Transcript Document

Pension Reporting and Other
Accounting and Audit Updates
Matt Geerdes
Crowe Horwath LLP
630-706-2061
[email protected]
Andy Mace
Miller, Cooper & Co., Ltd.
847-205-5000
[email protected]
Jason Coyle
Baker Tilly Virchow Krause, LLP
630-645-6205
[email protected]
Agenda
•
•
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GASBs with pending implementation dates
Future GASBs
GASB exposure drafts
Current Pension Issues
– IMRF
GASBs with Pending Implementation Dates
• GASB 55 - Hierarchy of GAAP
• GASB 56 - Financial Reporting Guidance
• GASB 57 - OPEB Measurements by Agent
Employers and Agent Multiple Employer Plans
• GASB 58 - Accounting and Financial Reporting
for Chapter 9 Bankruptcies
• GASB 59 - Financial Instruments Omnibus
Future GASBs
• GASB 60 - Accounting and Financial Reporting
for Service Concession Arrangements
• GASB 61 - The Financial Reporting Entity:
Omnibus
• GASB 62 - Codification of Accounting and
Financial Reporting Guidance Contained in
Pre-November 30, 1989 FASB and AICPA
Pronouncements
Future GASBs
• GASB 63 - Financial Reporting of Deferred
Outflows of Resources, Deferred Inflows of
Resources, and Net Position
• GASB 64 - Derivative Instruments: Application
of Hedge Accounting Termination Provisions
(an amendment of GASB Statement No. 53)
Future GASBs
• GASB 65 - Items Previously Reported as Assets
and Liabilities
• GASB 66 - Technical Corrections – 2012
GASB Exposure Drafts
• Accounting and Financial Reporting for
Pensions (An Amendment of GASB Statement
No. 27)
Pension Issues
• IMRF
– IMRF field audits
GASB 55 - The Hierarchy of GAAP for State
and Local Governments
• The requirements in this Statement are effective upon
its issuance (the provisions of this Statement need not
be applied to immaterial items);
• The objective of this Statement is to incorporate the
hierarchy of generally accepted accounting principles
(GAAP) for state and local governments into the
Governmental Accounting Standards Board’s (GASB)
authoritative literature; and
GASB 55 - The Hierarchy of GAAP for State
and Local Governments
• Current GAAP hierarchy is set forth in the American
Institute of Certified Public Accountants’ (AICPA)
Statement on Auditing Standards No. 69 rather than in
the authoritative literature of the GASB.
• GASB 55 will improve financial reporting by
contributing to GASB’s efforts to codify all GAAP for
state and local governments;
GASB 55 - The Hierarchy of GAAP for State
and Local Governments
• Easier for preparers of financial statements to identify
and apply all relevant guidance; and
• The Board does not expect that this Statement will
result in a change in current practice.
GASB 56 – Financial Reporting Guidance
•
•
•
•
Effective immediately
Related-party transactions
Subsequent events
Going concern considerations
GASB 56 – Financial Reporting Guidance
• Related-party transactions
– Brings over the rules for determining who is
considered to be a related party entity and who is
not.
• Subsequent events
– Brought over the old disclosure guidance
– Does not require a standard disclosure like FASB
regarding the issuance of the financial statements
GASB 56 – Financial Reporting Guidance
• Going concerns considerations:
– Determined at the legal entity level – each
component unit will have its own determination;
– Indicators: Negative trends, default on loans,
denial of credit, restructure debt, work stoppages,
dependence on one project, legal proceedings,
legislation or loss of a principal taxpayer.
– Retained the ‘one year’ bright line for
determination of a going concern in old guidance
GASB 57 - OPEB Measurements by Agent
Employers and Agent Multiple-Employer
Plans
• Effective immediately:
– Amends Statement No. 45 to permit an agent
employer that has an individual-employer OPEB
plan with fewer than 100 total plan members to use
the alternative measurement method, at its option,
regardless of the number of total plan members in
the agent multiple-employer OPEB plan in which it
participates; and
GASB 57 - OPEB Measurements by Agent
Employers and Agent Multiple-Employer
Plans
• Effective immediately:
– Amends Statement No. 43, Financial Reporting for
Postemployment Benefit Plans Other Than Pension
Plans, requirement that a defined benefit OPEB plan
obtain an actuarial valuation.
GASB 57 - OPEB Measurements by Agent
Employers and Agent Multiple-Employer
Plans
• Permits the requirement to be satisfied for an agent
multiple-employer OPEB plan by reporting an
aggregation of results of actuarial valuations of the
individual-employer OPEB plans or measurements
resulting from use of the alternative measurement
method for individual-employer OPEB plans that are
eligible; and
GASB 57 - OPEB Measurements by Agent
Employers and Agent Multiple-Employer
Plans
• Clarifies that when actuarially determined OPEB
measures are reported by an agent multiple-employer
OPEB plan and its participating employers:
– Those measures should be determined as of a
common date and at a minimum frequency to
satisfy the agent multiple-employer OPEB plan’s
financial reporting requirements.
GASB 58 - Accounting and Financial
Reporting for Chapter 9 Bankruptcies
• Chapter 9 of the United States Bankruptcy Code:
– Requires entities to remeasure liabilities that are
adjusted in bankruptcy when the bankruptcy court
confirms (that is, approves) a new payment plan.
GASB 58 - Accounting and Financial
Reporting for Chapter 9 Bankruptcies
• For entities that are not expected to emerge from
bankruptcy as going concerns:
– Requires remeasurement of assets to a value that
represents the amount expected to be received;
and
– Gains or losses resulting from remeasurement of
liabilities and assets should be an extraordinary
item.
GASB 58 - Accounting and Financial
Reporting for Chapter 9 Bankruptcies
• Entities that have filed for bankruptcy are required to
disclose information regarding, among other things,
the pertinent conditions and events giving rise to the
petition for bankruptcy, the expected gain, and the
effects upon services.
GASB 59 – Financial Instruments Omnibus
• Updates and improves existing standards regarding
financial reporting of certain financial instruments
and external investment pools.
• Effective for fiscal year ending June 30, 2011, with
earlier application encouraged.
GASB 59 – Financial Instruments Omnibus
• Updates for
– National Council on Governmental Accounting
Statement 4, Accounting and Financial Reporting
Principles for Claims and Judgments and Compensated
Absences
• Consistent with the amendments to GASB Statement No. 53
regarding certain financial guarantees.
• New language regarding claims entity is subject to:
– “Those claims include contractual actions, such as claims for
delays or inadequate specifications on contracts, or for
guarantees of the indebtedness of others that are not investment
derivative instruments entered into primarily for the purpose of
obtaining income or profit, property tax appeals, and
unemployment compensation claims.”
GASB 59 – Financial Instruments Omnibus
• Updates for
– Statement No. 25, Financial Reporting for Defined
Benefit Pension Plans and Note Disclosures for Defined
Contribution Plans and Statement No. 43, Financial
Reporting for Postemployment Benefit Plans Other
Than Pension Plans
• Amended to remove the fair value exemption for
unallocated insurance contracts.
• Investments in unallocated insurance contracts should be
reported as interest-earning investment contracts according
to the provisions of paragraph 8 of Statement No. 31,
Accounting and Financial Reporting for Certain Investments
and for External Investment Pools.
GASB 59 – Financial Instruments Omnibus
• Updates for
– Statement No. 31, Accounting and Financial Reporting for
Certain Investments and for External Investment Pools
• Clarified to indicate that a 2a7-like pool, as described in Statement
31, is an external investment pool that operates in conformity with
the Securities and Exchange Commission’s (SEC) Rule 2a7 as
promulgated under the Investment Company Act of 1940, as
amended.
• Illinois Funds is a 2a7-like pool
– Statement No. 40, Deposit and Investment Risk Disclosures
• Interest rate risk information should be disclosed only for debt
investment pools—such as bond mutual funds and external bond
investment pools—that do not meet the requirements to be
reported as a 2a7-like pool.
GASB 59 – Financial Instruments Omnibus
• Updates for
– Statement No. 53, Accounting and Financial Reporting for
Derivative Instruments
• Net settlement characteristic of Statement 53 that defines a
derivative instrument is not met by a contract provision for a
penalty payment for nonperformance.
• Provide that financial guarantee contracts included in the scope of
Statement 53 are limited to financial guarantee contracts that are
considered to be investment derivative instruments entered into
primarily for the purpose of obtaining income or profit.
• Clarify that certain contracts based on specific volumes of sales or
service revenues are excluded from the scope of Statement 53.
• Provide that one of the “leveraged yield” criteria of Statement 53
is met if the initial rate of return on the companion instrument has
the potential for at least a doubled yield.
GASB 60 - Accounting and Financial Reporting
for Service Concession Arrangements
• Effective for fiscal year ending June 30, 2013 with
provisions to be presented retroactively.
• Improve financial reporting by addressing issues
related to service concession arrangements (SCAs).
– Public-private or public-public partnership
• Arrangement between a transferor (a government) and an operator
(governmental or nongovernmental entity);
• Transferor conveys to an operator the right and related obligation to
provide services through the use of infrastructure or another public
asset (a “facility”) in exchange for significant consideration; and
• Operator collects and is compensated by fees from third parties.
GASB 60 - Accounting and Financial Reporting
for Service Concession Arrangements
• Applies only to those arrangements in which specific criteria
determining whether a transferor has control over the facility are met.
• Some SCAs include provisions for revenue sharing:
– Governmental operator that shares revenues with a transferor should
report all revenue earned and expenses incurred—including the amount
of revenues shared with the transferor—that are associated with the
operation of the facility
• Transferor should recognize only its portion of the shared revenue when earned
in accordance with the terms of the arrangement (deferred inflow)
– If revenue sharing arrangements contain amounts to be paid to the
transferor regardless of revenues earned (for example, annual
installments in fixed amounts), then the present value of those amounts
should be reported by the transferor and governmental operator as if
they were installment payments at the inception of the arrangement
GASB 61 – The Financial Reporting Entity
Omnibus
• Effective for fiscal year ending June 30, 2013
• Modifies certain requirements for inclusion of component units in
the financial reporting entity.
– For organizations that previously were required to be included as
component units by meeting the fiscal dependency criterion:
• A financial benefit or burden relationship also would need to be present
between the entity and that organization for it to be included in the reporting
entity as a component unit.
– For organizations that do not meet the financial accountability criteria
for inclusion as component units but that, nevertheless, should be
included because the entity’s management determines that it would
be misleading to exclude them:
• Clarifies the manner in which that determination should be made and the
types of relationships that generally should be considered in making the
determination.
GASB 61 – The Financial Reporting Entity
Omnibus
• Amends the criteria for reporting component units as if
they were part of the Entity (that is, blending) in
certain circumstances.
– For component units that currently are blended based on
the “substantively the same governing body” criterion, it
additionally requires that:
• Entity and the component unit have a financial benefit or burden
relationship; or
• Entity management (below the level of the elected officials) of the
primary government have operational responsibility for the
activities of the component unit.
• New criteria also are added to require blending of component
units whose total debt outstanding is expected to be repaid
entirely or almost entirely with resources of the Entity.
GASB 61 – The Financial Reporting Entity
Omnibus
• The blending provisions are amended to
clarify that funds of a blended component unit
have the same financial reporting
requirements as a fund of the Entity.
• Clarifies the reporting of equity interests in
legally separate organizations.
– It requires a Entity to report its equity interest in a
component unit as an asset.
GASB 62 – Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November 30,
1989 FASB and AICPA Pronouncements
• Incorporate into the GASB’s authoritative literature
certain accounting and financial reporting guidance that
is included in the following pronouncements issued on or
before November 30, 1989, which does not conflict with
or contradict GASB pronouncements:
– Financial Accounting Standards Board (FASB) Statements and
Interpretations
– Accounting Principles Board Opinions
– Accounting Research Bulletins of the American Institute of
Certified Public Accountants’ (AICPA) Committee on
Accounting Procedure.
GASB 62 – Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November 30,
1989 FASB and AICPA Pronouncements
• Hereinafter, these pronouncements collectively are
referred to as the “FASB and AICPA
pronouncements.”
• Effective for financial statements for periods
ending June 30, 2013
– Earlier application is encouraged.
– The provisions of this Statement generally are required
to be applied retroactively for all periods presented.
GASB 62 – Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November 30,
1989 FASB and AICPA Pronouncements
• Improve financial reporting by contributing to the GASB’s efforts to
codify all sources of generally accepted accounting principles for state
and local governments so that they derive from a single source.
• Brings the authoritative accounting and financial reporting literature
together in one place, with that guidance modified as necessary to
appropriately recognize the governmental environment and the needs
of governmental financial statement users.
• Eliminate the need for financial statement preparers and auditors to
determine which FASB and AICPA pronouncement provisions apply to
state and local governments, thereby resulting in a more consistent
application of applicable guidance in financial statements of state and
local governments.
GASB 62 – Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November 30,
1989 FASB and AICPA Pronouncements
• All FASB and AICPA pronouncements became
nonauthoritative literature for the private
sector on July 1, 2009, the effective date of the
FASB Accounting Standards Codification™
GASB 63 – Financial Reporting of Deferred Outflows of
Resources, Deferred Inflows of Resources, and Net
Position
• Provides a new statement of net position format to report all assets,
deferred outflows of resources, liabilities, deferred inflows of
resources, and net position
– Net residual amount of the other elements
• Requires that deferred outflows of resources and deferred inflows of
resources be reported separately from assets and liabilities
• Amends certain provisions of GASB Statement No. 34, Basic Financial
Statements -- and Management’s Discussion and Analysis -- for State
and Local Governments, and related pronouncements to reflect the
residual measure in the statement of financial position as net
position, rather than net assets.
• Effective for financial statements for periods beginning after
December 15, 2011, with earlier application encouraged.
Sa mple City
Sta te me nt of Ne t Position
De ce mbe r 31, 20X1
Gove rnme nta l
Activitie s
ASSETS
Cash and cash equivalents
Investments
Derivative instrument-rate swap
Receivables (net)
Internal balances
Inventories
Equity interest in joint venture
Capital assets:
Land, improvements, and construction in progress
Other capital assets, net of depreciation
$
Total capital assets
Total assets
DEFERRED OUTFLOW S OF RESOURCES
Accumulated decrease in fair value of hedging
derivatives
LIABILITIES
Accounts payable and accrued expenses
Advances from grantors
Forward contract
Long-term liabilities:
Due within 1 year
Due in more than 1 year
Total liabilities
DEFERRED INFLOW S OF RESOURCES
Accumulated increase in fair value of hedging
derivatives
Deferred service concession arrangement receipts
Total deferred inflows of resources
NET POSITION
Net investment in capital assets
Restricted for:
Transportation and public works
Debt service
Housing and community redevelopment
Other purposes
Unrestricted (deficit)
Total net position
$
Busine ss-Type
Activitie s
11,712,829
29,250,291
1,040,482
11,792,650
313,768
322,149
2,303,256
$
Tota l
10,516,820
64,575
3,609,615
(313,768)
126,674
-
$
22,229,649
29,314,866
1,040,482
15,402,265
448,823
2,303,256
28,435,025
141,587,735
6,408,150
150,980,601
34,843,175
292,568,336
170,022,760
157,388,751
327,411,511
226,758,185
171,392,667
398,150,852
-
127,520
127,520
7,538,543
1,435,599
-
659,592
127,520
8,198,135
1,435,599
127,520
9,236,000
83,302,378
4,426,286
74,482,273
13,662,286
157,784,651
101,512,520
79,695,671
181,208,191
1,040,482
-
1,040,482
-
4,467,536
4,467,536
1,040,482
4,467,536
5,508,018
103,711,386
79,088,574
182,799,960
10,655,737
3,076,829
6,845,629
1,483,387
(1,567,785)
1,451,996
6,816,410
10,655,737
4,528,825
6,845,629
1,483,387
5,248,625
87,356,980
$211,562,163
124,205,183
$
GASB 64 – Derivative Instruments: Application of Hedge
Accounting Termination Provisions (an amendment of
GASB Statement No. 53)
• Clarifies that when certain conditions are met, the use of hedge
accounting should not be terminated
– Collectability of swap payments is considered to be probable
– Replacement of the counterparty or credit support provider meets
the criteria of an assignment or in-substance assignment as
described in GASB 64
– The counterparty or counterparty credit support provider (and not
the government) has committed the act of default or termination
event
• When all of these conditions exist, hedging relationship
continues and hedge accounting should continue to be applied
• Effective for periods beginning after June 15, 2011, with earlier
application encouraged.
GASB 65 – Items Previously
Reported as Assets and Liabilities
Classifies certain items that were previously reported as
assets and liabilities an deferred inflows or outflows of
resources and recognizes certain items that were
previously reported as assets as liabilities as inflows or
outflows of resources.
GASB 65 – Deferred Inflows of
Resources
• Grants received in advance of meeting timing
requirements
• Deferred amounts from refunding of debt (credits)
• Proceeds from sales of future revenues
• Deferred gain from sale-leaseback
• “Regulatory” credits
GASB 65 – Deferred Outflows of
Resources
• Grants paid in advance of meeting timing requirements
• Deferred amounts from refunding of debt (debits)
• Cost to acquire rights to future revenues
• Deferred loss from sale-leaseback
GASB 65 – Items that Remain
Liabilities
• Derived tax revenue received in advance
• Premium revenues (risk pools)
• Grants received in advance of meeting eligibilty
requirements (other than timing)
GASB 65 – Items that Remain
Assets
• Grants paid in advance of meeting eligibilty requirements
(other than timing)
• Rights to future revenues acquired from outside the
reporting entity
GASB 65 – Outflows of Resources
• Debt issuance costs (other then issuance)
• Initial costs incurred by lessor in an operating lease
• Acquisition costs for risk pools
• Loan origination costs
GASB 66 – Technical Corrections 2012
Conflicts
• Statement 62 with
– Statement 13 – Leases
– Statement 48
• Purchase of a loan or group of loans
• Servicing fees related to mortgage loans
• Statement 10 with
– Statement 54 – Risk financing pools
GASB Exposure Draft - Pensions
Types of Plans
• Single-employer
• Agent multiple-employer
• IMRF
• Cost-sharing multiple-employer
• TRS
GASB Exposure Draft - Pensions
Where we have been
• GASB Statement No. 25 and No. 27
• Methodology was very budget and funding friendly
• Consistent with the modified accrual basis of
accounting
• Net Pension Obligation/Asset (NPO/NPA)
• Annual Required Contribution (ARC) vs funded
• ARC>funding = NPO, ARC<funding = NPA
GASB Exposure Draft - Pensions
Where we have been
• IMRF
• RSI schedule – includes APC, % contributed, UAAL, etc.
• Lengthy note disclosure, including funding and funded status
• Recently seen NPOs recorded for some districts
• TRS
• Disclose contribution rates and amounts
• Funded and funding information in TRS financial statements
GASB Exposure Draft - Pensions
Where we are headed
• “Pensions are a form of compensation, like salaries, which
governments provide to their employees in return for
work.”
• “Like salaries, the costs and obligations should be recorded
as they are earned by the employees, rather than when
the contributions are made by the governments to the
pension plan or when the benefit payments are made to
retirees.”
GASB Exposure Draft - Pensions
Where we are headed
• “The proposed statements relate to accounting
and financial reporting, not to how governments
approach the funding of their pension plans.
Pension funding is a policy decision made by
government officials.”
• GASB is “divorcing” accounting and funding
GASB Exposure Draft - Pensions
Where we are headed
• Proposed solution
• Net Pension Liability
• Difference between obligation for pensions and assets of the
pension plan
• Measured at the employer’s fiscal year end
• Record as liability in all the accrual basis financial statements
• Increased disclosure
GASB Exposure Draft - Pensions
Where we are headed
• What does this mean for IMRF?
• Liability – an amount similar to the current UAAL
currently disclosed in the RSI and notes would be
recorded as a long-term liability
• Disclosure - Similar but increased disclosures (# of plan
members, etc.)
GASB Exposure Draft - Pensions
Where we are headed
• What does this mean for TRS?
• Liability – “the employer government (district) would
calculate its net pension liability and related financial
statement elements, prior to the other government’s
(state) support, but would recognize amounts net of
the other government’s (state) proportionate share.”
GASB Exposure Draft - Pensions
Where we are headed
• What does this mean for TRS?
• Disclosure – much more enhanced and would have an
RSI schedule
• Disclosure would be similar to the current IMRF disclosure
• Would include the district’s share of the amounts and the
amounts assumed by the state
• Would also include the information for TRS as a whole
Pension Issues
IMRF
• Field audits began several years ago
• Biggest finding related to reporting is proper
accounting of IMRF and SS in IMRF fund
– IMRF desires separate accounting of both types of
revenues and expenditures, along with related fund
balance
– May require adjustments to future levies
56