GASB Update: Prepare Now to Implement Successfully January 13, 2017 - - PowerPoint PPT Presentation

GASB Update: Prepare Now to Implement Successfully

January 13, 2017 The webinar will begin at 12:30 pm CT.

Tara Laughlin, CPA, CGFM Senior Manager, Assurance Services

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Our Presenter

Tara J. Laughlin, CPA, CGFM

• 7 years’ experience, specializing in providing

auditing and consulting services to a variety of governmental and not-for-profit entities

• Member of the:
• American Institute of Certified Public Accountants
• Government Finance Officers Association

Learning Objectives

Understand key changes impacting accounting and financial reporting Learn what you can do now to prepare Determine how your entity could be affected in the future

New GASBs

Effective Dates

Standard Effective Date (periods beginning after) YE Starting 72 – Fair Value Measurement 6.15.15 6.30.16 73 – Pensions not within scope of GASB 68 6.15.15 (assets) 6.15.16 (ER) 6.30.16 6.30.17 74 – Financial Reporting for OPEB Plans 6.15.16 6.30.17 75 – Accounting & Financial Reporting for OPEB (employer) 6.15.17 6.30.18 77 – Tax Abatement Disclosures 12.15.15 12.31.16 78 – Certain Multiple-Employer Defined Benefit Pension Plans 12.15.15 12.31.16 79 – Certain External Investment Pools and Pool Participants 6.15.15 6.30.16 80 – Blending Requirements for Certain Component Units 6.15.16 6.30.17 81 – Irrevocable Split-Interest Agreements 12.15.16 12.31.17 82 – Pension Issues 6.15.16 6.30.17 83 – Certain Asset Retirement Obligations 6.15.18 6.30.19

Polling Question #1

72 – Fair Value Measurement

• Defines what is measured at Fair Value:
• Investments
• Exceptions to Fair Value
• Certain liabilities
• Provides disclosure requirements –

retroactive application is required (if doing comparative statements)

72 – Fair Value Measurement

• Discusses valuation techniques;

requires that observable inputs be maximized where possible

• Creates a hierarchy of inputs:
• Level 1 inputs: highest quality
• Level 2 inputs
• Level 3 inputs: lowest quality (unobservable

inputs)

72 – Fair Value Measurement

Level 1 – Directly observable inputs

• Quoted prices in active markets for identical assets or

liabilities

Level 2 – Inputs observable for the asset or liability either directly or indirectly

• Quoted price for similar assets or liabilities in active

markets

• Quoted prices for identical or similar assets or

liabilities in markets that are not active

• Other observable inputs (yield curves, credit spreads)
• Market-corroborated inputs (by observable data,

correlation, or other means)

Alternative investments reported by endowments Equity securities (including unit investment trusts and closed-end mutual funds), stock warrants and stock rights that do not have readily determinable fair values Intangible assets meeting the proposed definition of investments Land and land rights, including oil and gas properties, classified as investments Commingled investment pools that are not government sponsored Invested securities lending collateral Real estate meeting the definition of an investment asset Life settlement contracts (when there is no insurable interest, the purpose of the instrument is solely to generate cash) Debt securities reported as assets (regardless of whether they meet the definition of an investment or they were acquired or originated by the government) Securitized debt obligations

Investments Requiring Fair Value Measurement

Money markets and participating interest-earning investment contracts that have remaining maturities at time of purchase of 1 year or less: measure at amortized cost (does not apply if held by an external investment pool) Investments held by 2a7-like external investment pools: measure at amortized cost (see also GASB 79) Investments in 2a7-like external investment pools: measure at net asset value (NAV) per share as determined by the pool. (see also GASB 79) Unallocated insurance contracts: report like interest-earning investment contracts (fair value if “participating”, and cost if “non-participating”) Synthetic guaranteed investment contracts that are fully benefit-responsive: measure at contract value Investment in life insurance contracts: measure at cash surrender value Certain equity interests in common stock: measure using equity method Measured at Acquisition Value: donated capital assets, donated works of art

• r historical treasures

Exceptions to Fair Value

Use of NAV for Fair Value

• Net Asset Value = NAV
• Permitted to establish the fair value using NAV

per share if an entity does not have a readily determinable fair value

• Example: member units or an ownership interest

in partners’ capital

• NAV generally calculated according to FASB

principles for investment companies

Disclosures

For each class or type of assets and/or liabilities measured at fair value, disclose:

• The fair value measurement at the end of the

reporting period

• The level of the fair value hierarchy (Level 1, 2, or 3)
• Not applicable to investments that calculate NAV
• r its equivalent
• A description of the valuation technique(s)
• Including any change in a technique and reason

for the change (if result is significantly impacted)

• For nonrecurring fair value measurements, the

reasons for the measurement

Disclosures: NAV

• Fair value measurement of the investment type and

description of the significant investment strategies of the investee

• For investments that can never be redeemed with the

investees, the government’s estimate of the liquidation period

• Amount of unfunded commitments
• General description of the redemption terms and conditions
• Redemption restrictions, an estimate of length of restriction

period or how long restriction has been in place

• Any other significant selling restrictions
• Information regarding planned sales of investments

72 – How to Prepare

• Determine investments held (what meets

definition of “investment”?).

• Determine where to obtain “Level”

information.

• If using a pricing service, what valuation

techniques do they use?

• If using a financial institution or safekeeping

agent, what is their process / source of info?

• If have investments at NAV, how to obtain

disclosure info?

Polling Question #2

73 – Pensions not under GASB 68

• Applies to “non-trusted” pensions
• Extends concepts from GASB 68 to all

pensions

• Recognize liability for the Total Pension

Liability (instead of Net Pension Liability)

• Assets accumulated for pension purposes

should continue to be reported as assets

• f the employer.

74 / 75 – OPEB Reporting

74 – Applies to the Plans, both those with assets held in trust, and those not administered through a trust 75 – Applies to the Employer

• Similar requirements to GASB 67/68
• Difference: fewer entities have plans with

assets held in trust

• Annual measurements now required

74/75 – OPEB Reporting

Differences from GASB 67/68:

• Since few entities have a “plan” or assets

held in trust, the governance / organization structure for most OPEB plans is different than for pensions – the employer has greater responsibility for determination of liability / setting assumptions.

• If there is no trust, the employer will record

the “total OPEB liability,” not a “net” OPEB liability.

74/75 – How to Prepare

• Evaluate actuary being used.
• Work with actuary on impact of changes

in assumptions that GASB 74/75 requires to be used.

• Scrutinize in more detail the assumptions

used / data provided to the actuary.

77 – Tax Abatement Disclosures

Tax abatement:

Reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which: a) one or more gov’ts promise to forgo tax revenues to which they are otherwise entitled, and b) the individual or entity promises to take a specific action that contributes to economic development or otherwise benefits the governments or citizens

77 – Tax Abatement Disclosures

• Tax abatements may result from one

government imposing a tax abatement on another government.

• Tax abatement agreements may have

non-disclosure provisions.

77 – Tax Abatement Disclosures

Disclosures:

• Distinguish between yours and those entered

into by other gov’ts that impact you.

• May present individual abatements, or

aggregated

• If individual: only those that meet / exceed a

quantitative threshold selected by the gov’t

• Organize by major tax abatement program.
• Disclose period of abatement, and continue

disclosure until abatement period ends.

77 – Tax Abatement Disclosures

Disclosures:

• Name / purpose of abatement program
• Specific tax being abated
• Criteria for eligibility
• Mechanism of reducing tax, provisions for

recapturing abated tax

• Gross dollar amount that reduced tax revenue

during the reporting period

• Other commitments made other than to reduce

taxes

• If legal prohibition on disclosure, then disclose the

general nature of tax abatement info omitted and source of legal prohibition.

77 – How to Prepare

• Analyze economic development programs/

tax abatement programs for those that fall under 77.

• Records may not be readily available.
• Coordinate with other governments who

may have abated taxes, to gather info.

• Develop process to quantify / track annual

gross dollar amount of tax reduction.

Polling Question #3

78 – Certain Multiple-Employer Pension Plans

Applies to pension plans that:

1) Are not a state / local government pension plan 2) Are used to provide defined benefits to employees of the gov’t and to employees of employers that are not state / local gov’ts, and 3) Have no predominant state / local gov’t employer

79 – Certain External Investment Pools

• GASB 31 and 72 included provisions that

applied to 2a7-like external investment pools – if met, investments could be measured at amortized cost.

• Requirements to be a 2a7-like pool may be

modified by SEC over time; GASB 79 replaces reference to 2a7-like pools with a set of criteria, that if met, would allow for continued use of amortized cost to measure their investments.

• Amortized cost could also be used by

participants in the pool (otherwise at fair value).

79 – How to Prepare

If your government participates in an external investment pool:

• Contact the investment pool to obtain info on

whether the criteria are met.

• Obtain the pool’s audited financial

statements to obtain their explanation for how they value investments.

80 – Blending Requirements for Certain Component Units

• Amends blending requirements in

paragraph 53 of GASB Statement No. 14

• Adds a criterion that requires blending of

a component unit incorporated as a not- for-profit corporation in which the primary government is the sole corporate member as identified in the component unit’s articles of incorporation or bylaws

81 – Irrevocable Split-Interest Agreements

• Recognition / measurement guidance for

situations where a government is a beneficiary of a split-interest agreement

• May involve various agreements: charitable

lead trusts, charitable remainder trusts, life interests in real estate, etc.

• Gov’t should recognize assets, liabilities and

deferred inflows at inception of agreement.

• Accounting differs if the gov’t holds the assets
• vs. if they are held by a third party.

GASB 82 – Pension Issues

Addresses three issues that have come out

• f implementation of GASB 67/68:

1) RSI schedules present “covered payroll” – definition amended to be “the payroll on which contributions to a pension plan are based.”

GASB 82 – Pension Issues

2) When selecting assumptions, a “deviation” from the Actuarial Standards of Practice is not considered to be in conformity with GASB 67 / 68. 3) Payments made by an employer to satisfy contribution requirements of plan members should be classified as member / employee contributions (“employer pick-ups”).

• Also requires that the employer’s expense for

such amounts be recognized in period for which the contribution is assessed

GASB 83 – Certain Asset Retirement Obligations

Asset Retirement Obligations:

• Applies to obligations other than landfills
• Addresses costs that are an unavoidable

part of the cost of retiring a capital asset

• Recognize liability when the liability is

incurred and reasonably estimable

• Incurred when external / internal obligating

events arise

Exposure Drafts

Standard Comment Deadline Projected Issuance Date Proposed Effective Date Certain Debt Extinguishments 10.28.16 May 2017 6.30.18 Fiduciary Activities 3.31.16 December 2016 12.31.18 Leases 5.31.16 December 2016 12.31.19

Exposure Drafts

Certain Debt Extinguishments:

• Pertains to extinguishments using existing

resources

• Would be treated similar to an Advance

Refunding, if existing resources placed in a trust to extinguish debt (deferred refunding gain / loss would be recognized)

Exposure Drafts

Fiduciary activities:

• Establish criteria for identifying and reporting

fiduciary activities

• Focus is on whether a gov’t controls the

assets of a fiduciary activity and the beneficiaries with whom a fiduciary relationship exists

• Replaces “agency” funds with “custodial”

funds (not held in a trust and meets specified criteria)

• Statement of Changes in Fiduciary Net

Position would report additions / deductions for each fiduciary fund

Exposure Drafts

Leases:

• Lessee would recognize a lease liability and a

lease asset at the beginning of the lease, measured at present value of payments expected to be made over lease term.

• Liability would be reduced as payments are

made.

• Asset would be amortized over the lease term

/ useful life of underlying asset.

• Lessor would recognize a lease receivable and

deferred inflow of resources at beginning of lease; would NOT de-recognize the asset underlying the lease.

• Exception for certain short-term leases (12 mo. or

less)

Polling Question #4

On the Horizon

• Financial Reporting Model project (re-

examination of GASB 34)

• Revenue & Expense Recognition project

Resources

www.gasb.org

• All GASB statements and Exposure Drafts

are available on their website for free.

• All comments letters submitted on Exposure

Drafts are available.

• Summaries are provided from the latest

deliberations / meetings.

• Technical inquiries can be submitted to

GASB.

Resources

www.gasb.org

• Implementation Guides issued for specific

Statements: 67, 68, coming soon for 74/75

• The Comprehensive Implementation Guide

is updated regularly – 2016 issued in March 2016.

• New questions on fair value, tax

abatement disclosures

Thank you!

Tara Laughlin, CPA, CFGM

Senior Manager, Assurance Services

Tara.Laughlin@aghlc.com www.linkedin.com/in/tarajlaughlin 316.291.4043

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