Auxiliary Organizations
Technical Update
Mark Thomas, Partner
KPMG LLP
May 19, 2015
Learning Objective:
• Be familiar with the new accounting pronouncements and
understand its effect to the California State University
System financial statements
May 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
May 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
May 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.
May 2015
Year-End GAAP Training
5
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
May 2015
Year-End GAAP Training
6
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)
May 2015
Year-End GAAP Training
7
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
May 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.
May 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.
May 2015
Year-End GAAP Training
10
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 mortgagebacked securities.
May 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.
May 2015
Year-End GAAP Training
12
Fair Value Measurement Exceptions
Type 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. 8
Statement 59, par. 4
Money market investments and Amortized cost
participating interest-earning
investment contracts with
maturity of < one year and are
held by government other than
external investment pools
May 2015
Year-End GAAP Training
Statement 31, par. 9
13
Fair Value Measurement Exceptions
Type 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
May 2015
Year-End GAAP Training
14
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).
May 2015
Year-End GAAP Training
15
Coming Soon...
• GASB Statements 73-75: Accounting and
Financial Reporting for Other
Postemployment Benefits (Plan and
Employer)
• AICPA’s Audits of State and Local
Governments – 2015 Edition
May 2015
Year-End GAAP Training
16
Question #1
This valuation technique uses prices and other
relevant information generated by market
transactions involving identical or comparable
assets, liabilities or a group of assets or liabilities.
a.
b.
c.
d.
May 2015
Income approach
Cost approach
Market approach
Net asset value approach
Year-End GAAP Training
17
Answer #1
Answer:
c. Market approach
May 2015
Year-End GAAP Training
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FASB Accounting Standards Update
• ASU 2014-09 Revenue from Contracts with
Customers
• ASU 2014-15 – Presentation of Financial Statements –
Going Concern
• ASU 2015-01 – Income Statement – Extraordinary and
Unusual Items
• ASU 2015-02 - Consolidation
• ASU 2015-03 – Interest – Imputation of Interest
• ASU 2015-04 – Compensation – Retirement Benefits
• ASU 2015-05 – Intangibles – Goodwill and Other –
Internal-Use Software
May 2015
Year-End GAAP Training
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ASU 2014-09: Revenue from Contracts
with Customers
• Effective date: FY2019 for CSU
• The Core Principle and the Five-Step Model
1. Identify the contract(s) with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance
obligations in the contract
5. Recognize revenue when (or as) the entity satisfies
a performance obligation
May 2015
Year-End GAAP Training
20
ASU 2014-15: Presentation of Financial
Statements – Going Concern
• Effective date: FY2017 for CSU
• Disclosure required when there is substantial
doubt or when substantial doubt has been
alleviated primarily by management plans.
• Substantial doubt exists when it is probable that
entity will not meet obligations (for a period of
one year from the financial statements issuance
date)
May 2015
Year-End GAAP Training
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Question #2
Which of the following is NOT one of the five steps
to the revenue standard?
a. Determine the transaction price
b. Determine if the good was shipped or service
performed
c. Allocate the transaction price to the
performance obligations in the contract
d. Identify the contract with a customer
May 2015
Year-End GAAP Training
22
Answer #2
b. Determine if the good was shipped or service
performed
May 2015
Year-End GAAP Training
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Coming Soon...
• Proposed ASU: Changes to Not-for-Profit
Financial Statements
•
•
•
•
Net Asset Classification
Intermediate Measures of Operations
Statements of Cash Flows
Other Key Changes
May 2015
Year-End GAAP Training
24
Changes to Not-for Profit Financial
Statements
Net Asset Classes – reduce the number of net
asset classes from three to two:
• Net Asset without Donor Restrictions (UR)
• Net Assets with Donor Restrictions (TR and PR
• Disclosures: Donor Restrictions and Board Designations
• Underwater Endowment Deficiencies
• Reclassified to NA with Donor Restrictions
• Additional Disclosures
May 2015
Year-End GAAP Training
25
Changes to Not-for Profit Financial
Statements
Intermediate Measures of Operations
• Defined required intermediate operating
measures based on two dimensions:
• Mission Dimension – business and charitable activity
• Availability Dimension – whether resources are available for
current year activities
• Two Measures (Subtotals) – Presentation of Transfers:
• Operating Excess (Deficit) Before Transfers
• Operating Excess (Deficit) After Transfers
May 2015
Year-End GAAP Training
26
Changes to Not-for Profit Financial
Statements
Statement of Cash Flows
• Direct method required
• Indirect reconciliation requirement eliminated
• Recategorization:
-
May 2015
Cash flows on long-lived assets (from investing to operating)
Interest and dividends (from operating to investing)
Interest on Debt (from operating to financing)
Cash gifts restricted for acquisition of long-lived assets (from
operating to financing)
Year-End GAAP Training
27
Changes to Not-for Profit Financial
Statements
Other Key Changes
• Reporting of Operating Expenses by Nature and
Function
• Matrix not required but will be most practical
• Definition of management and general defined
• Implementation guidance on which activities report direct
conduct and direct supervision of program activities
• Investment Return and Expenses
• Expenses netted in income
May 2015
Year-End GAAP Training
28
Changes to Not-for Profit Financial
Statements
• Investment Return and Expenses, continued….
• Netted expenses include external expenses and direct
internal expenses
• Disclosure of components of gross investment return no
longer required
• Liquidity Disclosures
• Quantitative: Financial assets and financial liabilities
• Qualitative: Information about how the entity manages
liquidity
• Time horizon used to manage liquidity.
May 2015
Year-End GAAP Training
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Q&A
May 2015
Year-End GAAP Training
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www.calstate.edu
May 2015
Year-End GAAP Training
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