Certain asset retirement obligations Understanding gasb statement number 83

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Certain asset retirement obligations (ARO’s) Who/what are Governmental Accounting Standards Board (GASB) and Generally Accepted Accounting Principles (GAAP)? Liability associated with tangible capital asset Legally required to perform retirement actions Recognize a liability Reporting periods beginning June 15, 2018

What is GAAP? Proper accounting Decades of accounting practice No authoritative book

What is GAAP? Does not account for every situation Make the best choice Rule makers leave room for options

What is GAAP? The grey area of materiality Qualitative aspects Quantitative aspects

Who Sets Up GAAP? GASB sets the GAAP rules GASB provides: Accounting principles Interpretations Guidance for implementation

GASB Statement No. 76 Category A Category B GASB Statements GASB Technical Bulletins GASB Implementation Guides American Institute of Certified Public Accountants (AICPA) literature cleared by GASB

GASB Statement No. 76 If not Specified in Category A or B AICPA literature not cleared by the GASB Practices widely practiced by state and local government agencies Literature from professional organizations, regulatory agencies, and authoritative accounting texts

timing and pattern of ARO liability recognition GASB Statement No. 83

Liability both incurred and reasonably estimable Occurrence of Together with External laws Regulations Legal binding contracts Issuance of a court judgment Governmental obligating internal event to perform asset retirement activities

Laws and regulations example Requiring government asset retirement Retire capital assets at end of useful lives Decommissioning nuclear reactors Dismantling and removing sewage treatment plants Removal and disposal of x-ray machines

Internal obligating events example Occurrence of contamination Tangible capital asset placed in operation requiring retirement Abandoning tangible asset before placed in operation Acquiring a tangible asset that has an existing ARO

Legally required to perform retirement actions GASB Statement No. 83

Retirement of a tangible capital asset encompasses Its sale Abandonment Recycling Disposal on some other manner

Legally enforceable liabilities associated with Retirement of a tangible capital asset Disposal of a replaced part that is a component of a tangible capital asset Environmental remediation associated with the retirement of asset

Legally required to perform retirement actions Current ARO’s value adjusted for inflation or deflation annually Evaluate effects significantly changing the estimated asset retirement Remeasure an ARO if there is a significant change in estimated outlays Deferred outflows should be reduced and recognized as outflows (an expense) Performed over the estimated useful life of the tangible capital asset

Depreciation

Depreciation Matching revenues to expenses applied to long-lived assets not held for sale Estimated life is the period of time an asset’s cost will be depreciated Estimated life can be revised

Straight-line Depreciation Cost – salvage value divided by estimated useful life (for example) Asset costs $11,000 and has a salvage value of $1,000 Estimated life of five years $11,000 - $1,000 divided by five years = $2,000 depreciation per year

Recognition of a deferred outflow of resources GASB Statement No. 83

Recognition of a deferred outflow of resources Recognize a corresponding deferred outflow when ARO is recognized If asset is permanently abandoned before its in operation

Initial measurement of an ARO GASB Statement No. 83

Initial measurement of an ARO Determine types of legally required activities Estimate the current value of outlays expected to be incurred Equipment, facilities, and services for example Estimate potential outcomes of reasonable costs when sufficient evidence is available Include potential for higher or lower outcomes

Minority share in jointly owned asset GASB Statement No. 83

Minority share in jointly owned asset Less than 50% ownership interest with a nongovernment majority owner Nongovernment owner reports the ARO in another set of standards No majority owner with a nongovernment minority owner having operational responsibility Government reports using the measurement produced by nongovernment owner

provide funding or financial assurance for asset retirement GASB Statement No. 83

provide funding or financial assurance for asset retirement Disclosure of how it’s being met by government Amount of restricted assets for payment of the government ARO’s Can be listed separately in financial statements to avoid disclosure

More disclosure information GASB Statement No. 83

More disclosure information Nature of a government’s ARO’s Methods and assumptions used for the estimates of the liabilities Estimated remaining useful life

More disclosure information Incurrence of an ARO not yet recognized because it is not reasonably estimable Disclose that fact and reasons therefor Similar disclosures for a minority share of ARO’s

Effective Beginning June 15, 2018 Earlier application is encouraged

Improving financial reporting Enhances comparability of financial statements among governments Establishes criteria to recognize and measure ARO’s May have not been previously reported Enhance decision-usefulness for financial statement users Requiring disclosures related to those ARO’s

NextGen Fixed Assets

Adding an Asset County of Anywhere County of Anywhere

Adding an Asset

Adding an Asset

Adding an Asset

Adding an Asset

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Adding an Asset

Assets

Assets County of Anywhere

Assets County of Anywhere County of Anywhere

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Assets

Assets

Depreciation Process

Depreciation Process

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Depreciation Process County of Anywhere

Depreciation Process County of Anywhere

Reports

Reports

Reports

Reports

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