Florida GFOA Annual Conference

1. Florida GFOAAnnual 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.

2. 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

3. 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

4. Current Agenda Projects

5. Overview • Fair Value Measurement and Application • Conceptual Framework • Measurement • Recognition • Leases • Other Postemployment Benefits • GAAP Hierarchy • Pension Implementation Guides • Pensions—Deferral Transition

6. Fair Value Measurement and Application

7. 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

8. 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

9. 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)

10. 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

11. 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

12. 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)

13. 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.

14. 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

15. 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

16. Investment Exemptions • Money market investments and participating interest-earning 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

17. 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

18. 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

19. 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

20. Conceptual Framework Measurement of Financial Statement Elements

21. 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.

22. 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

23. 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.

24. Exposure Draft—Next Steps • Comment period through September 30, 2013 • Public hearing—November 1, 2013 • Final Concepts Statement expected to be issued—March 2014

25. Conceptual Framework Recognition

26. 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.

27. 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.

28. 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.

29. Leases

30. 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.

31. Proposed Right-of-Use Model

32. Dual Approach Start of lease End of lease Most equipment/ vehicles Asset consumption more than insignificant Asset consumption not more than insignificant Most real estate

33. Leases for equipment/vehicles are Type A unless • Leases for real estate are Type B unless Lease Classification Test • 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 • 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

34. Lessee Accounting Overview Cash Flow Statement Income Statement Balance Sheet Type A Type B

35. Lessee Disclosures

36. Lessor Accounting Overview Cash Flow Statement Income Statement Balance Sheet Type A Type B

37. Lessor Disclosures

38. Transition

39. Next Steps

40. Other Postemployment Benefits

41. 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

42. GAAP Hierarchy

43. 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

44. Pension Implementation Guide

45. Pension Implementation Guides • Two guides • Pension Plans • Employers/Noncontributing Entities • Timetable • Plan—June 2013 • Employer—January 2014

46. Research Agenda Projects

47. Research Agenda • Electronic Financial Reporting • Fiduciary Responsibilities • Tax Abatement Disclosures

48. Questions? Web site—www.gasb.org