GASB’s New & Upcoming
Standards
A Governmental Audit Quality Center Web Event
September 28, 2011
The views expressed in this presentation are those of Messrs. Bean and
Schermann. Official positions of the GASB are determined only after extensive due
process and deliberation.
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Administrative Notes
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Presenters
David Bean, CPA
GASB
Daniel O’Keefe, CPA
Moore Stephens Lovelace, P.A.
Ken Schermann, CPA
GASB
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What we will cover
Fund balance reporting
Service concession arrangements
The financial reporting entity
Codification of pre-1989 FASB and AICPA
pronouncements
Reporting deferred inflows and outflows
What is in the pipeline, including:
• Pensions
• Conceptual Framework
• Economic Condition Reporting
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Effective Dates
June 30, 2011
– Statement 54—Fund Balance Reporting
– Statement 59—Financial Instruments Omnibus
June 30, 2012
• Statement 57—OPEB (Agent)
• Statement 64—Derivatives—Hedge Accounting
Terminations
December 31, 2012
• Statement 60—SCA
• Statement 62—Pre-89 Codification
• Statement 63—Deferrals and Net Position
June 30, 2013
• Statement 61—Financial Reporting Entity
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Statement 54
Fund Balance Reporting and
Governmental Fund Type
Definitions
Effective for periods beginning after
June 15, 2010
New Fund Balance Classifications
The classification hierarchy is “based primarily on the extent to
which the government is bound to honor constraints on the
specific purposes for which amounts…can be spent”
•
•
•
•
•
Nonspendable
Restricted
Committed
Assigned
Unassigned
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Nonspendable Fund Balance
Not in spendable form, such as
• Inventory
• Long-term amounts of loans and notes receivable
• Property held for resale
- However, if the use of the proceeds from the
collection of receivables or sale of the property is
restricted, committed, or assigned, then the
receivables or property should be reported in those
categories
Corpus of a permanent fund
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Restricted Fund Balance
Same definition as for net assets in
Statement 34 (as amended by
Statement 46)—amounts constrained to
being used for a specific purpose by
• External parties
• Constitutional provisions
• Enabling legislation
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Committed Fund Balance
Constraint on use imposed by the
government itself, using its highest level of
decision making authority
Constraint can be removed or changed only
by taking the same highest-level action
Action to constrain resources should occur
prior to end of fiscal year, though the exact
amount may be determined subsequently
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Assigned Fund Balance
Amounts intended to be used for
specific purposes
Required, not optional
Intent is expressed by
• The governing body
• High-level body or individual authorized by the
governing body
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Assigned Fund Balance
Amounts in governmental funds other
than the general fund that are not
restricted or committed are reported as
assigned
• The act of transferring resources to another
governmental fund is considered an
assignment of those resources to the purpose
of that fund
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Unassigned Fund Balance
Available for any purpose
Reported only in the general fund,
except in cases of negative fund
balance
• Negative balances in other governmental
funds are reported as unassigned
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Fund Type Definitions
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Clarify Fund Type Definitions
Special revenue—clarify terminology
Capital projects—clarify
Debt service
• Paragraph 30 requirements highlighted
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Special Revenue Funds
Statement 54 Definition:
Special revenue funds are used to account for
and report the proceeds of specific revenue
sources that are restricted or committed to
expenditure for specified purposes other than
debt service or capital projects. The term
“proceeds of specific revenue sources”
establishes that one or more specific restricted
or committed revenues should be the
foundation for a special revenue fund.
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Special Revenue Funds
Restricted or committed specific revenue
sources should comprise substantial portion
of fund’s resources on an ongoing basis
• But fund also may include other restricted, committed,
and assigned resources
Disclosure: purpose of each major special
revenue fund and each revenue source or
other resources authorized to be reported in
each
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Proceeds of Specific
Revenue Sources
Establishes that one or more specific
restricted or committed revenues should be
the foundation for a special revenue fund
Restricted or committed proceeds of specific
revenue sources should comprise a
significant portion of the resources reported
in the fund
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Capital Projects Funds
Capital projects funds are used to
account for and report financial
resources that are restricted,
committed, or assigned to expenditure
for capital outlays, including the
acquisition or construction of capital
facilities and other capital assets.
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Debt Service Funds
Debt service funds are used to account
for and report financial resources that
are restricted, committed, or assigned
to expenditure for principal and
interest payments.
• Financial resources that are being
accumulated for principal and interest
payments maturing in future years also
should be reported in debt service funds.
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Disclosures—Fund
Balance
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Policies and Procedures—
Committed Fund Balance
Government’s highest level of
decision-making authority
Formal action that is required to be
taken to establish (and modify or
rescind) a fund balance commitment.
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Assigned Fund Balance
Body or official authorized to assign
amounts to a specific purpose
Policy established by the governing
body pursuant to which that
authorization is given.
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Spendable Fund Balance
Whether the government considers restricted or
unrestricted amounts to have been spent first when
an expenditure is incurred for purposes for which
both restricted and unrestricted fund balance is
available
Order in which committed, assigned, or unassigned
amounts are considered to have been spent when
an expenditure is incurred for purposes for which
amounts in any of those unrestricted fund balance
classifications could be used
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Aggregations
If nonspendable or “spendable” classifications is
displayed in the aggregate on the face of the
balance sheet
• Totals for the two nonspendable classifications should be
disclosed
• Specific purposes information for each spendable classification
should be disclosed
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Stabilization Amounts
Authority for establishing stabilization arrangements
(for example, by statute or ordinance)
Requirements for additions to the stabilization
amount
Conditions under which stabilization amounts may
be spent
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Minimum Fund Balance Policy
Policy that sets forth the details of the minimum
fund balance reporting requirement
Action taken in establishing it
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Encumbrances
Should not be displayed as a separate
classification of fund balance on the face of
the balance sheet.
For governments that use encumbrance
accounting
• Should be disclosed in the notes to by major fund
and nonmajor funds in the aggregate in conjunction
with required disclosures about other significant
commitments.
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Transition
Fund balance classifications should be
applied retroactively by restating fund
balance for all prior periods presented
Changes to information in the statistical
section may be made prospectively,
though retroactive application is
encouraged; if prior years are not
restated, difference in information
should be explained
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Statement 60
Service Concession
Arrangements
Effective date—periods beginning
after December 15, 2011
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Scope: What is an SCA?
An arrangement in which:
• a transferor conveys to an operator the right and related
obligation to provide services to the public through the operation
of a capital asset, in exchange for significant consideration
• the operator collects and retains fees from third parties
• the transferor is entitled to significant interest in the service utility
of the capital asset at the end of the agreement (a residual
interest)
• the transferor determines or has the ability to modify or approve:
- What services the operator is required to provide
- To whom the services will be provided
- The prices or rates that will be charged
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Recognition—Significant Upfront
Payments—Transferor
An assets for up-front payment or the present value
of installment payments or capital assets
contributed
Any contractual obligations as liabilities,
And a corresponding deferred inflow of resources
equal to the difference between (1) and (2).
Recognized as revenue over the duration of the
agreement
Governmental fund reporting?
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Reporting Capital Assets
Existing facility
• Transferor continues to report existing facility as capital asset.
New facility or improvements to existing facility
• Transferor reports
- A new facility or improvements as capital asset at fair value
when placed into operation,
- Any contractual obligations as liabilities,
- And a corresponding deferred inflow of resources equal to
the difference between (1) and (2).
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Transferor Accounting
After initial measurement, the capital asset is
subject to existing requirements for depreciation,
impairment, and disclosures.
Improvements made to the facility during the
arrangement would increase the transferor’s asset.
Does NOT depreciate if arrangement requires
operator to return facility to transferor in its original
or enhanced condition.
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Transferor Accounting
A liability is recorded at present value if a
contractual obligation exists AND if it meets either
of the following criteria:
• (1) The contractual obligation directly relates to the facility. (for
example, capital improvements, insurance, or maintenance)
OR
• (2) The contractual obligation relates to a commitment by the
transferor to maintain a minimum or specific level of service in
connection with the operation of facility. (for example, police or
emergency services, maintenance around facility)
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Transferor Accounting
Revenue is recognized in a systematic and rational
manner over the term of arrangement as the
deferred inflow is reduced.
Liability is reduced as transferor’s obligations are
satisfied.
• When obligation is satisfied, a deferred inflow is reported and
related revenue is recognized in systematic and rational manner
over the term of the arrangement.
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Statement 61
The Financial Reporting
Entity—Omnibus
Effective date—periods
ending June 30, 2012
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Overview
The most significant effects of the
amendments are to:
• Increase the emphasis on financial
relationships
- Raises the bar for inclusion
• Refocus and clarify the requirements to blend
certain component units
• Improve the recognition of ownership
interests
- Joint ventures
- Component units
- Investments
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Inclusion Criteria
Statement 14 requires inclusion if Potential
Component Unit is fiscally dependant. That
is, Primary Government has authority over:
• Budget, or
• Setting taxes and charges, or
• Issuing debt
Statement 61 adds a requirement for a
financial benefit or burden before inclusion
is required.
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Inclusion Criteria
Statement 14 requires inclusion of a
Potential Component Unit if exclusion would
make reporting entity’s statements
“misleading or incomplete”
Statement 61 eliminates “incomplete,” and
emphasizes that the determination would
normally be based on financial relationships
• Such as significant financial benefit to/burden on the
Primary Government that is other than temporary
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Blending Requirements
Statement 14 requires blending if Primary Government
and Component Unit have “substantively the same”
governing body
• For example, County Board also serves as the Board of
the Forest Preserve District
Statement 61 expands that requirement to also include:
• A financial benefit/burden relationship, or
• Primary Government has “operational responsibility” for
Component Unit
- Primary Government’s personnel manage activities of
Component Unit like a fund, program, or department of the
primary government
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Blending Requirements
The blending criteria is broadened to include
component units whose total debt
outstanding is expected to be repaid entirely
or almost entirely by revenues of the primary
government
• Even if the component unit provides services to
constituents or other governments, rather than
exclusively or almost exclusively to the primary
government
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Blending Requirements
To illustrate:
• State government is limited in its capacity to incur
debt
• Creates a financing authority that:
• Issues debt for:
• Transportation, public safety, and corrections facilities for the
state, and
• Educational facilities for local school districts (approx. 1/4 of the
total debt issued)
• State pledges portions of its sales tax and motor fuel
taxes to repay the debt
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Blending Requirements
• Under Statement 14 the Financing Authority would
be discretely presented. Why?
• Under Statement 61, it would be blended—the total
debt outstanding is expected to be repaid entirely or
almost entirely with State resources.
• What if the debt for the local school district facilities
were to be repaid with local property taxes?
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Blending Requirements
Clarifies how to blend component units in a
business-type activity (BTA) reporting model:
In the three basic statements:
• For a multiple column BTA
- Additional column(s), as if funds of the Primary Government
• For a single column BTA
- Consolidate Component Unit data into the single column
- Present combining info in the notes
- Additional column(s), with Primary Government total column
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Major Component Units
Clarifies the types of relationships that should
generally affect the major Component Unit
determination:
• Primarily financial relationships
- Significant transactions with the Primary Government
- Significant financial benefit/burden relationship
• Could be based on the nature of services provided by
Component Unit
Eliminates consideration of each Component Unit’s
significance relative to other Component Units
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Reporting Equity Interests
An asset should be recognized for an equity interest
in:
• A joint venture
• A partnership
• An investment
• A component unit
- If the component unit is blended, the equity interest is eliminated in the
blending process
- Minority interests would be classified in net assets as “Restricted,
nonexpendable”
Recognition and Measurement is based on Joint
Venture equity interest requirements in Statement 14
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Statement 62
Codification of PreNovember 30, 1989 FASB
and AICPA
Pronouncements
Effective date—periods beginning
after December 15, 2011
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Five Classifications
Conflict with or contradict GASB standards
• FAS 4 Gain or loss on debt extinguishments
• FAS 43 Compensated absences
Are not applicable to governments
• FAS 84 Convertible debt
• FAS 89 Changing prices
Rarely applicable (excluded)
•
FAS 19
Oil and Gas
Are applicable to governments
• FAS 5 Contingencies
• FAS 34 Capitalization of interest
Will be addressed in GASB projects (applicable, but excluded)
• APB 16 Business combinations
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Basic Guidance
Statement 20 is superseded
• All applicable pre-11/30/89 standards are contained
in the GASB’s codification
• All potentially applicable post-11/30/89 non-GASB
standards will be “other accounting literature”
Guidance on 29 topics is brought into the
GASB literature, including:
• Capitalization of interest costs (FAS 34)
• Statement of net assets classification (ARB 43, APB
12, and FAS 6)
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Significant Topics
Special and extraordinary items (APB 30)
Comparative financial statements (ARB 43)
Related parties (FAS 57)
Prior-period adjustments (FAS 16 & APB 9)
Accounting changes and error corrections (APB 20
and FIN 20)
Contingencies (FAS 5 and FIN 14)
Extinguishments of debt (APB 26 and FAS 76)
Troubled debt restructuring (FAS 15)
Inventory (ARB 43)
Leases (FAS 13, 22, and 98 and FIN 23, 26, and 27)
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Specialized Topics
Sales of real estate (FAS 66)
Real estate projects (FAS 67)
Research and development arrangements
(FAS 68)
Broadcasters (FAS 63)
Cable television systems (FAS 51)
Insurance enterprises (FAS 60)
Lending activities (FAS 91)
Mortgage banking activities (FAS 65)
Regulated operations (FAS 71, 90, and 101)
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Early Implementation—What are the
Issues?
GASB Statement 20, paragraph 7
option
Guidance for government
combinations
FASB/IASB lease project
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Statement 63
Financial Reporting of Deferred
Outflows of Resources, Deferred
Inflows of Resources, and Net
Position
Effective date—periods ending
June 30, 2013
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Display Requirements
Deferred outflows should be reported in a separate
section following assets
Similarly, deferred inflows should be reported in a
separate section following liabilities
Net Position components resemble net asset
components under Statement 34, but include the
effects of deferred outflows and deferred inflows
• Net investment in capital assets
• Restricted
• Unrestricted
Governmental funds continue to report fund balance
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Sta te me nt of N e t Position
—
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—
—
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—
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—
—
—
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—
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Disclosures
Provide details of different types of deferred
amounts if components of the total deferred
amounts are obscured by aggregation on the face of
the statements
If the amount reported for a component of net
position is significantly affected by the difference
between deferred inflows or outflows and their
related assets or liabilities—provide an explanation
in the notes
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Deferred Outflows/Inflows
Statement 53—Accounting and
Financial Reporting for Derivative
Instruments
Statement 60—Service Concession
Arrangements
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Related Project—Reporting Items Previously
Recognized as Assets and Liabilities
Concepts Statement 4 provides that
recognition of deferrals should be limited to
those instances specifically identified by
GASB
The Board added a project to identify
deferrals (for example, deferred revenue,
prepaid expenses) that would be subject to
requirements of Statement 63.
• Currently reported as assets or liabilities. Should
they be deferred outflows/inflows, or
expenses/revenues?
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Proposed Deferred Inflows of Resources
Grants received in advance of meeting
timing requirement
Deferred amounts from refunding of debt
(credits)
Proceeds from sales of future revenues
Deferred gain from sale-leaseback
“Regulatory” credits
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Proposed Deferred Outflows of
Resources
Grant paid in advance of meeting timing
requirement
Deferred amounts from refunding of debt
(debits)
Cost to acquire rights to future revenues
(intra-entity)
Deferred loss from sale-leaseback
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Proposed Outflows of Resources
Debt issuance costs (other than
insurance)
Initial costs incurred by lessor in an
operating lease
Acquisition costs for risk pools
Loan origination costs
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Proposed Inflows of Resources
Loan origination fees
Commitment fees (after exercise or
expiration)
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Other Projects in Process
Pension Accounting and Reporting (Plan and
Employer EDs)
Conceptual Framework—Recognition and
Measurement (PV)
Economic Condition Reporting—Financial
Projections (PV)
Government Combinations
Technical Corrections
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Pension Accounting and
Financial Reporting
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Project Timeline
Staff research completed in 2008
Invitation to Comment issued in 2009
Preliminary Views issued in 2010
Two Exposure Drafts approved in June 2011
include proposals to:
• Improve transparency in financial reporting
• Enhance decision usefulness of pension information
• Assist financial report users to assess accountability
and interperiod equity related to pensions
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Fundamental Approach
View the cost of pensions within the context
of an ongoing, career-long employment
relationship
Use an accounting-based versus fundingbased approach to measurement
Produce measures of the employer’s
obligation to employees and the current
period cost to taxpayers of providing
governmental services
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Basics
Defined benefit pensions originate from
exchanges between the employer and
employees of salaries and benefits for
employee services and are part of the total
compensation for employee services
Obligations for pensions meet the definition
of a liability in Concepts Statement 4
Compensation expense should be
recognized in the period employee services
are provided
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Basic Three-Step
Measurement Approach
1) Project Benefit Payments
25
40
62
80
2) Discount Future Payments
Present Value of Payments
3) Attribute to Service Periods
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Actuarial Assumptions
Selection of all actuarial assumptions
should be made in accordance with
Actuarial Standards of Practice (unless
specific guidance is provided by the
GASB).
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Projection of Benefits
The projection of pension benefit payments
should include the effects of projected future
salary increases and future service credits, if
part of the benefits formula, as well as
automatic COLAs
Ad hoc COLAs would be incorporated into
projections of pension benefit payments
only if an employer’s practice indicates that
the COLAs are substantively automatic
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Discount Rate
Should be a single rate that reflects:
• The long-term expected rate of return on plan
investments to the extent that
- Plan net position is projected to be sufficient to make benefit
payments that are projected to occur in the period, and
- Assets are projected to be invested using a long-term
investment strategy
• A high-quality tax exempt municipal bond index rate
to the extent that plan net position is projected to no
longer be available for long-term investment
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Attribution Method
Single actuarial cost allocation
method:
• Based on entry age normal principles
• Applied as a level percentage of payroll
• Over periods beginning in first period in which
the employee’s services lead to benefits
under the plan (without regard to conditional
service-related provisions such as vesting)
and ending in last period of the employee’s
service
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Measurement of Plan Assets
In calculating the employer’s net pension
liability, plan net position should be
measured in the same way as measured in
the plan’s statement of plan net position,
including measurement of investments at
fair value.
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Immediate Expense Recognition
Expense recognition would be immediate
for:
• Pension benefits earned during the reporting period
• Interest cost on the total pension liability
• Changes in benefit terms that affect the total pension
liability
• Differences between expected and actual changes in
economic and demographic factors and changes in
such actuarial assumptions related to inactive/former
employees
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Deferred Expense Recognition
Expense would be deferred and recognized over a
period equal to the weighted average remaining
service periods of active employees for:
• Differences between expected and actual changes in economic
and demographic factors
• Changes in assumptions about economic and demographic
factors
Differences between actual and projected earnings
on plan investments would be deferred and
recognized as pension expense over a five-year,
closed period
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Cost-Sharing Employers
A government participating in a cost-sharing
plan would report a liability in its own
financial statements that is equivalent to its
proportionate share of the collective
unfunded obligation of the employers in the
cost-sharing plan.
Approach uses a basis for allocation of
proportionate share based on the employer’s
expected contribution effort relative to that
of all contributors
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What’s Next For Pensions?
Two Exposure Drafts and Plain
Language Supplement—are available
for download at www.gasb.org
Public hearings—October 2011
Final standards—second quarter 2012
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Conceptual Framework Project
Recognition and Measurement
Approaches
PV approved June 2011
Comment deadline September 30
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Recognition and Measurement Attributes
Concepts Statement—Objectives
Develop recognition criteria for whether information
should be reported in state and local government
financial statements and when that information
should be reported
• Economic resources
• Near-term financial resources
Consider the measurement attribute or
measurement attributes (for example, historical cost
or fair value) that conceptually should be used in
government financial statements
• Initial values
• Re-measured values
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Recognition and Measurement Attributes
Concepts Statement
Near-term financial resources:
Recognizes balances from a near-term perspective and flows of
financial resources for the reporting period
Assets include resources that are normally receivable at period-end
and due to convert to cash within the near term (also cash and other
financial resources that are available to be converted to cash within
the near term)
•Balances of cash and investments
•Taxes receivable for the period that are due in the near term
Liabilities include those normally payable at period-end and due
within the near term
•Accounts payable and accrued payroll normally due in the near term
•Matured amounts of long-term and revenue anticipation debt
•Accrued interest payable due in the near term
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Recognition and Measurement Attributes
Concepts Statement
Near-term financial resources:
Outflows are recognized as spending occurs for the period.
• Purchases of goods and services, including prepayments
• Purchase of inventories
• Lending activities
• Principal payments that mature in the period
• Interest due during the period or in the near term
Inflows are recognized for newly acquired financial resources that
were available for spending.
• Taxes levied for the period—collected during the period or in the near term
• Repayments from lending activities due during the period
• Proceeds from all borrowing, including long-term debt and revenue anticipation notes
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Economic Condition
Reporting: Financial
Projections
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Project Objectives
Identify the information that users of governmental
financial information need to assess a governmental
entity’s fiscal sustainability
Compare those needs with the information that users
receive under the current accounting and financial
reporting standards
Consideration of the information users identified as
necessary to assess the risks associated with
intergovernmental financial dependencies
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Project Objectives
Consider whether additional guidance or guidelines
should be provided based on the information
needed by users
Determine the preferable methods of
communicating any additional information, if
applicable
Basic Facts about GASB’s Project can be found at
http://www.gasb.org/facts/Economic_Condition_Reporting_Fact
_Sheet.pdf
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What is Fiscal Sustainability?
Fiscal sustainability is a government’s
ability and willingness to generate
inflows of resources necessary to honor
current service commitments and to
meet financial obligations as they come
due, without transferring financial
obligations to future periods that do not
result in commensurate benefits.
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Overview
Board has discussed:
• Categories of information necessary for users to make an
assessment of a government’s fiscal sustainability
• Types of information necessary for users to make an assessment of
these categories
• The concept of forward looking information and specific forward
looking measures necessary for users to make an assessment of a
government’s fiscal sustainability
• Whether and how this type of information should be reported
- Should it be required? (RSI)
- Period(s) for projections (5 years)
- Method(s) to use in making projections (Currently known facts)
A Preliminary Views document is expected to
be issued in October
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Research Agenda
Electronic Financial Reporting
Fair Value Measurement
Fiduciary Responsibilities
Leases
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Questions ?????
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