GASB Update
Purvis Gray & Company LLP
June, 2011
Mark A. White CPA, Partner
Purvis Gray & Company, LLP
Ocala, Florida
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Accounting Profession Reacts to New GASB
Statements
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Historical Perspective
 GASB was established by the Financial Accounting
Foundation (FAF) in 1984
 They were delegated the authority to establish GAAP for state
and local governments—authoritative
 GASB Statement No. 34 issued in 1999(effective 2002-2004)
 This equal 34 Statements in the first 16 years
 GASB Statement No. 62 issued in 2011
 This equals 28 Statements in the last 12 years
 GASB No. 34 established the financial reporting framework
that was previously lacking and now the dam has been
broken open and the new pronouncements are flowing!
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Recent GASB Statements
No. 53-Accounting and Financial Reporting for
Derivative Instruments
No. 54-Fund Balance Reporting and
Governmental Fund Type Definitions
No. 55-The Hierarchy of GAAP for SLG’s
No. 56-Codification of Accounting and Financial
Reporting Guidance Contained in the AICPA
Statements on Auditing Standards
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Recent GASB Statements
No. 57-OPEB Measurement by Agent Employers
and Agent Multiple-Employer Plans
No. 58-Accounting and Financial Reporting for
Chapter 9 Bankruptcies
No. 59-Financial Instrument Omnibus
No. 60-Accounting and Financial Reporting for
Service Concession Arrangements
No. 61- The Financial Reporting Entity: Omnibus
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Recent GASB Statements
No. 62-Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November
30, 1989 FASB and AICPA Pronouncements
ED-Financial Reporting of Deferred Outflows and
Inflows of Resources and net Position
PV-Pension Accounting and Financial Reporting
by Employers
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GASB No. 55 – GAAP Hierarchy
 GASB is responsible for establishing GAAP for SLG’s, however the
current GAAP hierarchy is set forth in the AICPA SAS No. 69—The
Meaning of Present Fairly IAW GAAP. This statement incorporates
the hierarchy of GAAP for SLG’s into the GASB’s authoritative
literature. Hierarchy is;
 GASB Statements and Interpretations
 GASB Technical Bulletins and if made applicable to SLG’s, AICPA
Industry Audit & Accounting Guides & SOP’s
 AICPA Practice Bulletins if specifically made applicable to SLG’s and
cleared by GASB
 Implementation Guides published by GASB staff and widely recognized
practices in SLG’s
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GASB No. 56 - Financial Reporting
Guidance Found in AICPA SAS’s
 The objective of this statement in to incorporate into the GASB’s
authoritative literature certain accounting and financial reporting
guidance that currently is presented only in the AICPA’s SAS’s.
 The presentation of principles used in preparation of FS is more
appropriately included in accounting and financial reporting rather than
auditing literature. The standard addresses three issues not found in the
accounting literature;
 related party transactions,
 going concern considerations and
 subsequent events.
 Does not change what you already know about these three areas already,
rather it puts them in authoritative accounting literature rather than SAS’s.
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GASB No. 57 – OPEB Agent Plans
 Current standards for sole and agent employers provide that an employer may use
the alternative measurement method if
 the employer is a sole employer with fewer than 100 total plan members, or
 the employer is an agent employer with fewer than 100 plan members and, for some reason,
the agent multiple-employer plan either is not required to or does not choose to issue annual
financial reports that include actuarial information at the plan administrative level.
 The latter stipulations effectively disqualify agent employers from using the
alternative method if the agent multiple-employer plan as a whole has 100 or
more total plan members, is administered as a qualifying trust, and issues an
annual financial report prepared in conformity with Statement 43.
 The effects would be to permit aggregation of information derived in part from
actuarial valuations and in part from use of the alternative measurement method,
and to permit some employers to measure on a triennial schedule different from
the plan’s two-year schedule. Considerations related to this issue are generally
similar to those related to the request to permit some employers to obtain
actuarial valuations on a triennial schedule.
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GASB No. 58 – Bankruptcies
The objective of this Statement is to provide
accounting and financial reporting guidance for
governments that have petitioned for protection
from creditors by filing for bankruptcy under
Chapter 9 of the United States Bankruptcy Code.
It requires governments to re-measure liabilities
that are adjusted in bankruptcy when the
bankruptcy court confirms (that is, approves) a
new payment plan
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GASB No. 59 – Financial Instruments
 Statement 31 provides guidance on the reporting of external investment pools. When the
investments of an external investment pool meet certain credit quality and maturity requirements
(2a7-like pools), Statement 31 provides that investments may be measured at amortized cost and
that participants in the pool also may report their positions at amortized cost.
 However, important authoritative guidance that clarifies what is a 2a7-like pool is only contained in
the Comprehensive Implementation Guide (level “d” in the hierarchy of generally accepted
accounting principles [GAAP hierarchy]).
 In order to be able to use amortized cost, the investments held by a mutual fund must be of very
high credit quality and short maturity. The high credit quality requirement is intended to limit the
investment portfolio’s credit risk; the short maturity requirement is intended to limit interest rate
risk.
 In Securities and Exchange Commission (SEC) practice, mutual funds that meet the requirements of
rule 2a7 are permitted to be labeled as money market funds.
 The GASB’s intent was that a 2a7-like external investment pool is a governmental external
investment pool that, if it was under the supervision (had filed with) the SEC, would meet all
requirements for money market funds. This intent was clearly spelled out in the Comprehensive
Implementation Guide.
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GASB No. 60-Concession
Arrangements
 There is no single, widely-accepted definition of the term public/private partnership (PPP).
However, many descriptions characterize a PPP as an arrangement between a government and a
private sector entity to deliver a governmental asset (normally infrastructure or a public facility)
and, often, the related public service (in some cases, the arrangement may be solely for the
delivery of the public service related to an existing governmental asset).
 The allocation of risks to the parties involved in a PPP can be quite complex. Because of this,
determining the accounting and financial reporting for the property associated with these
arrangements involves the consideration of conceptual topics including control over the use of the
property, the bearing of risks and rewards related to the property, and governmental accountability
for infrastructure assets and the services they provide. Examples of PPPs include:
 A hospital authority transferring its assets, liabilities and hospital operations to a not-for-profit hospital
system through a lease and management agreement, with the hospital authority’s ongoing operations being
limited to issuing conduit debt for the not-for-profit hospital system and serving as a “pass-through” for
governmental grants.
 A university leasing land to a third-party developer for construction of a dormitory building, with the
building being leased back to the university or the units being leased directly to university students and
faculty by the developer.
 A state leasing a portion of its turnpike system to a private consortium in exchange for an up-front payment.
 A state entering into an agreement with a private consortium to build and then operate a tollway in
exchange for an up-front payment.
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GASB No. 61 – Financial Reporting
Entity
 The requirements of Statement No. 14, The Financial Reporting Entity, and the related financial
reporting requirements of Statement No. 34, Basic Financial Statements—and Management’s
Discussion and Analysis—for State and Local Governments, to address reporting entity issues that
have arisen since the issuance of those Statements.
This Statement modifies certain requirements for inclusion of component units in the financial
reporting entity. For organizations that previously were required to be included as component units
by meeting the fiscal dependency criterion, a financial benefit or burden relationship also would
need to be present between the primary government and that organization for it to be included in
the reporting entity as a component unit.
 Further, for organizations that do not meet the financial accountability criteria for inclusion as
component units but that, nevertheless, should be included because the primary government’s
management determines that it would be misleading to exclude them, this Statement clarifies the
manner in which that determination should be made and the types of relationships that generally
should be considered in making the determination.
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GASB No. 62 – Pre 11/30/89 FASB
Codification
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GASB Statement 34, paragraph 17 provides that FASB and AICPA pronouncements issued on or before November
30, 1989, should be applied to the reporting of governmental and business-type activities "unless those
pronouncements conflict with or contradict GASB pronouncements."
This means that financial statement preparers are currently required to identify which provisions within the FASB
and AICPA pronouncements are applicable to them and generally is open to interpretation by financial statement
preparers regarding what provisions in the FASB and AICPA pronouncements are considered conflicting and
contradictory.
The project would benefit preparers and auditors by clearly identifying which FASB and AICPA pronouncement
provisions to apply to state and local governments
The need for this project is made more urgent by the July 1, 2009, launch of the FASB Accounting Standards
Codification, which supersedes all previous FASB and AICPA pronouncements as the official authoritative
literature.
The objective of this project is to specifically identify provisions in Financial Accounting Standards Board (FASB)
Statements and Interpretations, Accounting Principles Board Opinions, Accounting Research Bulletins of the AICPA
Committee on Accounting Procedure, and AICPA Accounting Interpretations, issued on or before November 30,
1989 (collectively, the "FASB pronouncements"), as referenced in paragraph 17 of GASB Statement No. 34, Basic
Financial Statements—and Management's Discussion and Analysis—for State and Local Governments, that do not
conflict with or contradict GASB pronouncements and to incorporate those provisions into the GASB’s literature.
The statement literally contains the pre 11/30/89 codification
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FYE Effective Dates
 September 30, 2010
 Statement No. 53 – Derivatives
 September 30, 2011
 Statement No. 54 – Fund Balance
 Statement No. 59 – Financial Instrument Omnibus
 September 30, 2012
 Statement No. 57, paragraph 8 – OPEB Amendment
 September 30, 2013
 Statement No. 60 – Concession Arrangements
 Statement No. 61 – Reporting Entity Omnibus
 Statement No. 62 – Codification Pre 89’ FASB
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Statement No. 53
Accounting and
Financial Reporting
for Derivative
Instruments
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Summary of No. 53 -Derivatives
 Derivatives generally fit into two general categories;
 Hedging derivative if effectiveness test is met
 Record at FMV and defer the gain or loss
 Investment derivative if effectiveness test is not met
 Record at FMV with the other side of the entry going to
investment gain or loss - OUCH!!
 Thus most of the statement deals with meeting hedge
effectiveness—the prize!
 There are multiple quantitative methods to test
effectiveness-pricing point measurements primarily
 Effectiveness does not mean you are “in the money”
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Common Derivative Instruments
Interest Rate Swaps
Futures contracts--NYMEX
Options—exchange-traded and others
Swaptions
Precision
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Assurance
Interest Rate Swap Example
Fixed payment 5.0%
State or local
government
Swap counterparty
Variable-rate
coupon
payments; SIFMA
Variable payment received: 67% of 1month LIBOR
Variable-rate
bond holders
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Synthetic Instrument Method
(Cash Flow Hedges)
Swap Notional Amount
$ 10,000,000
Swap Fixed Rate
Pay Fixed - Receive Variable From Counterparty
4%
SWAP Index
70% 1 Mo. LIBOR
FYE
9/30/2010
Fixed Swap
Variable Swap
Net
Variable
Pmnt. To
Receipt From
Derivative
Bond
Total
Synthetic
Counterparty
Counterparty
(Pmnt) Receipt
Interest
Payments
Rate
$ (400,000)
$
100,000
$
(300,000)
$ (95,000)
$
(395,000)
3.95%
Analysis of Synthetic Instrument Test
Synthetic Rate
3.95%
Swap Fixed Rate
4.00%
Percentage Ratio
98.75%
Is Ratio Between 90% and 111%?
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Pass
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Statement No. 54
Fund Balance Reporting
and Governmental
Fund Type Definitions
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Summary of Statement No. 54
Fund Balance Classifications
 New fund balance presentation hierarchy is based
primarily on the degree of spending constraints placed
upon use of resources for specific purposes versus
availability for appropriation
 The five new presentation classifications go from nonspendable down through three levels of less binding
spending constraints to an unassigned level, which is
available for any spending of the government.
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New Fund Balance Presentation
Classifications
Non-spendable—Inventory, long-term
receivables, minority interest
Restricted—must be legally enforceable,
Committed—Formal action of governing body
Assigned—Similar to designations expressing
intent
Unassigned—Available for any purpose
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Restricted Fund Balance
Constraint on use must be legally enforceable,
and typically externally imposed by creditors,
grantors, contributors, or laws or regulations
of other governments
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Committed Fund Balance
Constraint on use is imposed by the government
itself, using its highest level of decision making
authority
Amounts classified as “committed” are not
subject to legal enforceability like restricted
resources; however, spending 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
Intent is expressed by
The governing body itself, or
A body (budget or finance committee) or an
official authorized by the governing body to assign
resources for specific purposes
Residual amounts in governmental funds
other than the general fund are assigned
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Difference Between
Committed and Assigned
Committed requires:
 The commitment be made by the governing body
 The action be formal and reversible only by the same
action
 A specified purpose
Assigned really only for specified purposes in the
general fund – allows for management’s intentions
In other funds, assigned is simply a residual for
amounts that don’t meet the committed criteria
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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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Other Key Provisions of Statement 54
Fund Type Definitions Clarified
Special revenue
Capital projects
Debt service
Paragraph 30 requirements highlighted
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Special Revenue Funds
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.
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Accounting Profession Reluctantly Accepts New
GASB Statements
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Preliminary Views-Pension
Accounting and Financial Reporting
 Currently a pension liability is reported only when a
government contributes less than the annual required
contribution calculated by actuaries
 Pension benefits are compensation promised by
governments to their employees in exchange for work
performed.
 The government is primarily responsible for the any
unfunded portion of the pension obligation.
 The unfunded portion of the pension should be
reported as a net pension liability in the financial
statements of the government.
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Timetable
Preliminary Views—was released on June 16,
2010
Public hearings—were held in October 2010
Exposure Draft expected to be issued in June
2011
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Other GASB Current Projects
Statement of Net Position
Deferred Inflows and Deferred Outflows: Omnibus
Economic Condition Reporting: Fiscal Sustainability
Recognition and Measurement Attributes—
Conceptual Framework Project
Government Combinations
Statement 53—Derivative Termination Provisions
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34
GASB Research Agenda
Electronic Financial Reporting
Fair Value Measurement
Fiduciary Responsibilities
Financial Guarantees
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GASB Update
Purvis Gray & Company LLP
June, 2011
Mark A. White CPA, Partner
Purvis Gray & Company, LLP
Ocala, Florida
Precision
Experience
Assurance