gasb update - vermont...standards – implement later years ©2018 cliftonlarsonallen llp • gasb...
TRANSCRIPT
WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTINGInvestment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor
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GASB Update
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Learning Objectives • The objectives of this session are as follows:
– Gain a more thorough understanding of the new accounting standards related to Other Postemployment Benefits (OPEB) affecting state and local government accounting and reporting
– Determine the overlap in disclosure requirements between GASB 74 & 75– Gain an understanding of the requirements of GASB Statements 81, 85 & 86 in order to aid in
implementation– Gain an understanding of future GASBs to plan for future implementation– Obtain an understanding of what is on the horizon
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Standards – Implement This Year• GASB 75 – Accounting and Financial Reporting for Postemployment Benefits Other Than
Pensions– Effective for years beginning after June 15, 2017 (FY18)
• GASB 81 – Irrevocable Split-Interest Agreements– Effective for years beginning after December 15, 2016 (FY18)
• GASB 85 – Omnibus 2017– Effective for years beginning after June 15, 2017 (FY18)
• GASB 86 – Certain Debt Extinguishment Issues– Effective for years beginning after June 15, 2017 (FY18)
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Standards – Implement Later Years• GASB 83 – Certain Asset Retirement Obligations
– Effective for years beginning after June 15, 2018 (FY19)• GASB 84 – Fiduciary Activities
– Effective for years beginning after December 15, 2018 (FY20) • GASB 87 - Leases
– Effective for years beginning after December 15, 2019 (FY21)• GASB 88 – Certain Disclosures Related to Debt, including Direct Borrowings and Direct
Placements– Effective for years beginning after June 15, 2018 (FY19)
• GASB 89 – Accounting for Interest Cost Before End of a Construction Period– Effective for years beginning after December 15, 2019 (FY21)
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GASB 75Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions
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Applicability
EMPLOYER FINANCIAL STATEMENTS
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Scope• Defined benefit and defined contribution OPEB provided to employees of state
and local governmental employers through OPEB plans administered through trusts or equivalent arrangements
– Contributions from employers and nonemployer entities and related earnings are irrevocable– Plan assets are dedicated to providing OPEB to plan members in accordance with benefit
terms– Plan assets are legally protected from the creditors of employers, nonemployer contributing
entities, plan administrator and plan members
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Types of OPEB• Post employment healthcare benefits whether provided within a pension plan or
separately– Medical– Dental– Vision– Hearing– Other health-related benefits
• Other Forms of Benefits provided separately from a pension plan– Death benefits– Life insurance– Disability– Long-term care
• Not included– Termination benefits, including sick leave
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Types of Plans• Single employer plan
– Covers employees of only one employer– Single employer also includes a plan which covers both the primary government and its component
units
• Multiple employer plan– Covers employees of multiple employers, usually unrelated– Cost Sharing
◊ Multiple employer plan where the assets of the plan are pooled and can be used to pay the liabilities of any employer that provides OPEB through the plan
– Agent Multiple Employer◊ Investments are pooled, but separate account maintained for each employer and the assets can only be used to pay
liabilities of that employer
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Special Funding Situations• Nonemployer entity is responsible for providing financial support for OPEB of the
employees of another entity by making– Payments directly to an OPEB plan administered in a trust as previously described– Benefits payments directly as OPEB becomes due when an OPEB plan is not administered through a
qualifying trust
• Nonemployer Entity responsibility– Legally responsible for making payments and are not dependent upon one or more
events/circumstances unrelated to the OPEB– Only entity with a legal obligation to provide financial support directly to a plan used to provide
OPEB to employees of another entity
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Net OPEB Liability
• Actuarial present value of projected benefit payments attributed to past periods of employee service, net of the Plan’s fiduciary net position
• Liability measured by actuarial valuation or using the alternative method
• For cost-sharing employers – Proportionate share of the Collective Net OPEB Liability
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Actuarial Valuation
• Timing– Measurement date– Roll forward to the measurement date from an actuarial valuation of a date no more
than 30 months and 1 day earlier than the employer’s most recent fiscal year end
• Method– Only the entry age actuarial cost method is allowed
• Discount rate– Same methodology as in pension standards (crossover test)
• Alternative method is allowed for plan with less than 100 participants
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Timing of Measurement of Total OPEB Liability
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June 2016
Plan Prior
Year-End
Plan Current
Year-End
December2016
June2017
December2017
OPEB Expense(measurement period)
Deferred Outflows of Resources
Employer Current
Year-End
Employer Prior
Year-End
Measurement date will most likely correspond to year-end of plan. Employer contributions made directly by the employer subsequent to the measurement date of
the net pension liability and before the end of the employer’s fiscal year should be recognized as a deferred outflow of resources.
Measurement Date
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Example – Impact of Using Prior Year Measurement Date
14
June 2015
Plan Year-End
June2016
OPEB Expense(measurement period)
Deferred Outflows of Resources
Employer Current
Year-End
Employer Prior
Year-End
Measurement Date
Plan Year-End
June2017
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Example – Impact of Using Current Year Measurement Date
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June 2015
Plan Year-End
Plan Year-End
June2016
OPEB Expense(measurement period)
Employer Current
Year-End
EmployerPrior
Year-End
Measurement Date
Plan Year-End
June2017
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New Blended Discount Rate• Single rate reflective of:
– Long-term expected rate of return to extent plan net position for specified source is:
◊ Projected sufficient to make benefit payments◊ Expected to be invested using long-term investment strategy
• Otherwise, index rate for a tax-exempt 20-year GO rated AA/Aa (or equivalent) or higher
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Example Scenario- Discount Rate• Current Situation
– 8% discount rate, same as historical rate of return– 75% funded plan– 20 year GO rate is 4%
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Example Scenario- Discount Rate (cont’d)
New Calculation: Blended rateCalculation Step Example
Funded %X Historical Rate of Return
75%X 8%
6%Unfunded %
X Tax Exempt 20yr Rate 25%
X 4%1%
Blended Discount Rate 6% + 1% = 7%
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Financial Statement Recording• Effect of Changes in OPEB Liability, allocated as applicable
– OPEB Expense– Deferred Outflows– Deferred Inflows
• Deferred inflows and Outflows– Allocated to OPEB expense in a systematic and rational method, over a closed period over the
average expected remaining service lives of all employees in the plan as of the beginning of the measurement period
◊ Expected and actual economic/demographic factors◊ Changes in assumptions about future factors
– Difference between projected and actual earnings allocated over a 5 year period– Contributions made subsequent to the measurement date get recognized as expense in next period
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Financial Statement Reporting (continued)
• Current portion of Net OPEB Obligation
.710-1 Q—If a government reports a liability to employees for defined benefit OPEB in its government-wide statement of net position, how is the "amount due within one year" determined? A—If the government reports an OPEB liability to employees under this section, the amount of the OPEB liability that is "due" within one year is the amount of benefit payments expected to be paid within one year, net of the OPEB plan's fiduciary net position, if any, available to pay that amount. Therefore, for an OPEB liability to employees for benefits provided through an OPEB plan that is administered through a trust that meets the criteria in paragraph .101 of this section, there would be no amount that is "due" within one year unless the OPEB plan's fiduciary net position is less than the amount of benefit payments expected to be paid within one year.
GASBIG 2015-1, Q7.22.6, as amended by GASBIG 2016-1, Q5.13 and GASBIG 2017-1, Q5.31
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Notes to Financial statements• Plan Description
– Name, identification of entity administering the plan and type of plan (single-employer or agent plan– Description of benefit terms– Number of employees covered in total and by category of inactive receiving benefits, inactive not
receiving benefits and active– Contribution requirements– Whether a stand-alone financial report is available and how to obtain it
• Information about the Net OPEB Liability– Assumptions (mortality, inflation, healthcare costs, etc.)– Effect of 1% increase and decrease in healthcare trend rate than the assumed rate– Dates of experience studies on which significant assumptions are based
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Notes to Financial statements (Continued)
• Discount rate– Assumptions made about projected cash flows– Long term expected rate of return on plan assets and how determined– If municipal bond rate is used, the rate and how it was determined– Assumed asset allocation of the portfolio and expected real rate of return as arithmetic or geometric
means– The effect of a 1% increase or decrease in the discount rate– The periods of projected benefit payments to which the long-term expected rate of return and, if
used, the municipal bond rate are applied in determining the discount rate
• Changes in Net OPEB Liability– Beginning balances of OPEB liability, fiduciary net position and net OPEB liability– Effects of changes in the balances, by major/significant category– Ending balances of OPEB liability, fiduciary net position and net OPEB liability
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Notes to Financial statements (Continued)
• Special Funding Situation– Nonemployer contributing entities’ total proportionate share of the collective OPEB liability– The employer’s proportionate share of the collective net OPEB liability
• Other Disclosures, if applicable– Measurement date of the OPEB liability, date of actuarial valuation or alternative measurement and
roll forward procedures used– If special funding situation, the employer’s portion of the collective net OPEB liability, the basis on
which its proportion was determined, and the change in its proportion since the prior measurement date
– Brief description of changes of the following affecting measurement of the total OPEB liability since last measurement date
◊ Assumptions or other inputs ◊ Benefit terms
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Other Disclosures, if applicable– Amount of payments in the measurement period attributable to the purchase of
allocated insurance contracts– Brief description of the nature of changes between the measurement date and the
reporting date that are expected to have a significant effect on the net OPEB liability and the amount of the resultant change if known
– Amount of OPEB expense recognized by the employer in the reporting period– Employer’s balances of deferred outflows and inflows of resources related to OPEB,
classified as follows:◊ Expected and actual experience◊ Changes in assumptions◊ Projected and actual earnings◊ Special funding proportion changes◊ Employer’s contributions subsequent to the measurement date of the net OPEB liability
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Other Disclosures, if applicable– A schedule presenting the following:
◊ Net amount of employer’s balances of deferred inflows and outflows that will be recognized in OPEB expense for each of the next 5 years and in the aggregate thereafter
◊ Amount of the employer’s balance of deferred inflows and outflows that will be recognized as a reduction of the net OPEB liability
◊ If the employer has a special funding situation, the amount of the employer’s balance of deferred inflows and outflows that will be included as a reduction of the collective net OPEB liability
– The amount of revenue recognized for the support provided by nonemployer contributing entities
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Required Supplementary Information• 10 Year Schedule
– Not a Special Funding Situation◊ Total OPEB Liability, Fiduciary Net Position, Net OPEB Liability◊ OPEB plan’s fiduciary net position as a percentage of total OPEB liability◊ Covered payroll (if contributions are based on pay, otherwise covered-employee
payroll)◊ Fiduciary Net Position and Net OPEB liability as a % of covered/covered-employee
payroll
– Special Funding Situation◊ Total OPEB Liability, Fiduciary Net Position, Collective Net OPEB Liability◊ Employer’s proportion (%) and amount of the collective net OPEB liability (NOL)◊ Portion of the nonemployer contributing entities’ proportionate share (amount) of
the NOL associated with the employer
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Required Supplementary Information (continued)
◊ Employer’s covered/covered-employee payroll◊ The employer’s proportionate share (amount) of NOL as a percent of the employer’s
covered/covered-employee payroll◊ OPEB plan’s fiduciary net position as a percentage of the total OPEB liability
• 10 Year Schedule related to contributions– Statutorily or contractually required employer contribution– Amount of contributions recognized in relation to contributions noted above– Difference between amounts required and recognized by the plan– Employer’s covered/covered-employee payroll – Amount of contributions recognized in relation to the required contributions as a percent of covered
payroll/covered-employee payroll
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Single Employer’s Plan
GASB 75:Required Supplemental Information
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GASB 75 :Required Supplemental InformationMulti-employer Plan
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Implementation Issues to Consider• Restatement for opening liability• Liability is only affected at measurement date• Special Funding situations
– Who is legally responsible?– Requirements
◊ The amount of contributions for which the nonemployer entity is responsible is not dependent o events unrelated to the OPEB
◊ Nonemployer entity is only entity with legal responsibility to make contributions
– This does not relieve the requirement to record and disclose pension related expenses and related revenue
– Examples◊ State appropriates funds to an entity specifically to make its contribution to the pension Plan, provided for in
statute – Not a special funding situation◊ State makes payment for the entity directly to the plan – Special funding situation
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Implementation Issues to Consider (cont)
• Evaluation of Actuary and Valuation
– Know your actuary ◊ Is the actuary familiar with government plans and their requirements?◊ Is this a widely used actuary in the industry?
– Review the assumptions◊ Method used – Is it the correct one as only 1 is now allowed?◊ Discount rate – Is it properly calculated? Was a crossover analysis performed? ◊ Is 1% increase/decrease effect provided?
– Review for Specific information/disclosures
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Implementation Issues to Consider (cont)
• Cost Sharing Plan Allocations– How were they determined?– Did the plan auditor provide a schedule supporting amounts in their audit of the plan and what level
of assurance was provided?– What procedures were performed at the plan level to determine accuracy of census data?
• Fund Allocation– Follow the guidance for long term liabilities in NCGA stmt 1, para 42, which effectively requires the
liability to be shown in the fund from which it is expected to be paid– Follow practice in use currently
• Deferred Inflows and outflows– Generally cannot net – each component should be shown separately (e.g. diff in expected returns,
funding after measurement date, etc.)
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Disclosure – Plan only• The following are disclosures required of the plan only when issuing plan
financial statements– Investments
◊ Policies◊ Identification of assets exceeding 5% of plan assets other than those issued or
explicitly guaranteed by the US◊ Annual money weighted rate of return
– Receivables◊ Terms of an long-term contracts for contributions and O/S balance
– Allocated Insurance contracts
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Disclosure – Plan only (continued)
– Reserves, if applicable◊ Description of policy◊ Authority establishing the policy◊ Purpose and conditions under which reserve may be used◊ Balance(s) of reserves
– Components of OPEB Liability◊ Total OPEB Liability (TOL)◊ Fiduciary net position◊ Net OPEB liability◊ Fiduciary net position as a percentage of TOL
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Disclosure Overlap• The following disclosures are required for both employer and plan when plan does
not have separately issued statements and is included in employer’s statements– Plan description
◊ Name, administering entity, type◊ Number of participating employers◊ Plan’s board composition◊ Number of plan members by type (active, inactive receiving benefits and inactive not receiving
but entitled to)◊ Open or closed Plan◊ Authority under which plan is established/changed◊ Brief description of contribution requirements◊ Benefit types and terms including classes of members
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Disclosure Overlap (continued)
• Significant assumptions used to measure Total OPEB Liability (TOL)– Healthcare cost trend rates– Salary changes– Other changes (e.g. COLAs)– Mortality assumptions and source– Dates of experience studies
• Discount Rate– Changes in discount rate used– Long term expected rate of return and how determined– How rate was determined and if blended, details
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Disclosure Overlap (continued)
• Discount rate – continued– Plan investment portfolio
◊ Target weighting by investment class◊ Real rate of return for each class ◊ Whether rates are arithmetic or geometric
– Effect on TOL of +/- 1%– Components of OPEB Liability– Employer’s proportionate share - %– Employer’s proportionate share - $– Amount of OPEB expense recognized– Employer’s balances of dfd inflows and outflows by type– Amortization of dfd inflows/outflows net for next 5 years and thereafter
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Disclosure Overlap (continued)
• RSI - Schedule of Net OPEB Liability– Employer’s proportionate share of liability - %– Employer’s proportionate share of liability - $– Employer’s covered employee payroll– % Contributions made to covered payroll
• RSI – Schedule of Contributions
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Irrevocable Split Interest Agreements
GASB 81
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Scope and Applicability• Governments that receive resources pursuant to an irrevocable split-
interest agreement• Provides guidance for recording irrevocable split-interest agreement
– Donor transfers resources to an intermediary to hold and administer for the unconditional benefit of a government and at least one other beneficiary
– Usually in the form of a trust or other legally enforceable agreement– Types include charitable lead trusts, charitable remainder trusts and real
estate life interests
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Role of the Government in the Arrangement
• Government is both the Intermediary and the Interest beneficiary– Lead Trust
◊ Receives benefit (e.g. periodic payments) throughout the life of the trust– Remainder or life interest Trust– Receives interest/benefit at end of trust– Government is solely a beneficiary
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Accounting - Remainder Interest• Intermediary and beneficiary
– Asset – resources received or receivable◊ Measured in accordance with current standards (e.g. Fair Value)
– Liability for the interest that is assigned to others◊ Measured based on a settlement amount◊ Factors to consider
• Payment provisions (streams)• Est rate of return• Mortality rate• Discount rate (if present value used)
– Deferred inflow for resources for the government’s unconditional interest (remainder or lead)
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Accounting – Remainder Interest (continued)
• Changes in assets and liabilities– Assets
◊ Flow activity through deferred inflows throughout the life
– Liabilities◊ Reduce for payments◊ Flow other change activity through deferred inflows
• Termination– Deferred inflow balance should be recognized as revenue
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Accounting – Lead Interest• Intermediary and beneficiary
– Asset for resources received or receivable◊ Measured in accordance with current standards (e.g. Fair Value)
– Liability for the interest that is assigned to others– Deferred inflow for resources for the government’s unconditional interest
◊ Measured based on a settlement amount◊ Factors to consider
• Payment provisions (streams)• Est rate of return• Mortality rate• Discount rate (if present value used)
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Accounting – Lead Interest (continued)
• Changes in assets and liabilities– Assets
◊ Flow activity through the liability throughout the life
– Deferred inflows◊ Reduce for payments received and recognize revenue◊ Change in assumptions
– Liabilities◊ Remainder amount to be disbursed to other beneficiaries◊ Change is assets resulting from re-measurement and deferred inflow assumptions
• Termination– Offset assets against liabilities and remaining deferred inflow
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Accounting – Real Estate
• Accounting based on category– Investment or Capital– Liability should be recognized for any legal obligation assumed by
government pursuant to the agreement provisions (e.g. insurance, repairs, etc.)
• Investment– Measured in accordance with GASB 72– Deferred inflow– Change in fair value is included in deferred inflow
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Accounting – Real Estate (continued)
• Capital– Measured at acquisition value– Deferred Inflow– Systematic & rational reduction of initial acquisition value should
reduce both asset and deferred inflow
• Termination of Agreement– Eliminate remaining deferred inflow and liability to revenue
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Third Party Intermediary• Government recognizes only its portion of the transaction
– Asset– Deferred inflow
• Recognition criteria– Government is specified by name as a beneficiary– Donation agreement is irrevocable– Donor has not granted variance power to the intermediary with respect to the donated
resources– Donor does not control the intermediary– The irrevocable split-interest agreement establishes a legally enforceable right fore the
government’s benefit
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Third Party Intermediary (continued)
• Measurement– Beneficial interest asset should be measured at fair value
◊ Changes in value from initial amount is reflected in deferred inflows◊ Lead Interest Beneficiary◊ Recognize revenue as stipulated in the agreement◊ Reduce the beneficial asset for the amount recognized
– Remainder Interest Beneficiary◊ Beneficial Interest asset and deferred inflow are eliminated◊ Revenue is recognized for the interest
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Omnibus 2017
GASB 85
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Overview – Addresses Specific Topics• Applies to only the following
– Blending a component unit where the primary government is a business type activity which reports a single column for financial statement presentation
– Reporting amounts previously reported as goodwill and “negative goodwill”– Classifying real estate held by insurance entities– Measuring certain money market investments and participating interest
earning investment contracts at amortized cost– Timing of measurement of pension or OPEB liabilities and expenditures
recognized in financial statements prepared using the current financial resources measurement focus
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Overview – Addresses Specific Topics (continued)
– Recognizing on-behalf payments for pension or OPEB in employer financial statements
– Presenting payroll-related measures in RSI for reporting OPEB plans and employers reporting OPEB plans
– Classifying employer-paid member contributions for OPEB– Simplifying certain aspects of the alternative measurement method
for OPEB– Accounting and reporting for OPEB provided through certain multiple-
employer defined benefit OPEB plans
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Certain Debt Extinguishments
GASB 86
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Applicability and Definition• Applies only to in-substance debt defeasance resulting from the use of
existing resources and not proceeds of new debt• In-substance defeasance
– Government places assets with an escrow agent in a trust, sufficient to generate required cash flows to repay debt in the future as it becomes due
– Assets may only be invested in the following◊ Direct obligations of the U.S. government◊ Obligations guaranteed by the U.S. government◊ Securities backed by U.S. government obligations as collateral and for which
interest and principal payments on the collateral generally flow immediately to the security holder
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Financial Statement Recognition• Economic Resources Measurement Focus
– Remove the old debt, cash and other monetary assets– Difference between the reacquisition price (assets given up) and the carrying
amount of the debt and related deferred inflows and outflows is gain(loss) on transaction
◊ Remaining prepaid insurance is included in the calculation of gain (loss)
– Gain (loss) is immediately recognized in the period of the defeasance
• Current Financial Resources Measurement Focus– Payments made to the escrow agent are recorded as debt service
expenditures
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Disclosures
• General description of the transaction– Amount of debt relieved, amount of assets placed with the escrow
agent and the reason for the defeasance
• In periods following the defeasance– Amount of defeased debt which remains outstanding
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Disclosures (continued)• Additional disclosures for all in-substance defeasance transactions
– In the period in which debt is defeased in substance, regardless of how the cash and other monetary assets were acquired, governments should disclose the following risk, if applicable: substitution of essentially risk-free monetary assets with monetary assets that are not essentially risk free
– In all periods following an in-substance defeasance, regardless of how the cash and other monetary assets were acquired, governments should disclose the amount of debt defeased in substance that remains outstanding, if any, for which the substitution discussed in paragraph 10 is not prohibited. That amount should be disclosed separately from the total amount of debt defeased in substance that remains outstanding, which is required to be disclosed by paragraph 14 of Statement 7 and paragraph 8 of this Statement.
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GASB 84Fiduciary Activities
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Scope and Applicability• All Fiduciary Activities included in State and Local Government financial
statements
• Pension and OPEB arrangements– Component Unit
◊ Pension and OPEB• Pension plan administered by a trust, meeting para 3 of GASB 67• OPEB plan administered by a trust, meeting para 3 of GASB 74• Assets from entities not part of the reporting entity accumulated for pensions in accord
with para 116, GASB 73• Assets from entities not part of the reporting entity accumulated for OPEB in accord with
para 59, GASB 74
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Scope and Applicability (continued)
• Pension and OPEB arrangements (continued)– Component unit (continued)
◊ Not a Pension or OPEB• Has one or more of the following
– Assets are administered by a trust arrangement or equivalent– Government itself is not the beneficiary– Dedicated to providing benefits to recipients in accordance with benefit terms– Legally protected from government creditors
– Assets are for the benefit of individuals and government does not have administrative involvement with the assets
– Assets not derived from government provision of goods or services to the individuals benefitting
– Assets are for the benefit of organizations or other governments that are not part of the reporting entity
– Assets not derived from government provision of goods or services to the individuals benefitting
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Scope and Applicability (continued)
• Pension and OPEB arrangements (continued)– Not component units
◊ Same as above
• Other Fiduciary Activities– The activity meets all of the following criteria
◊ Assets associated with the activity are controlled by the government◊ Associated assets are not derived either
• Solely from the government’s own-source revenues• From government-mandated or voluntary non-exchange transactions, except pass-
through grants for which the government does not have administrative or direct financial involvement
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Scope and Applicability (continued)
• Other Fiduciary Activities– The activity meets all of the following criteria (continued)
◊ Associated assets have one of the following characteristics• Assets are administered through a trust in which the government is not a beneficiary,
dedicated to providing benefits to recipients in accordance with terms and legally protected from creditors
• Assets are for the benefit of individuals and government does not have administrative involvement with the assets or direct involvement. Assets are not derived from government’s provision of goods or services.
• Assets are for the benefit of organizations or other governments and government does not have administrative involvement with the assets or direct involvement. Assets are not derived from government’s provision of goods or services.
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Definitions• Control of Assets
– Holds the assets– Has the ability to direct the use, exchange or employment in a manner to
provide benefits as intended• Own-Source Revenues
– Revenues generated by the government itself◊ Exchange and exchange-like (e.g. water and sewer fees)◊ Investment earnings◊ Derived tax (e.g. sales tax) and imposed non-exchange revenues (e.g. property
taxes)
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Reporting
• Pension Trust Funds• Investment Trust Funds• Private Purpose Trust Funds• Custodial Funds
– Fiduciary activities not reported in another type– Business Type Activities– May report fiduciary activity within their statements if assets are to be
held for no more than 3 months– Agency Funds no longer exist!!
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Reporting – Financial Statements
• Statement of Fiduciary Net Position
• Statement of Changes in Fiduciary Net Position
• Fiduciary Component Units– Aggregate information with the Primary government’s fiduciary funds
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https://checkpoint.riag.com/...actice=-1&tabPg=1070&action=validateBlob&BLOBID=%2Fimages%2FTX%2Fgasbs84_appxd[2/20/2018 10:40:29 AM]
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Leases
GASB 87
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Definitions• Lease
– Contract that conveys control of the right to use another entity’s nonfinancial asset for a period of time in an exchange or exchange-like transaction
– Lease Term– Period during which a lessee has a noncancelable right to use an underlying asset, plus
the following periods if applicable◊ Lessee extension option if reasonably certain the lessee will exercise the option◊ Lessee option to terminate if reasonably certain lessee will not exercise the option◊ Lessor extension option if reasonably certain the lessor will extend◊ Lessor termination option if reasonably certain lessor will not exercise◊ Fiscal funding or cancellation clause only if it is reasonably certain the clause will be exercised
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Definitions (continued)
• Lease Term (continued)– Reassess if at least one of the following occurs
◊ Lessee or lessor elect to exercise an option even though it was previously determined that it was reasonably certain that it would not exercise that option
◊ Lessee or lessor elect not to exercise an option even though it was previously determined that it was reasonably certain that it would exercise that option
◊ An event specified in the lease contract that requires an extension or termination of the lease takes place
– Short Term Lease◊ Maximum lease term including extensions is 12 months or less
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Lease Accounting• Lessee accounting:
– Liability for present value of expected lease payments– Intangible asset for right to use the leased asset
◊ Initial measurement of lease liability◊ Any additional payments made at the commencement of the lease◊ Certain direct costs
– Amortization expense for recognizing the asset amount over the shorter of◊ Lease term◊ Useful life of the underlying asset
– Interest expense related to difference between payment and lease liability reduction
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Lease Accounting (continued)
• Lessor accounting– Receivable for the right to receive payments– Deferred inflow to reflect resources related to future periods– Lease revenue over the term of the lease– Interest revenue related to lease receivable
• Notes– Lessee
◊ Description of the arrangement◊ Amount of leased assets recognized◊ Schedule of future payments
• Principal and interest• 5 single years and 5 yr increments through maturity
– Lessor◊ Description of the arrangement◊ Total amount of inflows recognized from leases
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Lease Modifications and Terminations
• Termination– Reduce the lease asset and liability by lessee or receivable and dfd
inflow by lessor– Recognize gain (loss) in the period of termination
• Modification– Adjust (remeasure) the various components of the lessee and lessor
entries to coincide with the changes– Adjust amortization period as necessary
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Other Transactions• Sublease
– Treat as a separate lease transaction– Lessee in original lease becomes the lessor in a sublease
• Sale-Leaseback– Must include a valid sale component– Treat as 2 separate and distinct transactions– Difference between the carrying value of the assets sold and the net proceeds
from the sale should be recognized as a deferred flow (in or out) and recognized over the life of the lease
– Account for as a net transaction, but disclose the gross amounts of each portion
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Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements
GASB 88
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Summary• Definition
– Liability that arises from a contractual obligation ◊ to pay cash (or other assets in lieu of cash)◊ in one or more payments◊ to settle a fixed amount at the date the obligation is established
• Additional Disclosures– Unused lines of credit– Assets pledged as collateral– Terms specified related to significant events of default with financial consequences– Significant subjective acceleration clauses
• Placement of Disclosures– Existing and additional information be provided for direct borrowings and direct placements of debt
separately from other debt.
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Accounting for Interest Cost Before End of a Construction Period
GASB 89
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Implementation and Summary
• Implementation– Years beginning after December 15, 2019– Early implementation encouraged– Prospective implementation
• Summary– No longer capitalize interest on construction contracts– Expense in the period in which the cost is incurred
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Current GASB Projects
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Project Phases• Pre-Agenda Research• Added to Agenda • Initial Deliberations• Preliminary Views
– Comment Period– Redeliberations
• Exposure Draft– Comment Period– Redeliberations– Final Pronouncement
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Current ProjectsProject Stage
Conceptual Framework Preliminary Views Redeliberation
Major Projects
Financial Reporting Model Invitation to Comment RedeliberationsPublic-Private Partnerships, Including Reexamination of GASB 60Revenue and Expense Recognition
Initial deliberationsInvitation to Comment Redeliberations
Practice Issues
Conduit Debt - Reexamination of Interpretation 2 Initial Deliberations
Equity Interest Ownership Issues Exposure Draft Redeliberations
Implementation Guide for Statement 84 on Fiduciary Activities Added to Agenda
Implementation Guide for Statement 87 on Leases Added to AgendaInformation Technology Arrangements Including Cloud Computing Added to Agenda
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Pre-Agenda Research
• Going Concern Disclosures• Deferred Compensation Plans – Reexamination of
Statement 32• Note Disclosure Reexamination
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twitter.com/CLAconnectfacebook.com/cliftonlarsonallen
linkedin.com/company/cliftonlarsonallen
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CLAconnect.com
youtube.com/CliftonLarsonAllen
William (Bill) Early Jr., CPAPrincipal- State and Local [email protected]
Jim Piotrowski, [email protected]