Transcript Connecticut Government Finance Officers Association

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Meeting the needs of constituents is one of the GASB’s key
goals. In support of this goal, the GASB makes a variety of
resources available through its website, www.gasb.org,
including up-to-date information and resources addressing:
Current projects
Recent proposals and final pronouncements
Free copies of proposals and final pronouncements
A free view of the GASB Codification
Educational resources
Resources for users
Webcasts of GASB Meetings
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Statement 72 – Fair value Measurement & Application – Issued Feb 2015
GAAP Hierarchy (currently in re-deliberations of exposure draft)
Conceptual Framework - Recognition (on hold pending re-examination of financial
reporting model)
Leases (currently in re-deliberations of preliminary views document)
Other Postemployment Benefits (currently in re-deliberations of exposure drafts
◦ Plan
◦ Employer
◦ Benefits not within scope of Statement 48
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Fiduciary Responsibility (currently in re-deliberations of preliminary views
document)
Tax Abatement Disclosures (currently in re-deliberations of exposure draft)
Economic Condition Reporting (placed on hold pending resolution of GASB scope)
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 Issues
in initial deliberations phase
• Asset retirement obligations
• Blending requirements for certain
business-type activities
• External investment pools
• Irrevocable charitable trusts
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 Pre-research
agenda
• Debt extinguishments –
A re-examination of Statements 7, 23
and 42
• Financial reporting model (not again)
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Objective: Improve Financial Reporting and clarify the
definition of fair value.
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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 the principal or the government’s most advantageous
market
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Est. general principles for measuring fair value &
standards of accounting and financial reporting for
assets and liabilities measured at fair value.
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Markets – fair value measurement assumes that a
transaction to sell an asset or transfer a liability takes
plane in either a principal market or the most
advantageous market.
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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)
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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)
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Consist of three levels:
◦ Level 1: quoted prices (unadjusted) for identical assets or
liabilities in active markets that a government can access at the
measurement date
◦ Level 2: Inputs, other than quoted prices included in Level 1,
that are observable for an asset or liability (either directly or indirectly)
 – Market quotes for similar assets
 – Yield curves that are observable at commonly quoted intervals
◦ Level 3: Unobservable inputs for an asset or liability –
Midmarket consensus price for a swap that uses data that are
not directly observable and cannot be corroborated by the
observable market data
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Investments – should be measured at fair value.
Investments are:
◦ Security or other asset held for the primary purpose of income
or profit & has a present service capacity
 “Present Service Capacity – government’s mission to provide
services
 “Primarily for Income or Profit” – acquired investment with
expectation of future income or profit.
Of Course there are exceptions!!!
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Determination of purpose; based on actions of
management at acquisition date.
◦ Is this asset help for purpose of income and profit??
◦ Does it have present service capacity?
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Once the determination is made (investment or other
type of asset) classification is retained for financial
reporting purposes
 Even if usage changes (ex. Item reported as a capital
asset is later held for sale)
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Exceptions to Fair Value
◦ Investments in nonparticipating interest-earning investment
contracts
◦ Investments in unallocated insurance contracts
◦ Money market investments and participating interest-earning
investment contracts that have a remaining maturity at the time
of purchase of one year or less and are held by governments
other than external investment pools
◦ Investments held by 2a7-like external investment pools
◦ Synthetic guaranteed investment contracts that are fully
benefit-responsive
◦ Investments in life insurance contracts (not life settlement contracts)
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Investments in a nongovt entity that does not have a
readily determinable fair value
◦ Calculate FV consistent with FASB measurement principles
for investment companies at the govt’s measurement date.
◦ NAV provided is not as of measurement date – consider if an
adjustment is necessary
◦ If becomes probably the investment will be sold guidance
above should not be followed.
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(AV)
◦ Price paid to acquire an asset with equivalent service potential
in an orderly market transaction or amount a liability could be
liquidated with a counterparty at the acquisition date
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Assets that should be measured using AV:
◦ Donated Capital Assets
◦ Donated works of art, historical treasurers, etc
◦ Capital Assets received in a SCA
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The following information for each class or type of
assets and/or liabilities measured at fair value should be
disclosed:
◦ The fair value measurement at the end of the reporting period and for
nonrecurring fair value measurements, the reasons for the measurement
◦ The level of the fair value hierarchy within which the fair value
measurements are categorized in their entirety (Level 1, 2, or 3)
◦ A description of the valuation technique(s)
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For fair value measurements categorized within Level 3
of the fair value hierarchy
◦ The effect of those investments on investment income for the
reporting period
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Investments - calculated NAV per share
Required disclosures
◦ Fair value measurement of the investment type at measurement
date and description of investment strategy
◦ Each type of investment the estimate of the period in which
assets are expected to be liquidated
◦ Amount of any unfunded commitments
◦ Description of terms upon which a govt may redeem
investments in the type
◦ Redeemable Invts – estimate of when restriction might lapse;
no estimate the how long restriction has been in effect
◦ Any significant restriction on ability to sell investments
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Addresses both OPEB Plans Administered through trust &
not administered through trust
◦ Same trust criteria
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Requires reporting of liability in the F.S.
◦ Trust: Total Opeb Liability – FNP= NPL
◦ Not trust: Total OPEB liability = Liability
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Discount Rate –
◦ Trust – Single Discount rate = LTeRoR as projected sufficient
◦ Not trust – 20-year, tax-exempt general obligation municipal bonds
(AA/Aa or higher)
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Accounting for assets accumulated for OPEB that does
not meet the trust criteria:
◦ Single employer – continue to be reported as assets of the
employer
◦ Multiple-employer – report the assets in an Agency Fund
 Exception – employer is a member of the opeb plan (agency fund
should exclude the employer amounts)
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Current: Capital Lease Determination
◦ meet one or more of the following criteria:
 The lease transfers ownership of the property to the lessee by
the end of the lease term.
 The lease contains a bargain purchase option.
 The lease term is equal to 75 percent or more of the estimated
economic life of the leased property.
 The present value at lease inception of the minimum lease payments equals or exceeds 90 percent of the excess of the fair
value of the leased property (after investment tax credits to the
lessor).
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Lessees for all leases except short-term leases will
report (term > 12mths); Recognition:
◦ An intangible asset that represent the government’s right to use
the leased asset
◦ A corresponding liability for lease payments (pv of payments)
◦ Amortization of the expense related to the leased asset (over
the shorter of lease term or useful life unless there is a nonbargain purchase option and then would use useful life)
◦ Interest expense for the lease liability
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Lessor for all leases except short-term leases will report
(term > 12mths); Recognition:
◦ Lease receivable and deferred inflow of resources
 Based on present value of lease payments to be received;
discounted using implicit rate of the lease
◦ Lessor would continue to report the underlying asset in the
lease
 Continue to depreciate
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Initial Reporting of the Lease
Lessee
Lessor
Assets
Liability
Deferred inflow
Intangible asset (right to use leased
Present value of future lease payments Not Applicable
asset)—value of lease liability plus
(including fixed payments, variable
prepayments and initial direct costs that payments based on index or rate,
are ancillary to place asset in use
probably residual guarantees)
• Lease receivable (generally including Not Applicable
same items as lessee liability)
Equal to lease receivable plus
any cash received up front
related to future periods
• Continue to report leased asset
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Initial Reporting of the Lease
Assets
Amortize over shorter of useful life or
lease term
Lessee
Lessor
Liability
Deferred inflow
Reduce by lease payments (less amount Not Applicable
of interest expense)
• Depreciate leased asset (unless
Not Applicable
indefinite life or required to be returned
in its original or enhanced condition)
Recognize revenue over the
lease term on a systematic and
rational basis
• Reduce receivable by lease payments
(less payment needed to cover accrued
interest)
• Amortize discount over term of the
receivable
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Short-term Lease – Term of less than 12 months
Lessee:
◦ Would not follow previous slide guidance
◦ Recognize lease payments as expenses or expenditures based
on payment terms
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Lessor:
◦ Recognize short-term lease payments as revenue base on
payment provisions of the contract
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Terminations:
◦ Lessee
 Full or Partial termination – adjust carrying values of the lease
asset and liability;
 Recognize gain or loss for difference
 Exception – termination due to purchase of the asset; reclassify from
intangible asset to appropriate category
 Adjust liability to reflect final payments and recognize gain/loss for
difference
◦ Lessor
 Full or Partial termination – adjust carrying values of lease
receivable & D.I of resources, and recognize gain/loss for
difference
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Modifications
◦ Lessee
 Re-measure the liability and lease asset by difference between the
modified liability and liability immediately before modification
 Essentially a change in estimate
◦ Lessor
 Re-measure the receivable and adjust the deferred inflow resources
for difference between modified receivable and receivable
immediately before modification
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Scope: any activity for which a government is a
fiduciary
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Government has F.R when it control assets:
◦ From a pass-through grant for which the govt does not have
administrative e or direct involvement
◦ Trust agreement or equivalent arrangement in which the govt
itself is not a beneficiary
◦ For the benefit of individuals that are not part of the citizenry
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A Government has control when:
◦ It is directly holding the assets, regardless of its responsibility
for administering the exchange of the assets
◦ It is directly responsible for administering the exchange of
assets, regardless of a legal structure that might separate the
government and the entity holding the assets
◦ It has assigned its responsibility for administering the
exchange of assets (e.g., to a bank), but maintains the ability to
reassign that responsibility, no matter the legal structure.
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Continue to be reported as part of the basic financial
statements
◦ Trust funds (pension/OPEB) investment trust funds, privatepurpose trust funds
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Classification of activities as to type of fund should be
based on existence of a trust agreement or equivalent
arrangement
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Custodial Fund
Includes:
◦ Certain funds previously classified as agency funds
◦ Pension trust funds held for benefit of employees of another
government
◦ Investment trust funds or private – purpose trust funds with no
trust agreement or equivalent arrangement
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Aligned with Concept Statement 4
◦ “present obligations to sacrifice resources that a government
has little or no discretion to avoid”
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Recognition would only occur when an event compels
the government to disburse resources
◦ If the event has not occurred then the funds commitment would
be recognized as Net Positon Restricted for Beneficiaries
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