• Other financing sources/uses

– Face value of long‐term debt at issuance – Original issue premiums and discounts – Payments to escrow from proceeds of refunding bonds – Sales of capital asset and insurance recoveries (if not a special item) – Transfers – Debt service on demand bonds classified as fund liabilities – Reclassification of demand bonds as fund liabilities

Proprietary Funds

• Balance sheet/statement of net assets must

be reported in a classified format (contrast with option at government‐wide level)

• Provide detail on major categories of

restricted net assets

• Capital contributions should be reported

consistently (between government‐wide and fund financials)

6/27/2012 41

Proprietary Funds (cont.)

• “Cash flows from operating activities” is the

residual category of the statement of cash flows

• Noncash events should be separately reported

– Capital asset contributions – Changes in FMV of investments – Inception of a capital lease agreement

Fiduciary Funds

• Pension plans and OPEB plans need to be

reported as separate funds

• Provide sufficient detail on investments for

pension and OPEB plans

• Employers must report on‐behalf payments

made directly to a pension or OPEB plan

Note Disclosures

• Adequately describe criteria used for

identifying component units

• Disclose investment policies
• Report changes in long‐term liabilities at gross

rather than net amounts

6/27/2012 42

Note Disclosures (cont.)

• Provide new pension disclosures as per GASB

Statement No. 50, Pension Disclosures

– Current year’s data from the schedule of funding progress – Reference to the full schedule of funding progress – Actuarial assumptions used

Note Disclosures (cont.)

• Distinguish pension/OPEB cost from the

annual required contribution (will occur when there is a net pension obligation)

• Required note disclosures for pollution

remediation

• Required note disclosures for endowments

Required Supplementary Information

• Schedules of funding progress for pensions

and OPEB should contain all required data elements

– Both actuarial value of plan assets and the actuarial accrued liability (not just the net unfunded actuarial accrued liability)

6/27/2012 43

Various Statistical Section Information

• Required ratio of debt service expenditure to

total noncapital expenditures

– Make sure noncapital is captured correctly (don’t just assume “capital outlay” is all capitalized or that capital didn’t exist in functional areas) – Do not subtract debt service expenditures from the denominator

Statistical Information (cont.)

• Elective presentation of secondary own‐

source revenue

– When chosen, all applicable schedules must be included

• Per capita ratios for debt

– Total outstanding debt per capita, AND – General obligation debt per capita

Statistical Information (cont.)

• Property tax levies and collections

– Should present both percentage of original levy collected in the levy year AND percentage of the adjusted levy collected thus far each subsequent year for nine years – Collections does NOT include fines and liens – Levy amount in later years should reflect subsequent amendments

6/27/2012 44

Statistical Information (cont.)

• Include narrative information for anomalies

and outliers

• Include source data
• Explain missing data