gaap & gfoa update wisconsin gfoa winter conference...gasb 83, certain asset retirement...
TRANSCRIPT
Government Finance Officers Association
GAAP & GFOA UPDATEWisconsin GFOA
Winter Conference
November 29, 2018
Speaker
Michele Mark Levine, CPA (NY)
Director, Technical Services CenterGovernment Finance Officers Association of the US and Canada (GFOA)
All stated opinions are those of the speaker and do not necessarily reflect an official position of GFOA.
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AgendaI. GAAP UpdateII. GFOA UpdateIII. Common Reporting DeficienciesIV. Using the GASB CodificationV. GASB Conceptual Framework
I. New (& newish) GAAP
GASB Statements To Be Implemented
GASB 83, Certain Asset Retirement Obligations GASB 84, Fiduciary Activities GASB 87, Leases GASB 88, Certain Disclosures Related to Debt,
Including Direct Borrowings and Direct Placements
GASB 89, Accounting for Interest Costs Incurred before the End of a Construction Period
GASB 90, Accounting and Financial Reporting for Majority Equity Interests
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When Does My Government Need to Implement?
New Standard Implement By Fiscal Years Ending
Standard # For FYEs Beginning After
March 31st June 30th September 30th
& October 31stDecember 31st
GASB 83 6/15/2018 2020 2019 2019 2019
GASB 84 12/15/2018 2020 2020 2020 2019
GASB 87 12/15/2019 2021 2021 2021 2020
GASB 88 6/15/2018 2020 2019 2019 2019
GASB 89 12/15/2019 2021 2021 2021 2020
GASB 90 12/15/2018 2020 2020 2020 2019
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GASB Statement No. 83 [Cod. A10]Certain Asset Retirement Obligations
Issued: November 2016Effective Date: Periods beginning after June 15, 2018
What is an ARO? Asset retirement obligation (ARO)
• Legally enforceable liability associated with the retirement of a tangible capital asseto Retirement = permanent end of use such as sale,
abandonment, recycling, other types of disposal, • Results from the normal operations of capital
assets Examples - costs associated with:
o Decommissioning nuclear reactors and medical imaging equipment
o Dismantling and removing sewage treatment plants and waste-to-energy plants
o Removal and disposal of wind turbines, solar farms
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Depreciation9
$
Defer/Capitalize → Allocate
Asset Retirement Obligation10
$
Anticipate/Liability Recognition → Allocate
Excluded Obligations that would not qualify for ARO
recognition: • Voluntary sale of tangible capital assets• Alternate use of a tangible capital asset• Pollution remediation associated with other-than-
normal use of the tangible capital asset• Normal maintenance costs• Replacement parts• Landfill postclosure care costs• Conditional obligations to perform retirement activities
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Governmental Funds
No change from current accounting and reporting
Recognize liabilities and expenditures for goods and services when received, to the extent due and payable
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Economic Resources MF Determination of Recognition
Occurrence of external
obligating event
Occurrence of internal
obligating event
Recognize if liability is
reasonably estimable
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Source of potential obligation
Circumstances that trigger the obligation
Recognize when a liability is incurred and the amount is reasonably estimable.
Incurred if two events occurred:
External Obligating Events
Sources of ARO obligations: Approval of laws and regulations
establishing disposal requirements Creation of a legally binding contract Issuance of a court judgment
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Internal Obligating Events
Events that trigger obligations:Acquisition
Example: County acquires a power plant with a pre-existing ARORecognize: When asset is first acquired
Contamination (based on normal usage) Example: Nuclear medical imaging
equipment, such as an MRI Recognize: When contamination first occurs –
initial testing 15
Internal Obligating Events
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Contamination:
An event or condition normally involving a substance that is deposited in, on, or around a tangible capital asset in a form or concentration that may harm people, equipment, or the environment due to the substance’s radiological, chemical, biological, reactive, explosive or mutagenic nature.
Internal Obligating Events (cont.)
Non-contamination-related Triggers:Pattern of usage Examples: logging, mining Recognize: when operations begin and some usable
capacity is consumed
Not based on usage Example: Wind turbines Recognize: when placed in service
Abandonment Example: power plant abandoned before completion Recognize: when abandoned
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Recognition
Recognize:• Credit an ARO liability • Debit -oGenerally - Deferred outflow of
resources oAbandonment - Expense
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Expensing of Deferred Outflows
If: deferred outflows were initially reported at the beginning of the asset’s useful life,• Than: recognize over the asset’s entire
estimated useful life
If: deferred outflows initially reported after asset was in service but before the end of its estimated useful life,• Than: recognize over the remaining life,
starting from time of recognition 19
Initial Measurement
Include legally enforceable liabilities for• Retirement of tangible capital asset• Disposal of replaced parts of a tangible
capital asset• Environmental remediation associated
with asset retirement necessitated by normal operation of the asset
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Initial Measurement (cont.)
Best estimate of current value (notPV) of expected outlays• Use all information available (at a
reasonable cost)• Current requirements (enacted laws)• Cost of required goods/services/facilities
if purchased at year end
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Initial Measurement (cont.)
Probability weighting of potential outcomes (expected cash flow technique)oIf information for probability weighting
is not available, use most likely amount in range of possible outcomes
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Annual Remeasurement
Adjust for effects of inflation/deflation Evaluate effect of all other relevant factors
• Changes in: oPrice not attributable to inflation or deflationoTechnologyoLegal requirementsoType of equipment, facilities, or services that will
be used to meet ARO
• Adjust estimated asset retirement outlays for these factors only if effects are significant 23
Initial Measurement Exception for Minority Owner
If: • A government has minority ownership (<50%) in a
jointly operated asset • Owners each responsible for share of ARO• A nongovernmental entity is the majority owner or has
operational responsibility for the operation
Then:• Use the nongovernmental entity’s measure of ARO
(FASB)• Measurement date may be no more than one year and
one day prior to the government’s financial reporting date
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Remeasurement Exception for Minority Owner
Use nongovernmental entity’s measurement of ARO prepared under that entity's accounting standards
Measurement date may be no more than one year and one day prior to the government’s financial reporting date
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Treatment of Changes in Estimate
Prior to retirement of capital asset -• Prospective change in amortization
After retirement of capital asset -• Immediate recognition
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Financial Assurance Requirements
Cannot offset restricted assets against the ARO
Disclose: • How those requirements are being met• Amounts of assets restricted for payment (if
not displayed separately)
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Accounting for: Landfill Closure & Postclosure Care
Pollution Remediation Obligation (PRO)
Asset Retirement Obligation (ARO)
Triggering event for liability recognition
Use of capacity of a landfillsubject to MSWLF closure and postclosure regulations
One or more obligating events
One or more externalobligating events AND one or more internal obligating events
Measurement Current cost Current cost Current cost
Costs included in liability
Equipment, facilities, and services
Equipment, facilities and services; oversight and enforcement
Equipment, facilities, and services
Treatment of long-lived asset purchases
Liability reduced when purchased; may capitalize if alternative use
Liability reduced when purchased; four scenarios in which capitalization is permitted
Liability reduced when purchased; may capitalize if alternative use
Cost remeasurement Annually When each specifiedbenchmark is reached
Annually
Expense recognition Expense when liability is recognized. Allocated toyears of landfill active operation by capacity usage.
Expense when liability is recognized.
Systematic & rational allocation over remaining life of asset; if none, expense immediately.
Expenditure recognition
When goods & services received
When goods & services received
When goods & services received
Comparison of environmental obligation accounting standards
Note Disclosures General description of ARO and associated
assets, as well as the source of obligations
Methods and assumptions used to estimate AROs
Estimated remaining useful life of associated assets
Any liability for an ARO that has not been recognized only because it is not yet reasonably estimable (and the reason)
If applicable, disclosures for minority share29
GASB Statement No. 84Fiduciary Activities
Issued: January 2017Effective Date: Periods beginning after December 15, 2018
Identifying Fiduciary Activities
• Meet CU Criteria GASB Codification Section 2100
• PEB: GASB 84 Paragraphs 6 - 7• Other: GASB 84 Paragraphs 8 - 9
Activity Conducted by the Government’s
Component Unit (CU)
• Assets Controlled by Government• PEB: GASB 84 Paragraph 10• Other: GASB 84 Paragraph 11
Activity of the Government
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PEB= Postemployment benefits, including pension and OPEB
GASB Fiduciary TrustsGASB PEB Trusts
(Unchanged from PEB standards)Administered through trusts or equivalent arrangements where:a) Contributions from employers
and nonemployer contributing entities and earnings on those contributions are irrevocable
b) Plan assets are dedicated to providing pensions/OPEB to plan members in accordance with the benefit terms
c) Plan assets are legally protectedfrom the creditors of the employers, nonemployer contributing entities, and, for DB plans, members.
GASB Other Fiduciary Trusts
(New)Administered through trusts* where:a) The government itself is not a
beneficiary of the trustb) Trust assets are dedicated to
providing benefits to recipients in accordance with benefit terms
c) Trust assets are legally protected from the creditors of the government.
* In the case of a CU, may also be an equivalent arrangement
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GASB Non-Trusted PEB Fiduciary Activities [CU or Gov]
Assets from entities that are not part of the reporting entity
Assets are accumulated for Pension or OPEB purposes
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GASB Non-Trusted, Non-PEB Fiduciary Activities [CU or Gov*]
Held for Benefit of Individuals
Government does not have administrative or direct financial involvement with assets
Assets are not from provision of goods or services to beneficiaries
Held for Benefit of Organizations or
Other Governments Beneficiaries are not in
the government’s reporting entity
Assets are not from provision of goods or services to beneficiaries
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* There are additional requirements for Non-trusted, Non-PEB, fiduciary activities carried out by the government itself rather than through a CU.
Administrative and Direct Financial Involvement
A government has administrativeinvolvement with assets, for example, if it:• Monitors compliance by subrecipients with
program requirements,• Determines eligibility, even if using grantor
established criteria, or• Can exercise discretion in allocation of funds
A government has direct financial involvement if, for example, it finances some program costs in accordance with matching requirements
35
Fiduciary Component UnitsStep 1: Is it a component unit (CU)? Yes, if it is a legally separate entity for which the primary government (PG) is financially accountable?
New: A government has a financial burden from an PEB plan to which it contributes because it is legally required or has assumed an obligation to do so.
If: a contribution obligation is combined with either:(1)Appointment of a majority of the board, or (2)Fiscal dependency (substantive approval of PG needed for entity’s budget, fee-setting, or debt issuance), Then: PG is financial accountability, and the entity is its CU
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Component Unit Determination Component unit (CU) criteria of GASB Cod. Sec. 2100, Defining the
Financial Reporting Entity, paragraph 120 (GASB 14, as amended)
Financial accountability for a separate legal entity
Board appointment
Financial benefit or burden Ability to impose will
Fiscal dependency
Financial benefit or burden
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Fiduciary CUs - PEBStep 2 Is it a fiduciary CU?
Yes, if it is:• Administered through a GASB PEB
Trust • Non-trusted pension or OPEB Assets
(from outside of the reporting entity)
Or…
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Fiduciary CUs – Non-PEB
Yes, if one or more of the following: • Assets are administered through a GASB
Other Fiduciary Trust• Assets are non-trusted, but are held for the
benefit of individuals (and meet the respective requirements)
• Assets are non-trusted, but are held for the benefit of organizations (and meet the respective requirements)
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Government’s Own Fiduciary Activities
Step 1: Does the government have control of the assets of the activity?
Yes, if the government: Holds the assets, or Has the ability to direct the use, exchange, or
employment of the assets in a manner that provides benefits to the specified or intended recipients
Note: Control is not negated by either:• Externally-imposed purpose restrictions on assets• Designation of others by the government to act on its behalf
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Government’s Fiduciary Activity - PEB
Step 2 Is it a fiduciary activity?
Yes, if it is:• Administered through a GASB PEB Trust • Non-trusted pension or OPEB Assets (from
outside of the reporting entity)
Or…
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Government’s Fiduciary Activities – Non-PEB
Yes if both:1.The assets are not derived from either:
• The government’s own-source revenue, or• Government-mandated nonexchange or
voluntary nonexchange transactions*, and
* Except if assets are derived from pass-through grants for which the government does not have administrative or direct financial involvement.
And…42
Government’s Fiduciary Activity - Non-PEB (cont.)
2. If one or more of the following: • Assets are administered through a GASB
Other Fiduciary Trust• Assets are non-trusted, but are held for the
benefit of individuals (and meet the respective requirements)
• Assets are non-trusted, but are held for the benefit of organizations (and meet the respective requirements)
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Fiduciary Fund Types –Trusts
Pension (and other employee benefit) trust funds• GASB PEB Trusts• Other trusted employee benefit plans
o GASB Other Fiduciary Trusts (for active employee benefits rather than postemployment benefits)
Investment trust funds • GASB Other Fiduciary Trusts holding
o External portion of holding of investment pools, or o Individual investment accounts
Private-purpose trust funds• All other GASB Other Fiduciary Trusts
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Fiduciary Fund Types –Non-Trusted: Custodial Funds
Agency funds are replaced with custodial funds
Custodial funds report all non-trusted fiduciary assets (those not held in a GASB PEB Trust or a GASB Other Fiduciary Trust)
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Note that: Custodial funds are now required to report a statement of
changes in fiduciary net position Custodial funds can now have a fiduciary net position
Liability Recognition GASB PEB Trusts – follow Pension and
OPEB liability recognition standards All other fiduciary fund types – recognize
when compelled to disburse resources:• Demand for the resources has been made, or• No further action or condition is required to be
met to be entitled to receive the resources oFor example, tax collections on behalf of other
governments
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Other Reporting Requirements
GASB PEB Trusts - follow Pension and OPEB reporting standards
All other fiduciary fund types - statement of changes in fiduciary net position should disaggregate additions by source and display:
+ Investment earnings- All significant investment-related costs, including:
o Investment management feeso Custodial fees
= Net investment earnings
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BTA & Enterprise Fund Option If resources:
• Otherwise should be in custodial fund, and• Upon receipt are normally expected to be held
for 3 months or less Then may avoid use of custodial fund:
• Report assets and corresponding liability on BTA/enterprise fund statement of net position
• Report significant cash inflows and outflows separately in operating activities section of BTA/enterprise fund cash flow statement
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Custodial Funds Option If resources
• Upon receipt are normally expected to be held for 3 months or less
Then may report single aggregated totals in custodial fund• Additions • Deductions
Example: A county collects and remits property taxes to other taxing authorities (towns, villages, school districts)
• Addition – Property taxes collected for other governments• Deduction – Property taxes remitted to other governments
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Effective Date
Periods beginning after December 15, 2019
Restate prior periods if practical, or report a restatement of beginning net position/fund balance
GASB implementation expected• Exposure Draft December 2018;
Final May 2019
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GASB Statement No. 87Leases
Issued: June 2017Effective Date: Periods beginning after December 15, 2019
GASB 87: Leases
Establishes revised standards on lease accounting and reporting
Eliminates capital and operating leases Treats leases as intangible “right to use”
asset and long term liability for lessee Effective for reporting periods beginning
after December 15, 2019. Earlier application is encouraged.
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Excluded from Scope Excluded from scope of GASB 87
• Leases for:o Intangibles (includes computer software)
»Exception - Sublease of the intangible right-to-use a leased tangible asset
oBiological assetso Inventory
• Leases where underlying asset is financed with conduit debt
»Exception - underlying asset and conduit debt reported by lessor
• Service concession agreements• Supply contracts
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What is a Lease?Definition of a lease:
A contract that conveys the right to use another entity’s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction
Contract – legally enforceable (written or oral) Right to use underlying asset –
• Obtain present service capacity • Determine nature and manner of use
Nonfinancial asset –• Land, buildings, equipment; not securities
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Lease TermPeriod during which lessee has:
• Noncancelable right to use underlying asset,
• Plus periods where oLessee or lessor has option to extend (if
exercise is reasonably certain), andoLessee or Lessor has option to terminate (if
not exercising is reasonably certain)
Note: Fiscal funding clauses only affect a lease term if they are reasonably certain to be exercised. 55
Exceptions Short term lease – A lease that, at its beginning, has a
maximum possible term under the contract of 12 months or less, including all options to extend• Recognize revenue/expense when payments are due• No revenue or expense during rent holidays
Contracts that transfer ownership – A contract whereby a lessee will become owner of the underlying asset at end of contract term and that contains no termination options (except fiscal funding clauses reasonably certain not to be exercised)• Account for as a financed purchase of the underlying
asset 56
Lessee Accounting – Economic Resources Measurement Focus Initial recognition
• Lease asset – intangible right-to-use capital asset• Lease liability
Subsequent accounting• Amortization of lease asset
oShorter of lease term or useful life of underlying asset• Lease payments
oReduction of liabilityo Interest expense
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Measurement – Lessee Lease liability
• Present value (PV) of payments over lease termo Interest rate charged by lessor, oroLessee’s borrowing rate
Intangible lease asset • PV of payments over lease term (lease liability)• Add: Payments made at or before the beginning of the
term to lessor• Less: Lease incentives received from lessor beginning of
the term• Add: Certain direct costs to put asset into service
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Government Lessee Example Assumptions:
• 5 year lease for capital equipment (60 months) entered into on April 1
• Monthly payment of $1,000 are due beginning of each month, 1st payment April 1
• End of lease term option to purchase equipment for $2,000; reasonably certain to exercise
• Lessor charges interest of 3% per year• Government estimates useful life of equipment will
equal 7 years• Lessee incurs costs of $2,500 to transport and install
equipment
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Present Value of Lease Payments
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Assumptions Excel PV Function Term
Monthly payments $1,000 Pmt
Number of payments 60 Nper
Annual Interest rate 3%
Monthly interest rate 0.25% Rate
Future value 0 FV
Type (annuity due) 1 Type
= Present value of lease payments
$55,791 [Result]
Present Value of Lease Purchase Option Payment
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Assumptions Excel PV Function Term
Monthly payments 0 Pmt
Number of payments 5 Nper
Annual Interest rate 3% Rate
Monthly interest rate 0.25%
Future value ($2,000) FV
Type (annuity due) 1 Type
= Present value of lease payments
$1,725 [Result]
Lease liability = $55,791 + $1,725 = $57,517Lease Asset = $57,517 + $2,500 = $60,017
Lessee Accounting – Current Financial Resources MF
Unchanged from Current Guidance
Initial recognition • Expenditure – capital outlay• Other financing source
Subsequent accounting• Lease payments – debt service expenditures
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Note Disclosure – Lessee
Description of leasing arrangements Amount of lease assets Schedule of future lease payments
• Principal and interest listed separately
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Lessor Accounting – Economic Resources Measurement Focus
Initial recognition• Lease receivable
o Continue to report underlying asset• Deferred inflow of resources
Subsequent reporting• Lease payments
o Reduction of receivableo Interest revenue
• Reduction of deferred inflow of resources → revenueo Over term of the lease o Systematic and rational mannero Governmental funds – if available
64
Measurement – Lessor
Lease receivable • PV of lease payments over lease term
Deferred inflow of resources • PV of lease payments over lease term• Add: Payments received at or prior to the
beginning of the lease that relate to future periods
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Government Lessor Example Assumptions:
• 10 year lease of two floors of government-owned office building to unrelated 3rd party (not in same reporting entity)
• Monthly payment of $3,000 are receivable at the beginning of each month, 1st payment July 1
• Lessee pays last month rent at inception of lease• Government’s estimated return on investments is
0.8% and it charges this rate to lessee• Government paid $10 million for building with an
estimated 75 year useful life
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Present Value of Lease Payments to be Received
67
Assumptions Excel PV Function Term
Monthly payments $3,000 Pmt
Number of payments 119 [(10x12) -1 prepaid] Nper
Annual Interest rate 0.8%
Monthly interest rate 0.00067% Rate
Future value 0 FV
Type (annuity due) 1 Type
= Present value of lease payments
$343,325 [Result]
Lease receivable = $343,325Deferred inflows = $343,325 +$3,000 =
$346,325
Lessor Accounting – Current Financial Resources MF
Initial recognition• Lease receivable at PV of payments• Deferred inflow of resources
Subsequent reporting• Lease payments
oReduction of receivableo Interest revenue
• Reduction of deferred inflow of resources → revenueoOver term of the lease oSystematic and rational manner, if available
68
Note Disclosure - Lessor
Description of leasing arrangements Total amount of lease revenue for current
year
69
Lease Incentives
Payment to or on-behalf of the lessee from lessor• Lessee has right of offset – payments are
reduced• A rebate or discount
Lessee reduces the amount of the underlying asset and liability at beginning lease term
70
Contracts with Multiple Components
Contract with lease and nonlease components• Separate lease component from nonlease component• Treat as separate contracts
Multiple underlying assets in same lease and assets have different lease terms• Each underlying asset treated as separate component
(lessee and lessor)• Allocate contract price to each component using
reasonableness and professional judgmento Prices for each component in the contracto Stand-alone prices for similar assets
• If cannot determine allocation, treat as a single-lease unit
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Contract Combinations
Criteria for treating as a single contract• Entered into at or near the same time with the
same counterparty and one of the following:oNegotiated as a package with a single objectiveoConsideration paid in one contract depends on the
price or performance of the other contract
Then, evaluate as a contract with multiple components
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Lease Modifications Amendments to lease contracts
• Normally a modificationo If right to use reduced = partial termination
Treatment of modification• Treat as separate lease if both exist:
o Lessee receives one or more underlying assets not part of original lease
o Increased payments for additional asset are not unreasonable• If not, treat as remeasurement
73
Lease Modifications (cont.) Remeasurement
• LesseeoRemeasure lease liabilityoAdjust lease asset – difference between remeasured
liability and liability before lease modification• Lessor
oRemeasure lease receivableoAdjust deferred inflow of resources – difference
between remeasured receivable and receivablebefore remeasurement
74
Terminations Lessee’s right to use asset is reduced
• Lease term shortened• Number of assets reduced
Treatment• Lessee
oReduce lease liability and assetoDifference = gain/loss
• LessoroReduce lease receivable and deferred inflowoDifference = gain/loss
75
Subleases
Treated as a separate transaction• Lessee now also the lessor• No offset of transactions
oOriginal lessee– Right to use asset and liability (original lease)– Receivable and deferred inflow of resources (sublease)
76
Effective DatePeriods beginning after December 15, 2019
Apply retroactively• Facts and circumstance of the lease in period of
implementation (not inception of the lease)oRemaining lease payments at beginning of period will become the future
lease payments
• Restatement of beginning net position in period of implementation may be needed
GASB implementation guide expected • Exposure Draft - February 2019; Final -June 2019
77
GASB Statement No. 88 Certain Disclosures Related to Debt,including Direct Borrowings andDirect Placements
Issued: April 2018Effective Date: Periods beginning after June 15, 2018
GASB 88
Establishes new note disclosure requirements for long term debt, including direct borrowings and placements.
Effective for reporting periods beginning after June 15, 2018. Earlier application is encouraged.
79
Purpose Many governments use bank loans or private
placement of debt instead of accessing the bond market • Lower costs of issuance / complexity• relationship with local bank
Accelerated payment requirements and other provisions of private debt expose governments to financial risks
Inconsistent interpretation and application of disclosure requirements for such debt
80
Definition of Debt
A liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established.
Excludes leases (except for contracts reported as a financed purchase of the underlying asset) and accounts payable.
81
Additional Disclosures
Amount of unused lines of credit Assets pledged as collateral for debt Terms specified in debt agreements
related to significant:• Events of default with finance-related
consequences, • Termination events with finance-related
consequences, and • Subjective acceleration clauses
82
Disclosures (continued)
Separate information in debt disclosures • Direct borrowings and direct placements
of debt • Other debt
83
GASB Statement No. 89 Accounting for Interest Costs Incurred before the End of a Construction Period
Issued: June 2018Effective Date: Periods beginning after December 15, 2019
GASB 88
Seeking consistent treatment of interest costs of assets being constructed
Based on GASB Concept Statement 4• Interest costs do not provide present service
capacity – not assets• Financing decision separate from asset
construction – interest costs not inseparable from asset
Prospective implementation
Interest Costs Incurred Prior to the End of Construction
86
GASB 89: No Capitalization
Economic Resources
Current Financial
Resources
Expense in the period interest cost incurred
Expenditure when due and payable [unchanged]
GASB Statement No. 90 Accounting and Financial Reporting for Majority Equity Interests
Issued: August 2018Effective Date: Periods beginning after December 15, 2018
GASB 90 - Equity Interest
A financial interest In a legally separate organization represented by shares of stock or otherwise having an explicit, measurable right to net resources of organization, that is usually based on an “investment” of financial or capital resources by a government
88
Equity Interest (cont.) A government has an explicit, measurable
right to net resources of an entity if the• Government has a present or future claim to
net resources, and• Government’s share is determinable• Excludes residual interests in assets that may
revert to a government upon dissolution of an entity
89
Investment Determination Investment asset criteria
• Government holds primarily for income or profit, and• Has a present service capacity based solely on ability
to generate or be sold for cash
90
Investment MEI Report
• Investment asset of the government or fund that holds MEI
• Do NOT also report entity as a CU Measure using the equity method, except use
fair value if investment is held by a designated kind of government or fund• Special-purpose government engaged only in
fiduciary activities (pension/OPEB)• Fiduciary fund• Endowment (term or permanent)• Permanent fund
91
Non-investment MEI Report:
• Non-investment asset of the government or fund that holds MEI
• A CU because MEI = financial accountabilityo If blended CU, eliminate asset and CU net position
Measurement :• Economic Resources MF – Use equity
method• Current Financial Resources – Report only
current financial resources (payables & receivables between government and entity)
92
100% Equity Interest in CU Follows guidance for government
acquisitions (Cod. Co10, GASB 69) CU measures assets, deferred outflows,
liabilities, and deferred inflows at acquisition value as of acquisition date • Acquisition value = Price that would be paid
for acquiring similar assets, with similar service capacity, or discharging the liabilities assumed as of acquisition date
• Acquisition date = Date on which the government acquires 100% equity interest
93
100% Equity Interest in CU (cont.)
Total consideration paid by government includes all net resources exchanged to complete the acquisition, whenever paid, including related deferred outflows
Net position acquired by government (non-investment MEI asset & deferred outflows) = net position of CU after re-measurement
CU flows statement includes only post-acquisition activity
94
Implementation
Effective - periods beginning after December 15, 2018
Early implementation is encouraged Retroactive implementation - restatement
of beginning net position of• First period presented, or• Earliest period restated and explain reason for
not restating earlier period(s)
95
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II. GFOA Update
GFOA is a non-profit association focused on the professional management of governments
Established in 1906 19,500+ Members Offices in Chicago and Washington, DC Product and Services
• Best Practices• Annual Conference• Publications• Training• Award Programs• Consulting• Research• Advocacy
98
Current membership 19,500 +S99
GFOA Best PracticesS100
http://www.gfoa.org/best-practices
GFOA Best Practices
http://www.gfoa.org/best-practices
GFOA has over 30 Best Practices & Advisories Pertaining to Accounting, Auditing & Financial Reporting
GFOA Best Practices
http://www.gfoa.org/best-practices
GFOA has over 40 Best Practices & Advisories Pertaining to Pension and OPEB
Free Webinar on New Best Practices and Advisories
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Broadcast October 23, 2018 –Recording available on demand at GFOA.org
Who Makes this Stuff Up?GFOA has 7 standing committees that advise on specific areas of government finance1. Committee on Accounting, Auditing, and Financial
Reporting [CAAFR]2. Committee on Canadian Issues [CCI]3. Committee on Economic Development and Capital
Planning [CEDCP]4. Committee on Governmental Budgeting and Fiscal Policy
[BUDGET]5. Committee on Governmental Debt Management [DEBT]6. Committee on Retirement and Benefits Administration
[CORBA]7. Committee on Treasury and Investment Management
[TIM]
S104
Standing Committees Meet twice a year (at annual conference and
Dec –Jan) Limited to 25 GFOA members each Members selected through an application
process and appointed by GFOA’s president Recommend new policies, best practices
and advisories Develop resources for members Leadership pipeline
֎ Apply after conference for the next year֎
S105
113th Annual Conference
3 Keynote Addresses 2 Major Social /
Networking Events Concurrent Sessions
• 9 Core Tracks• 10 Series Themes
7 Targeted Networking Sessions
20 CPE + optional preconference seminars for more
Conference and Housing Registration is Open
Conference Brochure is Available on-line
Including Session Descriptions (not all)
113th Annual Conference
Preconference Seminars:
May 17 & 18
Standing Committees:
May 18
Main Conference:May 19 - 22
Government Finance Reviewo 6 issues / yearo Practitioner
authorso Focused on case
studies and lessons learned
Highlight: Accounting Angle
National Training (Live)S109
Accounting Courses Level Length (Days)Accounting Academy Basic 4Intermediate Governmental Accounting Intermediate 2Advanced Governmental Accounting Advanced 2Accounting for Pensions and OPEB Intermediate 1Accounting and Financial Reporting for Capital Assets
Intermediate 1
Accounting and Financial Reporting for Enterprise Funds
Intermediate 1
Preparing a CAFR Basic 1Advanced Financial Reporting Advanced 2Evaluating Internal Controls Basic 1Budget Level Length (Days)Budget Academy Basic 4Managing the Budget Process Advanced 2Long Range Financial Planning Intermediate 2Budgeting Best Practices Intermediate 2Effective Budget Presentation Basic 1
Capital Finance & Debt Management Various Levels
Financial Management Various LevelsPension & Benefit Administration Various LevelsTreasury Management Various Levels
Internet TrainingS110
https://www.gfoa.org/search-for-training
Webinar Training (Live Streaming)S111
Rebroadcasts of Offerings Still Available – December & January
Award Programso Award for Excellence in Government Finance
[Competitive awards issued annually at conference]
o Budget process awards: Award for Best Practices in School Budgeting Award for Best Practices in Community College Budgeting
o Document-based awards:
S112
Awards for ExcellenceIn Government Finance
Recognize innovative programs that exemplify outstanding financial management
Two categories:• Creative solutions to common challenges• Exceptionally well implemented GFOA best
practices Judging criteria include:
• Local significance and value• Technical significance• Transferability• Cost/benefit analysis
S113
Budget Process Awards 2 Best Practices in Budgeting Programs
• School Budgeting Program• Community College Budgeting Program
Began in 2012 with grant from Gates Foundation, now solely GFOA
Focus on process, not product Purpose:
Develop a budget process that is intended to clearly articulate how funds are allocated to support strategic goals.
The program includes feedback on policies and principles to guide the budget process, development of budget process goals and strategies, budget process implementation planning, and continuous improvement in the budgeting process.
Best Practices in School BudgetingS115
http://www.gfoa.org/pk-12budgethttp://smarterschoolspending.org/
Document Award Programs Disclaimer
GFOA award programs are intended to recognize governments’ efforts to make high quality financial reports or budget documents available to the public.*GFOA relies on each government’s assertions and information supplied in their award application. GFOA makes no guarantees, representations, or warranties regarding the accuracy of the financial information made available by award recipients or the financial solvency or soundness of any government as part of the award programs. Receipt of a GFOA award is not, and may not be inferred or assumed to be, GFOA’s endorsement, evaluation or approval of a recipient’s financial information or practices beyond what is listed in GFOA’s evaluation criteria for each award. *For budget process awards, the intention is to encourage governments to implement process improvements aligned with GFOA’s best practice statements.
116
Distinguished Budget Presentation
Referred to as “Budget Document Award” Program
Established in 1984 Purpose:
To encourage governments to present budget documents that are clear and understandable and that provide transparent information about policy, financial planning, operations, and communications.
Over 1,770 award winners for fiscal years beginning in 2017
117
Budget Document Award Criteria27 Award Criteria in 6 Categories:
1. Introduction and overview • TOC, goals, priorities, overview
2. Finance, Structure, Policy, and Process• Org chart, department/fund relationship, financial & budget policies
3. Financial Summaries• Multi-year consolidated financial schedules, fund balance, revenue, LT
financial plan4. Capital and Debt
• Capital expenditures, impact of capital investment on operating budget, debt5. Departmental Information
• Position summary schedule, department descriptions, goals and performance measures
6. Document-wide Criteria• Statistical section, glossary, charts and graphs, over understandability and
usability
118
Under review – may lead to updating criteria to incorporate process elements for along with document requirements for general purpose and other governments
Certificate of Achievement for Excellence in Financial Reporting
Referred to as “CAFR Award” or “CAFR Certificate” Program
Established in 1945• Oldest of all GFOA’s Award Programs
Purpose: To encourage state and local governments to prepare comprehensive annual financial reports using generally accepted accounting principles.
Almost 4,300 award winners for FY 2016 CAFRs • Largest of all GFOA’s Award Programs
119
Participation by Cities*
Cities with Populations over
AwardWinners as a % of All US Cities*
200,000 99%
100,000 90%
50,000 75%
25,000 60%
10,000 41%
Up to 10,000 1%
All 6%
* Includes cities, municipalities, villages and towns
120
Participation by Counties
Counties with Populations over
AwardWinners as a % of All US Counties*
250,000 83%
100,000 66%
50,000 50%
25,000 34%
10,000 23%
Up to 10,000 0.6%
All 18%
121
Participation by School Districts
Student EnrollmentAwardWinners
1 - 9,999 274
10,000 – 24,999 126
25,000 – 49,999 77
50,000 – 99,999 48
100,000 + 29
122
Other Participants
Government TypeAwardWinners
States 43
Enterprise Funds 511Public Employee Retirement Systems (PERS)
173
Colleges and Universities 83All other 309
123
New Checklist Format
New ‘Condensed’ Checklist Format125
NOTE TO READERS:The format of the checklist has been changed. The checklist is no longer an exhaustive list of every disclosure required by GAAP, but a reference tool to help preparers find the information necessary to prepare a CAFR. The checklist provides preparers references to where the detailed required disclosures can be found in the authoritative literature.
New ‘Condensed’ Checklist Format (cont.)
New standards receive comprehensive coverage Total number of pages general purpose checklist = 79 Total number of pages dedicated to pension & OPEB
disclosure (notes and RSI) pages = 36 Pension & OPEB > 45%
126
Transition to Codification Citations
GASB-S34:63; COD 1300:103
GASB-S34:63; COD 1300:103GASB-S34:63; COD 1300:103
127
Process1. Application received – electronic or paper (for now) – and
entered into system• Applicants Identified by GFOA Using Member ID of Applicant Government (Not
Individual Person) - Found on PY report of comments2. Sent to volunteer reviewer3. In-house review – highly detailed, checking all criteria4. Final review (in-house):
• Considers initial in-house and volunteer reviewers’ comments• Focus on asterisked “ * “ criteria = Mandatory fail if missing
o Continuing participants may receive warning• Makes award/deny determination in consultation with other senior TSC staff
5. Results and comments sent to applicant• Comments must be addressed in subsequent year submission
128
Technical Services Center Responsible for CAFR, PAFR, CanFR, and
Budget Documents Award Programs Staffing:
• 16 Professionals (two vacancies) – 11 Primarily Award Programs
• 4 Support – All Primarily Award Programs• 2 Interns – Both Primarily Award Programs
Initial reviewers: approximately 11 – 15 reviews per week
Final reviewers: approximately 25 reviews per week
129
Volunteer Participation Oversight / Direction
• Special Review Executive Committee (SREC)• Appointed by President – Staggered Terms• Chairperson - Final Decisions on Appeals
Outside / Peer Reviewers• All Volunteer
oStaff Development• Perform up to 12 per year (1/month) – Volunteer selects
months and maximum reviews/year• Provide Comments and Vote Sheet• GAAP Update
130
Popular Annual Financial Reporting
Referred to as “PAFR Award” Program Established in 1991 Must win CAFR Award for same FY to Win
However, may apply before being notified on CAFR Award
Purpose: To encourage governments to prepare a clear and understandable popular annual financial report (PAFR) to make financial information accessible and understandable to ordinary citizens and other interested parties who may be challenged to understand traditional financial reports.
400 award winners for FY 2016 PAFRs
131
PAFR Award Program Criteria
Reader Appeal (10%) • Length, organization, aesthetics
Understandability (25%)• Jargon free charts & graphs, narrative clarity
Distribution (7.5%)• Number, methods
Other (7.5%)• Creativity
Overall Quality and Usefulness (50%)
132
Discontinued Small Government Award Program
Certificate of Conformance Program for Small Government Annual Financial Reports Award Program for Small Government Cash Basis Reports Initiated by GFOA Board Action October 2012 Highest Annual Participation – 3 Governments Discontinued February 2018
• Exception for continuing governments
133
Notwithstanding, GFOA is committed to helping small governments, which for practical reasons do not prepare GAAP financial statements and CAFRs, find appropriate financial reporting rubrics that provide internal decision makers, oversight bodies and officials, and the public with the verifiable financial information necessary for their purposes.
Small Government Financial Reporting Initiative
Committee formed with GFOA, ICMA, GASB and other interested parties
Purpose• Identify financial information that is necessary for
small government users to assess accountability and make decisions, and
• Develop tools to assist small government preparers report that information.
134
Certified Public Finance OfficerS135
Certified Public Finance Officer
Eligibility: • Bachelor's degree from an accredited college
or university• Accept GFOA’s Code of Professional Ethics• Full time government employee (or
unemployed immediately after – and seeking new - government employment).
• Min 3 years government employment in 10 years
• GFOA Membership
S136
Certified Public Finance Officer
Self-study reading list 5 subject matter exams passed over 7
years:• Governmental accounting, auditing, and
financial reporting• Operating and capital budgeting • Debt management• Treasury and investment management• Retirement and benefits, risk management,
and procurement
S137
CPFO Program Review Twelve-member project steering committee
• GFOA Council on Certification• GFOA Executive Board members and prior members
who serve(d) as city managers or in similar positions Staff from GFOA’s Research and Consulting
Center and Technical Services Center Comprehensive review identifying:
• Core body of knowledge• Resources available to promote mastery of skills and
knowledge• Assessment • Continuing education
S138
GFOA Consultingo GFOA has become a nationally recognized leader in the
ERP system market generating value for clients through: Software selection / contract negotiations Reducing costs Reducing risk during implementation Providing best practice recommendations for improving
business processes
S139
Research ReportsS140
http://www.gfoa.org/research-reports
GOVERNMENT FINANCE OFFICERS ASSOCIATION 141
Financial Sustainability Framework
• Developed from Nobel Prize winning research on “common pool resource theory”
http://www.lincolninst.edu/publications/working-papers/financial-sustainability-index
Financial Sustainability Framework
Advocacy Congressional Advocacy
oTax exempt municipal bondsoDeductibility of state & local taxeso Internet Sales TaxoPensions & benefitso Infrastructure
Executive Advocacy oSECoMSRB
Amicus Briefs to the Supreme Court
Public Finance NetworkThe Big Seven1. National Governor’s Association2. US Conference of Mayors3. National Association of Counties4. National League of Cities5. ICMA6. Council of State Governments7. National Conference of State Legislatures
The Financial Four8. National Association of State Treasurers9. National Association of State Budget Officers10. National Association of Comptrollers, Auditors
and Treasurers
Schools24. National Association of School Boards25. National Association of College and
University Business Officers26. Association of School Business Officers27. National Education Association
Housing11. National Association of Local Housing Finance
Authorities12. National Council of State Housing Agencies
Power28. Large Public Power Association29. American Public Power Association
Conduit Issuers13. National Association of Health & Educational
Facilities Finance Authorities14. American Hospital Association
Public Works and Utilities15. American Public Gas Association16. American Public Transportation Association17. American Public Works Association
Water18. American Water Works Association19. Association of Metropolitan Water
Agencies20. National Association of Clean Water
Agencies21. Water Infrastructure Network22. National Water Resources Association23. Water Reuse Association
All Other Partners30. The National Association of Towns
and Townships31. American Planning Association32. American Society of Civil Engineers33. International Economic
Development Council34. International Public Management
Association for Human Resources35. National Association of County and
City Health Officials36. National Association of County
Community and Economic Development
37. National Association of Development Organizations
38. National Association of Regional Councils
39. National association of Resource Conservation and Development Councils
40. National Community Development Association
41. National Council on Teacher Retirement
42. National Association of State Retirement Administrators
SEC Update
In August, the Securities and Exchange Commission approved new Amendments to Rule 15c2-12 • Effective February 27, 2019
Governments will have to state in continuing disclosure agreements entered on or after the effective date that they will disclose to the market:
144
SEC Update (cont.)1. Any new and material financial obligations
• bank loans, • capital leases, • swaps, • variable rate obligations, • other financial products that “operate as
vehicles to borrow money”2. When an outstanding or new financial
obligation reflects material financial difficulties
145
SEC Update (cont.)
The most important first step:• Talk with bond and/or disclosure
counsel about how these changes specifically relate to your debt program and future bond issuance and other financial transactions.
Next step: • GFOA webinar January 9, 2019
146
Future of the profession initiativeS147
Inspiring Careers in Local Gov’tS148
Code of Ethics ModernizationS149
• Current code decades old• Goal is to develop new code
that is: Values based Addresses current
realities• Use latest research: Giving Voice to Values Ethicalsystems.org
• Engage members in process• Support with research &
training
Getting Involved with GFOA Committees National and Internet Training Participation in Research Project Award Reviewer Networking Group
• Urban Forum• Small Government Forum• Utility Forum• Black Caucus• Women’s Public Finance Network
GFOA Social MediaRelaunching Leadership Academy Fall 2019
S150
III. Common Reporting Deficiencies
Comments Database of Standard Comments
• Used by in-house reviewers• Over 1,500 Standard Comments in
Database (General Purpose)• Some Deficiencies, Some
Recommendations Non-standard comments also used
• Over 1,300 Used in 2017; • Not in Statistics Used
152
Reporting Deficiencies All Comments Reported to Applicants
• Virtually Always Include at Least One Comment
If Award Denied, Most Significant Reason(s) Noted
If Award Granted But Significant Issue Noted• Warning of Subsequent Denial if Not Corrected• Only for Continuing Participants• Will Deny Next Year Unless Corrected
153
Reporting Deficiencies (cont.) Continuing Applicants Must Address
all Comments Noted in Prior Year Suggestion: Address Comments
Immediately Upon Receipt
154
Common Reporting Deficiencies50 Most Frequently Cited Deficiencies for FY 2016 CAFRs:
155
Pensions Comprise 4 of Top 10 Most Common Deficiencies [and 12 of Top 50]
1. Covered payroll – funding progress v. employer contributions [RSI]
2. Which governmental funds liquidate pension liabilities? [Notes]
3. Donated assets at “acquisition value” (not “fair value”) [Notes]
4. Debt service as a % of non-capital expenditures [Stats]
5. Disclosures about each type of asset measured at fair value
6. Pension contributions made after measurement date &
before government’s FYE [Notes]
7. Debt capacity schedules should match financial statements [Stats]
8. Aggregate for all plans’ pension: liabilities, assets, deferred items, and expenses/expenditure [Notes]
9. “Unmodified” v. “unqualified” opinion [Auditor’s Opinion]
10.Total direct debt includes bonds, notes, COPs, loans, and capital leases [Stats]
156
Letter of Transmittal Government is transmitting the audited financial
statements Cannot transmit something you do not have Date of transmittal letter cannot be before the date
of the independent auditor’s report• Dated on or after independent auditor’s report date
[GAAFR, 592]
157
Management’s Discussion and Analysis
Missing Explanations for Significant Changes Amounts Do Not Agree to Financial
Statements …or to Transmittal, Note Disclosures, RSI, etc.
Should Include Ending Net Position
158
MD&A Deferred outflows and inflows are separate elements Governments combining deferred outflows with assets and
deferred inflows with liabilities in condensed statement of net position. Governmental Activities
2017 2016Assets
Current and other assets 100$ 85$ Capital asset, net 90 88
Total Assets 190$ 173$
Deferred outflows of resources 50$ 48$
LiabilitiesCurrent and other liabilities 45$ 46$ Long-term liabilities 60 55
Total Liabilities 105$ 101$
Deferred inflows of resources 44$ 40$
159
Government Wide –Statement of Net Position
Net Investment in Capital Assets• Miscalculated byoExcluding Deferred Gains and Losses on RefundingoIncluding Unspent Bond Proceeds
• MislabeledoNet Investment in Capital Assets v Invested In Capital Assets,
Net of Related Debt
Net Pension (and OPEB) Liabilities –Report with Non-current Liabilities
160
Governmental Fund Statements
Failure to Report All Major Funds Inappropriate Use of: Special Revenue Fund Type Other Financing Sources or Uses
Reporting in a Fund Type other than the General Fund (FG): Positive Unassigned Fund Balance
GF Inventories and Prepaid Items - Nonspendable Amount of Other Financing Source From Issuance of
LT Debt Should = Addition to LT Debt from Note Disclosure
161
Proprietary Fund Statements Capital contributions should be reported if
capital grants were reported in statement of activities
Cash Flow Statement:• Report receipts and disbursements gross rather than
net (generally)• All cash flows not properly reported as capital and
related financing activities, noncapital financing activities, or investing activities are reported as cash flows from operating activitiesoEven if Nonoperating on the Statement of Revenues, Expenses
and Changes in Net Position
162
Financial Statement Recognition Government-wide statement of net position, employer’s
(collective) net pension/OPEB liability should be reported with noncurrent liabilities due in more than one year*
* Unless a pension/OPEB plan’s fiduciary net position is less than the amount expected to be paid within one year
163
Noncurrent Liabilities
Due within one year 10,403,155
Due in more than one year
Bonds payable 38,827,143
Net pension liability 9,756,238
Net OPEB liability 37,961,200
Claims and Judgements 659,214
Other noncurrent liabilities do in more than one year 4,950,995
Total non-current liabilities do in more than one year 92,154,790
Fiduciary fund display In fiduciary fund financial statements, all pension (and
other employee benefit) trust funds are reported in a single column
164
Pension (and Other Employee Benefit)Trust Funds
Investment Trust Funds
Private-Purpose Trusts
Custodial(formerly Agency) Funds
Net position restricted for:
Pensions 29,897,802
OPEB 12,813,343
Pool participants 2,075,946
Individuals, organizations, and o other governments 886,024 99,842
Employer Aggregate PEB Disclosure165
PEB Disclosures Presented for Each Plan
Description of the plan: disclose whether the pension plan is a single-employer, agent multiple-employer, or cost-sharing multiple-employer defined benefit plan
Disclose pension/OPEB contributions made after the measurement date but before period end:• The amount of such contributions (which are reported as deferred
outflows of resources),• That they will not affect expense in subsequent years (as will other
deferred items), and• That they will be recognized as a reduction of net pension
liability/collective net pension liability in the subsequent reporting period.
166
PEB Disclosures Presented for Each Plan (cont.)
Disclose the amounts of the of deferred outflows and inflows of resources for each plan• Totals should equal amounts
in basic statements
Schedule of the net amount of deferred outflows and inflows of resources separately for each plan that will be recognized in the employer's pension expense for each of the subsequent five years, and, at a minimum, in the aggregate for subsequent years. Should not include amount of contributions
made subsequent to measurement date
2018 458,200$ 2019 303,510 2020 303,510 2021 303,510 2022 303,510
Thereafter 755,811 Total 2,428,051$
Deferred Deferredoutflows inflows
of resources of resourcesDifference between expected and
actual experience -$ 152,300$ Changes in assumptions 130,251 - Earnings on pension plan investments 2,450,100 - Contributions made subsequent to
the measurement date 458,622 - Total 3,038,973$ 152,300$
167
PEB Disclosures Presented for Each Plan (cont.)
Employers that provide pension or OPEB benefits through plans that are administered through GASB PEB trusts:• If the plan issues GAAP financial statements, the
employer must disclose how they may be obtained (link to website)
• If the plan does not issue GAAP financial statements, the employer must include a complete set of financial statements and note disclosures for the plan in its own note disclosures, and plan RSI in its own RSI
168
Disclose Funds that Pay Pension, OPEB, and Compensated Absences Liabilities
The notes to the employer’s financial statements should disclose what funds typically have been used in prior years to liquidate pension/OPEB (and other long-term) liabilities
169
Note Disclosures - OtherComponent Units Missing complete explanation as to either or both: Why Entity is a CU?
oe.g., entity fiscally dependent & potential benefit/burden on PG; PG appoints voting majority of entity’s board & has ability to impose will
• Why CU is Blended?oe.g., governing bodies of PG and entity substantially same, AND either
(a) potential Benefit/Burden, or (b) PG management has operational responsibility for entity
Not Distinguishing PG Pension from CU Pension Disclosures
170
Note Disclosures – Other (cont.)Valuation Donated Assets – Reported at Acquisition Value (v. Fair
Value)
Missing Disclosures about Each Type of Asset Reported at Fair Value - Description of valuation techniques• Use term Fair Value (v. Market Value)
It is Not Necessary to Disclose Credit Ratings for US Treasury or other Obligations Explicitly Guaranteed by the US.
Inventory:• Supplies – Cost• For Resale - LCM
171
Note Disclosures – Other (cont.)
Schedule of Changes in Capital Assets Explain if and why decrease in accumulated
depreciation is NOT accompanied by a decrease in same classification of depreciable dssets
Explain why a decrease in construction-in-progress is greater than an Increase in capital assets
Debt Refunding (Defeasance or Redemption) Disclose difference in debt service between old & new
Debt
172
Note Disclosures – Other (cont.)Miscellaneous Missing pledged revenue disclosures Modify fund balance disclosures to indicate that only
the general fund can report a positive unassigned fund balance
Separately disclose increases and decreases in compensated absences
disclose significant encumbrances • For each major fund and in total for nonmajor funds
173
Required Supplementary Information Schedule of employer contributions
• Information should be as of the most recent fiscal year end, not measurement date
• Payroll-related measure is covered payroll, not covered employee payroll.
2017 2016 2015 2014
Actuarially determined contribution 79,713$ 86,607$ 89,828$ 91,963$
Contributions in relation to the actuarially determined contribution 79,713$ 86,607$ 89,828$ 91,963$ Contribution deficiency (excess) -$ -$ -$ -$
Covered payroll 449,293$ 436,424$ 416,243$ 407,812$
Contributions as a percentage of covered payroll 17.74% 19.84% 21.58% 22.55%
174
Payroll-related Measures in RSI175
Statistical SectionDebt Miscalculation of debt service as % of noncapital
expenditures • Use capital outlay amount from reconciliation of statements of
revenues, expenditures and changes in fund balances to the statements of activities
Amounts in debt capacity schedules should match F/S• Premiums and discounts should be included in schedules
Total direct debt should include All LT debt instruments of governmental activities • Bonds, Notes, COPs, Direct Loans, Capital Leases
176
Easily Avoided But Frequent Errors Indentation under revenue heading of items that are
Not revenue• Contributions, special and extraordinary items, transfers
Grants inconsistently reported as operating or capital between government-wide and fund F/S
Net position (v. net assets)
• Net position in pension trust fund should be labeled “Net position restricted for pensions”
Capital assets (v. fixed assets)
177
Laugh or Cry…? Numbers do not match
• Between position and activity statements
Numbers do not articulate / differences not explained• Between sections
oTransmittal letter, MD&A, government-wide FS, fund FS, notes, RSI, statistical section
oFrequent examples include: deferred Inflows/outflows for pensions, capital assets
Rounding Errors
178
IV. GASB Codification
180
Original PronouncementsCodification
Which one are you relying on?
GASB Codification GASB’s Codification is a comprehensive
one-stop source for:• Applicable NCGA literature• Applicable AICPA accounting guidance • GASB:
o Statements o Interpretationso Technical bulletinso Implementation guideso Concept statementso Illustrations and flowcharts
Authoritative
Non-authoritative
GASB Codification contents
Consists of five parts:• Part 1 (1000 series) General Principles• Part 2 (2000 series) Financial Reporting• Part 3 (3000 series) Measurement• Part 4 (Alpha designations) Specific Topics
i.e. Pensions=P20• Part 5 (Alpha) Stand Alone Reporting-
Special Units & Activities
Volume 2
Volume 1
GASB Codification contents
Appendicies:• GASB Pronouncements Not Yet in Effect –
Including codification instructions• GASB Concepts Statements• NCGA Objectives of Accounting and Financial
Reporting for Governmental Units• Effective Dates of Pronouncements• Finding List of Original Pronouncements
GASB Codification contents (cont.)
Within each Section:• Paragraphs .101-.499-Standards A• Paragraphs .501-599-Definitions A• Paragraphs .601-699-GASB Technical Bulletins B• Paragraphs .701-.799-GASB Implementation B
Paragraphs .801-.899-AICPA literature cleared by GASB B
• Paragraphs .901-.999-Nonauthoritative materials, such as flowcharts and illustrations
A Category A GAAP B Category B GAAP
GASB Codification
Q & A immediately following standard being clarified
Illustrations have been updated to reflect changes to GAAP since the standards were originally issued
What’s missing from the Codification?• Statement introduction paragraphs• Statement backgrounds & bases for conclusions• Most transition guidance
186
https://gars.gasb.org
Free access to all GASB Original Pronouncements & Codification
V. GASB Conceptual Framework –
Financial Reporting
Existing Concepts Statements
1. Objectives of Financial Reporting2. Service Efforts and Accomplishments3. Communication Methods in GPEFR that
contain BFS4. Elements of Financial Statements5. Service Efforts and Accomplishments
[take 2]6. Measurement of Elements of Financial
Statements
Financial Reporting Concepts Statements & Projects
1. Objectives of Financial Reporting2. Service Efforts and Accomplishments
3. Communication Methods in GPEFR that contain BFS
4. Elements of Financial Statements5. Service Efforts and Accomplishments
6. Measurement of Elements of Financial Statements
7. Preliminary Views (PV) Issued -Recognition of Elements of Financial Statements
8. Newly Added to Agenda - Disclosure Framework
#1: Objectives of Financial Reporting
Primary users: Citizens Legislative & oversight bodies Investors & creditorsPrimary objective: Accountability“The Board considers it [accountability] to be the paramount objective from which all other objectives must flow”
190
Concepts Statement 1 (cont.)Financial reporting should enable users to assess accountability1. Provide information to determine whether
current-year revenues were sufficient to pay for current-year services [Economic Resources/Government-wide reporting]
2. Demonstrate whether resources were obtained and used in accordance with the legally adopted budget and compliance with finance related legal & contractual requirements [Fund reporting]
3. Assess the service efforts, costs, and accomplishments
191
Concepts Statement 1 (cont.)
Other objectives of financial reporting and related concepts include assisting users in evaluating: Financial condition and results of
operations Efficiency and effectiveness Interperiod equity Ability to meet obligations as they come
due
192
Concepts Statement 1 (cont.)
Characteristics of information in financial reporting: Understandability Reliability Relevance Timeliness Consistency Comparability
193
#3: Communication Methods in GPEFR that contain BFS
Hierarchy of communication methods
194
Recognition in basic financial statements
Disclosure in notes to basic financial statements
Presentation as required supplementary information
Presentation as supplementary information
Concepts Statement 3 (cont.) Recognize
• Elements of financial statements, that are• Measurable with sufficient reliability
Note disclosures• Integral to financial statements, and• Essential to user’s understanding thereof• Provide:
o Descriptions of policies underlying recognized amountso Additional detail or explanationo Additional information that does not meet criteria for
recognition
195
Concepts Statement 3 (cont.) Required supplementary information
• Supporting information, that • GASB has concluded is essential for placing
BFS & notes into appropriate contextoOperationoEconomicoHistorical
Supplementary information• Supporting information, that • Is useful for placing BSF and notes into
appropriate context
196
#4: Elements of Financial Statements
Recognition in BFS requires an item to meet the definition of a FS element
Resource An item that can be drawn on to provide
services to citizenry
197
Concepts Statement 4 (cont.)
Elements of financial statements Assets
• Resources with present service capacity that the government presently controls
Liabilities• Present obligations to sacrifice resources that
the government has little or no discretion to avoid
198
Concepts Statement 4 (cont.)
Outflows of Resources• A consumption of net assets* by the
government that is applicable to the reporting period
Inflows of Resources• An acquisition of net assets by the
government that is applicable to the reporting period
* Assets netted with liabilities
199
Concepts Statement 4 (cont.) Deferred Outflows of Resources
• A consumption of net assets by the government that is applicable to a futurereporting period
Deferred Inflows of Resources• An acquisition of net assets by the
government that is applicable a reporting period
Net position• The residual of all other elements in
statement of financial position
200
#6: Measurement of Elements of Financial Statements
Measurement Act/process of determining the value for
elements presented in financial statements
Measurement approaches Initial amount, use for
• Assets used directly in providing services Remeasured amount, use for
• Assets that will be converted into cash• Variable-payment liabilities
201
Concepts Statement 6 (cont.)Focus on Assets and Liabilities “Balance sheet approach” Deemphasizes “matching” Measurement Attributes Historical cost Fair value Acquisition value Replacement cost Settlement amount
202
#7(?): Recognition of Elements of Financial Statements
Recognition hierarchy of elements
203
Meets definition of asset or liability? If yes, recognize as such.
Meets definition of deferred outflow/inflow of resources?If yes, recognize as such.
Meets definition of outflow/inflow of resources?If yes, recognize as such.
If no to all - don’t recognize in financial statements
#7(?): Recognition of Elements of Financial Statements (cont.) Recognition when
• Meets definition of an element within context of the measurement focus applicable to the financial statementoExpansion of “recognize elements” in Concept
Statement No. 3• Reflects qualitative characteristics of
information in financial report oConcept Statement No. 1oExpansion of “Measurable with sufficient reliability”
in Concept Statement No. 3
204
#8(?): Disclosure Framework Expansion of Concepts Statement
No. 3, Communication Methods…• Develop concepts to further clarify what
is “essential”• Staff and GASB will “test” new concepts
with existing disclosures
205
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