CPAs AND ADVISORS
LET’S THRIVE TOGETHER
What’s Happening
with Standard
Setters?
Presented by: Angela D. Balent, CPA
Kristen McAllister, CPA, CGFM
1.
2.
3.
4.
5.
6.
7.
GASB 63
GASB 65
OVERVIEW OF PENSION STANDARDS
OTHER GASB ITEMS
AICPA HOT TOPICS
FLORIDA AUDITOR GENERAL UPDATE
QUESTIONS
GASB Statement No. 63
“Financial Reporting of Deferred
Outflows of
Resources, Deferred Inflows of
Resources,
and Net Position”
GASB 63
Objective ‐ To provide guidance for reporting
deferred outflows of resources, deferred inflows of
resources, and net position in a statement of
financial position and related disclosures.
Applicability ‐ Applies to all state and local
governments.
Effective ‐ For all periods beginning after December
15, 2011.
GASB 63
What is a deferred outflow of resources?
 A consumption of net position by the government
that is applicable to a future reporting period.
 Has a positive effect on net position, similar to
assets.
GASB 63
What is a deferred inflow of resources?
 An acquisition of net position by the government
that is applicable to a future reporting period.
 Has a negative impact on net position, similar to
liabilities.
GASB 63
Statement of Net Position
 GASB 63 changes the entity‐wide “Statement of Net
Assets” to the “Statement of Net Position.”
 Governments are encouraged to have a format that
shows:
 Assets + Deferred Outflows of Resources
– Liabilities-Deferred Inflows of Resources = Net Position
GASB 63
Statement of Net Position
 A balance sheet format may be used instead
 Assets + Deferred Outflows of Resources = Liabilities +
Deferred Inflows of Resources + Net Position
 The net position represents the difference between all
of the other categories and should be displayed in 3
components:
 Net Investment in Capital Assets, Restricted, and Unrestricted
GASB 63
Economic Resources Measurement Focus
Preferred reporting format is: assets + deferred outflows –
liabilities – deferred inflows = net position
Traditional balance sheet format is permitted: assets +
deferred outflows = liabilities + deferred inflows + net position
Governmental Fund Financial Statements
Required reporting format is: assets + deferred outflows =
liabilities + deferred inflows + fund balance
9
GASB 63
Disclosures
 Balances of deferred inflows and outflows may be
presented as aggregations of different types of deferred
amounts.
 Governments should provide details of the different types
of deferred amounts in the footnotes if significant
components are obscured by aggregation.
 Disclosure of the details in the notes is only required if the
information is not displayed on the face of the financial
statements.
GASB 63
 What types of transactions are considered
deferred inflows and outflows of resources
under GASB 63?
 Changes in fair value of hedging derivatives
 Service concession arrangement receipts
—
—
—
—
—
—
—
—
—
—
—
—
—
12
GASB Statement No. 65
“Items Previously Reported as
Assets and Liabilities”
GASB 65
 Objective:
 To properly classify/recognize certain items that
were previously reported as assets and liabilities as
deferred outflows or deferred inflows of resources.
 Applicability:
 Applies to all state and local governments
 Effective:
 For all periods beginning after December 15, 2012.
GASB 65
Refundings of Debt
 The difference between the reacquisition price and the
net carrying amount of the old debt should be
reported as a deferred outflow (loss) or deferred
inflow (gain) and recognized as a component of
interest expenses over the remaining life of the old or
new debt, whichever is shorter.
GASB 65
Debt Issuance Costs
 Debt Issuance Costs, except any portion related to
prepaid insurance costs, should be recognized as
an expense in the period incurred.
 Prepaid insurance costs should be reported as an
asset and recognized as an expense over the
duration of the related debt.
GASB 65
Imposed Non‐exchange Revenue Transactions
 Imposed non‐exchange revenue transactions that
are reported as receivable prior to their formal levy
(such as property taxes recorded in June but not
fully levied until July) or transactions recorded as
receivable prior to the period when resources are
required to be used (such as license fees billed in
June for licenses valid the following year beginning
in July) should be reported as deferred inflows.
GASB 65
Government‐Mandated Non‐Exchange
Transactions and Voluntary Non‐Exchange
Transactions
 Providers of resources in such transactions
frequently establish eligibility requirements.
Resources transmitted before the eligibility
requirements are met (excluding time
requirements) should be reported as assets by
the provided and liabilities by the recipient.
GASB 65
Government‐Mandated Non‐Exchange
Transactions and Voluntary Non‐Exchange
Transactions
 Resources received before time requirements are
met, but after all other eligibility requirements have
been met should be reported as a deferred outflow
of resources by the provider and a deferred inflow of
resources by the recipient.
GASB 65
Leases
 Initial direct costs of an operating lease should be
treated as an expenditure in the period incurred.
 Gains or losses arising from sale and leaseback
transactions result in a deferred inflow or deferred
outflow of resources that are recognized
systematically over the life of the lease.
GASB 65
Other Items









Acquisition Costs Related to Insurance Activities
Lending Activities
Loan Origination Fees and Costs
Commitment Fees
Purchase of a Loan or Group of Loans
Mortgage Banking Activities
Loan Origination Fees and Costs
Fees Relating to Loans Held for Sale
Regulated Operations
Examples
 Deferred Charge on
Refunding
 Unavailable Revenues
Examples
GASB 65
Revenue Recognition in Governmental Funds
 When an asset is recorded in governmental fund
financial statements but the revenue is not available,
the government should report a deferred inflow of
resources until the revenue becomes available.
 Examples: Property Taxes and other receivables not
available to finance expenditures of the current period
that are currently reflected as Deferred Revenue in the
Liability section of the balance sheet will now be called
Deferred Inflows of Resources instead.
GASB 65
Use of the Term Deferred
 Paragraph 31 states that the use of the term “deferred” should be
limited to items reported as deferred outflows of resources or
deferred inflows of resources.
 Paragraph 111 indicates that the GASB Board concluded the
statement should not prescribe new terminology for liabilities
that were previously called “deferred revenue” and that the
terminology used should be left to professional judgment.
 Paragraph 109 provides an example of a liability that was formerly
known as “deferred revenue” – receipt of an expenditure driven
grant in advance of the incurrence of eligible costs. This will
remain a liability but will need a new name.
GASB 65
Items that are still Assets
 Per paragraph 48, the following items are still
considered assets:
 Prepayments
 Resources advanced to another government when
eligibility requirements, other than time requirements,
have not been met.
 The purchase or future revenues from a government
outside the financial reporting entity.
 Initial Subscriber Installation Costs in relation to cable TV
systems
 Capitalized incurred costs related to regulated activities.
GASB 65
Items that are still Liabilities
 Per paragraph 53, the following items are still
considered liabilities:
 Resources received in advance when eligibility
requirements other than time requirements have not
been met
 Resources received in advance of an exchange
transaction
Questions?
How does GASB 65 affect the Major Fund
classification?
I have debt service costs that will no longer be
recorded under GASB 65, what do I need to
consider?
I have an advance on a grant, but I have not
incurred eligible charges, is this a deferred
inflow?
New Pension Standards
 GASB Statement 67 – Financial Reporting for
Pension Plans an amendment of GASB 25
 Applies to the pension plan
 GASB Statement 68 – Accounting and Financial
Reporting for Pensions an amendment of GASB 27
 Applies to employers that use GAAP reporting
Overview of Changes
Currently:
 Accounting liabilities are generally identical to the
funding liabilities
 A municipality records as a liability on their books the
cumulative difference between what the actuary says
is the required contribution (ARC) versus what the
municipality actually contributes
 For actuarially determined contribution plans, it is likely that
the municipality currently records a $0 liability
 Actuarial valuation numbers are used for accounting
and funding purposes
Overview of Changes
New Standards:
 More prominent disclosure
 Funded status moves from the footnotes to the balance
sheet
 Additional footnote and RSI disclosures
 Move from income statement focus to balance
sheet focus
 Was “Are we making adequate ARC contributions?”
 Now “How big is our Net Pension Liability?”
Overview of Changes
New Standards:
 Funding measures still valid and essential but no
longer reported in financial reports
 Accounting and funding are no longer linked
 Strictly accounting/reporting changes
 Underlying economic activity will stay the same
Overview of Changes
What is the Impact?
 Accounting liabilities will likely be higher than
funding liabilities
 Accounting liability may need to be recorded for the
first time
 Might cause employer to rethink defined benefit plan
 May impact credit ratings
 We have new terminology
Overview of Changes
What is the Impact?
 Will not increase contribution rates
 Will increase complexity to a complex topic
 Might bring increased scrutiny to the plan
 Most trend information won’t carry over
 Most likely increased third party fees
Overview of Changes
When does this go into effect?
 GASB 67 Plan Reporting
 Effective for fiscal years beginning after June 15, 2013
 For plans with a September 30 Year End, October 1, 2013
financial statements
 GASB 68 Employer Reporting
 Effective for fiscal years beginning after June 15, 2014
 For plans with a September 30 Year End, October 1, 2014
financial statements
Overview of Changes
Basic Terminology Changes
 Total Pension Liability (TPL)
 Actuarial present value of projected benefit payments
allocated during past periods of employee service
 Net Pension Liability (NPL)
 Total pension liability minus the pension plan’s fiduciary
net position
 Fiduciary net position = market value of assets
Overview of Changes
Basic Terminology Changes (cont.)
 Pension Expense (PE)
 The difference between the NPL from the prior fiscal year to the
current fiscal year, with some adjustments
Overview of Changes
Old – GASB 25 / 27
 Calculations based upon methods and assumptions
blessed by GASB
 Six (6) allowable actuarial cost methods
 Long term expected rate of return on assets is the discount
rate
 Amortizations of any kind (gains/losses, assumption changes,
benefit changes, etc.) over a maximum of thirty (30) years
Overview of Changes
New – GASB 67 / 68
 Total Pension Liability (TPL) – like the Actuarial Accrued
Liability (AAL) except:
 Must use Entry Age Normal Cost Method
 May require use of a blended discount rate (between longterm expected rate of return and municipal bond rate)
Overview of Changes
New – GASB 67 / 68 (cont.)
 Net Pension Liability (NPL) – equals the TPL less the
plan’s fiduciary net position:
 Must also report NPL using a discount rate +/- 1%
 Cost sharing plans are on the hook for “proportionate share”
Overview of Changes
New – GASB 67 / 68 (cont.)
 Pension Expense (PE) Also based upon blended
discount rate and Entry Age Normal actuarial cost
method
 Shorter amortization periods (no longer up to 30 years)
 Five (5) years for investment gains/losses
 Average future working lifetime for other gains/losses or
assumption changes
 Cost sharing plans are on the hook for “proportionate
share”
Questions?
What else is going
on with GASB?
GASB Statement 69 – Government Combinations and
Disposals of Government Operations
Distinction between government merger and a government acquisition is
based upon whether an exchange of significant consideration is present
 Government mergers include combinations of legally separate entities
without exchange of significant consideration. Assets and liabilities
measured at carrying value in a merger.
 Government acquisitions are transactions in which a government
acquires another entity, or its operations, in exchange for significant
consideration. Assets and liabilities measured at acquisition values.
 Effective for combinations and disposals occurring in financial reporting
periods beginning after 12/15/2013 –for us 10/1/2014.
GASB Statement 70 – Accounting and Financial
Reporting Non-exchange Financial Guarantees
Some governments extend financial guarantees for obligations of another
government, a not for profit entity, or a private entity without directly
receiving equal value in exchange.
 Recognize a liability when qualitative factors and historical data, if any,
indicate if it is more likely than not that the government will be required
to make a payment on the guarantee.
 Also requires a government that has issued an obligation guaranteed in
a non-exchange transaction to recognize revenue to the extent of
reduction in its guaranteed liabilities.
 Effective for reporting beginning after 06/15/2013-for us 10/1/2013
(now)
GASB Statement 71 – Pension Transition for
Contributions Made Subsequent to Measurement Date
 The transition provisions in paragraph 137 of Statement 68 require that,
to the extent practical, changes made to comply with the Statement be
reported as an adjustment of prior periods in the first period that the
Statement is applied.
At transition to Statement 68, if it is not practical for an employer or
nonemployer contributing entity to determine the amounts of all
deferred outflows of resources and deferred inflows of resources related
to pensions, paragraph 137 required that no beginning balances for
deferred outflows of resources and deferred inflows of resources be
reported.
 Effective with GASB 68

Exposure Drafts – Tax Abatement Disclosure
This proposed Statement would require governments that are subject to tax
abatement agreements to disclose the following:
 General descriptive information, such as the tax being abated, the
authority under which tax abatements are provided, eligibility criteria, the
mechanism by which taxes are abated, provisions for recapturing abated
taxes, and the types of commitments made by tax abatement recipients
 The number of tax abatement agreements entered into during the
reporting period and the total number in effect as of the end of the period
 The dollar amount of taxes abated during the period
 Commitments made by a government, other than to abate taxes, as part
of a tax abatement agreement.
 Comment Deadline is January 30, 2015
Exposure Drafts – Tax Abatement Disclosures – Sample
Small Government
As of June 30, 20X7, the Village has property tax abatement agreements with five local businesses
under the state Economic Development Opportunity Act of 20X1. Under the Act, localities may
grant property tax abatements of up to 50 percent of the taxpayer’s property tax bill, for the
purpose of attracting or retaining businesses within their jurisdictions. The abatements may be
granted to any business located within or promising to relocate to the Village.
During the fiscal year, the Village granted a 40 percent property tax abatement to a grocery store
chain for purchasing and opening a store in an empty storefront in the business district. The
abatement amounted to $97,500 for the fiscal year ended June 30, 20X7. The other four tax
abatement agreements in effect as of the end of the fiscal year were as follows (all amounts are
for the fiscal year ended June 30, 20X7):
A 40 percent property tax reduction to a hardware store for moving into the Village ($13,225)
A 30 percent property tax reduction to retain a health and fitness facility in the Village ($5,100)
A 50 percent property tax reduction for a local restaurant increasing the size of its restaurant and
catering facility and increasing employment ($21,750)
A 40 percent property tax reduction for a business opening a new gas station and convenience
store in the Village ($8,905).
Major Projects










Asset Retirement Obligations – Initial Deliberations
Economic Condition Reporting – Financial Projections – Placed on Hold
Fair Value Measurement and Application – Exposure Draft Re-deliberations
Fiduciary Responsibilities – Initial Deliberations
Leases – Initial Deliberations
OPEB Benefit Accounting and Financial Reporting – Exposure Draft Redeliberations
Blending Requirements for Certain Business Type Activities – Initial
Deliberations
Comprehensive Implementation Guide – Annual Update – Expected
completion 12/31/2014
GAAP Hierarchy – Reexamination – Estimated Completion 12/31/2014
Irrevocable Charitable Trusts – Initial Deliberations
Pre-Agenda Research
 Debt Refundings and Extinguishments
 External Investment Pools
 Financial Reporting Model
AICPA Hot Topics
Government Audit Quality Center
 New practice aids issued to assist audit firms in documenting work
performed relating to understanding and testing internal control and
compliance in Single Audit Engagements.
 In response to deficiencies that were noted in a federal study on the
quality of audits performed under OMB Circular A-133.
 Audit documentation did not contain adequate evidence of auditor’s
understanding of the five elements of internal control and testing of
internal controls for many or all applicable compliance requirements.
 Audit documentation did not contain evidence of internal control testing
and/or compliance testing for more than a few compliance requirements,
or did not explain why they were not applicable.
Auditor General Update
 Significant changes to Rules of Auditor General Chapter
10.550 - Local Government Entities
 Recent Audits Findings and Trends
Overview of Changes
 Management Letter Changes
 Auditor’s new responsibilities for reporting on
compliance with
 Section 218.415 FS (Investment law)
 Sections 28.35 and 28.36, FS (budget and
performance measures/standards – Clerks)
 Deepwater Horizon Oil Spill receipts and
expenditures
PRESENTATION
CHANGES
Water Management Districts
Transparency (For water management districts only): (NEW)
Section 10.554(1)(i)6.b., Rules of the Auditor General, requires that we report the results of our
determination as to whether the District provided a link on its Web site to the Florida Department of
Financial Service’s Web site to view the District’s annual financial report submitted to the Department.
In connection with our audit, we determined that the District provided a link on its Web site to the
Florida Department of Financial Service’s Web site. (If the District did not comply with this requirement,
revise the language as appropriate.)
New Compliance Reporting
Chapter 10.550 Changes
 Scope of financial audit must now include an
examination pursuant to AICPA Professional Standards,
AT Section 601
 Section 218.415 FS (Investment law)
 Sections 28.35 and 28.36, FS (budget and
performance measures/standards – Clerks)
 Deepwater Horizon Oil Spill receipts and
expenditures
Significant Financial Trends
 82 local government entities submitted met one or
more of the conditions which could result in those
entities being in a state of financial emergency
 87 local government entities were experiencing
deteriorating financial conditions
 61% of local government local pension plans were
funded at under 80%, 13% funded at below 60%
Significant Financial Findings
 12% reported significant deficiency (185)
 14% reported material weakness (222)
 Many audit report findings did not include all
required elements as described in Chapter 10.550,
Rules of the Auditor General.
 40% of the 1,638 findings were repeated in the
prior 2 audit reports
Questions?