2012 ANNUAL MEETING GASB UPDATE Presented by Matthew Pehle CPA Sikich LLP 1415 W Diehl Road Suite 400 Naperville IL 60563 630 5668536 mpehlesikichcom GASB UPDATE GASB Statements to be Implemented ID: 622050
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CACUBO2012 ANNUAL MEETINGGASB UPDATE
Presented by:
Matthew Pehle, CPA
Sikich LLP
1415 W. Diehl Road
Suite 400
Naperville, IL 60563
(630) 566-8536
mpehle@sikich.com
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GASB UPDATEGASB Statements to be ImplementedStatement No. 60 through Statement No. 68 Statements with effective dates of 12/31/12 and thereafter
GASB Due Process Documents
Preliminary Views documents
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©2012 Sikich LLP. All Rights ReservedSlide3
GASB STATEMENT NO. 60 ACCOUNTING AND FINANCIAL REPORTING FOR SERVICE CONCESSION ARRANGEMENTSIssued November 2010
Effective for fiscal years ending December 31, 2012 and thereafter
June 30, 2013
A type of public-private or public-public partnershipParties: transferor, operator, customer/user
Benefits:Leverage existing infrastructure for cashGet facilities built, but transfer the risks
Provide services in a more efficient manner
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GASB STATEMENT NO. 60 ACCOUNTING AND FINANCIAL REPORTING FOR SERVICE CONCESSION ARRANGEMENTSApplicabilityConveyance of public capital asset in exchange for significant consideration
Operator collects fees from third parties
Transferor controls the terms of service delivery
Transferor is entitled to significant residual interest
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GASB STATEMENT NO. 60 ACCOUNTING AND FINANCIAL REPORTING FOR SERVICE CONCESSION ARRANGEMENTSTransferor AccountingIf existing facility, continue to report as capital asset
If facility purchased or constructed, record:
Capital Asset
XX
Contract Obligations Payable XX Unearned Revenue XX
Capital asset is subject to existing requirements for depreciation, impairment, and disclosures
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GASB STATEMENT NO. 60 ACCOUNTING AND FINANCIAL REPORTING FOR SERVICE CONCESSION ARRANGEMENTSTransferor AccountingShould recognize a liability for certain obligations to sacrifice financial resources if:
Obligation relates directly to the facility, or
Obligation relates to a commitment to maintain a minimum or specified level of service in the facility
Deferred inflow should be reduced and revenue recognized in a systematic and rational manner over the term of the SCA
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GASB STATEMENT NO. 60 ACCOUNTING AND FINANCIAL REPORTING FOR SERVICE CONCESSION ARRANGEMENTSIf SCA requires upfront or installment payments from the operator, record:
Cash/Installment Payments Receivable XX
Contract Obligations Payable XX Deferred
Revenue XX
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GASB STATEMENT NO. 60 ACCOUNTING AND FINANCIAL REPORTING FOR SERVICE CONCESSION ARRANGEMENTSAccounting for Revenue Sharing Agreements
Applicable when transferor and operator share the facility’s revenues
Bookstore, cafeteria
Operator recognizes 100% of revenue earned and expenses incurredTransferor recognizes only its share of the revenue
If risk of operations is transferredIf payments are periodic, recognize the present value
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GASB STATEMENT NO. 60 ACCOUNTING AND FINANCIAL REPORTING FOR SERVICE CONCESSION ARRANGEMENTSInclude in the notes to the financial statements
General description of the SCA
Nature of the assets, liabilities, and deferred inflows that are recognized in the financial statements
Nature and extent of rights retained by the transferor or granted to the governmental operator
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GASB STATEMENT NO. 61 DEFINING THE FINANCIAL REPORTING ENTITY Issued in December 2010
Effective for fiscal years ending June 30, 2013 and thereafter
Revised definition of financial accountability
Appoint voting majority of separate board
Impose will or financial benefit or burdenDo not appoint a voting majorityFiscal dependency
and
financial benefit or burden
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GASB STATEMENT NO. 61 DEFINING THE FINANCIAL REPORTING ENTITYRevised reporting component units
Discrete presentation is default
Blending required if
Board substantively the same andFinancial benefit or burden and
Same management as primary government (PG) Provide services almost entirely to PG or constituentsCU debt paid by PG
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GASB STATEMENT NO. 61 DEFINING THE FINANCIAL REPORTING ENTITYComponent unit even if not financially accountable
Retained GASB S-39
Fundraising organizations
Legally separate, tax exemptResources held almost entirely for GP or constituents
Entitled to or can access resourcesReport as a discretely presented component unit
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GASB STATEMENT NO. 62Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA PronouncementsIssued December 2010, effective for fiscal years ending December 31, 2012 and thereafter
Incorporates pronouncements issued before November 30, 1989 by the following that do not contradict with GASB Pronouncements
FASB Statements and Interpretations (SFAS 106)
Accounting Principle Board opinions (APB)AICPA Accounting Research Bulletins
Supersedes GASB S-20
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GASB STATEMENT NO. 62Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA pronouncementsCapitalized interest
Proprietary funds
Revenue recognition when right of return exists
Proprietary fundsDefines classifications for a classified statement of position (balance sheet)
Over 500 paragraphsDue to issuance of FASB Codification
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GASB STATEMENT NO. 63Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net PositionIssued June 2011, effective for fiscal years ending December 31, 2012 and thereafter
GASB Concepts Statement No. 4,
Elements of Financial Statements
Assets -resources with present service capacity that the government presently controls (BS)Liabilities
-present obligations to sacrifice resources that the government has little or no discretion to avoid (BS)Outflow of resources is a consumption of net assets by the government that is applicable to the reporting period (IS)Inflow of resources
is an acquisition of net assets by the government that is applicable to the reporting period (IS)
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GASB STATEMENT NO. 63Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net PositionA deferred outflow of resources is a consumption of net assets by the government that is applicable to a future reporting period (BS)
A
deferred inflow of resources
is an acquisition of net assets by the government that is applicable to a future reporting period (BS)Net position is the residual of all other elements presented in a statement of financial position (BS/IS)
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GASB STATEMENT NO. 63Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net PositionReportingDeferred outflowsAfter assets
Deferred Inflows
After liabilities
Net PositionA+DO-L-DI=NPReplaces Net Assets/Fund Balances
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GASB STATEMENT NO. 63Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net PositionWhat to report in the categories?Addressed by GASB Statement No. 65, Items Previously Reported as Assets and Liabilities
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GASB Statement No. 64Derivative Instruments: Application of Hedge Accounting Termination Provisions GASB S-53, Accounting and Financial Reporting for Derivative Instruments
Issued in June 2011
Effective for fiscal years ending June 30, 2012 and thereafter
Continuation of effective hedge after replacement of a swap counterpartySpecifies criteria to be met to continue to apply hedge accounting
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GASB Statement No. 65ITEMS PREVIOUSLY REPORTED AS ASSETS AND LIABILITIESIssued in March 2012Effective for fiscal years ending December 31, 2013 and thereafter
GASB Concepts Statement No. 4 limits use of terms “deferred outflows” and “deferred inflows” of financial resources to those instances specifically identified in GASB pronouncements
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GASB Statement No. 65ITEMS PREVIOUSLY REPORTED AS ASSETS AND LIABILITIESSpecific guidance
Accounting gain or loss on refunding of debt
Deferred inflow or deferred outflow
Amortize into interest expenseNonexchange transactions – Accrual basis
Most deferred revenue from nonexchange transactions becomes a deferred inflow of resourcesImposed nonexchange transactions (e.g., property taxes) Government-mandated nonexchange transactions and voluntary nonexchange transactions (e.g., grants)
Debt issuance costs – expense in period incurred
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GASB Statement No. 65ITEMS PREVIOUSLY REPORTED AS ASSETS AND LIABILITIESSpecific guidanceRegulated operations
Governmental funds – modified accrual basis
All deferred revenue in governmental funds becomes deferred inflow of resources
Major fund calculation
Combine assets with deferred outflowsCombine liabilities with deferred inflowsUse of the term “deferred” only allowed in this contextFuture pronouncements will expand use of terms (See GASB 68)
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GASB STATEMENT NO. 66Technical Corrections, 2012Issued March 2012Conflict between GASB S-10 and S-54
GASB S-10 Insurance activities in general fund or special revenue fund
GASB S-54 definition of a governmental funds
Tort fund meets the definition of a special revenue fundSolution follow GASB S-54
Effective for fiscal years ending December 31, 2013 and thereafter
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GASB STATEMENT NO. 67 Financial Reporting for Pension PlansIssued June 2012
Amends GASB Statement 25 and Statement 50
Effective for the Fiscal years ending June 30, 2014
Carries forward the general guidance for separately issued financial statements
Greatly changes note disclosures and RSI10 years of trend informationAdditional actuarial information required to be disclosed
Entry Age Normal, level percent of payroll
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GASB STATEMENT NO. 68 Accounting and Financial Reporting for PensionsIssued June 2012
Effective for the Fiscal years ending June 30, 2015
Amends GASB Statement 27 and Statement 50
Current pension accountingAccounting liability only if you don’t fund what the actuary recommends
IMRF – ARC-reduced ARC = liabilityUnfunded actuarial accrued liabilityDisclosed in notes and required supplementary information
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GASB STATEMENT NO. 68 Accounting and Financial Reporting for PensionsProblem
Budget friendly, modified accrual basis
Accrual basis, liability when earned by employee
Lack of comparability due to choices of actuarial valuations and assumptions Not recognizing spikes, cost of retro benefits or true cost of pensions and any changes
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GASB STATEMENT NO. 68 Accounting and Financial Reporting for PensionsProposed solution
Net pension liability
Difference between obligation for pensions and assets of the pension plan
Record as a liability in all accrual basis financial statementsGovernmental activities
Enterprise fundsDeferred inflow or outflow of resources
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GASB STATEMENT NO. 68 Accounting and Financial Reporting for PensionsMeasuring the net pension liabilityProjected benefit payments
Assumptions – Actuarial Standards of Practice
Future salary increases
COLAsDiscount rate
Funds available to pay benefits – investment rateFunds not available – blended rate
Cost of funds (borrowing)
Entry age normal actuarial cost method
Level percentage of payroll
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GASB STATEMENT NO. 68 Accounting and Financial Reporting for PensionsTiming of measurement
Actuarial valuation done as of your year end
Or 1 year and one day of your fiscal year end
Update AV no older than 24 months from your year endLiability should be rolled forward to your year end
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GASB STATEMENT NO. 68 Accounting and Financial Reporting for PensionsPension expense
Separately report
Normal cost
Immediate recognition of Benefits Earned
Change in terms of pension benefitsInvestment earningsInterest on total pension liabilityOther changes in plan net position – other than investments
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GASB STATEMENT NO. 68 Accounting and Financial Reporting for PensionsPension expense
Delayed recognition of
Change in Assumption
Difference from assumptions and actual experienceRecord as deferred outflows/inflows
Amortize rationally over remaining active life of employeesDifference between actual return on investments and projectedRecord as deferred outflows/inflows
Amortized over a five year closed period
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GASB STATEMENT NO. 68 Accounting and Financial Reporting for PensionsDisclosures
Greatly expanded
Information on assumptions and significant changes
Required supplementary informationGreatly expanded – 10 years
Actuary costsGreatly expanded
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GASB STATEMENT NO. 68Accounting and Financial Reporting for PensionsCost sharing plansEach employer reports their “share” of the overall plan’s net pension liability Special funding situations
Payments made on-behalf of employer
No longer “special”
Report each “employers share”Measured by including “special funding”
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GASB DUE PROCESS DOCUMENTSPV – Recognition of Elements of Financial Statements and Measurement Approaches Issued June 2011, comment deadline September 2011Result will be concepts statementMeasurement focusWhat items to report in financial statements
Basis of accounting
When we recognize items in a financial statement
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GASB DUE PROCESS DOCUMENTSPV – Recognition of Elements of Financial Statements and Measurement Approaches Replaces current financial resources measurement focusNear term financial resources measurement focusFair value reporting?????Status
Proposed exposure draft in October 2012
Final concepts statement in June 2013
Used in developing future pronouncements
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GASB DUE PROCESS DOCUMENTSPV – Economic Condition Reporting: Financial Projections Issued November 2011Comment deadline March 16, 2012Result will be a future statement (after ED)5 components of information needed to assess fiscal sustainability
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PV – Economic Condition Reporting: Financial Projections Projections of the total cash inflows and major individual cash inflows, in dollars and as a percentage of total cash inflows, with explanations of the known causes of fluctuations in cash inflows Projections of the total cash outflows and major individual cash outflows, in dollars and as a percentage of total cash outflows, with explanations of the known causes of fluctuations in cash outflows Projections of the total financial obligations and major individual financial obligations, including bonds, pensions, other postemployment benefits, and long-term contracts, with explanations of the known causes of fluctuations in financial obligations
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©2012 Sikich LLP. All Rights Reserved
GASB DUE PROCESS DOCUMENTSSlide38
GASB DUE PROCESS DOCUMENTSPV – Economic Condition Reporting: Financial Projections Projections of annual debt service payments (principal and interest) Narrative discussion of the major intergovernmental service interdependencies that exist and the nature of those service interdependencies Projections made for a minimum of 5 years
Cash basis of accounting
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GASB DUE PROCESS DOCUMENTSPV – Economic Condition Reporting: Financial Projections Major oppositionGFOAAICPA StatusED spring/summer 2013
Final statement in October 2013
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Questions?
Matthew Pehle, CPA
Sikich LLP
1415 W. Diehl Road
Suite 400
Naperville, IL 60563
(630) 566-8536
mpehle@sikich.com