Dean Michael Mead
September 17, 2014
The views expressed in this presentation are those of Mr. Mead.
Official positions of the GASB on accounting matters are determined only after extensive due process and deliberation.

 News from the GASB
 Implementation Issues Related to Pensions
 Communicating about Deferrals
 Proposals
GAAP Hierarchy & Comprehensive Implementation Guide
OPEB
Fair Value Measurement and Application
 Upcoming Proposals
Tax Abatement Disclosures
Leases
Fiduciary Responsibilities
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 New chairman, David Vaudt, started July 1, 2013 – former state auditor of Iowa
 All GASB pronouncements are available free on the website, www.gasb.org
, including Statements, Concepts
Statements, Interpretations, Technical Bulletins, and
Implementation Guides
 Online version of GARS now available through website
Basic view is free
 The GASB Report has gone electronic and is now free
 New quarterly electronic newsletter, GASB Outlook, also is available free
Sign up for both on the GASB website
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 Reporting by pension plans
 Approved in June 2012
 Available to download free from the GASB website; printed copies can still be purchased
 99 questions and answers on topics including:
What constitutes a qualifying trust
Distinguishing between defined benefit and defined contribution plans
Financials statements, notes, and RSI
Measurement of the liability
 Illustrations, topical index, full text of the Standards section
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 Reporting by pension plans
 Approved in December 2012
 Available to download free from the GASB website; printed copies can still be purchased
 272 questions and answers on topics including:
Special funding situations
Measurement of the liability
Determining a costsharing employer’s proportionate share
Notes and RSI
Transition
 Illustrations, topical index, full text of the Standards section
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 Statement 68 allows reporting of pension-related deferrals at transition only if all amounts can be determined
 At the same time, Statement 68 requires that contributions made to a pension plan subsequent to the measurement of the pension liability be reported initially as deferred outflows of resources and then recognized as pension expense in the following period
 So, what do you do about contributions made after the measurement of the initial beginning net pension liability for the period of implementation of Statement 68, but before the start of that period?
8

 Amends transition provisions of Statement 68
In all circumstances in which a contribution has been made between the measurement date of the beginning net pension liability and the beginning of the initial period of implementation of Statement 68, recognize the amount of the contribution as a beginning deferred outflow of resources
Eliminates potential understatement of restated beginning net position and expense in the first year of implementation
Other deferred outflows of resources/inflows of resources reported only if it is practical to determine all such amounts
 Effective simultaneously with Statement 68
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10

 Some stakeholder groups requested an indefinite delay in implementation date until related auditing procedures have been implemented for a sufficient period
The concern was expressed that governments in multipleemployer pension plans will receive a modified audit opinion on their financial statements in the interim
 Other individuals, organizations, and stakeholder groups requested that the implementation date of Statement 68 not be changed
Some of these groups urged the GASB and other organizations to find a solution that does not involve a delay in implementation
11

 Audit guidance proposed or being considered at that time by the AICPA’s State and Local Government Expert Panel
Addresses how existing audit guidance might be applied to
Statement 68, particularly with regard to evaluating the completeness and accuracy of census data (information about the plan members)
Recommends that plans prepare schedules of information for that purpose
Considering recommending that agent plans obtain (1) a
Service Organization Controls (SOC) 1 (type 2) report on their internal controls over additions to and deduction from individual employer accounts, or (2) an audit opinion on changes in fiduciary net position of each participating employer
 Concern was that governments will receive modified audit opinions while these procedures are being worked out
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 Shortly after receiving the request for delay, the GASB:
Discussed the issue with the GASAC
Interviewed financial statement users to obtain their views on the possibility of delay and the reaction to audit opinion modifications in these circumstances
Interviewed auditors to better understand the SOC 1 (type 2) procedures, their experience with conducting them for the first time with new clients, and the potential for modified opinions
Examined financial reports of state-sponsored local government pension plans
Considered the reasons for and implications of implementation delays by other standards setters
13

Prepared a prospectus for a project that would consider four potential courses of action:
 Delay the effective date of Statement 68 for all employers
 Delay the effective date of Statement 68 for only agent employers
 Delay the effective date of Statement 68 for only agent and cost-sharing employers
 Do not delay the effective date of Statement 68
Discussed the prospectus during a public meeting and voted unanimously not to delay the effective date of Statement 68
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 The GASB is making a concerted effort to educate stakeholders and the general public about the possibility of modified audit opinions in these circumstances and what they mean
Working to help governments avoid criticism for circumstances that are beyond their control and for which they bear no blame
Organizing a stakeholder resource group to consider activities, materials, and so on
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 Assets : resources with present service capacity that the government presently controls
 Deferred outflow of resources : a consumption of net assets by the government that is applicable to a future reporting period
Has a positive effect on net position, similar to assets
 Liabilities : present obligations to sacrifice resources that the government has little or no discretion to avoid
 Deferred inflow of resources : an acquisition of net assets by the government that is applicable to a future reporting period
Has a negative effect on net position, similar to liabilities
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 Net position
The residual of all elements presented in a statement of financial position
= assets + deferred outflows – liabilities – deferred inflows
 Outflow of resources : a consumption of net asset by the government that is applicable to the reporting period
 Inflow of resources : an acquisition of net assets by the government that is applicable to the reporting period
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 An inflow or outflow of resources has occurred
Flows related to the current period
– revenues, expenses, expenditures, gains, losses, and so on
Flows related to future periods – deferred outflows and deferred inflows
 Deferred outflows and inflows will eventually be recognized as expenses/expenditures and revenues
The outflows and inflows themselves are not deferred
– the recognition of them as outflows and inflows is what is put off until a future period.
Deferrals are expenses/expenditures and revenues waiting to happen
20

 Statements 53, 60, 67 & 68 require deferrals
Statement 53 requires that annual changes in the fair value of hedging derivative instruments be reported as deferred inflows and deferred outflows of resources.
Statement 60 requires that upfront payments received by a government in a service concession arrangement be reported as deferred inflows of resources and recognized as revenue over the term of the arrangement.
Statements 67 & 68 defer certain pension costs and introduce them into pension expense systematically and rationally over multiple years
 Deferrals are not assets and liabilities – they are neither resources with service potential nor obligations to sacrifice resources
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 “Where in the financial statements should deferrals be reported?”
 “What should be done about all of the deferrals that are being reported as assets and liabilities?”
The Board knew that items now reported as assets and liabilities were likely deferrals, but Concepts Statement 4 clearly states that governments should report only those deferrals specifically required by the accounting standards
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a.
Officially established accounting principles —GASB Statements and
Interpretations. b.
GASB Technical Bulletins and, if specifically made applicable to state and local governmental entities by the AICPA and cleared by the
GASB, AICPA Industry Audit and Accounting Guides, and AICPA
Statements of Position. c.
AICPA Practice Bulletins if specifically made applicable to state and local governmental entities and cleared by the GASB, as well as consensus positions of a group of accountants organized by the
GASB that attempts to reach consensus positions on accounting issues applicable to state and local governmental entities. d.
Implementation guides (Q&As) published by the GASB staff, as well as practices that are widely recognized and prevalent in state and local government.
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
a.
GASB Statements
 Periodically incorporated in the Codification
 Subject to AICPA Rule 203 b.
GASB Technical Bulletins, implementation guides (Q&As), and if specifically made applicable to state and local governmental entities by the AICPA and cleared by the GASB:
 AICPA Industry Audit and Accounting Guides
 AICPA Statements of Position
 AICPA Practice Bulletins

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Category (a) guidance must be:
1.
2.
3.
Category (b) guidance must be:
1.
2.
3.
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 Discontinuation of Interpretations
Guidance from existing Interpretations and will be incorporated into a Statement by reference
 Comprehensive Implementation Guide (CIG)
Tentatively classified as category (b) authoritative
Revised due process
 Public exposure of guidance in the existing CIG and updates to the CIG going forward
 Board clearance of the final document
Evaluation of individual Q&As prior to exposure
 Remove or improve Q&As that only restate guidance directly from related statements
 Move illustrations to the nonauthoritative appendixes
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 Should first consider authoritative guidance for similar transactions or events, before considering nonauthoritative guidance
 Nonauthoritative guidance should not conflict with or contradict authoritative GAAP
 In evaluating the appropriateness of nonauthoritative literature, consider all of the following:
Consistency with the GASB Concepts Statements
Relevance to particular circumstances
Specificity of the guidance
General recognition of the issuer or author as an authority
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 Sources of nonauthoritative accounting guidance and literature include:
GASB Concepts Statements
Pronouncements of the FASB, FASAB, IPSASB, and IASB
AICPA issue Papers
Technical Information Services Inquiries and Replies included in AICPA Technical Practice Aids
Practices that are widely recognized and prevalent in state and local government
Pronouncements of other professional associations or regulatory agencies
Accounting textbooks, handbooks, and articles
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 Proposed Statement would supersede Statement 55
Exposure Draft approved in December 2013
 Proposed Implementation Guide would supersede all previous implementation guides
Exposure Draft approved in December 2013
 Comment period through December 2014
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 Pre-agenda research evaluating the effectiveness of existing standards on postemployment benefits began in 2006
 Project added to current technical agenda in 2008
 Two-phased project
Pensions administered through trusts
 Statements 67 and 68 issued in June 2012
 Implementation Guides issued in June 2013 (Statement
67) and January 2014 (Statement 68)
OPEB and pensions not within scope of
Statements 67/68
 Three Exposure Drafts approved by Board in May 2014
 Final Statements anticipated for June 2015
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 Fundamental approach for OPEB is the same as required for pensions in Statement 68
Viewed in the context of an ongoing, career-long employment relationship
Focus on the cost to taxpayers over time of providing government services
Accounting-based versus funding-based approach to measurement
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
Applies same definition of OPEB as used in Statement 45
All postemployment healthcare benefits
Postemployment benefits not provided through a pension plan

Addresses both defined benefit OPEB and defined contribution
OPEB

Applies to employers & nonemployer contributing entities that have a legal obligation to make contributions directly to an OPEB plan or to make benefit payments as those payments come due
Special funding situations
Other circumstances
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 Differentiates requirements based on whether OPEB is provided through plans administered through trusts in which the following criteria are met:
Employer/nonemployer contributions irrevocable
Plan assets dedicated to providing OPEB
Plan assets legally protected from creditors
 If any part of the OPEB plan is administered through a trust that meets the specified criteria, apply the requirements for OPEB provided through an OPEB plan administered through a trust that meets the criteria
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 Liability to a defined benefit plan
 Liability to employees for OPEB
Consistent approach applied to all employers regardless of whether OPEB is administered through trust in which the specified criteria are met
Recognize:
 OPEB liability
 OPEB expense
 Deferred outflows/inflows of resources related to OPEB
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 Based on total OPEB liability —the portion of the actuarial present value of projected benefit payments that is attributed to past periods of employee service
 Is OPEB administered through a trust that meets the specified criteria?
Yes
—recognize net OPEB liability (total OPEB liability, net of OPEB plan fiduciary net position)
No —recognize total OPEB liability
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 Measurement date
As of date no earlier than end of prior fiscal year
 Actuarial valuation date of total OPEB liability
If not measurement date, as of date no more than 30 months (+1 day) prior to FYE
Actuarial valuations at least every 2 years (more frequent valuations encouraged)
 Should reflect changes between the date of the actuarial valuation and the measurement date
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 Three broad steps
Project benefit payments
Discount projected benefit payments to actuarial present value
Attribute actuarial present value to periods
 Methods and assumptions
Generally, assumptions in conformity with Actuarial Standards of
Practice
Fewer alternatives than in Statement 45 for methods and assumptions for GAAP reporting purposes
No changes to actuarial methods and assumptions used to determine funding amounts would be required
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 Projections would include current employees (active and inactive) in accordance with:
Benefit terms
Any additional legal agreement(s) in force at the measurement date
 Projections would exclude benefits provided through certain allocated insurance contracts
40

 Projections would incorporate expectations, if relevant, of:
Salary changes
Service credits
Automatic postemployment benefit changes (including COLAs)
Ad hoc postemployment benefit changes (including COLAs) if substantively automatic
Taxes or other assessments expected to be imposed on benefit payments
 Consider established pattern of practice with regard to sharing of benefit-related costs with inactive employees
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 Based on claims costs or age-adjusted premiums approximating claims costs, in accordance with
Actuarial Standards of Practice
 Not reduced by subsidies expected to be received for making benefit payments unless payments are providing Medicare benefits
 Consider legal or contractual caps if determined to be effective
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 Single discount rate that reflects:
Long-term expected rate of return on OPEB plan investments to extent that plan fiduciary net position from specified resources is:
 Projected to be sufficient to make benefit payments
 Expected to be invested using a strategy to achieve that return
Yield or index rate for 20-year, tax-exempt general obligation municipal bond rated AA/Aa (or equivalent) or higher, to extent that conditions for long-term expected rate of return are not met
 Calculated using the same process as required for pensions in
Statement 68
 If not administered through a trust in which the specified criteria is met, the tax-exempt municipal bond rate is required to be used
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 Single method
Entry age actuarial cost method
Level percentage of pay
 Applied on an employee-by-employee basis
 Beginning in 1 st period of benefit accrual and through all assumed exit age(s) through retirement
 Same benefit terms to determine service cost as to determine actuarial present value of projected benefit payments
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 As in Statement 45, an alternative measurement method may be applied if fewer than 100 employees
(active and inactive) are provided with benefits through the OPEB plan as of the beginning of the measurement period
 Generally, same simplifications to assumptions can be used
Reference to U.S. Office of Personnel Management regarding age-based turnover experience rather than default tables
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 Relevant only for OPEB administered through trust in which specified criteria are met
 Measured as of the same date as the total OPEB liability (measurement date)
 Measured using the same requirements as used for the defined benefit OPEB plan’s statement of fiduciary net position, including measurement of investments at fair value
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 Recognize most changes in liability for the current reporting period in OPEB expense in full in the current period, for example:
Service cost
Interest on total OPEB liability
Effect of benefit changes
Projected earnings on OPEB plan investments
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 Exceptions to recognizing changes in the liability in OPEB expense in full in the current period:
Changes in total OPEB liability:

Differences between expected and actual experience with regard to economic and demographic factors in the measurement of the total OPEB liability

Changes of assumptions in the measurement of the total OPEB liability
For OPEB administered through trust in which specified criteria are met:

Difference between projected and actual earnings on OPEB plan investments
 Employer contributions
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Source of Change in the Net OPEB Liability
Service Cost
Interest on the Total OPEB Liability
Projected Investment Earnings
Changes in Benefit Terms
Changes in Assumptions
Differences between Expected and Actual
Economic and Demographic Factors
Differences between Projected and
Actual Earnings
Other Changes in the Net OPEB Liability
Expense
Immediate
Immediate
Immediate
Immediate
Deferral
None
None
None
None
Expense over average remaining service period of actives and inactives
Expense over 5-year closed period
Immediate None
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 Relevant only for OPEB administered through trust in which specified criteria are met
 During the measurement period:
Directly reduce liability (no expense impact)
 Subsequent to measurement date:
Deferred outflow of resources related to OPEB
Directly reduce liability in next reporting period (no expense impact)
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 Relevant only for OPEB not administered through trust in which specified criteria are met
 Amounts paid by employer for OPEB as benefits come due
During the measurement period:
 Directly reduce liability (no expense impact)
Subsequent to measurement date:
 Deferred outflow of resources related to OPEB
 Directly reduce liability in next reporting period (no expense impact)
 Costs incurred by employer related to OPEB administration
During the measurement period:
 OPEB expense
Subsequent to measurement period:
 Deferred outflows of resources related to OPEB
 OPEB expense in next reporting period
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 Relevant only for OPEB administered through trust in which specified criteria are met
 Recognize proportionate shares of collective net OPEB liability, OPEB expense, and deferred outflows of resources/deferred inflows of resources related to OPEB
 Proportion (%)
Basis required to be consistent with contributions
Use of relative long-term projected contribution effort encouraged
Consider separate rates related to separate portions of collective net OPEB liability
 Collective measure × proportion = proportionate share of collective measure
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 Potentially three additional items —entity specific
1.
Effect of a change in proportion
2.
Difference between:
– Employer’s proportionate share of all employer contributions included in collective plan fiduciary net position
–
Amount of contributions recognized by the employer in the measurement period
3.
Employer’s contributions subsequent to measurement date
 Items 1 and 2 —expense in current and future periods
(systematic/rational method, closed period equal to average of expected remaining service lives)
 Item 3 —deferred outflow of resources, reduces collective net OPEB liability in next period & considered in Item 2 in next period
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 Legal requirement to contribute directly to an OPEB plan or to make benefit payments as those payments come due
Special funding situations
 Either/both:
– Contribution amount or payment of benefits as they come due not dependent upon events unrelated to OPEB
OR
–
Nonemployer is only entity with legal obligation to contribute or make benefit payments as those payments come due
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 Legal requirement to contribute directly to an OPEB plan or to make benefit payments as those payments come due
Special funding situations (cont.)
 Employer(s) and nonemployer contributing entity apply approach similar to cost-sharing to measure OPEB liability, expense, and deferred outflows/deferred inflows of resources
– Nonemployer expense classified in same manner as similar grants to other entities
 Employer recognizes additional expense and revenue equal to nonemployer contributing entity’s proportionate share of collective expense (portion related to the employer)
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 Legal requirement to contribute directly to an OPEB plan or to make benefit payments as those payments come due
Not Special Funding Situation
 Employer recognizes revenue for change in OPEB liability from contributions and payments made as benefits come due from nonemployer contributing entities
 Nonemployer entity classifies expense for contributions and payments made as benefits come due in same manner as similar grants to other entities
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 Significant assumptions/other inputs in total OPEB liability, including (cont.)
OPEB liability recognized using all combinations of
 Discount rate, discount rate +1%, and discount rate –1%
 Healthcare cost rend rate, healthcare cost trend rate +1%, and healthcare cost trend rate –1%
1% Decrease (8.5%–4.5%)
Healthcare Cost Trend Rates (9.5%–5.5%)
1% Increase (10.5%–6.5%)
1% Decrease
(6.0%)
$ (12,963)
$ 54,687
$ 165,825
Discount Rate
(7.0%)
$ (61,284)
$ 6,366
$ 88,512
1% Increase
(8.0%)
$ (104,773)
$ (51,620)
$ 20,862
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 Fiscal years beginning after December 15, 2016
 Beginning deferred outflow of resources for contributions
(payments as benefits come due), if any, subsequent to the measurement date of the beginning OPEB liability
 All other deferred outflows/deferred inflows of resources balances —all or nothing at initial implementation
 RSI schedules prospective if information not initially available
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 How fair value should be defined
 How fair value should be measured
 Which types of assets and liabilities should be measured at fair value
 What disclosures should be in the notes to the financial statements
60

 The 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.
 An exit price
Not adjusted for transaction costs
 Market-based
Fair value measurement determined using the assumptions market participants would use in pricing the asset or liability
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 Apply valuation technique(s) that best represent(s) fair value in the circumstances
Market approach – Using prices and other relevant information generated by market transactions involving identical or similar assets and / or liabilities
Cost approach – Amount that would be required currently to replace the service capacity of an asset
Income approach
– Converts expected future amounts to a single current amount (i.e. present value techniques, optionpricing models, etc.)
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 Maximize use of relevant observable inputs and minimize use of unobservable inputs
 Inputs should be consistent with the characteristics of the asset or liability
Sometimes includes an adjustment, a premium or discount
Do not include premium or discount that is inconsistent with the unit of account established for the asset / liability
Do not include premiums and discounts that reflect size as a characteristic of a government’s holdings
 For instance, blockage factors that adjusts the quoted price of an asset or liability based on the market’s trading volume
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 Level 1 : quoted prices (unadjusted) in active markets for identical assets or liabilities
 Level 2 : quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other than quoted prices that are observable
 Level 3 : unobservable inputs
64

 Fair value of investments in certain entities that calculate net asset value (NAV) per share (or its equivalent)
 NAV per share may be used as a practical expedient to estimate fair value
Adjustment to NAV per share amount may be necessary to be consistent with measurement principles
May be applied on an investment-by-investment basis but must be applied consistently to fair value measurement of the government’s entire position in a particular investment
 If sale of a portion of an investment at an amount different from net asset value per share is probable, the practical expedient may not be applied
65

 Assets and liabilities that meet the definition of an investment generally would be measured at fair value
 An investment is defined as:
A security or other asset that a government holds primarily for the purpose of income or profit and its present service capacity is based solely on its ability to generate cash, to be sold to generate cash, or to procure services for the citizenry
 Service capacity
– Refers to a government’s mission to provide services
 Primarily for the purpose of income or profit
–
Acquired first and foremost for future income and profit
66

 Alternative investments
 Equity securities (including unit investment trusts and closed-end mutual funds), stock warrants, and stock rights that do not have readily determinable fair values
 Commingled investment pools that are not government sponsored
 Invested securities lending collateral
 Intangible assets, land and land rights, natural resource assets, real estate, lending assets – if they meet the definition of an investment
67

 Money market investments and participating interestearning investment contracts with a remaining maturity at time of purchase of one year or less, reported by governments other than external investment pools
 Investments in 2a7-like external investment pools
 Investments in life insurance
Investments in life settlement contracts, however, should be at fair value
 Investments in common stock that meet the criteria for applying the equity method
Investments in common stock held by endowments and in certain entities that calculate net asset value per share are ineligible for the equity method
 Non-participating interest-earning investment contracts
68

 Acquisition value (an entry price) would replace fair value for the following:
Donated capital assets
Donated works of art, historical treasures, and similar assets
Capital assets acquired through a nonexchange transaction
Assets received in a nonmonetary transaction, when the value of the asset received is more clearly evident than the fair value of the asset surrendered
Capital assets received through a service concession arrangement
69

 For each class or type of assets and/or liabilities:
The fair value measurement at the end of the reporting period and for nonrecurring fair value measurements, the reasons for the measurement
The level of the fair value hierarchy within which the fair value measurements are categorized (Level 1, 2, or 3)
A description of the valuation technique(s) and the inputs used in the fair value measurement
70

 Information on whether the investments are probable of being sold at amounts different from NAV per share (or its equivalent)
 If it is probable that the investment will be sold at an amount different from NAV per share
Disclosure of the total fair value of all investments that meet the above and any remaining actions required to complete the sale
If individual investments to be sold have not been identified, disclosure of plans to sell and any remaining actions required to complete the sale
71

 Fair value measurement of the investments and a description of the significant investment strategies of the investee(s) in the class
 If distributions are received through liquidation of the underlying assets of investees, an estimate of the period of time over which underlying assets are expected to be liquidated
 Amount of unfunded commitments
 General description of the terms and conditions upon which the government may redeem investments
 The circumstances in which an otherwise redeemable investment might not be redeemable; or if the investment is currently restricted, when the restriction lapses
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73

 Pre-agenda research
Initiated – April 2013
 Active agenda project
Initiated – December 2013
Exposure Draft expected – October 2014 (90-day comment period)
Final Statement expected – August 2015
74

 Tax Abatements v. Other Tax Transactions
There is a broad universe of transactions that result in a government reducing the amount of taxes a business or individual would otherwise pay
These transactions take many forms and often incorporate interchangeable language
 Tax expenditure, tax credit, tax deduction, tax abatement, tax exemption
Board considered what characteristics separate abatements from other tax transactions
75

 The Board tentatively agreed on three characteristics that, when combined, distinguish tax abatements from other tax reductions for financial reporting purposes:
Purpose
 Generally, tax abatements are a device for encouraging economic development or beneficial activity
Existence of an agreement
 Tax abatements result from an actual agreement between the parties, which may or may not be written or legally enforceable
Types of revenues reduced
 As the name suggests, tax abatements reduce tax revenues
76

 Tentative definition:
For financial reporting purposes, a tax abatement results from an agreement between one or more governmental entities and a taxpayer in which (a) one or more governmental entities promise to forgo revenues from taxes for which the taxpayer otherwise would have been obligated and (b) the taxpayer promises to take a specific action that contributes to economic development or otherwise benefits the government(s) or its citizens. A tax abatement results from an agreement entered into prior to the taxpayer performing the specific action.
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 General descriptive information:
Name and purpose of the program and the taxes being abated
The authority under which taxes are abated
The criteria, if any, that make a recipient eligible
The mechanism for abating taxes (form and calculation)
The number of abatements granted during the reporting period and the number outstanding as of the date of the financials
 Amount of tax abated in the current year
 Other commitments made by governments
 Commitments made by recipients of tax abatements
 Provisions for recapturing abated taxes
78

 Name of the tax abatement recipient
 Duration of the tax abatement
 Amount of tax to be abated in future years under agreements in place at the end of the fiscal year
 Recipient compliance with commitments
79

 For all tax abatements, a reporting government would disclose its own tax abatements separately from those entered into by other governments
 Governments would be given the option to disclose abatements either individually or in the aggregate
 The reporting government would disclose its own tax abatements by major program and those of other governments aggregated in total
 Disclosure would commence in the period in which a tax abatement agreement is entered into and continue until the tax abatement agreement expires, unless otherwise specified
80

 The disclosure requirements would be applied to the current period and all prior periods presented.
 If application for all prior period presented is not practical, the reason for not applying the standards to prior periods presented would be explained.
 Would be effective for periods beginning after December
15, 2015
Early adoption of the final standards would be encouraged.
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82

 Objective – reexamine issues associated with lease accounting
FASB/IASB project
Issuance of concepts statements
Evaluate standards that have been in effect for a sufficient length of time
 Research project initiated April 2011
 Current agenda project added April 2013
Exposure draft expected November 2014
Final statement expected December 2015
83

 Definition
A contract that conveys the right to use an asset (the underlying asset) for a period of time in an exchange or exchange-like transaction.
 Scope
Continue to include contracts not identified as leases but that meet the definition
Continue existing scope exclusions
New scope exception for biological assets, including timber
 Single model
No classification of leases into operating/capital or other categories
Potentially develop some exceptions
Underlying assumption that leases are financings
84

 Lease term
Includes noncancellable period, plus periods covered by a lessee’s option to renew, if the option is probable of being exercised
Excludes periods covered by a lessee’s option to terminate, if the option is probable of being exercised
Excludes periods for which lessee and lessor each have the option to terminate (cancellable periods)
Fiscal funding/cancellation clauses ignored if possibility of being exercised is remote
Reassessed when change in relevant factors
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 Lessee recognition and measurement
Recognize an intangible asset for the right to use the underlying asset and a liability for future payments
Initial measurement of a lease liability includes:
 Fixed payments to be made over the lease term
 Variable payments based on an index or rate, using the rate in effect at that date
 Variable payments that are in-substance fixed
 Residual value guarantees probable of being required
 Purchase options probable of being exercised
 Termination penalties if based on the determination of the lease term, the termination option is probable of being exercised
Liability does not include lease payments that are dependent on a lessee’s performance or usage of an underlying asset
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 Lessee recognition and measurement (continued)
Lease liability payments be discounted using the rate the lessor charges the lessee and if that rate cannot be readily determined, the lessee’s incremental borrowing rate
Initial measurement of a lease asset includes:
 The value of the initial lease liability
 Any prepayments (amounts paid for the lease prior to measuring the lease liability)
 Initial direct costs if they are ancillary charges to place the leased asset into use
Lease incentives received should be reductions in the cost of lease assets
Initial direct costs should be expensed if they are costs other than ancillary charges to place the leased asset into use
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 Lessee recognition and measurement (continued)
Lease liability remeasured by calculating amortization on liability and reducing liability for actual payments less amortization
Lease asset amortized using a systematic and rational basis over the shorter of the useful life of the underlying asset or the lease term
 Amortize as if the lessee owns the underlying asset, using the lessee’s depreciation policy, if the lease transfers ownership or if a purchase option is determined to be probable of being exercised
Classify the amortization of the lease asset as amortization expense and the amortization of the discount on the lease liability as interest expense in the flows statement
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 Lessee recognition and measurement (continued)
Reassessment of a lease liability when certain judgments change
Reassessment of the discount rate when the lease term is changed or certain other judgments change
Adjustments to the lease liability generally should adjust the lease asset by the same amount
 Exception: adjustments due to change in rate upon which a variable payment is based should be revenue or expense in the period
 Exception: if adjustment is greater than carrying value of asset, difference is recognized in the flows statement
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 Lessee recognition and measurement (continued)
Practicality exception for short-term leases
 A short-term lease is one that, at the beginning of the lease, has maximum possible term under the contract, including any options to extend, of 12 months or less
 The maximum possible term for a cancellable lease be defined as any noncancellable period, including any notice periods
 Leases that transfer ownership not qualify for the short-term lease exception, even if they meet the other criteria
 Accounting requirement for all leases that qualify
 Lessees not be required to recognize assets or liabilities associated with the right to use the underlying asset for short-term leases
 Lease payments be recognized as expenses/expenditures based on the terms of the contract
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 Leases with multiple components
Separate contracts into lease and nonlease components or multiple lease components, subject to a practicality exception related to measurement
Lessees allocate consideration to multiple components:
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 Primary Objective
Develop guidance regarding the application of fiduciary responsibility criteria in deciding whether and how governments should report fiduciary activities in GPEFRs
 Other Objectives
Assessing whether additional guidance should be developed to:
 Clarify the difference between a private-purpose trust fund and an agency fund
 Clarify whether a stand-alone business-type activity engaging in fiduciary activities should present fund financial statements
 Consider requiring a combining statement of changes in assets and liabilities for agency funds
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 2010 survey of users regarding what information is important to them, why the information is important, and for what purposes they use the information
Government research analysts
Legislative fiscal staff
Municipal bond analysts (majority of participants)
 2013 telephone interviews with users who were interested in a government’s accountability for its fiduciary activities
Most of the fiduciary activity information required to be reported by current standards was important to their assessment of a government’s accountability for its trust and agency activities
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 Basis for Conclusions of Statement No. 34, Basic Financial
Statements —and Management’s Discussion and Analysis— for State and Local Governments
The reporting of fiduciary fund financial statements is intended to provide information to users interested in the extent to which a government is meeting its stewardship and operational accountability responsibilities with respect to its fiduciary activities.
 Concepts Statement No. 1, Objectives of Financial Reporting
Governmental financial reporting (which includes fiduciary fund financial statements) addresses operational accountability by providing information that will:
 Assist in determining compliance with finance-related laws, rules, and regulations
 Assist in evaluating efficiency and effectiveness
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 Statement No. 14, The Financial Reporting Entity
Requires governments to include fiduciary activities (pension
(and other employee benefit) trusts, investment trusts, privatepurpose trusts, and agency funds) as trust funds…….
 If the primary government has a fiduciary responsibility for them
Current standards provide no guidance regarding how to determine whether a government has a fiduciary responsibility
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 Statement 34 —Confusion for preparers of stand-alone business-type activity financial statements
Paragraph 138 —Requires governments engaged only in business-type activities to present only the financial statements required for enterprise funds
Paragraph 63 —Requires governments to report governmental, proprietary, and fiduciary funds to the extent that they have activities that meet the criteria for those funds
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 NCGA Statement No. 1, Governmental Accounting and
Financial Reporting Principles
Required governments to include a combining statement of changes in assets and liabilities for all agency funds
 Statement 34
Required the reporting of only a statement of net position for agency funds
Result:
 Few governments are presenting a combining statement of changes in assets and liabilities for their agency funds
 Users interviewed identified this information as being important to their assessment of the government’s accountability for its agency activities
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 A government is a fiduciary when it controls assets
(1) in accordance with a trust agreement or equivalent arrangement in which the beneficiaries are
 (a) employees of the financial reporting entity, or
 (b) individuals that are not part of the citizenry, or organizations or other governments that are not part of the financial reporting entity, or
(2) outside of a trust agreement or equivalent arrangement and
 (a) the beneficiaries are individuals that are not part of the citizenry, or other organizations or other governments that are not part of the financial reporting entity, or
 (b) for which it does not have administrative or direct financial involvement.
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 Discussion outside of the definition including
-
How the concepts of “holding” and “administering” are implied
How a government is controlling the assets when it has assigned or delegated the responsibility for holding the assets to another entity if it has legally or contractually been authorized to do so
How other duties of a fiduciary are implied as part of their fiduciary responsibility
 Standards of conduct
 A government has a fiduciary responsibility for financial reporting if it meets the definition of a fiduciary
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 Fiduciary activities continue to be reported as basic financial statements in GPEFRs
 Pension (and other employee benefit) trust funds, investment trust funds, and private-purpose trust funds of governments meeting the proposed definition of a fiduciary continue to be reported in GPEFRs
 The classification of fiduciary activities be determined by the presence or the lack of presence of a trust agreement or equivalent arrangement
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 An expanded fund type be established that includes any fiduciary arrangement that is not governed by a formal trust agreement or equivalent arrangement —CUSTODIAL FUNDS
Funds previously classified as agency funds
Trust funds for which there is no trust agreement or equivalent arrangement
 Custodial funds of governments meeting the proposed tentative definition of a fiduciary be reported in GPEFRs
 A commitment be recognized and reported as a liability only when the event giving rise to the liability has occurred
Otherwise….. The commitment should be recognized and reported as net position restricted for beneficiaries for ALL
FIDUCIARY FUNDS
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 April 2014 Board Meeting
Consideration of note disclosures
 September 2014
Issuance of an Exposure Draft
 September-December 2014
Comment period
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 Visit the GASB at www.gasb.org
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 Dean Mead is Research Manager at the GASB, overseeing the GASB’s research agenda, managing external research, interfacing with the academic community, and coordinating constituent outreach.
 Dean is an adjunct member of the accounting faculty at Rutgers Business School, where he teaches governmental financial analysis and governmental accounting & auditing. He is a member of the
National Federation of Municipal Analysts, Municipal Analysts Group of New York, American
Accounting Association, Association of Government Accountants, Governmental Research
Association, Association for Budgeting and Financial Management, and other organizations. He serves on the editorial boards of Public Budgeting & Finance and Journal of Governmental Financial
Management.
 Dean is the author of the GASB’s User Guide Series. He has published articles in journals such as
Public Budgeting & Finance, Journal of Policy Analysis and Management, State and Local
Government Review, Journal of Public Health Management and Practice, and Journal of Government
Financial Management. He has recently contributed chapters to The Handbook of Municipal Bonds,
Handbook of Local Government Fiscal Health, Management Policies in Local Government Finance, and Public Financial Management.
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Meeting the needs of constituents is one of the GASB’s key goals. In support of this goal, the GASB makes a variety of resources available through its website, www.gasb.org
, including up-to-date information and resources addressing:
 Current projects
 Recent proposals and final pronouncements
 Free copies of proposals and final pronouncements
 A free view of the GASB Codification
 Educational resources
 Resources for users.
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 The GASB is committed to communicating in plain language with constituents about its standards and standards-setting activities.
 Key major proposals may be accompanied by a supplement that explains the document using a minimum of technical language.
 Plain-language articles typically accompany major proposals and final Statements.
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 What You Should Know about Your Local Government’s
Finances
 What You Should Know about Your School District’s
Finances
 An Analyst’s Guide to Government Financial Statements— now available
 What You Should Know about the Finances of Your
Government’s Business-Type Activities
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 The GASB is looking for knowledgeable and talented persons to fill openings as project managers – the staff who lead a standards-setting project team from initial research to final publication of a pronouncement
 A candidate should:
Be a CPA (or equivalent) with at least 10 years experience
(preferably in public accounting or government)
Possess excellent communication and analytical skills
Have experience managing projects, overseeing a project team, and making presentations
Be open-minded, eager to learn, and collegial
 Interested? Know someone who would be a great prospect?
www.gasb.org (look under “About Us”)
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