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Gasb update

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  1. Gasb update February 2013

  2. Effective dates for FYE June 30 • 2013 • Statement 60—SCAs • Statement 61—Financial Reporting Entity • Statement 62—Codification of AICPA and FASB • Statement 63—Statement of Net Position • 2014 • Statement 65—Assets and Liabilities Reclasses • Statement 66—Technical Corrections • Statement 67—Pension Plans • 2015 • Statement 68—Pensions for Employers • Statement 69—Government Combinations

  3. Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements

  4. Service concession arrangements (SCA) • SCA’s are a form of public-private or public-public partnership • The terms public-private partnership and public-public partnership are used to refer to a many types of arrangements: • Service arrangements • Management service arrangements • SCAs

  5. SCOPE—What is an SCA? • See paragraph 4: • Transferor conveys to an operator the right and related obligation to provide public services through the operation of a capital assets in exchange for significant consideration • The operator collects and is compensated from fees from third parties • The transferor determines or has the ability to modify or approve services the operator is required to provide, to whom the operator is required to provide services, and the prices or rates that can be charged for services • The transferor is entitled to significant residual interest in the service utility of the capital asset at the end of the arrangement

  6. Reporting capital assets • If the capital asset associated with an SCA is a new capital asset or is constructed by the operator, or an existing capital asset that has been improved by the operator, then the transferor should report • The new capital asset or the improvement at fair value when it is placed in operation, along with… • Any contractual obligations recognized as liabilities, along with a corresponding deferred inflow of resources

  7. Reporting Upfront or installment payments • Transferor should report the upfront payment or the present value of installment payments as an asset (cash or receivable) and any contractual obligations recognized as liabilities along with a deferred inflow of resources • Revenue is recognized as the deferred inflow of resources is reduced over the term of the arrangement

  8. Recognition of liabilities • Liabilities associated with the SCA should be recorded at their present value if a contractual obligation is significant and meets either of the following criteria: • The contractual obligation directly relates to the capital asset (for example obligations for capital improvements, insurance or maintenance) • The contractual obligation relates to a commitment made by the transferor to maintain a specific level of service in connection with the operation of the capital asset (for example, providing a specific level of police and emergency services for a facility)

  9. Other requirements • Disclosures for SCAs • Accounting for an SCA by Governmental Operators • Revenue sharing provisions

  10. Statement No. 61, The Financial Reporting Entity—Omnibus

  11. Overview The most significant effects of the amendments are to: • Increase the emphasis on financial relationships • Clarify the requirements to blend certain component units • Improve recognition of ownership interests • Joint ventures • Component units

  12. Inclusion criteria • Statement 14 requires inclusion in the reporting entity if a Potential Component Unit is fiscally dependent. That is, • Budget, or • Setting taxes or charges, or • Issuing debt • Statement 61 adds the additional requirement for a financial benefit or burden to exist before inclusion in the reporting entity is required

  13. Blending requirements • Statement 14 requires blending if the Primary Government and a Component Unit have “substantively” the same governing body • Statement 61 modifies that requirement to also include: • A financial benefit/burden relationship, or • Primary government has “operational responsibility for a Component Unit (For example, the Primary Government’s personnel manage the activities of the Component Unit like a fund or a department of the Primary Government)

  14. Blending requirements • The blending criteria is broadened to also 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.

  15. Requires that a primary government report an asset for its equity interest in a discretely presented component unit: Blended component units: If the component unit is blended, replace equity interest (decrease net position) with assets, deferred outflows of resources, liabilities, and deferred inflows of resources of the component unit…in other words report the component unit Discretely presented component units: If the component unit is discretely presented, the financial statements of the reporting entity also will report the equity interest in the net assets of the component unit as an asset of the primary government. Reporting Equity Interests GASB Update September 2012 16

  16. Clarifies that current disclosures require: Rationale for including each component unit Whether it is discretely presented, blended, or included as a fiduciary fund Note Disclosures GASB Update September 2012 17

  17. Statement No. 62, Codification of Pre-November 30, 1989 FASB and AICPA Pronouncements

  18. Background • Conflict with or contradict GASB Standards • FASB Statement 43—Compensated absences • Are not applicable to governments • FASB Statement 84—Convertible debt • Rarely applicable to governments • Are applicable to governments • FASB Statement 34—Capitalization of interest • Issues to be addressed in other GASB projects

  19. Significant Topics • Special and extraordinary items (APB Opinion 30) • Comparative financial statements (ARB 43) • Related parties (FASB Statement 57) • Prior-period adjustments (FASB Statement 16 and APB Opinion 9) • Accounting changes and error corrections (APB Opinion 20 and FASB Interpretation 20) • Contingencies (FASB Statement 5 and FASB Interpretation 14) • Extinguishments of debt (APB Opinion 26 and FASB Statement 76) • Inventory (ARB 43) • Leases (FASB Statements 13, 22, and 98 and FASB Interpretations 23, 26, and 27)

  20. Specialized Topics • Sales of real estate (APB Opinion 30) • Real estate projects (ARB 43) • Research and development arrangements (FASB Statement 68) • Broadcasters (FASB Statement 63) • Cable television systems (FASB Statement 51) • Insurance enterprises (FASB Statement 60) • Lending activities (FASB Statement 91) • Mortgage banking activities (FASB Statement 65) • Regulated operations (FASB Statements 71, 90, and 101)

  21. Basic Guidance • Supersedes Statement 20! • All applicable pre-11/30/89 standards are in GASB’s codification • All applicable post-11/30/89 non-GASB standards are considered “other accounting literature” • Accounting changes to apply Statement 62 should be retroactively applied

  22. Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position

  23. Background information Concepts Statement 4 identifies 5 elements that make up a statement of financial position: • Assets • Liabilities • Deferred outflows of resources • Deferred inflows of resources • Net position This differs from the composition currently required by Statement 34, which requires the presentation of • Assets • Liabilities • Net assets

  24. Deferred outflows of resources: A consumption of net assets by the government that is applicable to a future reporting period Assets: Resources with present service capacity that the government presently controls Liabilities: Present obligations to sacrifice resources that the government has little or no discretion to avoid Deferred inflows of resources of resources: An acquisition of net assets by the government that is applicable to a future reporting period Definitions GASB Update September 2012 25

  25. Display requirements • Deferred outflows of resources should be reported in a separate section following assets • Deferred inflows of resources should be reported in a separate section following liabilities • Net position components resemble the existing components of net assets, but also include the effects of deferred outflows of resources and deferred inflows of resources • Net investment in capital assets • Restricted • Unrestricted

  26. Illustration GASB Update September 2012 27

  27. Governmental activities in Government-wide statements: Statement of Net Position: assets + deferred outflows – liabilities – deferred inflows = net position Governmental fund format:Balance sheet: assets + deferred outflows = liabilities + deferred inflows + fund balance Governmental Funds GASB Update September 2012 28

  28. There are few items that GASB standards require to be reported as deferred outflows/inflows of resources as of today: Statement 53–Derivative Instruments Statement 60–Service Concession Arrangements NOT SO FAST…Statements 65, 67, 68 and 69 also have items that are reported as deferred outflows of resources or deferred inflows of resources. What’s Reported Now? GASB Update September 2012 29

  29. Governments should provide details of different types of deferred amounts in the notes in significant components of the total deferred amounts are obscured by aggregation on the face of the statements If the amount reported for a component of net position is significantly affected by deferred inflows or outflows, governments should disclose an explanation in the notes Note Disclosures GASB Update September 2012 30

  30. Statement No. 65, Items Previously Reported as Assets and Liabilities

  31. Objective of this Statement is to determine whether certain balances currently reported as assets and liabilities should continue to be reported as such or instead should be reported as: A deferred outflows of resources, or An outflow of resources (expense/expenditure); or A deferred inflows of resources, or An inflows of resources (revenue) Objective GASB Update September 2012 32

  32. Deferred outflows of resources: A consumption of net assets by the government that is applicable to a future reporting period Assets: Resources with present service capacity that the government presently controls Liabilities: Present obligations to sacrifice resources that the government has little or no discretion to avoid Deferred inflows of resources of resources: An acquisition of net assets by the government that is applicable to a future reporting period Definitions GASB Update September 2012 33

  33. Transactions in which the resulting item should be classified as deferred outflows of resources: Resources advanced to another government in relation to a government-mandated nonexchange transaction or a voluntary nonexchange transaction when time requirements are the only eligibility requirements that have not been met by the other government (paragraph 19 of Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions) Deferred debit amounts resulting from the refunding of debt (paragraph 5 of Statement No. 23, Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities, and paragraph 221 of Statement No. 62, Codification of Accounting Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements) The purchase of future revenues within the same financial reporting entity (paragraphs 13–16 of Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues) Deferred loss resulting from sale-leaseback transactions (paragraph 242 of Statement 62) Items Reported as Deferred Outflows of Resources GASB Update September 2012 34

  34. Transactions in which the resulting item should be classified as deferred outflows of resources: Net balance (debit) of direct loan origination costs, including any portion related to points, for mortgage loans held for resale prior to the point of sale (paragraph 467 of Statement 62) Fees paid to permanent investors to ensure the ultimate sale of loans prior to the point of sale (paragraph 469 of Statement 62) Items Reported as a Deferred Outflows of Resources GASB Update September 2012 35

  35. Transactions in which the resulting item should be recognized as outflows of resources: Acquisition costs for insurance entities and public entity risk pools (paragraphs 28–30 of Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, and paragraphs 412–414 of Statement 62) Initial direct costs incurred by the lessor for operating leases (paragraph 227 of Statement 62) Debt issuance costs (paragraph 12 of Statement No. 7, Advance Refundings Resulting in Defeasance of Debt, and paragraph 187 of Statement 62) Net balance (debit) of direct loan origination costs, including any portion related to points, related to lending activities (paragraph 45 of Statement 10 and paragraph 434 of Statement 62) Items Reported as Outflows of Resources GASB Update September 2012 36

  36. Transactions in which the resulting item should be recognized as outflows of resources: Fees paid related to a purchased loan or a group of loans (paragraph 442 of Statement 62) Net balance (debit) of direct loan origination costs, including any portion related to points, for mortgage loans held for investment (paragraph 467 of Statement 62) Net balance (debit) of direct loan origination costs, including any portion related to points, for mortgage loans held for resale after the sale occurs (paragraph 467 of Statement 62) Fees paid to permanent investors to ensure the ultimate sale of loans after the ultimate sale occurs (paragraph 469 of Statement 62) Items Reported as Outflows of Resources GASB Update September 2012 37

  37. Transactions in which the resulting item should be classified as deferred inflows of resources: Resources received in advance in relation to an imposed nonexchange transaction (paragraph 18 of Statement 33) Resources received in advance in relation to a government-mandated nonexchange transaction or a voluntary nonexchange transaction when time requirements are the only eligibility requirements that have not been met by the receiving government (paragraph 19 of Statement 33) Deferred credit amounts resulting from the refunding of debt (paragraph 5 of Statement 23, and paragraph 221 of Statement 62) Proceeds from the sale of future revenues (paragraphs 13–16 of Statement 48) Unavailable revenue related to the application of modified accrual accounting (Statement No. 6, Accounting and Financial Reporting for Special Assessments, and Statement 33) Items Reported as a Deferred Inflows of Resources GASB Update September 2012 38

  38. Transactions in which the resulting item should be reported as deferred inflows of resources: Deferred gain resulting from sale-leaseback transactions (paragraph 242 of Statement 62) Net balance (credit) of loan origination fees, excluding any portion related to points, for mortgage loans held for resale prior to the point of sale (paragraph 467 of Statement 62) Net balance (credit) of loan origination fees related to points for lending activities and mortgage loans held for investment (paragraph 45 of Statement 10 and paragraphs 434 and 467 of Statement 62) Resources generated by current rates intended to recover costs that are expected to be incurred in the future (paragraph 482 of Statement 62) Gains or other reductions of net allowable costs intended to reduce rates over future periods (paragraph 482 of Statement 62) Items Reported as Deferred Inflows of Resources GASB Update September 2012 39

  39. Transactionsin which the resulting item should be recognized as inflows of resources: Net balance (credit) of loan origination fees, excluding any portion related to points, related to lending activities (paragraph 45 of Statement 10 and paragraph 434 of Statement 62) Commitment fees realized upon exercise or expiration of the commitment (paragraphs 437 and 438 of Statement 62) Commitment fees charged for entering into an agreement that obligates the government to make or acquire a loan or to satisfy an obligation of the other party under a specified condition when exercise is considered remote (paragraphs 437 and 438 of Statement 62) Fees received related to a purchased loan or a group of loans (paragraph 442 of Statement 62) Items to Be Reported as Inflows of Resources GASB Update September 2012 40

  40. Transactions in which the resulting item should be recognized as an inflow of resources: Net balance (credit) of loan origination fees, excluding any portion related to points, for mortgage loans held for investment (paragraph 467 of Statement 62) Net balance (credit) of loan origination fees, including any portion related to points, for mortgage loans held for resale after the sale occurs (paragraph 467 of Statement 62) Fees that are realized after the funding of mortgage loans has occurred or after the commitment to guarantee the funding of mortgage loans expires (paragraph 469 of Statement 62) Fees realized when a commitment is arranged directly between a permanent investor and a borrower (paragraph 470 of Statement 62) Items to Be Reported as Inflows of Resources GASB Update September 2012 41

  41. In the Basis for Conclusion the Board affirmed items resulting from the following transactions should be classified as an asset: Prepayments (paragraph 73 of NCGA Statement No. 1, Governmental Accounting and Financial Reporting Principles) Resources advanced to another government in relation to a government-mandated nonexchange transaction or a voluntary nonexchange transaction when eligibility requirements other than time requirements have not been met (paragraph 19 of Statement 33) The purchase of future revenues from a government outside the financial reporting entity (paragraphs 13–16 of Statement 48) Initial subscriber installation costs in relation to cable television systems (paragraph 398 of Statement 62) Capitalized incurred costs related to regulated activities (paragraph 480 of Statement 62) Circumstances in which a pension plan’s net position exceeds the total pension liability Items Where Classification was Not Changed GASB Update September 2012 42

  42. In the Basis for Conclusion the Board affirmed the items resulting from the following transactions should be classified as a liability: Resources received in advance in relation to a derived tax revenue nonexchange transaction (paragraph 16 of Statement 33) Resources received in advance in relation to a government-mandated nonexchange transaction or a voluntary nonexchange transaction when eligibility requirements other than time requirements have not been met (paragraph 19 of Statement 33) Resources received in advance of an exchange transaction (paragraph 23 of Statement 62) Excess of initial hookup revenue over of direct selling costs in relation to cable television systems (paragraph 397 of Statement 62) Premium revenues for insurance entities and public entity risk pools received in advance (paragraphs 19–21 of Statement 10, and paragraphs 405 and 406 of Statement 62) Items Where Classification was Not Changed GASB Update September 2012 43

  43. In the Basis for Conclusion the Board affirmed the items resulting from the following transactions should be classified as a liability(continued): Commitment fees charged for entering into an agreement that obligates the government to make or acquire a loan or to satisfy an obligation of the other party under a specified condition, unless exercise is remote (paragraphs 437 and 438 of Statement 62) Fees that are received for guaranteeing the funding of mortgage loans (paragraph 469 of Statement 62) Fees received for arranging a commitment directly between a permanent investor and a borrower (paragraph 470 of Statement 62) Refunds imposed by a regulator (paragraph 482 of Statement 62) Items Where Classification was Not Changed GASB Update September 2012 44

  44. Use of the term deferred should be limited to deferred inflows and deferred outflows of resources Major fund calculation guidance is amended Use aggregate assets/deferred outflows and aggregate liabilities/deferred inflows in the calculation Other Areas GASB Update September 2012 45

  45. Statement No. 66, Technical Corrections—2012

  46. Amendments to Statement 10–Use of Special Revenue Funds to Report Risk Financing Activities Amendments to Statement 62–Operating Leases Amendments to Statement 62—Purchase of a Loan or Group of Loans Amendments to Statement 62—Servicing Fees Statement Amendments GASB Update September 2012 47

  47. GASB's Pension Standards

  48. Where Have We Been? • Staff research completed in 2008 • Invitation to Comment issue in March 2009 • Preliminary Views issued in June 2010 • 3 Public Hearings held in October 2010 • Exposure Drafts (employers, pension plans) issued in June 2011 • 3 Public Hearings held in October 2011 • Statements 67 and 68 issued in June 2012 GASB Pension Standards 49

  49. What Was the Starting Point? • Current standards were issued in 1994 • Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans • Statement No. 27, Accounting for Pensions by State and Local Governmental Employers • GASB’s strategic plan calls for the periodic reexamination of major standards GASB Pension Standards 50