GASB Update Chris Deweese CPA Member Suttle Stalnaker

GASB Update Chris Deweese, CPA, Member Suttle & Stalnaker, PLLC

Today’s Discussion GASB Update GASB Statement No. 51 GASB Statement No. 53 GASB Statement No. 54 Other GASB Statements GASB Exposure Drafts/Future Projects 2

GASB Statement No. 51

GASB Statement No. 51 Intangibles Ø Effective for FYE 6/30/10 Ø Establishes accounting requirements and presentation of intangibles for financial reporting purposes. 4

GASB Statement No. 51 Intangibles Ø Intangible assets possess all of the following characteristics Ø Lack of physical substance Ø Nonfinancial nature Ø Initial useful life extending beyond a single reporting period 5

GASB Statement No. 51 Intangibles assets include: Ø Ø Ø Easements, Water rights, Timber rights, Patents, Trademarks, and Computer software. 6

GASB Statement No. 51 Intangible assets should be classified as capital assets: Ø Assets that are explicitly excluded from the scope of the standard, such as capital leases, should follow existing relevant authoritative guidance. 7

GASB Statement No. 51 Intangible assets only reported in Statement of Net Assets if identifiable Specific approach for intangible assets that are internally generated (e. g. , patents or copyrights) Accounting and reporting for internally generated software Guidance for amortization of intangibles 8

GASB Statement No. 51 Intangibles acquired or created primarily for obtaining profit should be reported as investments. Intangibles must be “identifiable” or “separable” – it can be sold, rented, transferred, etc. 9

GASB Statement No. 51 Examples include: patents, copyrights, and, most commonly, software Three criteria for such assets to be capitalized Objective and service capacity of asset has been determined Feasibility of project has been demonstrated Intention to continue and complete project has been demonstrated 10

GASB Statement No. 51 Management must also authorize and commit funding for software project before outlays may be considered capitalizable Thus, capitalization period begins with authorization and commitment to project Capitalization period ends with substantial completion (i. e. , software is ready for use) Activities in pre- and post-capitalization phases should be expensed 11

GASB Statement No. 51 Useful life for amortization should equal service capacity expectation not to exceed length of contractual provisions Intangibles with indefinite useful lives should not be amortized This may change, assuming an impairment has not occurred, if conditions convert a useful life to a definite period 12

GASB Statement No. 51 Implementation guide clarifications for intangibles Websites (if it meets the criteria for internallygenerated software. . . there is a VERY HIGH BAR here) Interest capitalization requirements, if applicable, do apply to intangible projects just like they do for tangible projects 13

GASB Statement No. 51 Purchased/licensed software that is not internally generated is an intangible Example. . . 5 year licensing agreement Intangible asset offset by commitment of obligation to pay No amortization of an intangible with an indefinite useful life 14

GASB Statement No. 53

GASB Statement No. 53 Derivatives Ø Effective for FYE 6/30/10 Ø Include interest rate & commodity swaps, interest rate locks, options (caps, floors, and collars), swaptions, forward contracts, and futures contracts Ø GASB establishes the accounting and financial reporting requirements 16

GASB Statement No. 54

GASB Statement No. 54 Fund Balance Ø Effective for FYE 6/30/11 Ø Traditional three component model (reserved, unreserved-designated, unreserved) replaced with the five new components. 18

GASB Statement No. 54 Under GASB 54 fund balances should be reported in classifications that: “comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent” 19

GASB Statement No. 54 Two initial distinctions in GASB Statement No. 54 Ø Non-spendable Ø Spendable 20

GASB Statement No. 54 Non-spendable Ø Cannot be spent with cash Ø Inventories Ø Prepayments Ø Long-term receivables Ø Legally or contractually required to remain intact Ø Permanent fund principle 21

GASB Statement No. 54 Spendable Ø Can be spent, but may have restrictions – such as: Ø Restricted Ø Committed Ø Assigned 22

GASB Statement No. 54 Restricted Ø Same definition as in Statement No. 46 Ø Externally imposed by creditors Ø debt covenants Ø Grantors Ø Contributors Ø Imposed by law through constitutional provisions or enabling legislation and has legal enforceability 23

GASB Statement No. 54 Committed Ø Can only be used for specific purposes imposed by formal action of the governments highest level of decision making authority (governing board or board of directors) Ø Can only be changed by the same type of action (law, ordinance, resolution) Ø Should occur prior to year end, but can occur after 24

GASB Statement No. 54 Assigned Ø Can be constrained by intent Ø Should be expressed by governing body, a committee or an official that can assign assets (can be delegated by the Board to another level of management) Ø Includes all remaining amounts NOT in the general fund 25

GASB Statement No. 54 Unassigned Ø Includes only unrestricted, uncommitted, unassigned amounts in the general fund ONLY Ø General fund should be the only fund that reports a positive unassigned amount Ø If a NON-general fund balance is negative after restricted, committed, assigned, then: Ø Reduce assigned and if that goes to zero Ø Then you have negative unassigned 26

GASB Statement No. 54 Disclosure Ø The following must be disclosed in the summary of significant accounting policies Ø Committed Ø Who is the highest level of decision making authority Ø What action is required to establish commitment Ø Assigned Ø Who can assign Ø What is the policy for assignment 27

GASB Statement No. 54 Encumbrances Ø Disappear from the face of the financial statements, other than what is already restricted, committed, or assigned Ø Disclose encumbrances in the notes to the financial statements 28

GASB Statement No. 54 What about stabilization amounts/rainy day funds. Formal establishment of “rainy day” or “contingency” funds to only be used in certain specified circumstances Only appropriately categorized as restricted or committed 29

GASB Statement No. 54 Presentation (aggregated approach) Fund balances: • • • Non-spendable Restricted Committed Assigned Unassigned – Total fund balances 30

GASB Statement No. 54 Presentation (disaggregated approach) Fund balances: • Non-spendable – Inventory – Endowment fund • Restricted – Debt service reserve – School construction – Capital projects – Other purposes • Committed – Education – Economic stabilization • Assigned – Library acquisitions – Text books – Capital projects • Unassigned 31

GASB Statement No. 54 Governmental Fund Type Definitions Ø Ø Ø Special revenue fund – used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. Capital projects fund – used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays including the acquisition or construction of capital facilities and other capital assets. Debt service, permanent and general fund – definition unchanged 32

Other GASB Statements

GASB Statement No. 55 GAAP Hierarchy Ø Implementation – Effective upon issuance Ø Established the GAAP hierarchy within GASB literature 34

GASB Statement No. 56 Codification of reporting standards previously in audit standards Ø Implementation – Effective upon issuance Ø Purpose Ø Related Parties Ø Going Concern Ø Subsequent Events 35

GASB Statement No. 57 OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans Ø Effective for FYE June 30, 2012 Ø Clarifies the use of the alternative measurement method for OPEB plans as defined in GASB 45 36

GASB Statement No. 58 Accounting and Financial Reporting for Chapter 9 Bankruptcies Ø Effective for FYE June 30, 2010 Ø Provides guidance to governments who have petitioned the court for bankruptcy Ø Liabilities are to be re-measured in accordance with the approved bankruptcy plan when approved 37

GASB Exposure Drafts/ Future Projects

Accounting Developments – Looking Forward GASB 14 and GASB 34 amendment Exposure draft issued March 2010 This will impact how governments are consolidated Expected to be finalized in late fall / early winter 39

Accounting Developments – Looking Forward GASB and FASB Codification Exposure draft issued January 2010 This is a follow-up project to the recent FASB project in which the codification was created Expected to be finalized in late fall 40

Questions?

Contact Information: Chris Deweese, CPA, Member Suttle & Stalnaker, PLLC 1411 Virginia Street, East, Suite 100 Charleston, WV 25301 (304) 343 -4126 (304) 415 -4827 (cell) cdeweese@suttlecpas. com 42