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NASACT Annual Conference August 15, 2011

NASACT Annual Conference August 15, 2011. Developments in Government Accounting and Financial Reporting: A GASB Perspective. Robert H. Attmore GASB Chairman. The Year in Review— Final Documents. Statement 60— Service Concession Arrangements Statement 61— Reporting Entity Omnibus

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NASACT Annual Conference August 15, 2011

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  1. NASACT Annual ConferenceAugust 15, 2011 Developments in Government Accounting and Financial Reporting: A GASB Perspective Robert H. Attmore GASB Chairman

  2. The Year in Review—Final Documents • Statement 60—Service Concession Arrangements • Statement 61—Reporting Entity Omnibus • Statement 62—Codification of Pre-89 FASB and AICPA Pronouncements • Statement 63—Reporting of Deferred Outflows, Deferred Inflows, and Net Position • Statement 64—Derivative Instruments: Application of Hedge Accounting Termination Provisions

  3. The Year in Review—Due Process Documents • Exposure Drafts • Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position (now Statement 63) • Derivative Instruments: Hedge Termination Provisions (now Statement 64) • Accounting and Financial Reporting for Pensions • Financial Reporting for Pension Plans • Preliminary Views • Recognition of Elements of Financial Statements and Measurement Approaches (Concepts Statement)

  4. Pensions Project Timeline • Staff research completed in 2008 • Invitation to Comment issued in 2009 • Preliminary Views issued in 2010 • Two Exposure Drafts approved in June 2011 • Employers • Pension Plans

  5. Basics • Defined benefit pensions originate from exchanges between the employer and employees of salaries and benefits for employee services and are part of the total compensation for employee services • Obligations for pensions meet the definition of a liability in Concepts Statement 4 • Compensation expense should be recognized in the period employee services are provided

  6. Fundamental Approach • Pension cost is viewed in the context of an ongoing, career-long employment relationship • Accounting-based versus funding-based approach to measurement • Focus on the cost over time to taxpayers of providing governmental services

  7. Key Board Conclusions • An employer is primarily responsible for the unfunded pension obligation resulting from an employment exchange • The difference between the total pension liability and the net plan position in a qualified trust would be reported as a net pension liability in the financial statements of the government

  8. 1) Project Benefit Payments Basic Three-StepMeasurement Approach 25 40 62 80 2) Discount Future Payments Present Value of Payments 3)Attribute to Service Periods

  9. Projection of Benefits • The projection of pension benefit payments should include the effects of projected future salary increases and future service credits, as well as automatic COLAs • Ad hoc COLAs would be incorporated into projections of pension benefit payments only if an employer’s practice indicates that the COLAs are substantively automatic

  10. Discount Rate • Should be a single rate that reflects: • The long-term expected rate of return on plan investments to the extent that current and expected future plan net assets available for pension benefits are projected to be sufficient to make benefit payments • A high-quality municipal bond index rate beyond the point at which plan net assets available for pension benefits are projected to no longer be available for long-term investment

  11. Attribution Method • Single actuarial cost allocation method: - Based on entry age normal principles - Applied as a level percentage of payroll - Over periods beginning in first period in which the employee’s services lead to benefits under the plan (without regard to conditional service-related provisions such as vesting) and ending in last period of the employee’s service

  12. Immediate Expense Recognition • Immediate recognition as expense for: • Pension benefits earned in the period • Interest cost on the beginning balance of the total pension liability • Changes in plan benefit terms that affect the total pension liability • Differences between expected and actual changes in economic and demographic factors and changes in such actuarial assumptions related to inactive/former employees

  13. Deferred Expense Recognition • Recognize as expense over a period equal to the remaining service periods of active employees: • Differences between expected and actual changes in economic and demographic factors • Changes in such actuarial assumptions • Differences between actual and projected earnings on plan investments should be recognized in pension expense over a five-year, closed period

  14. Note Disclosures • General benefits and plan information • Assumptions used in measurement • Components of the change in the total pension liability, plan net assets, and net liability • Components of the pension expense • Components of the change in the deferred outflows (inflows)

  15. RSI – 10 Year Schedules Of: • Changes in the net pension liability • Total liability, plan net assets, net liability, net assets as a % of the total liability, and net liability as a % of covered payroll • Actuarially calculated employer contributions needed, actual contributions made, the difference between them, and contributions made as a % of covered payroll

  16. Cost-Sharing Plan Recognition • A government participating in a cost-sharing plan would report a liability in its own financial statements that is equivalent to its proportionate share of any collective unfunded obligation of the cost-sharing plan. • Approach uses a basis for allocation of proportionate share based on the employer’s expected contribution effort relative to that of all contributors

  17. What’s Next For Pensions? • Two Exposure Drafts—are available for download at www.gasb.org • Comment period ends September 30, 2011 • Public Hearings & User Forums—October 2011 • NYC, San Francisco & Chicago • Final standards—second quarter 2012

  18. Selected GASB Standards & Current ProjectsFocused on Improving Financial Reporting • Fund Balance Reporting (Stmt 54) 02/2009 • The Financial Reporting Entity Omnibus (Stmt 61) 11/2010 • Reporting Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position (Stmt 63) 06/2011 • Financial Reporting for Chapter 9 Bankruptcies (Stmt 58) 12/2009 • Financial Reporting for Service Concession Arrangements (Stmt 60)11/2010 • Financial Reporting for Pensions (Two current EDs) 06/2011 • Current Agenda Projects: • Recognition of Elements of Financial Statements and Measurement Approaches (PV of a Concepts Statement) (06/2011) • Economic Condition Reporting: Fiscal Sustainability • Financial Reporting for Government Combinations • Reporting Financial Guarantees

  19. GASB Effective Dates—June 30 FYE • June 30, 2011 • Statement 54 – Fund Balance Reporting • Statement 59 – Financial Instruments Omnibus • June 30, 2012 • Statement 57, paragraph 8 – OPEB Measurements • Statement 64 – Derivatives: Application of Hedge Accounting Termination Provisions • June 30, 2013 • Statement 60 – Service Concession Arrangements • Statement 61 – The Financial Reporting Entity Omnibus • Statement 62 – Codification of Pre-1989 FASB and AICPA Pronouncements • Statement 63 – Reporting Deferred Outflows, Deferred Inflows and Net Position

  20. Questions? Web site—www.gasb.org

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