GASB 34:
What Are Your Options?
Presenter for the Office of the State Comptroller
John Kelley, CPA
September 2001
EX C E
L SI O R
H. Carl McCall, Comptroller
Patricia Lamb McCarthy, Deputy Comptroller
R
1
GASB 34’s Goal
To answer key questions:
 Did financial position improve or deteriorate?
 Were this year’s revenues sufficient to pay
for services?
 What’ s the overall cost of services?
 How were programs financed-revenues,
fees, grants?
 How much is invested in capital assets?
2
GASB 34’s Major Changes
A second set of financial statements
(Government-wide statements) using different
accounting rules, including reporting
depreciation and infrastructure.
A letter (Management’s Discussion and
Analysis) explaining what happened.
3
GASB 34 Implementation Phases
Phase
Implement
Retroactive
GASB 34 in Infrastructure by
Years Beginning After June 15
1
2001
2005
2
2002
2006
3
2003
Optional
4
GASB 34 Revenue Calculation
Total revenues (980 account) for all funds
$_______
(except internal service)*
Minus: Interfund transfer revenues)
(______)
(account 5031
Minus: Other financing sources
(______)
(borrowings, sale of land, etc.)
5
GASB 34 Revenue Calculation
(Continued)
Minus: Extraordinary items
(______)
(GASB 34, paragraph 53) (Disaster Aid, etc.)
Total revenues for first year ending after
$_______
6/15/99
If Over $100 Million = Phase 1
If $10 – 100 Million = Phase 2
If Under $10 Million = Phase 3
6
Implementation Phases In NYS
1
2
25
31
1
57
5
46
10
61
Schools
19
467
220
706
Towns
7
58
867
932
Villages
0
20
533
553
Fire Districts
0
0
858
858
56
622 2,489
3,167
2%
20% 78%
100%
Counties
Cities
Total
3
Total
7
If FY ends June 30- Nov. 30
Phase
First
Year
Affected is
Add
Retroactive
Infrastructure by
1
2001-02
2005-06
2
2002-03
2006-07
3
2003-04
Optional
8
If FY ends December 31
Phase
First
Year
Affected is
Add
Retroactive
Infrastructure by
1
2002
2006
2
2003
2007
3
2004
Optional
9
If FY ends Jan. 31 -May 31
Phase
First
Year
Affected is
Add
Retroactive
Infrastructure by
1
2002-03
2006-07
2
2003-04
2007-08
3
2004-05
Optional
10
GASB 34
Core Financial Reporting
1.
2.
3.
4.
Government-wide Financial Statements
Fund Financial Statements
Notes to Financial Statements
Required Supplemental Information
• Management’s Discussion and Analysis
(MD&A)
• Budgetary Comparison Statement
• Infrastructure Data (only if modified
approach is used – no depreciation)
11
What is OSC policy ?
 OSC collects only fund level information in
the legally required annual financial report.
 OSC encourages local governments to
implement GAAP (generally accepted
accounting principles), while recognizing
that full implementation may not always be
cost beneficial.
 Local governments need to do a cost benefit
analysis. This involves the governing board,
chief fiscal officer, and other officials.
12
Financial Reporting Issues
 Full implementation of GASB 34 is needed
to meet GAAP reporting and to get a “clean”
(unqualified) opinion on audited financial
statements. May affect bond rating.
 Federal Single Audit Act is triggered when
governments expend more than $300,000 of
federal money.
13
What It Means To You
 A cost benefit analysis involves the
governing board, chief fiscal officer and
department heads.
 Can you do it with existing staff?
 What outside help do you need?
 What records do you have?
14
Capital Assets Must Be Reported
 Land, buildings and equipment.
 Infrastructure (roads and bridges and
sewer and water lines, etc.)
 Capitalization thresholds need to be
set.
 What are repairs versus improvements?
15
Capitalization Thresholds
Used by NYS for Equipment
1980’s 15,000*
1990’s 25,000
2000’s
?
*cars under $15,000 weren’t reported
16
Capitalization Thresholds
GAAP thresholds can be different
for:
Different types of assets
Existing assets
Newly acquired assets
17
Capitalization Thresholds
Are different for:
Inventory Control
Insurance
Legal Requirements (e.g. Federal
Common Rule $5,000)
Financial Reporting (GAAP)
18
Buildings and Equipment
Must Be Depreciated
 Historical Cost – can be estimated
 Salvage Value- could be zero
 Useful Life- period of probable
usefulness (Local finance Law 11.00
 Age of Asset – can be estimated
 Depreciation Method –straight-line
19
Infrastructure –
“Depreciation Expense”
Options
 Report depreciation expense in the
government-wide statements.
(Note: Depreciation isn’t budgeted or
reported in the fund financial statements;
i.e.; the general fund and other
governmental funds.)
20
Infrastructure –
“Depreciation Expense” Options
(continued)
OR Use the “Modified Approach”
(If an Asset Management System is in
place that meets certain rules, the money
spent to maintain assets serves as a
surrogate for depreciation expense.)
21
Retroactive (Existing) Infrastructure Options
 Phase 3 units can elect to not report it at all.
(Report it, if there’s outstanding debt.)
 Phase 1 and 2 governments:
- Can delay reporting up to 4 years.
- Can go back to June 30, 1980 only.
- Can limit to “major general”
infrastructure.
22
Retroactive (Existing) Infrastructure Options
(Continued)
 Can calculate initial capitalization, using
deflated current replacement cost to represent
estimated historical cost.
 Can use bond documents, engineering
documents, and capital projects funds
expenditures as source documents when
estimating historical cost.
23
Retroactive (Existing) Infrastructure Options
(Continued)
 Can use composite depreciation rates
based on groupings of similar assets or
classes of dissimilar assets.
24
Identifying Undepreciated
Capital Assets
 What outstanding debt do you have for capital
assets?
 Are depreciation expense and principal payments
about equal?
 Are useful life and period of probable usefulness
about equal?
($ Borrowed – principal payments = Outstanding Debt)
(Asset cost – accumulated depreciation = Book Value)
25
Land, Buildings and Equipment
Set high capitalization thresholds
Use assessment rolls for land and buildings
Equipment (vehicles, machinery, equip.)
Capitalize large equipment to get started
(highway vehicles, buses, fire engines, etc.)
 Use lower threshold after 34 implementation
(GAAFR “no lower than $5,000”)




26
Identifying Undepreciated
Infrastructure
 What infrastructure was acquired since
June 30, 1980?
 Acquired, significantly reconstructed, or
received significant improvement.
 Look at outstanding debt.
 Look for items that aren’t bonded (CHIPS
capital projects)
27
Identifying Undepreciated
Infrastructure
Look back 10 years to identify CHIPs
projects that aren’t fully depreciated.
• Do they have a 10-year useful life?
• Are they repairs or improvements?
• Are they above your capitalization
threshold?
Look back beyond 10 years for significant
projects only.
28
Interpretation No. 6
“Recognition and Measurement of
Certain Liabilities and Expenditures in
Governmental Fund Financial
Statements.”
Effective date coincides with
implementation of Statement No. 34.
29
Modified Accrual Basis – Flow of
Current Financial Resources
NCGA 4 - Recognize long-term liabilities
to the extent that they are "normally
expected to be liquidated with
expendable available financial
resources.”
GASB Int. 6 - Recognize these liabilities
to the extent they mature (come due
for payment) each period.
30
Current vs. Long-Term
Matured portions of the above liabilities
should be reported as governmental
fund liabilities
Long-term liabilities in GLTDAG
Accumulated money is reported as
reserved fund balance
31
Reserve for Employee Benefit
Accrued Liability
 General Municipal Law 6-p.
 The purpose of this account is to reserve
funds for the payment of any accrued
employee benefit due to an employee upon
termination of service.
 This reserve fund may be established by a
majority vote of the board and is funded by
budgetary appropriations and such other
reserves and funds that may be legally
appropriated.
32
Statement No. 33
Accounting and Financial Reporting for
Nonexchange Transactions
Nonexchange transaction – a
government gives (or receives) value
without directly receiving (or giving)
equal value in return (e.g., property
taxes)
33
Statement No. 33
Exchange transaction each party
receives and gives up essentially equal
values (e.g., sale of merchandise)
The issue is the timing of recognition of
nonexchange transactions
34
Statement No. 33 - Classes of
Nonexchange Transactions
 Derived tax revenues
(e.g., income taxes, sales tax)
 Imposed nonexchange revenues
(e.g., property taxes, fines)
 Government-mandated nonexchange
revenues
(e.g., Federal & State mandated programs)
 Voluntary nonexchange transactions
(e.g., certain grants and private donations)
35
Statement No. 33 Revenue Recognition
Derived tax revenues – when
underlying exchange transaction has
occurred (e.g., income was earned, sale
was made)
Imposed nonexchange revenue – when
use of resources is permitted (e.g.,
period for which property taxes are
levied)
36
Statement No. 33 –
Revenue Recognition
Government-mandated revenues and
voluntary nonexchange transactions –
when applicable eligibility requirements
are met (e.g., for certain grants when
expenditure is incurred)
37
Statement No. 33 –
Revenue Recognition
Availability criterion – must be met for
all non-exchange transactions
Receivables for Federal and State grants
Effective date – FYE June 30, 2001
38
Implementation Process
For governmental funds, fund financial
statements (modified accrual basis) will
continue to be prepared as they are
today
39
Implementation Process
To prepare government-wide
statements, combine funds and
account groups and convert
modified accrual to accrual
40
Implementation Process
41
Trial balance with adjusting
entries
Conversion to accrual will be in
subsidiary records or workpapers
only
42
Implementation Process
Books for subsequent year will be
opened with modified accrual
balances from prior year
43
To Convert From Modified
Accrual to Full Accrual
Report revenue that is not yet available.
Report expense for supplies inventories
and prepaid items (insurance) based on
usage (rather than when outlays are
made). Report supplies inventories and
prepaid items (insurance) as assets in
statement of net assets.
44
To Convert From Modified
Accrual to Full Accrual
Remove proceeds of long-term debt
from operating statement, and report
liability in statement of net assets.
Report interest expense when incurred
(rather than when paid). Report
accrued liability in statement of net
assets.
45
To Convert From Modified
Accrual to Full Accrual
Remove debt service principal and
interest outlays from operating
statement, and reduce liabilities for
debt (principal) and accrued interest
payable in statement of net assets.
46
To Convert From Modified
Accrual to Full Accrual
Remove outlays from operating
statement and replace with expense for
certain operating liabilities
(compensated absences, claims and
judgements, landfill closure and post
closure costs, special termination
benefits). Report liability in statement of
net assets.
47
To Convert From Modified
Accrual to Full Accrual
Remove capital outlays from operating
statement. Report as capital assets in
statement of net assets.
Report depreciation expense in
statement of activities and accumulated
depreciation in statement of net assets.
48
To Convert From Modified
Accrual to Full Accrual
Remove sale of assets (revenue) from
operating statement and replace with
gain/loss on sale of assets in statement
of activities.
Remove asset and accumulated
depreciation from statement of net
assets.
49
Internet Resources
gasb.org
Governmental Accounting Standards
Board
nasact.org
National Association of State
Auditors, Comptrollers and
Treasurers
gfoa.org
Government Finance Officers
Association
osc.state.ny.us
NYS Comptroller’s Office
50
GASB Lite
 Use a least cost implementation
strategy
 There are many options in
implementing GASB 34. If it doesn’t
make a big difference, don’t do it.
51
OSC Plan
To provide guidance on
implementation issues.
Change NYUSA to facilitate GASB
34 Reporting
Questions? Contact OSC Regional
Offices.
52