GASB’s New & Upcoming Standards

1. 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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3. Administrative Notes • We encourage you to submit your technical questions – please limit your questions to the content of today’s program • To submit a question, type it into the “Ask a Question” box on left side of your screen; we will answer as many as possible • You can also submit questions to the GAQC member forum for consideration by other members • This event is being recorded and will be posted in an archive format to the GAQC Web site

4. Continuing Professional Education • Must have registered for CPE credit prior to this event; a link to the CPE Credit Approval Form was e-mailed to you • Listen for announcement of 4 CPE codes (7 digit codes: ALL_ _ _ _ ) and 4 polling questions during the event • Record CPE Codes on CPE Credit Approval Form and return completed form (by fax or mail) to AICPA Service Center for record of attendance; keep a copy for your records • If you are not receiving CPE for this call, ignore the CPE codes that we announce, but please answer the polling questions

5. PresentersDavid Bean, CPAGASBDaniel O’Keefe, CPAMoore Stephens Lovelace, P.A.Ken Schermann, CPAGASB

6. 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

7. 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

8. Statement 54Fund Balance Reporting and Governmental Fund Type Definitions Effective for periods beginning after June 15, 2010

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. Fund Type Definitions

17. Clarify Fund Type Definitions • Special revenue—clarify terminology • Capital projects—clarify • Debt service • Paragraph 30 requirements highlighted

18. 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.

19. 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

20. 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

21. 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.

22. 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.

23. Disclosures—Fund Balance

24. 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.

25. 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.

26. 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

27. 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

28. 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

29. Minimum Fund Balance Policy • Policy that sets forth the details of the minimum fund balance reporting requirement • Action taken in establishing it

30. 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.  

31. 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

32. Effective date—periods beginning after December 15, 2011 Statement 60Service Concession Arrangements

33. 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

34. 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?

35. 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).

36. 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.

37. 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)

38. 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.

39. Statement 61 The Financial Reporting Entity—Omnibus Effective date—periods ending June 30, 2012

40. 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

41. 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.

42. 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

43. 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

44. 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

45. 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

46. 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?

47. 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

48. 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

49. 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

50. Effective date—periods beginning after December 15, 2011 Statement 62Codification of Pre-November 30, 1989 FASB and AICPA Pronouncements