GASB Update: Prepare Now to Implement Successfully January 13, 2017 - PowerPoint PPT Presentation

GASB Update: Prepare Now to Implement Successfully January 13, 2017 The webinar will begin at 12:30 pm CT. Tara Laughlin, CPA, CGFM Senior Manager, Assurance Services

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Our Presenter Tara J. Laughlin, CPA, CGFM • 7 years’ experience, specializing in providing auditing and consulting services to a variety of governmental and not-for-profit entities • Member of the: •American Institute of Certified Public Accountants •Government Finance Officers Association

Learning Objectives Understand key changes impacting accounting and financial reporting Learn what you can do now to prepare Determine how your entity could be affected in the future

New GASBs

Standard Effective Date (periods YE Starting beginning after) Effective Dates 72 – Fair Value Measurement 6.15.15 6.30.16 73 – Pensions not within scope of GASB 68 6.15.15 (assets) 6.30.16 6.15.16 (ER) 6.30.17 74 – Financial Reporting for OPEB Plans 6.15.16 6.30.17 75 – Accounting & Financial Reporting for 6.15.17 6.30.18 OPEB (employer) 77 – Tax Abatement Disclosures 12.15.15 12.31.16 78 – Certain Multiple-Employer Defined Benefit 12.15.15 12.31.16 Pension Plans 79 – Certain External Investment Pools and 6.15.15 6.30.16 Pool Participants 80 – Blending Requirements for Certain 6.15.16 6.30.17 Component Units 81 – Irrevocable Split-Interest Agreements 12.15.16 12.31.17 82 – Pension Issues 6.15.16 6.30.17 83 – Certain Asset Retirement Obligations 6.15.18 6.30.19

Polling Question #1

72 – Fair Value Measurement • Defines what is measured at Fair Value: • Investments • Exceptions to Fair Value • Certain liabilities • Provides disclosure requirements – retroactive application is required (if doing comparative statements)

72 – Fair Value Measurement • Discusses valuation techniques ; requires that observable inputs be maximized where possible • Creates a hierarchy of inputs: • Level 1 inputs: highest quality • Level 2 inputs • Level 3 inputs: lowest quality (unobservable inputs)

72 – Fair Value Measurement Level 1 – Directly observable inputs • Quoted prices in active markets for identical assets or liabilities Level 2 – Inputs observable for the asset or liability either directly or indirectly • Quoted price for similar assets or liabilities in active markets • Quoted prices for identical or similar assets or liabilities in markets that are not active • Other observable inputs (yield curves, credit spreads) • Market-corroborated inputs (by observable data, correlation, or other means)

Investments Requiring Fair Value Measurement Alternative investments reported by endowments Equity securities (including unit investment trusts and closed-end mutual funds), stock warrants and stock rights that do not have readily determinable fair values Intangible assets meeting the proposed definition of investments Land and land rights, including oil and gas properties, classified as investments Commingled investment pools that are not government sponsored Invested securities lending collateral Real estate meeting the definition of an investment asset Life settlement contracts (when there is no insurable interest, the purpose of the instrument is solely to generate cash) Debt securities reported as assets (regardless of whether they meet the definition of an investment or they were acquired or originated by the government) Securitized debt obligations

Exceptions to Fair Value Money markets and participating interest-earning investment contracts that have remaining maturities at time of purchase of 1 year or less: measure at amortized cost (does not apply if held by an external investment pool) Investments held by 2a7-like external investment pools: measure at amortized cost (see also GASB 79) Investments in 2a7-like external investment pools: measure at net asset value (NAV) per share as determined by the pool. (see also GASB 79) Unallocated insurance contracts: report like interest-earning investment contracts (fair value if “participating”, and cost if “non-participating”) Synthetic guaranteed investment contracts that are fully benefit-responsive: measure at contract value Investment in life insurance contracts: measure at cash surrender value Certain equity interests in common stock: measure using equity method Measured at Acquisition Value : donated capital assets, donated works of art or historical treasures

Use of NAV for Fair Value • Net Asset Value = NAV • Permitted to establish the fair value using NAV per share if an entity does not have a readily determinable fair value • Example: member units or an ownership interest in partners’ capital • NAV generally calculated according to FASB principles for investment companies

Disclosures For each class or type of assets and/or liabilities measured at fair value, disclose: • The fair value measurement at the end of the reporting period • The level of the fair value hierarchy (Level 1, 2, or 3) o Not applicable to investments that calculate NAV or its equivalent • A description of the valuation technique(s) o Including any change in a technique and reason for the change (if result is significantly impacted) • For nonrecurring fair value measurements, the reasons for the measurement

Disclosures: NAV • Fair value measurement of the investment type and description of the significant investment strategies of the investee • For investments that can never be redeemed with the investees, the government’s estimate of the liquidation period • Amount of unfunded commitments • General description of the redemption terms and conditions • Redemption restrictions , an estimate of length of restriction period or how long restriction has been in place • Any other significant selling restrictions • Information regarding planned sales of investments

72 – How to Prepare • Determine investments held (what meets definition of “investment”?). • Determine where to obtain “Level” information. • If using a pricing service, what valuation techniques do they use? • If using a financial institution or safekeeping agent, what is their process / source of info? • If have investments at NAV, how to obtain disclosure info?

Polling Question #2

73 – Pensions not under GASB 68 • Applies to “non-trusted” pensions • Extends concepts from GASB 68 to all pensions • Recognize liability for the Total Pension Liability (instead of Net Pension Liability) • Assets accumulated for pension purposes should continue to be reported as assets of the employer.

74 / 75 – OPEB Reporting 74 – Applies to the Plans, both those with assets held in trust, and those not administered through a trust 75 – Applies to the Employer • Similar requirements to GASB 67/68 • Difference: fewer entities have plans with assets held in trust • Annual measurements now required

74/75 – OPEB Reporting Differences from GASB 67/68: • Since few entities have a “plan” or assets held in trust, the governance / organization structure for most OPEB plans is different than for pensions – the employer has greater responsibility for determination of liability / setting assumptions. • If there is no trust, the employer will record the “total OPEB liability,” not a “net” OPEB liability.

74/75 – How to Prepare • Evaluate actuary being used. • Work with actuary on impact of changes in assumptions that GASB 74/75 requires to be used. • Scrutinize in more detail the assumptions used / data provided to the actuary.

77 – Tax Abatement Disclosures Tax abatement: Reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which: a) one or more gov’ts promise to forgo tax revenues to which they are otherwise entitled , and b) the individual or entity promises to take a specific action that contributes to economic development or otherwise benefits the governments or citizens

77 – Tax Abatement Disclosures • Tax abatements may result from one government imposing a tax abatement on another government. • Tax abatement agreements may have non-disclosure provisions.

77 – Tax Abatement Disclosures Disclosures: • Distinguish between yours and those entered into by other gov’ts that impact you. • May present individual abatements, or aggregated • If individual: only those that meet / exceed a quantitative threshold selected by the gov’t • Organize by major tax abatement program. • Disclose period of abatement, and continue disclosure until abatement period ends.