6/27/2012
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) 2
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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
of 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 other 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 operational 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 11
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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 of Resources, and Net Position
Statement 63 Overview
• Issued June 2011
• Provides guidance for reporting deferred outflows 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 other 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 of 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 other 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 obligations
• 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 24
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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
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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 of 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
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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
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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)
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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
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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.
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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 only requires “interfund receivable/payable” terminology. 32
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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.
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Impairment Losses (Z.42.14)
• Impairment losses are reported as program or operating 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 obligation 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
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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 on 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
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6/27/2012
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 of transmittal
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6/27/2012
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
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6/27/2012
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
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6/27/2012
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 one 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
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6/27/2012
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)
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6/27/2012
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
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6/27/2012
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)
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6/27/2012
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
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6/27/2012
Statistical Information (cont.)
• Include narrative information for anomalies and outliers
• Include source data
• Explain missing data
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