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  1. GASBTopics for Discussion • Recent GASB Pronouncements • Current Projects • Research Projects 1

  2. Effective Dates—FYE June 30 June 30, 2009 Statement 43—OPEB Plans Phase III Statement 45—OPEB Employers Phase II Statement 49—Pollution Remediation Statement 52—Land Held by Endowments June 30, 2010 Statement 45—OPEB Employers Phase III Statement 51—Intangibles Statement 53—Derivatives June 30, 2011 Statement 54—Fund Balance Reporting 2

  3. Recent GASB Pronouncements • Statement 53 – Accountingand Financial Reporting for Derivative Instruments • Statement 54 - Fund Balance Reporting and Governmental Fund Type Definitions • Statement 55 - The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments 3

  4. Recent GASB Pronouncements(Continued) • Statement 56 - Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards • Concepts Statement No. 5 - Amendment of Concepts Statement No. 2 – SEA Reporting • Comprehensive Implementation Guide 4

  5. Accounting and Financial Reporting for Derivative Instruments Statement No. 53 5

  6. Examples of Derivatives • Interest rate swap • Variable-rate to fixed-rate • Fixed-rate to variable-rate • Basis swap • Exchange payments based on the changes of two variable rates • Swaption • Gives the purchaser of the option the right, but not the obligation, to enter into an interest rate swap • Commodity swap • Reduce exposure to a commodity’s price risk 6

  7. Basic Approach Fair value with hedge accounting Derivative instruments are measured on the statement of net assets at fair value Fair value changes are reported on the statement of resource flows as investment income Exception: Effective Hedges Changes in fair value of derivative instruments would be reported on the statement of net assets as deferrals—either deferred charges or deferred credits Scope Exclusion: Measurement of derivatives in government funds 7

  8. Hedges and Hedge Accounting Two Requirements: 1. Association.Derivative instrument is associated with a hedgeable item 2. Substantial offsets. The derivative instrument is effective in providing changes in cash flows or fair values that substantially offset the cash flow or fair value changes of the hedgeable item If the above requirements are met, hedge accounting must be applied Accounting is not dependent on documentation 8

  9. Methods of Evaluating Effectiveness Effectiveness is determined by using a specified method of evaluating hedges Qualitative method Consistent critical terms Quantitative methods Synthetic instrument Linear regression Dollar offset Other method – see characteristics 9

  10. Note Disclosures Summary of derivative instruments activity Disclosures for HEDGING derivatives Application of TB-2003 disclosures Significant terms Risks: Credit, Interest Rate, Basis, Termination, Rollover, Market-access, Foreign Currency If an “other evaluation method” is used, the identity of that method and its critical values Disclosures for INVESTMENT derivatives Risks: Credit, Interest Rate, Foreign Currency Contingencies (e.g., collateral postings) 10

  11. Statement No. 54 • Approved by the Board in February • Released March 11, 2009 • Effective for periods beginning after June 15, 2010 11

  12. Statement No. 54 • Approved by the Board in February • Released March 11, 2009 • Effective for periods beginning after June 15, 2010 12

  13. Origins of the Project • Significant variation in how standards are applied, leading to significant divergence in practice • Widespread confusion about terminology • Mismatch between what governments are reporting about fund balance and what users of financial statements actually need • Invitation to Comment issued 10-06 • Exposure Draft issued 2-08 13

  14. Interaction ofFund Reporting in Generalwith Fund Balance Reporting • Consider a government that has • $100 earmarked for capital projects by the government itself • $100 in property tax revenue restricted to paying debt service • $100 of cash available for any purpose 14

  15. Under the current standards If the amounts constrained to specific purposes are reported in the general fund, they are shown as reserved $100 $100 $100 $100 $100 $100 But… 15

  16. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 16

  17. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 17

  18. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 18

  19. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 19

  20. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 20

  21. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 21

  22. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 22

  23. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 23

  24. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 24

  25. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 25

  26. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 26

  27. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 27

  28. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 28

  29. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 29

  30. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 30

  31. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 31

  32. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 32

  33. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 33

  34. Under the current standards If the amounts constrained to specific purposes are reported outside the general fund, they are shown as unreserved $100 $100 $100 $300 This will change… 34

  35. 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 Essentially what is now reserved Essentially what is now designated Essentially what is now unreserved 35

  36. Nonspendable Fund Balance • Not in spendable form, such as • Inventory • Long-term amounts of loans and notes receivable • Property held for resale • Corpus of a permanent fund 36

  37. 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 37

  38. 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 38

  39. 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 39

  40. 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 40

  41. Assigned Fund Balance • Appropriation of existing fund balance to eliminate a projected budgetary deficit in the next year’s budget is an assignment of fund balance • Limited to an amount no greater than the projected excess of expenditures over revenues 41

  42. 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 42

  43. Under the new standards The amounts constrained to specific purposes are reported in the same classifications regardless of the fund they are in $100 $100 $100 $100 $100 $100 Or… 43

  44. Under the new standards The amounts constrained to specific purposes are reported in the same classifications regardless of the fund they are in $100 $100 $100 $100 $100 $100 44

  45. Under the new standards The amounts constrained to specific purposes are reported in the same classifications regardless of the fund they are in $100 $100 $100 $100 $100 $100 45

  46. Under the new standards The amounts constrained to specific purposes are reported in the same classifications regardless of the fund they are in $100 $100 $100 $100 $100 $100 46

  47. Under the new standards The amounts constrained to specific purposes are reported in the same classifications regardless of the fund they are in $100 $100 $100 $100 $100 $100 47

  48. Under the new standards The amounts constrained to specific purposes are reported in the same classifications regardless of the fund they are in $100 $100 $100 $100 $100 $100 48

  49. Under the new standards The amounts constrained to specific purposes are reported in the same classifications regardless of the fund they are in $100 $100 $100 $100 $100 $100 49

  50. Under the new standards The amounts constrained to specific purposes are reported in the same classifications regardless of the fund they are in $100 $100 $100 $100 $100 $100 50