Florida GFOA
Annual Conference
GASB Update
The views expressed in this presentation are those of Mr.
Bean. Official positions of the GASB are determined only
after extensive due process and deliberation.
Current Board Members
Member
Bob Attmore, Chair
David Vaudt, Chair (elect)
Jim Brown
Bill Fish
Michael Granof
David Sundstrom
Jan Sylvis
Marcia Taylor
Term Expires
2014 (retiring in 2013)
2020—single term
2017—first term
2016—first term
2015—first term
2014—first term
2017
2015
2
Effective Dates—FYE September 30
• 2013
– Statement 60—Service Concession Arrangements
– Statement 61—Financial Reporting Entity
– Statement 62—Codification of AICPA and FASB
Pronouncements
– Statement 63—Deferrals Presentation
• 2014
– Statement 65—Assets and Liabilities—Reclassification and
Recognition
– Statement 66—Technical Corrections
– Statement 67—Pension Plans
– Statement 70—Nonexchange Financial Guarantees
• 2015
– Statement 68—Pension Accounting for Employer and
Nonemployer Contributing Entities
– Statement 69—Government Combinations and Disposals
of Government Operations
3
Current Agenda Projects
Overview
• Fair Value Measurement and Application
• Conceptual Framework
– Measurement
– Recognition
•
•
•
•
•
Leases
Other Postemployment Benefits
GAAP Hierarchy
Pension Implementation Guides
Pensions—Deferral Transition
5
Fair Value
Measurement and Application
Proposed Definition of Fair Value
• 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
– Based on a government’s principal or most
advantageous market
7
Definition—Markets and Price
• Principal (or Most Advantageous) Market
– Principal market—greatest volume and level of activity
– Most advantageous market—if there is no principal market
• Transaction cost would be considered in determining the most
advantageous market
• Market participants
– Market based, not an entity-specific measure
– Determined based on the assumptions market participants
would use in pricing the asset or liability
– Assumes that participants act in their own economic best
interest
• Price
– Not adjusted for transaction costs
8
Definition—Active Markets
• Active markets
– Best for producing prices that are most indicative
of fair value
• When active market information is not
available
– Estimate the price at which an orderly transaction
would take place between market participants at
that date (for example, a valuation technique)
9
Measurement of Nonfinancial Assets
• Value based on the asset’s highest and best
use
– Ability to generate economic benefits by using the
asset in combination with other assets and
liabilities or on a stand-alone basis
– Takes into account what is physically possible,
legally permissible (for example, current zoning
laws), and financially feasible
10
Measurement of Liabilities
• Assumes the liability is transferred to another
party at the measurement date
– Not settled with the counterparty
– Does not take into account restrictions that would
prevent the liability from being transferred
– Takes government’s credit standing into account
• If there is no active market:
• Consider liabilities held by other parties as assets
• If the above is unavailable, use a relevant valuation
technique
11
Valuation Approaches and Techniques
• Valuation technique used to measure fair value should be
appropriate to the circumstances and should maximize the
use of relevant observable inputs (assumptions that market
participants would use in pricing an asset or liability)
• Three basic approaches
– Market approach – Uses prices and other relevant information
generated by market transactions involving identical or similar
assets, liabilities, or group of assets and liabilities
– Cost approach – Amount that would be required currently to
replace the service capacity of an asset
– Income approach – Converts expected future amounts (for
example, cash flows) to a single current amount (that is,
discounted)
12
Hierarchy of Inputs
• Level 1: Quoted prices (unadjusted) in active markets for
identical assets or liabilities that the government access at
the measurement date
• Level 2: Inputs, other than quoted prices included in Level
1, that are observable (either directly or indirectly)
– Market quotes for similar assets
– Yield curves that are observable at commonly quoted intervals
• Level 3: Unobservable inputs
– Midmarket consensus price for a swap that uses data that are
not directly observable and cannot be corroborated by the
observable market data.
13
Entities That Calculate Net Asset Value
(NAV) Per Share
• NAV per share may be used as a practical
expedient to estimate fair value
– Level 2—if it is possible to redeem at that price at
the measurement date
– Level 3—if not able to redeem
– Professional judgment if in between
14
Fair Value Application
• Applies to most investments
• Definition of an investment
– 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
• Investment asset
– Service capacity
• Refers to a government’s mission to provide services
– Held primarily for income or profit
• Acquired first and foremost for future income and profit
15
Investment Exemptions
• Money market investments and participating interestearning investment contracts that have a remaining
maturity at time of purchase of one year or less,
reported by governments other than external
investment pools
• Investments in 2a7-like pools
• Investments in common stock that meet the criteria for
applying the equity method
• Non-participating interest earning investment contracts
• Unallocated insurance contracts
• Synthetic guaranteed investment contracts that are
fully benefit responsive
16
Application of Acquisition Value
• Capital assets acquired through a nonexchange
transaction
• Donated capital assets
• Donated works of art, historical treasures, and
similar assets
• Capital assets received through a service
concession arrangement
• 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
17
Notes Disclosures
• Supplements current disclosure requirements
• Disclosures should be organized by type or class of
asset or liability
– Table or narrative format
• Specific disclosures
– Fair value measurement at the end of the reporting period
– Level of the fair value hierarchy within which the fair value measurements are
categorized in their entirety (Level 1, 2, or 3)
– Description of the valuation technique(s) and the inputs used in the fair value
measurement
• Additional disclosures for Level 3 measures and
investments where the value is based on net asset
value per share
18
Next Steps—Preliminary Views
• Comment period through September 30, 2013
• Field Test—During comment period (need
volunteers)
• Public hearing—November 1, 2013
• Exposure draft expected to be issued—May
2014
19
Conceptual Framework
Measurement of Financial Statement
Elements
20
Measurement Approaches
• Measurement Approach—Identifies the point in time
to which the amount reported directly refers
• Initial-Transaction-Date-Based Measurement (Initial
Amount)—The transaction price or amount assigned
when an asset was acquired or a liability was incurred,
including subsequent modifications to that price or
amount, such as through depreciation or impairment.
• Current-Financial-Statement-Date-Based
Measurement (Remeasured Amount)—The amount
assigned when an asset or liability is remeasured as of
the financial statement date.
21
Conceptual Approach to Application
• Evaluate measurement approaches (and ultimately the
measurement attributes) based upon:
– Objectives of financial reporting that can be met through
traditional financial statements, including interperiod equity
– Qualitative characteristics
– Cost/benefit
• Only a single measurement approach should be applied to
a specific asset or liability
• Suitability of measurement approaches in certain
circumstances generally not addressed
– However, the Board notes that costs of current-period services
has been viewed as a historical cost-based notion
22
Measurement Attributes
• Historical cost is the price paid to acquire an asset or the
amount received pursuant to the incurrence of a liability in
an actual exchange transaction.
• Fair value is 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.
• Replacement cost is the price that would be paid to acquire
an asset with equivalent service potential in an orderly
market transaction at the measurement date.
• Settlement amount is the amount at which an asset could
be realized or a liability could be liquidated with the
counterparty, other than in an active market.
23
Exposure Draft—Next Steps
• Comment period through September 30, 2013
• Public hearing—November 1, 2013
• Final Concepts Statement expected to be
issued—March 2014
24
Conceptual Framework
Recognition
Accrual Financial Statements
• An item should be recognized, and therefore
reported as an element of the financial
statements, when it meets both of the
following criteria:
– The item meets the definition of an element (as
defined in Concepts Statement 4)
– The item is measurable with a sufficient degree of
reliability.
Governmental Financial Statements
• Current financial resources measurement
focus should be replaced with the near-term
financial resources measurement focus, which
recognizes balances from a near-term
perspective and flows of financial resources
for the reporting period.
Near-Term Perspective
• Assets include resources that are normally
receivable at period-end and due to convert to
cash within the near-term (as well as cash and
financial resources that are available to be
converted to cash within the near-term).
• Liabilities include those normally payable at
period-end and due within the near-term.
Leases
Leases
• Based on joint FASB/IASB project
– Revised Exposure Draft released on May 16th
• The core principle of this proposal is that an
entity should recognize assets and liabilities
arising from a lease.
30
Proposed Right-of-Use Model
A lease contract conveys the right to use an asset (the underlying asset) for a period of time in
exchange for consideration
31
Dual Approach
There is a wide spectrum of lease transactions
with different economics
Start of
lease
End of lease
Most
equipment/
vehicles
Asset consumption more
than insignificant
Most
real estate
Asset consumption not
more than insignificant
32
Lease Classification Test
Leases for
equipment/vehicles
are Type A unless
• Lease term is
insignificant
relative to total
economic life of
asset, or
• Present value of
lease payments
is insignificant
relative to fair
value of asset
Leases for real estate
are Type B unless
• Lease term is
major part of
remaining
economic life of
asset, or
• Present value of
lease payments is
substantially all
of fair value of
asset
33
Lessee Accounting Overview
Balance Sheet
Type
A
Type
B
Most leases of
equipment/
vehicles
Most leases
of real estate
Income
Statement
Cash Flow
Statement
Right-of-use
asset
Amortization
expense
Lease liability
Interest expense
Cash paid for
principal and
interest
payments
Right-of-use
asset
Single lease
expense on a
straight-line basis
Cash paid for
lease
payments
Lease liability
34
Lessee Disclosures
35
Lessor Accounting Overview
Balance Sheet
Type
A
Type
B
Most leases of
equipment/
vehicles
Most leases of
real estate
Lease
receivable
Residual asset
Continue to
recognize
underlying asset
Income
Statement
Cash Flow
Statement
Interest income and
any profit on the
lease
Cash received
for principal
and interest
payments
Lease income, typically
on a straight-line basis
Cash received
for lease
payments
36
Lessor Disclosures
37
Transition
Lessees
Lessors
Current Operating Leases
Current Operating Leases
◦ Recognize lease liability at present value of
remaining payments
◦ New Type A – derecognize underlying asset
and recognize lease receivable and residual
asset
◦ Recognize corresponding right-of-use asset
◦ Ability to group portfolio of similar leases
◦ New Type B – asset and liability amounts
remain
Current Direct Finance or Sales-Type Leases
Current Capital Leases
◦ Lease asset value becomes right-of-use asset
value
◦ Lease liability value remains
◦ Net investment in lease value becomes lease
receivable value
Special provisions for leveraged leases and sale
and leaseback transactions before the
earliest comparative period
38
Next Steps
FASB Project GASB Project
Comment period ends
September 13, 2013
Educational Sessions with Board and
GASAC
OutreachMay through October 2013
Begin deliberations on scope and
lease classification
Redeliberationsbeginning Q4 2013
Deliberations on lessee and lessor
treatment, sales and leaseback, and
short-term
Final standard and
effective dateTo Be Determined
Exposure Draft – To be issued after
the release of the final FASB standard
(December 2014)
39
Other Postemployment Benefits
Other Postemployment Benefits
• Proposal to mirror pension standards on basic
measurement provisions
– Projection of benefits (will include healthcare
inflation)
– Discounting to present value
– Attribution to reporting periods
– Implicit rate subsidy
• Issues to be discussed
– Alternative measurement method
– Community-rated plans
– Disclosures
41
GAAP Hierarchy
GAAP Hierarchy
• Proposal includes reducing four levels of
current authoritative literature to two levels
– Level 1—Statements
• Interpretations would be eliminated
– Level 2—Guidance formally cleared by the GASB
• GASB Technical Bulletins and Comprehensive
Implementation Guide (CIG)
• AICPA pronouncements
• The CIG will be subjected to full due process
as part of this project
43
Pension Implementation Guide
Pension Implementation Guides
• Two guides
– Pension Plans
– Employers/Noncontributing Entities
• Timetable
– Plan—June 2013
– Employer—January 2014
45
Research Agenda Projects
Research Agenda
• Electronic Financial Reporting
• Fiduciary Responsibilities
• Tax Abatement Disclosures
47
Questions?
Web site—www.gasb.org
48