GASB UPDATE Great Plains GFOA Fall Conference October

GASB UPDATE Great Plains GFOA Fall Conference October 22, 2014 Chris Lindner, CPA, CGFM Director

AGENDA § Overview of Recently Issued GASB Pronouncements § GASB Current Projects 2

PART 1 ‒ OVERVIEW OF FINAL GASB PRONOUNCEMENTS § Effective for years ending June 30, 2014 • • GASB 65 GASB 66 GASB 67 GASB 70 § Effective for years ending June 30, 2015 • GASB 68 • GASB 69 • GASB 71 § Effective for years ending December 31, 2014 • GASB 67 • GASB 69 • GASB 70 § Effective for years ending December 31, 2015 • GASB 68 • GASB 71 3

PART 1 ‒ FINAL GASB PRONOUNCEMENTS § GASB 65: Items Previously Reported as Assets and Liabilities § GASB 66: Technical Corrections-2012 – An Amendment of GASB Statements No. 10 & No. 62 § GASB 67: Financial Reporting for Pensions – An Amendment of GASB Statements No. 25 § GASB 68: Accounting and Financial Reporting for Pensions – An Amendment of GASB Statement No. 27 § GASB 69: Government Combinations and Disposals of Government Operations § GASB 70: Accounting and Financial Reporting for Nonexchange Financial Guarantees § GASB 71: Pension Transition for Contributions Made Subsequent to the Measurement Date – An amendment of GASB Statement No. 68 4

GASB 65 – ITEMS PREVIOUSLY REPORTED AS ASSETS & LIABILITIES § Reclassifies certain items previously considered “assets” & “liabilities” to “deferred inflows” & “deferred outflows” § Concepts Statement No. 4 limited use of deferred inflows/outflows to instances identified in authoritative pronouncements (GASB 53 & 60) until now 5

GASB 65 – ITEMS PREVIOUSLY REPORTED AS ASSETS & LIABILITIES § Refundings of debt (GASB 23 & 62) • Previously recorded “gain/loss on refunding” would now be reported as “deferred outflow/inflow” • Reclassify from long-term debt line item to deferred outflow or deferred inflow § Debt issuance costs • Now required to be recognized as expense in period incurred (can no longer be deferred charge) • Portion of debt issuance costs related to prepaid insurance costs still reported as asset & amortized • Should not include as a component of interest expense • Results in retroactive restatement 6

GASB 65 – ITEMS PREVIOUSLY REPORTED AS ASSETS & LIABILITIES § Nonexchange Transactions (GASB 33) • Imposed – Deferred inflows should be reported when associated resources are received or reported as receivable before ü Period for which property taxes are levied ü Period when resources are required to be used ü When use is first permitted in which enabling legislation includes time requirements • Review items comprising deferred revenue & items meeting above definition to be reclassified to deferred inflow 7

GASB 65 – ITEMS PREVIOUSLY REPORTED AS ASSETS & LIABILITIES § Nonexchange transactions (continued) • Government-mandated & voluntary ü Resources received before time requirements are met, but after all other eligibility requirements are met, reported as deferred outflows (provider) or deferred inflows (recipient) ü Resources received before eligibility requirements (excluding time requirements) continue to be reported as assets by provider & liabilities by recipient § Review items comprising deferred revenue & determine if eligibility requirements/time requirements are met & reclassify to deferred outflow/inflow 8

GASB 65 – ITEMS PREVIOUSLY REPORTED AS ASSETS & LIABILITIES § Other items with limited applicability to group • Sales of future revenues & intra-entity transfers of future revenues • Leases – Lessor initial direct costs & sales leasebacks (sellerlessee) • Insurance activities – Acquisition costs • Lending activities – Loan origination fees & costs, commitment fees & loan purchases • Mortgage banking activities – Loan origination fees & costs & loans held for sale • Regulated operations 9

GASB 65 – ITEMS PREVIOUSLY REPORTED AS ASSETS & LIABILITIES § Application to governmental funds • Revenue recognition ü When asset is recorded but revenue is not available, deferred inflow should be reported until such time as revenue becomes available – “Unavailable Fund Resources” • Review items comprising deferred revenue in funds & assess reason for deferral. If deferred because it was not received in “available” period, reclassify to deferred inflow § Term “deferred” should be limited to items reported as deferred outflows or deferred inflows 10

GASB 66 TECHNICAL CORRECTIONS-2012 § Resolves conflicts created from the issuance of • GASB 54, Fund Balance Reporting and Governmental Fund Type Definitions • GASB 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 1989 FASB and AICPA Pronouncements § With the existence guidance in • GASB 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues • GASB 13, Accounting for Operating Leases with Scheduled Rent Increases • GASB 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues 11

GASB 66 TECHNICAL CORRECTIONS-2012 § GASB 10 paragraph 63: If a single fund is used for an entity’s risk financing activities, that fund should be general fund or internal service fund § Certain risk financing in a special revenue fund allowed under GASB 54 § GASB 66 • Supersedes paragraph 63 of GASB 10 • Removes the requirement to use the general fund or internal service fund for risk financing activities 12

GASB 66 TECHNICAL CORRECTIONS-2012 § Amends GASB 62, paragraphs 222 & 227 b, to clarify that fair value option contained in GASB 13 of recognizing increases in scheduled lease payments is still available § Amends GASB 62, paragraphs 442 & 460, to resolve conflicts with GASB 48 by clarifying that • The purchase of a loan or group of loans should be reported at its purchase price (para 442) • The gain/loss on the sale of mortgage loans should not be adjusted for differences in the servicing fees (para 460) 13

GASB STATEMENTS NO. 67 & 68 § GASB Statement No. 67, Financial Reporting for Pension Plans • Effective periods beginning after June 15, 2013 ü June 30, 2014 ü December 31, 2014 § GASB Statement No. 68, Accounting and Financial Reporting for Pensions • Effective periods beginning after June 15, 2014 ü June 30, 2015 ü December 31, 2015 14

GASB STATEMENTS NO. 67 & 68 § Scope • Pensions administered through trusts ü Contributions are irrevocable ü Assets dedicated to providing benefits to plan members ü Assets legally protected • Not applicable to 457 plans • Applicable to defined contribution plans, but with a lesser impact 15

QUICK OVERVIEW – PLAN TYPES § Single-employer plans: benefits provided to employees of only one employer § Agent multiple-employer plan: plan assets pooled for investment purposes, but separate accounts maintained for each individual employer. Each employer’s share of pooled assets is legally available to pay the benefits of only its employees (generally accounted for as single-employer plan) § Cost-sharing multiple-employer plans: pension obligations to employees of multiple employers are pooled & plan assets can be used to pay benefits of employees or any employer in the plan (GASB 68 has greatest impact on these plans) 16

SINCE PASSAGE OF NEW STANDARDS § Since passage of GASB Statement No. 67 & 68 • GASB 67 Implementation Guide – Issued June 2013 • GASB 68 Implementation Guide – Issued January 2014 • AICPA Pension Whitepaper Series ü Cost-sharing multiple-employer plans (2) ü Agent multiple-employer plans • • Pension Implementation Toolkit AICPA Audit Interpretations GFOA publications OPEB exposure drafts (2) issued May 2014 – Comment deadline ended August 29, 2014 17

GASB 67 - SUMMARY OF KEY CHANGES § Net pension liability (NPL) represents total pension liability (TPL) less fiduciary net position of pension plan § Changes actuarial methods, assumptions and inputs • • • Ad hoc COLA Discount rate Entry age actuarial cost method (6 methods previously available) § Expanded note disclosures § Changes to information presented as Required Supplementary Information (RSI) • • • Sources of changes in the net pension liability Information about the components of the NPL and related ratios Provide information for the 10 most recent fiscal years (prospective) 18

GASB 68 - SUMMARY OF KEY CHANGES § Net pension liability (NPL) represents total pension liability (TPL) less fiduciary net position of pension plan § Changes in NPL immediately recognized as pension expense or deferred outflows/inflows of resources § Approach results in reporting of pension expense & liability as employees earn their pension benefits § Liability/expense no longer based on funding requirements § No significant changes to accounting for pensions in governmental funds § Does NOT change funding requirements of the plan 19

MEASUREMENT DATE

MEASUREMENT DATE § § One of management’s most important decisions Determines timing of pension expense Audit logistics concerns Must be consistently applied 21

MEASUREMENT DATE § Employers should report a net pension liability (asset) determined as of a date (measurement date) no earlier than the end of employer’s prior fiscal year for each plan in which they participate § Determined through • Actuarial valuation • Updating procedures to roll forward actuarial valuation (30 months & one day) § Biennial valuation still required (annual valuation encouraged) 22

MEASUREMENT DATE – TIMING OF EXPENSE RECOGNITION EMPLOYER/PLAN DIFFERENT YEAR-ENDS Pension Expense (Measurement Period) Measurement Date Employer Current Year-End De 20 c 15 Ju 20 ne 15 e n Ju 014 2 D 20 ec. 14 Plan Prior Year-End Employer Prior Year-End Plan Current Year-End Deferred Outflows of Resources Measurement date will most likely correspond to year-end of plan. Employer contributions made directly by employer subsequent to measurement date of net pension liability & before end of employer’s fiscal year should be recognized as a deferred outflow of resources 23

MEASUREMENT DATE – TIMING OF EXPENSE RECOGNITION EMPLOYER/PLAN SAME YEAR-ENDS PRIOR YEAR-END MEASUREMENT DATE c e D 13 20 Pension Expense (Measurement Period) Employer Current Year-End D 20 ec 15 Measurement Date D 20 ec 14 Plan Prior Year-End Employer Prior Year-End Plan Year-End Deferred Outflows of Resources Measurement date will most likely correspond to year-end of plan. Employer contributions made directly by employer subsequent to measurement date of net pension liability & before end of employer’s fiscal year should be recognized as a deferred outflow of resources 24

MEASUREMENT DATE – TIMING OF EXPENSE RECOGNITION EMPLOYER/PLAN SAME YEAR-END CURRENT YEAR-END MEASUREMENT DATE Measurement Date D 20 ec 15 c e D 13 20 Employer Prior Year-End Plan Year-End D 20 ec 14 Plan Year-End Employer Current Year-End Plan Year-End Pension Expense (Measurement Period) Measurement date will most likely correspond to year-end of plan. Employer contributions made directly by employer subsequent to measurement date of net pension liability & before end of employer’s fiscal year should be recognized as a deferred outflow of resources 25

MEASUREMENT DATE – AUDIT LOGISTICS § Consider using prior-year measurement date Plan Year-End D 20 ec 14 • Help avoid delays due to waiting on plan information • Remember: Measurement date must be consistently applied D 20 ec 15 c e D 13 20 Measurement Date Will your audit be completed timely if measurement date is your current year-end? 26

COST-SHARING MULTIPLEEMPLOYER PERS ISSUES

COST-SHARING MULTIPLE-EMPLOYER PERS ISSUES § Who should calculate allocation percentages (proportion share)? § Who should calculate allocated pension amounts? • Deferred inflows/outflows • Pension expense § How should it be allocated? • Method encouraged in Standard is difficult to implement & audit § AICPA released audit guidance in April 2014 28

COST-SHARING MULTIPLE-EMPLOYER PLANS – AICPA SOLUTIONS § Include supplemental “schedule of employer allocations” in audited plan financial statements § Use allocation method based on covered payroll or required (actual) contributions depending on whethere are different classes of benefits & whether allocations are expected to be representative of future contributions § Projected future contributions could be used, if necessary § Standard does not preclude employers from calculating their own allocation percentage • Problems with this approach ü Different employers who participate in same plan could allocate collective pension amounts on a different basis ü Could be difficult for employer auditor to get sufficient competent audit evidence on allocation 29

EXAMPLE SCHEDULE OF EMPLOYER ALLOCATIONS 30

COST-SHARING MULTIPLE-EMPLOYER PLANS – AICPA SOLUTIONS § Include supplemental “schedule of plan pension amounts” in plan financial statements for which plan auditor engaged to provide opinion • Supplemental schedule of plan pension amounts includes net pension liability, deferred outflows, deferred inflows & pension expense for plan as a whole for which plan auditor is engaged to provide opinion 31

EXAMPLE SCHEDULE OF EMPLOYER PENSION AMOUNTS EXAMPLE COST-SHARING PENSION PLAN Schedule of Pension Amounts June 30, 2015 Employer/ Nonemployer (Special Funding Situation) State of Example Employer 1 Employer 2 Employer 3 Employer 4 Employer 5 Employer 6 Employer 7 Employer 8 Employer 9 Employer 10 Total Deferred Outflow of Resources Changes in Employer Proportion & Differences Between Contributions Differences & Between Proportionate Expected Projected Share of and Actual & Actual Pension Net Pension Economic Investment Changes of Liability Expense Experience Earnings Assumptions $ 38, 589, 135 428, 768 2, 058, 088 1, 500, 690 782, 365 4, 831, 647 53, 685 257, 688 187, 898 96, 633 5, 798, 553 64, 428 309, 256 225, 499 115, 971 8, 698, 585 96, 651 463, 925 338, 279 173, 972 11, 396, 244 126, 625 607, 800 443, 188 227, 925 2, 597, 183 28, 858 138, 516 101, 002 51, 944 1, 716, 569 19, 073 91, 550 66, 756 34, 331 1, 696, 283 18, 848 90, 468 65, 967 33, 926 14, 316, 562 159, 073 763, 550 556, 756 286, 486 4, 814, 421 53, 494 256, 769 187, 228 68, 325 4, 808, 301 53, 426 256, 443 186, 990 67, 528 $ 99, 263, 483 1, 102, 929 5, 294, 053 3, 860, 253 1, 939, 406 32

EXAMPLE SCHEDULE OF EMPLOYER PENSION EXAMPLE COST-SHARING PENSION PLAN (Cont. ) AMOUNTS Schedule of Pension Amounts June 30, 2015 Employer/ Nonemployer (Special Funding Situation) State of Example $ Employer 1 Employer 2 Employer 3 Employer 4 Employer 5 Employer 6 Employer 7 Employer 8 Employer 9 Employer 10 Total $ Deferred Inflows of Resources Differences Between Expected & Actual Economic Experience 380, 371 47, 625 57, 156 85, 742 112, 332 25, 600 16, 920 16, 720 141, 118 47, 456 47, 395 978, 435 Differences Between Actual & Projected Investment Earnings 1, 063, 285 133, 131 159, 773 239, 681 314, 012 71, 563 47, 298 46, 739 394, 478 132, 657 132, 488 2, 735, 105 Changes in Employer Proportion & Differences Between Contributions & Proportionate Share of Pension Changes of Assumptions Expense – 584, 365 – 125, 325 – 245, 386 – 125, 632 – 386, 325 – 42, 358 – 24, 325 – 125, 325 – 152, 005 – 87, 325 – 41, 035 – 1, 939, 406 33

EXAMPLE SCHEDULE OF EMPLOYER PENSION AMOUNTS EXAMPLE COST-SHARING PENSION PLAN (Cont. ) Schedule of Pension Amounts June 30, 2015 Employer/ Nonemployer (Special Funding Situation) State of Example Employer 1 Employer 2 Employer 3 Employer 4 Employer 5 Employer 6 Employer 7 Employer 8 Employer 9 Employer 10 Total $ $ Pension Expense Proportionate Share of Plan Pension Expense 1, 878, 717 235, 229 282, 303 423, 492 554, 828 126, 444 83, 571 82, 584 697, 004 234, 391 234, 093 4, 832, 656 Amortization of Deferred Amounts from Changes in Proportion & Proportionate Total Share of Employer Pension Expense 12, 375 1, 878, 717 (1, 793) 235, 229 (8, 088) 282, 303 3, 021 423, 492 (9, 900) 554, 828 599 126, 444 625 83, 571 (5, 712) 82, 584 8, 405 697, 004 (1, 188) 234, 391 1, 656 234, 093 – 4, 832, 656 34

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS § Provides new accounting & financial reporting standards for government mergers & acquisitions & for government operations that have been transferred or sold § The standard provides guidance on how to measure assets & liabilities as well as the date on which measurement should take place 35

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS § Historically, private sector guidance used (APB No. 16, Business Combinations) for public sector combinations § GASB 69 is specifically intended for governmental entities & addresses circumstances & conditions that commonly arise in the public sector 36

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS § Identifying government combinations ‒ Service continuation • An arrangement should result in continuation of a substantial portion of services provided by previously separate entities or their operations after the transaction has occurred • Service continuation means that new or continuing government intends to provide services similar to formerly separate governments, organizations or operations • If specific provisions of arrangement do not indicate the extent to which services will continue to be provided, professional judgment should be used to determine if it meets requirements of the standard 37

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS § Types of governmental combinations • Governmental merger ü Two or more ü Cease to exist as separate legal entities, or ü One or more cease to exist & operations are absorbed into a continuing government ü No significant consideration • Government acquisition ü Government acquires entity or operation ü Significant consideration • Transfer of operations ü No significant consideration 38

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Government Mergers § New Government ‒ Merger date • Merger date is date combination becomes effective ü Date on which the new government’s initial financial reporting period begins ü Combined financial elements of merging entities are included in financial statements at the beginning of that initial reporting period 39

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Government Mergers § New Government ‒ Recognition & measurement • New government recognizes financial elements as of merger date ü Carrying values (CV) • No recognition of items that governmental GAAP does not require or permit recognition of • Some adjustments may be necessary 40

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Government Mergers § Continuing governments ‒ Merger date • Merger date is the beginning of reporting period during which the merger occurs ü Regardless of actual date of merger 41

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Government Mergers § Continuing governments ‒ Recognition & measurement • Financial elements recognized & measured as though entities combined from beginning of continuing governments’ reporting period ü Carrying values • Rules mentioned under new government apply 42

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Government Mergers Impairment ‒ All combinations § If plan to dispose of capital assets • If used prior to disposal ü Measure/report at carrying value until disposal • If no use prior to disposal ü Evaluate for impairment 43

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Government Mergers § Eliminations ‒ Continuing governments • Eliminate transactions that occur between merging entities before the combination during combination process § Fund statements • Recognize financial elements in accordance with fund accounting criteria 44

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Government Acquisitions § Acquisition date is date the acquiring government obtains controls of assets & becomes obligated for liabilities of acquired entity • Typically the closing date § Measured at acquisition value at acquisition date • Market-based entry price • Price that would be paid if acquiring similar assets or liquidating liabilities 45

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Government Acquisitions § Exceptions to use of acquisition value (use normal GAAP) • Employee benefit items (comp abs, pensions, OPEB, termination benefits) • Municipal solid waste landfill obligations closure & post- closure costs • Pollution remediation obligations • Investments (including derivatives) § Deferred outflows/inflows of resources – Carrying value (with some exceptions) 46

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Government Acquisitions § Where consideration provided exceeds net position acquired, difference should be reported as a deferred outflow of resources • Recognize as expense in future periods § Where consideration provided is less than net position acquired, eliminate the excess net position acquired by reducing acquisition values assigned to noncurrent assets (nonfinancial assets) • Not enough? – Special item 47

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Government Acquisitions § If seller intends to accept a lower price to provide economic aid to the acquiring government without directly receiving equal value in exchange, acquiring government should recognize a contribution • The arrangement would generally indicate whether economic aid is intended 48

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Government Acquisitions ‒ Intra-Entity § Acquisition within the same reporting entity § Financial elements recorded at carrying value § Differences between acquisition price & CV • Within reporting entity: Transfer BCU, subsidy DPCU • Separate statements: Special item 49

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Government Acquisitions § Acquisition costs expensed in period incurred § Recognize financial elements in accordance with fund accounting criteria • Net fund balance recognized by acquiring government as special item in SRECFB 50

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Transfer of Operations § Operations: An integral set of activities conducted & managed for the purpose of providing identifiable services with association assets & liabilities § No consideration involved § Transfer date: Date the transferee government obtains control of assets/becomes obligated for liabilities § Continuing government reports in the period transfer occurs § New government reporting period begins with transfer date 51

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Transfer of Operations ‒ Transferee Government § Recognizes financial elements at CV § Net position or fund balance received/assumed should be reported as a special item § Treated similar to merger • Certain adjustments may be necessary • Do not recognize items precluded under GAAP • Capital assets – Impairment rules 52

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Transfer of Operations ‒ Transferring Government § Treat as disposal • Recognize a gain or loss as special item in the period in which disposal occurs § Include in gain/loss • • Costs directly associated with disposal Involuntary termination benefits (GASB 47) Contract terminations costs (GASB 62, para 96 -112) Professional service fees (GASB 62, para 96 -112) § Exclude from gain/loss • Adjustments & costs associated with normal operations to measurement date 53

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Disclosures § For all government combinations • Brief description of combination • Date of combination • Primary reasons for combination § Government mergers & transfers of operations • Amounts recognized as of merger/transfer date • Brief description of nature & amount of significant adjustments • Initial amounts recognized 54

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Disclosures § Government acquisitions • Brief description of consideration provided • Total amount of net position/fund balance acquired • Brief description of contingent consideration arrangements § Disposal of government operations • • Operations transferred Facts & circumstances leading to disposals Total expenses & revenues (operating & nonoperating) Total governmental funds revenues & expenditures 55

GASB 69 – GOVERNMENT COMBINATIONS & DISPOSALS OF GOVERNMENT OPERATIONS Effective date § Effective for financial reporting periods beginning after December 15, 2013 (YE December 31, 2014, or FYE June 30, 2015) § Applied prospectively § Early application encouraged 56

GASB 70 – ACCOUNTING & FINANCIAL REPORTING FOR NONEXCHANGE FINANCIAL GUARANTEES § In summary, this statement • Requires a government that extends a nonexchange financial guarantee to recognize a liability when qualitative factors and historical data, if any, indicate that it is more likely than not that the government will be required to make a payment on guarantee • Requires a government that has issued an obligation guaranteed in a nonexchange transaction to recognize revenue to the extent of reduction in its guaranteed liabilities • Also requires a government that is required to repay a guarantor for making a payment on a guaranteed obligation or legally assuming the guaranteed obligation to continue to recognize a liability until legally released as an obligor • Specifies the information required to be disclosed by governments that extend nonexchange financial guarantees &/or receive nonexchange financial guarantees 57

GASB 70 – ACCOUNTING & FINANCIAL REPORTING FOR NONEXCHANGE FINANCIAL GUARANTEES § How changes in this statement will improve financial reporting • Enhance comparability of financial statements among governments by requiring consistent reporting by those governments that extend &/or receive nonexchange financial guarantees • Enhance the information disclosed about a government’s obligations & risk exposure from extending nonexchange financial guarantees • Aid in the ability of financial statement users to assess the probability that governments will repay obligation holders by requiring disclosures about obligations that are issued with this type of financial guarantee 58

GASB 70 – ACCOUNTING & FINANCIAL REPORTING FOR NONEXCHANGE FINANCIAL GUARANTEES Nonexchange Financial Guarantees § When a government extends a financial guarantee, it has agreed to indemnify a third party if the entity or individual that issued the guaranteed obligation does not fulfill its requirements under the obligation § When a government may receive a financial guarantee for an obligation it has issued without providing equal or approximately equal value in return 59

GASB 70 – ACCOUNTING & FINANCIAL REPORTING FOR NONEXCHANGE FINANCIAL GUARANTEES Nonexchange Financial Guarantees ‒ Extended § Qualitative considerations • Used to assess likelihood of making payment under guarantee ü Initiation of bankruptcy or reorganization of issuer ü Breach of debt contract or covenants ü Indications of significant financial decline • Also consider relevant historical data & information 60

GASB 70 – ACCOUNTING & FINANCIAL REPORTING FOR NONEXCHANGE FINANCIAL GUARANTEES Nonexchange Financial Guarantees ‒ Extended § Recognize liability & expense in the full accrual statements when more likely than not that guarantor will make payment under the guarantee • “More likely than not”= more than 50% § Recognize in fund statements if liquidation normally expected from expendable available financial resources § Measure guarantor liability at discounted PV of best estimate of future outflows expected to be paid • No best estimate - discounted PV of minimum amount 61

GASB 70 – ACCOUNTING & FINANCIAL REPORTING FOR NONEXCHANGE FINANCIAL GUARANTEES § Issuer reporting • Continue to report obligation until legally released • Recognizes revenue upon legal release of obligation at amount equal to liability released • Reclassify amounts to be reimbursed to guarantor § Special rules apply for intra-entity guarantees involving blended component units • BCU of PG guarantor recognizes receivable if PG records liability 62

GASB 70 – ACCOUNTING & FINANCIAL REPORTING FOR NONEXCHANGE FINANCIAL GUARANTEES Disclosures § Description of nonexchange financial guarantee • • Legal authority for extending guarantees Relationship of guarantor to issuers Length of time of guarantees Arrangements of recovering payments from issuers § Total amount of all guarantees outstanding 63

GASB 70 – ACCOUNTING & FINANCIAL REPORTING FOR NONEXCHANGE FINANCIAL GUARANTEES Disclosures § If liability recognized • Brief description of timing of recognition & measurement • Info on changes in liability • Cumulative amount of payments • Any amounts expected to be recovered 64

GASB 70 – ACCOUNTING & FINANCIAL REPORTING FOR NONEXCHANGE FINANCIAL GUARANTEES Disclosures § Governments That Issue Guaranteed Obligations The name of the entity providing the guarantee The amount of the guarantee The length of time of the guarantee The amount paid, if any, by the entity extending the guarantee on obligations of the government during the current reporting period • The cumulative amount paid by the entity extending the guarantee on outstanding obligations of the government • A description of requirements to repay the entity extending the guarantee • The outstanding amounts, if any, required to be repaid to the entity providing the guarantee • • 65

GASB 70 – ACCOUNTING & FINANCIAL REPORTING FOR NONEXCHANGE FINANCIAL GUARANTEES § Effective date • Effective for reporting periods beginning after June 15, 2013 (YE December 31, 2014 or FYE June 30, 2014) • Earlier application encouraged • Retroactive application (with one exception) ü Prospective disclosure for cumulative amounts paid – Disclose date through which cumulative amounts determined • Example disclosures are located within Appendix C of the statement 66

GASB Current Projects

GASB CURRENT PROJECTS SUMMARY Project Name Status Conceptual Framework – Recognition On Hold Economic Condition Reporting: Financial Projections On Hold Fair Value Measurement & Application Fiduciary Responsibilities GAAP Hierarchy Exposure Draft Approved Currently Being Deliberated Exposure Draft Approved Irrevocable Charitable Trusts Currently Being Deliberated Lease Accounting – Re-examination of NCGA Statement 5 & GASB Statement 13 Currently Being Deliberated Other Postemployment Benefit Accounting & Financial Reporting Exposure Draft Approved Tax Abatement Disclosures Currently Being Deliberated 68

GASB CURRENT PROJECTS Fair Value Measurement and Application The primary objective of this project is to review and consider alternatives for the further development of: § § The definition of fair value The methods used to measure fair value The applicability of fair value guidance to investments and other items currently reported at fair value Potential disclosures about fair value measurements Timeline: Exposure Draft ‒ May 2014 Final Statement ‒ February 2015 69

GASB CURRENT PROJECTS Fiduciary Responsibilities The primary objective of this project would be to develop guidance regarding the application of the fiduciary responsibility criteria in deciding whether and how governments should report fiduciary activities in their general purpose external financial reports. This project considers whether additional guidance should be developed to § § § Clarify the difference between a private-purpose trust fund an agency fund Clarify whether a business-type activity engaging in fiduciary activities should present fiduciary fund financial statements Consider requiring a combining statement of changes in assets and liabilities for agency funds Timeline: Exposure Draft ‒ October 2015 Final Statement ‒ July 2016 70

GASB CURRENT PROJECTS GAAP Hierarchy This considers possible modifications to the hierarchy of generally accepted accounting principles (GAAP hierarchy), as set forth in Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. It reexamines the hierarchy levels to assess whether the standards-setting process and the governmental financial reporting environment have sufficiently evolved since the establishment of the original hierarchy by the (AICPA) in 1992 to warrant reconsideration or reconfiguration of certain aspects of the structure. Timeline: Exposure Draft: Approved ‒ December 2013 Final Statement & Implementation Guide ‒ June 2015 71

GASB CURRENT PROJECTS Irrevocable Charitable Trusts The objective of this project is to determine what accounting and financial reporting guidance, if any, should be established for irrevocable charitable trusts held for the benefit of governmental entities. The following issues will be considered during the pre-agenda research stage § What are the types of irrevocable charitable trusts encountered in the government environment? § What information regarding irrevocable charitable trusts held by the government and by third parties do governments currently have available? § What specific information regarding irrevocable charitable trusts for benefit of the government is necessary for users to make decisions and assess accountability? § Do irrevocable charitable trusts meet the definition of an asset? § What are the measurement and recognition issues associated with irrevocable charitable trusts? Timeline: Exposure Draft ‒ May 2015 Final Statement ‒ January 2016 72

GASB CURRENT PROJECTS Lease Accounting ‒ Reexamination of NCGA Statement 5 and GASB Statement 13 The objective of this project is to reexamine issues associated with lease accounting, considering improvements to existing guidance. This project will provide a basis for the Board to consider whether current operating leases meet the definitions of assets or liabilities 73

GASB CURRENT PROJECTS Lease Accounting (Continued) Accounting & Financial Reporting Issues: The major topic being researched is the forms of financial reporting display and disclosure that would meet essential financial statement user needs. The project is considering the following research issues § § § What types of leases are entered into by state and local governments? What specific user needs exist regarding governmental leases and what decision-useful or accountability information is needed to meet those needs? Are current accounting and financial reporting standards appropriate to meet essential user needs? Should there be a distinction between operating and capital leases? If current standards are not considered to be adequate, what additional potential requirements should be considered? Timeline: Exposure Draft – January 2016 Final Statement ‒ November 2016 74

GASB CURRENT PROJECTS Other Postemployment Benefit Accounting & Financial Reporting This project considers the possibility of improvements to the existing standards of accounting and financial reporting for other postemployment benefits (OPEB). The project objectives include § § Improve accountability and transparency of financial reporting Improve usefulness of information for decisions or judgments of various users of the general-purpose external financial reports of governmental employers and OPEB plans In May 2014, GASB approved two exposure drafts § § Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions Timeline: Exposure Draft ‒ May 2014 Final Statement – June 2015 75

GASB CURRENT PROJECTS Tax Abatement Disclosures The objective of this project would be to consider developing disclosure guidance for governments that have granted tax abatements. For purposes of this project: Tax abatements are a reduction of or exemption from taxes, offered by a government to a specific taxpayer, typically for the purpose of spurring economic development. The project will consider the following issues § § § What information about tax abatements, if any, should be disclosed in the notes? What tax abatement information do governments currently have available? What costs, if any, might a government incur to collect information about tax abatements? Timeline: Exposure Draft ‒ October 2014 Final Statement – August 2015 76

QUESTIONS?

THANK YOU! Chris Lindner, CPA, CGFM | Director | 402. 473. 7634| clindner@bkd. com

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