Transcript National Association of State Auditors, Comptrollers and

National Association of State Comptrollers
2015 Annual Conference
GASB Update
David A. Vaudt – Chair
Jan I. Sylvis – Vice Chair
David R. Bean – Director of Research and Technical Activities
The views expressed in this presentation are those of Mr. Vaudt, Ms. Sylvis,
and Mr. Bean. Official positions of the GASB on accounting and financial
reporting matters are determined only after extensive due process and
deliberation.
© Copyright 2015 by Financial Accounting Foundation, Norwalk, CT
1
Objectives
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
Current Board Members
Enhancing Communications
Recent Hot Button Issue
Pre-Agenda Research Activities
Recent Standards
Overview of Current Technical Agenda Projects
Chair and Vice Chair thoughts about the future
Pension Implementation Issues
Q&A
2
Current Board Members
Member
David Vaudt, Chair
Jan Sylvis, Vice Chair
Jim Brown
Bill Fish
Michael Granof
David Sundstrom
Marcia Taylor
Term Expires
2020—single term
2017
2017—first term
2016—first term
2020
2019
2015
3
Enhancing Communications
 GASB Outlook
 A new form of communication directed at the “C” suite
 Detailed communications are still available for the techies
 Webcasts focused on due process documents
 Fair value
 Other postemployment benefits
 Leases
 Many more to come
4
Enhancing Communications
 Updated website
 Timely information on projects
 Technical inquiry portal
 Implementation tools
 Pension Implementation Tool Kit
 Fact sheets
 Plain-language articles
 Podcasts and video discussions of specific provisions
 Statements and Implementation Guides
 More to come
5
Recent Hot Button Issue
 Direct lending (bank loans) – an alternative to a
public offering
 Primarily seen in the local government arena
 Concern is the terms of bank loans can
 Impair the rights of bondholders
 Impact credit and liquidity profile
6
Direct Lending (bank loan versus bonds)
 GASB codification addresses in terms of “bonds, notes and
other long-term liabilities”



Footnote schedule of long-term liabilities
Footnote disclosure about debt service requirements
Footnote disclosure about significant violations of legal or
contractual provisions
 MSRB – Regulatory Notice (2015-03) issued January 29,
2015
7
Pre-Agenda Research Activities
 Financial Reporting Model Reexamination
 Debt Extinguishments
8
Financial Reporting Model Reexamination
 Added to the agenda in August 2013
 Top priority of GASAC
 Staff research and roundtables with preparers, auditors and
users conducted in 2013
 Separate preparer, auditor, and user surveys conducted in
2014
 Interviews with preparers, auditors, and users being
conducted in 2015
 Research scheduled to be completed by June 2015
9
Most Recent Final Pronouncements
10
Statement 67
Financial Reporting for Pension
Plans
Statement 68
Accounting and Financial
Reporting for Pensions
11
Statement 69
Government Combinations and
Disposals of Government
Operations
12
Statement 69
Combinations, Transfers & Disposals
What:new
new
standards
mergers,
acquisitions,
 What:
standards
for for
mergers,
acquisitions,
and
and transfers
and disposals
of operations
transfers
and disposals
of operations
 Why:
more
common,
but no
Why:becoming
becoming
more
common,
butgovernmentno
specific guidance
government specific guidance
 When: fiscal years ending December 31, 2014 and later
 When: fiscal years ending December 31, 2014
and later
13
Statement 69 Scope




Combinations in which no consideration is provided
Combinations in which consideration is provided
Disposal of government operations
Not within scope:
 Assets and liabilities comprising less than an
operation
 Other organization remains a legally separate entity
 Acquisition of equity interest
14
Statement 69—Key Provisions
 Mergers and transfers
 Reported at carrying values presumption of GAAP
 Acquisitions
 Reported at acquisition value—a
market-based entry price
 Exceptions—pensions, OPEB,
pollution remediation
 Disposals (sales and transfers)
 Gains and losses reported as
special items
15
Statement 70
Accounting and Financial
Reporting for Nonexchange
Financial Guarantees
16
Statement 70 Issue
 Governments extend or
receive financial guarantees
on obligations of other
entities without receiving or
paying equivalent value for
the guarantees
(nonexchange financial
guarantees)
 Current guidance in GASB
Statement No. 62 is based on
private sector guidance
(exchange transactions)
 FASB Statement No. 5
 FASB Interpretation No. 14
 FASB Interpretation No. 34
17
Statement 70 Scope
Applies to governments that:
Extend a nonexchange financial guarantee on an
obligation of another party (a government, not-for-profit,
private entity, or an individual)
Receive a nonexchange financial guarantee from
another party on its obligations
Does not apply to:
Financial guarantees provided as part of an exchange transaction
18
Statement 70—Key Provisions
 Definition
 Based on the same definition of
nonexchange that is found in
Statement 33
 Recognition
 “more likely than not”
 Measurement
 Discounted present value of the
best estimate of the future outflows
expected
19
Statement 71
Pension Transition for
Contributions Made
Subsequent to the
Measurement Date
20
Statement 71 Scope
Narrowly scoped issue.
Addresses transition provisions of GASB’s new pension
standards for state and local governments.
Eliminates a potential source of understatement of restated
beginning net position and expense in a government’s first
year of implementing.
Effective simultaneously with the provisions of Statement 68,
which is required to be applied in fiscal years beginning after
June 15, 2014.
21
Statement 72
Fair Value Measurement
And Application
22
Fair Value
 What: Statement establishes how fair value should be
measured
and applied
elements
of financial and
 What:
new standards
fortomergers,
acquisitions,
transfers
and–disposals
operations
statements
and whatofshould
be disclosed
 Why:
more
common,
but volume
no governmentWhy:becoming
The GASB
receives
a large
of questions
specific
guidance
about fair
value; the standards have not been broadly
addressed
 When:
fiscal previously
years ending December 31, 2014 and later
 When: Statement 72 issued February 2015; effective
for reporting periods beginning after June 15, 2015
23
Fair Value – MEASUREMENT
 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
 Other characteristics of fair value measurement
 Market-based
 Based on a government’s principal or most advantageous
market
24
Fair Value – MEASUREMENT
 Valuation technique(s)
 Market approach
 Cost approach
 Income approach
 Fair value hierarchy
 Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities; most reliable
 Level 2: quoted prices for similar assets or liabilities, quoted prices for
identical or similar assets or liabilities in markets that are not active, or other
than quoted prices that are observable
 Level 3: unobservable inputs; least reliable
25
Fair Value – APPLICATION
 Definition of an investment
 A security or other asset that a government holds primarily for
the purpose of income or profit and with a present service
capacity that is based solely on its ability to generate cash or
to be sold to generate cash
 Assets and liabilities that meet the definition of an
investment generally should be measured at fair value
26
Fair Value – NOTE DISCLOSURE
 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)
 For fair value measurements categorized within Level 3 of the fair
value hierarchy
 Disclosures for investments in certain entities that calculate net
asset value (NAV) per share (or its equivalent)
27
GASB Concepts Statement No. 6
Measurement of
Financial Statement Elements
28
Measurement – Concepts Statement 6
 What: Establishes how to measure elements of
financial
 What:
new statements
standards for mergers, acquisitions, and
transfers
Why: Guides
the Board
as it deliberates over
and disposals
of operations
standards
of accounting
andbut
financial
reporting
 Why:
becoming
more common,
no governmentspecific
When:guidance
Proposal issued in June 2013; comment
 When:
years
ending December
31,final
2014
and later
periodfiscal
ended
September
30, 2013;
Concepts
Statement issued in April 2014
29
Current Technical Agenda Projects
Redeliberation
 Other
Postemployment
Benefits
 GAAP Hierarchy
 “Comp Guide”
 Tax Abatement
Disclosures
Due Process
Stage Concluded
 PV – Leases
 PV – Fiduciary
Responsibilities
Earlier Stages
 Irrevocable
Charitable Trusts
 Asset
Retirement
Obligations
 Blending
Requirements
 External
Investment
Pools
30
Recent Due Process Documents
 Exposure Drafts
 Other Postemployment Benefits
 The Hierarchy of Generally Accepted Accounting Principles for
State and Local Governments
 Implementation Guide No. 20XX-1
 Tax Abatement Disclosures
 Preliminary Views
 Leases
 Fiduciary Responsibilities
31
Redeliberations on Other
Postemployment Benefits (OPEB)
32
What is OPEB?
Other postemployment benefits – all
postemployment benefits promised to
employees other than pensions
Principally, retiree health insurance –
but also life insurance, disability, legal
services, and other benefits
Includes:
 Payments made to insurance
companies on behalf of retirees,
 Payments directly to retirees, and
 Subsidizing retiree premiums by
allowing them to be insured in the same
group as active employees
33
OPEB Reporting—Key Provisions
 Mirrors pension standards
 Measurement may increase size of
long-term obligation and annual cost
for OPEB
 Recognize the net liability on the
face of the financial statements
 Present more extensive note
disclosures and supporting
schedules
34
OPEB Exposure Drafts Issued
 ED – Financial Reporting for Postemployment Benefit
Plans Other Than Pension Plans
 ED – Accounting and Financial Reporting for
Postemployment Benefits Other Than Pensions
 Also, last pension ED – Accounting and Financial
Reporting for Pensions and Financial Reporting for
Pension Plans That Are Not Administered through Trusts
That Meet Specified Criteria
35
OPEB Reporting—Looking Ahead
 Public hearings held in New
York, Chicago, and San
Francisco
 Redeliberation of due process
comments received is
underway
 Final Statement expected midyear
36
Redeliberations on the GAAP Hierarchy
and the “Comp Guide”
37
GAAP Hierarchy—Key Provisions
Level 1—GASB Statements
Reduce GAAP Hierarchy from four
levels to two levels
Level 2—GASB Technical Bulletins
and Implementation Guides and
AICPA pronouncements cleared by
the GASB
Nonauthoritative—further clarifies role of
concepts statements
38
Comprehensive Implementation
Guide—Key Provisions
 Culmination of all GASB
implementation guidance to date
 Elevation of implementation
guidance in the GAAP hierarchy
would require the implementation
guides to be exposed for broad
public comment
 Comment period ended
December 31, 2014 –
redeliberation of due process
comments is underway
39
Redeliberations on Tax Abatement
Disclosures
40
Tax Abatement Disclosures
 Current agenda project added December 2013
 Exposure Draft issued October 2014
 Redeliberation of due process comments is underway
 Final Statement expected 3rd Quarter 2015
41
Tax Abatement Disclosures
 Determine what disclosure guidance for governments
that have granted tax abatements, if any, is essential to
financial statement users.
 Will not consider issues related to recognition
 For financial reporting purposes, a tax abatement results
from an agreement between one or more governmental
entities and an individual taxpayer in which
(a) One or more governmental entities promise to forgo
revenues that the taxpayer otherwise would have been
obligated to pay and
(b) The taxpayer promises to take a specific action that
contributes to economic development or otherwise benefits
the government(s) or its citizens.
42
Leases
 Objective – reexamine issues associated with lease
accounting
 FASB/IASB project
 Issuance of concepts statements
 Evaluate standards that have been in effect for a sufficient
length of time
 Current agenda project added April 2013
 Preliminary Views issued November 2014
 Exposure Draft planned for 1st Quarter 2016
 Final Statement expected 4th Quarter 2016
43
Leases
 Definition
 A contract that conveys the right to use an asset (the underlying asset)
for a period of time in an exchange or exchange-like transaction.
 Scope
 Continue to include contracts not identified as leases but that meet the
definition
 Continue existing scope exclusions
 Single model
 Underlying assumption that leases are financings
 No classification of leases into operating/capital or other categories
 Potentially allow some exceptions
44
Leases
 Lease Term
 Includes:
o Noncancellable period
o Options to extend/terminate (probable)
 Lessee
 Liability (and ROU asset)
o Fixed payments, and variables if they are essentially fixed
o Variable payments based on external index or rates
o Purchase options/termination penalties (probable)
 Lessor
 Recognize lease receivable
 Continue to recognize the underlying asset
 Deferred inflow of resources
45
Fiduciary Responsibilities
 Primary Objective
 Develop guidance regarding the application of fiduciary
responsibility criteria in deciding whether and how
governments should report fiduciary activities in GPEFRs
o Develop a description of “fiduciary”
 Current agenda project added August 2013
 Preliminary Views issued November 2014
 Exposure Draft planned for 4th Quarter of 2015
 Final Statement expected 3rd Quarter of 2016
46
Fiduciary Responsibilities
 Fiduciary activities continue to be reported as basic financial
statements in GPEFRs
 BTAs should include fiduciary fund financial statements
 The classification of fiduciary activities should be determined
by the presence or absence of a trust agreement or
equivalent arrangement
 Pension (and other employee benefit) trust funds, investment
trust funds, and private-purpose trust fund types retained
 Custodial fund type created
47
Fiduciary Responsibilities
 An expanded fund type be established that includes any fiduciary
arrangement that is not governed by a formal trust agreement or
equivalent arrangement—CUSTODIAL FUNDS
 Funds previously classified as agency funds
 Trust funds for which there is no trust agreement or equivalent
arrangement
 A commitment be recognized and reported as a liability only when
the event giving rise to the liability has occurred
 Otherwise….. The commitment should be recognized and reported as
net position restricted for beneficiaries for ALL FIDUCIARY FUNDS
48
Early Stage Projects on the Current
Technical Agenda




External Investments Pools
Irrevocable Charitable Trusts
Asset Retirement Obligations
Blending Requirements for Certain BTAs
49
External Investment Pools




Several State sponsored pools
Project added December 2014
Exposure Draft scheduled for 2nd Quarter 2015
Final Statement expected 4th Quarter 2015
50
Irrevocable Charitable Trusts
 Recognition, measurement and disclosure of beneficial
interests in resources held by third parties that are outside
the reporting entity
 AND expanded guidance on recognition, measurement and
disclosure for split-interest agreements for which the
government or its component units administer the assets.
51
Asset Retirement Obligations
 Legal obligations associated with the retirement of tangible
capital assets and the associated resulting environmental
remediation liabilities.
52
Blending Requirements for Certain
Business-type Activities
 Will address the large diversity in practice in the application
of component unit presentation among certain governments
primarily engaged in business-type activities.
 Diversity stems from the (lack of) consideration of the
corporate structure (LLC, LLP, NFP) of the component unit.
53
GASB Leadership
Here is what we see looking into the crystal ball …
54
Beyond the Agenda: Continuing Priorities
 Engaging with GASB stakeholders
 Encouraging broad participation in our process
 Conducting regular listening tours
55
Beyond the Agenda: Improving
Relationships
 External
 Meetings with 30+ organization execs & congressional leaders in 20132014
o Strengthening already strong relations (NASBA, AICPA, NASACT)
o Reintroducing GASB to some (National Governors Association, National
Conference of State Legislatures, Council of State Governments)
o Establishing relations with others (National School Boards Association)
 Great standards are built with good, open communication and trust
 Internal
 Breaking down silos to increase efficiency
o Boards can leverage off each other
 Still need to always recognize why the GASB exists
o Board and staff expertise in the public sector – a unique environment
56
Beyond the Agenda: Stakeholder
Collaboration
 Pension Communications Resource Group
 Statements 67 & 68
o Significant impact on the information available about pension promises
o Learning curve to understand
 Stakeholder collaborative effort
o Facilitated by GASB
o Identify materials already produced and build upon those resources
o Equip state & local governments with a roadmap and resources to
address questions
57
Final Thought
The only ideas that are off of the table
are the ones you don’t share with us. So,
make sure your ideas are on the table.
We’d love to hear from you!
58
Pension Implementation
Issues
59
Basics
60
What Type of Plan
 Single employer
 Agent multiple employer
 Cost-sharing multiple employer
61
Single Employer
 Primary governments and component units are considered
to be one employer
- What if other de minimis employers participate in the plan?
- What if a component unit has a different fiscal year end?
62
Agent Multiple Employer
 Assets are pooled for investment purposes
 Separate accounts are maintained for each individual
employer so that each employer’s share of the pooled
assets is LEGALLY available to pay the benefits of ONLY its
employees
- Separate actuarial valuations for different employers or specific
groups of employees for different employers does not always
equate to an agent plan
63
Cost-Sharing Multiple Employer
 Pension obligations to the employees of more than one
employer are pooled and pension plan assets can be used
to pay the benefits of the employees of any employer that
provides pensions through the pension plan
- Somewhat of a default category
64
Number of Pension Plans
 A separate defined benefit pension plan should be
reported for a portion of the total assets, even if the
assets are pooled with other assets for investment
purposes, if that portion of assets meets both of the
following criteria:
- The portion of assets is accumulated SOLELY for the
payment of benefits to certain classes or groups of plan
members or to plan members who are the active or inactive
employees of certain entities.
- The portion of assets may not LEGALLY be used to pay
benefits to other classes or groups of plan members or
other entities’ plan members.
 Can be used in the determination of agent versus costsharing plan
65
Timing of Measurement
 June 30, 2015 fiscal year end
- Valuation no earlier than December 31, 2012
 Statement was approved June 2012
- Measurement no earlier than June 30, 2014
 Can be achieved by roll-forward of valuation
 Measurement needed for restatement—no earlier than June 30, 2013
 During transition
- Statement 27 and Statement 67 data coexisted
- Select measurement date now and forever hold your peace?
66
Measurement Issues
67
Discounting
 Long-term expected rate of return
- To the extent that the plan’s net position is projected to be
sufficient to make projected benefit payments (crossover)
 Crossover points could be different for agent employers
- Plan assets are expected to be invested using a strategy to
achieve that return (often lost in the conversation)
- Projected cash flows for contributions (trust, but verify)
 Statue, contract, or formal written policy—consider five-year history
 Others—use five-year history
68
Discounting
 Yield or index rate for 20-year, tax-exempt general
obligation municipal bonds with an average rating of AA/Aa
or higher
- No endorsement of any index
 Overall approach still is controversial
69
Allocation
70
Cost Sharing
 Determining employer’s proportionate share of the
collective net pension liability
- Basis for proportion consistent with the manner in which
contributions are determined
 Payroll or other method
- To the extent that different contribution rates are assessed
based on separate relationships, the determination of the
employer’s proportionate share should be made in a manner
that reflects those separate relationships
 Not necessarily one size fits all
71
Component Units
 Special funding situation—no allocation of liability
- However, revenue and pension expense would be reported
 No special funding situation—allocation based on
proportionate share guidance related to cost-sharing
employers
- Including separate relationships guidance
72
Funds
 Allocation based on NCGA Statement 1, paragraph 42
- Bonds, notes, and other long-term liabilities (for example, for
capital leases, judgments, and similar commitments) directly
related to and expected to be paid from proprietary funds,
should be included in the accounts of such funds.
- These are specific fund liabilities, even though the full faith and
credit of the governmental unit may be pledged as further
assurance that the liabilities will be paid.
 No specific guidance on allocation method
73
Special Funding
74
What Qualifies?
 The amount of contributions for which the State legally is responsible is
NOT dependent upon one or more events or circumstances unrelated to
the pensions. Examples of conditions include:
- (1) State is required by statute to contribute a defined percentage of an
employer’s covered-employee payroll directly to the pension plan
- (2) State is required by the terms of a pension plan to contribute directly to the
pension plan a statutorily defined proportion of the employer’s required
contributions to the pension plan.
 The State is the only entity with a legal obligation to make contributions
directly to a pension plan.
 Special funding situations do not include circumstances in which resources
are provided to the employer, regardless of the purpose for which those
resources are provided. (Must be provided directly to pension plan.)
75
Reporting Issues
 Special funding situations normally associated with a
separate plan
 Can apply to a cost-sharing plan where the State also is a
participating employer
- Some disclosures can be combined
 But not all
76
Reporting Issues
77
Key Note Disclosures—All Employers
 Discount rate information, including:
- Long-term expected rate of return and how it was determined
- Assumed asset allocation of the pension plan’s portfolio and
the long-term expected real rate of return for each major asset
class
- NPL measured at a discount rate 1 percentage point higher
and 1 percentage point lower:
County's net pension liability
1%
Decrease
(6.75%)
Current
Discount
Rate
(7.75%)
1%
Increase
(8.75%)
$826,928
$751,753
$661,543
78
Key Note Disclosures—Single/Agent Employers
Increase (Decrease)
Total Pension
Liability
(a)
Balances at 6/30/X8
$
2,853,455
Plan Fiduciary
Net Position
(b)
$
2,052,589
Net Pension
Liability
(a) – (b)
$
800,866
Changes for the year:
Service cost
75,864
75,864
Interest
216,515
216,515
Differences between expected and actual experience
(37,539)
(37,539)
Contributions—employer
79,713
(79,713)
Contributions—employee
31,451
(31,451)
196,154
(196,154)
Net investment income
Benefit payments, including refunds of employee
contributions
(119,434)
Administrative expense
Other changes
Net changes
Balances at 6/30/X9
135,406
$
2,988,861
$
(119,434)
-
(3,373)
3,373
8
(8)
184,519
(49,113)
2,237,108
$
751,753
79
New RSI: NPL Components and Ratios
Note: Only 5 years are presented here;
10 years of information will be required
80
New RSI: Contributions
Note: Only 5 years are presented here;
10 years of information would be required
81
Questions?
Web site—www.gasb.org
82