GASB Update Boston AGA – Regional Professional Development Training May 30, 2019 Lisa R. Parker, CPA, CGMA, Senior Project Manager Ms. Parker.

Presentation Overview Pronouncements currently being implemented Projects currently being deliberated by the Board Pre-agenda research activities

Pronouncements Currently Being Implemented

Effective Dates—June 30 Statement 83—asset retirement obligations Statement 88—debt disclosures Implementation Guide 2018-1 Statement 84—fiduciary activities Statement 90—majority equity interests Statement 87—leases Statement 89—interest cost 2019 2020 2021 #May be implemented by topic

Effective Dates—December 31 Statement 75—OPEB (employers) Statement 85—omnibus Statement 86—debt extinguishment issues Implementation Guide 2017-1 Statement 83—asset retirement obligations Statement 84—fiduciary activities Statement 88—debt disclosures IG2018-1 Statement 90—majority equity interests Statement 87—leases Statement 89—interest cost 2018 2019 2020 #May be implemented by topic

Implementation Guide No Implementation Guide No. 2017-3, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and Certain Issues Related to OPEB Plan Reporting)

OPEB Implementation Guidance What: Implementation Guide for OPEB and certain issues related to OPEB plan reporting was published in December 2017 Why: Effective date for Statement 75 is periods beginning after June 15, 2017; (Guide to Statement 74 on OPEB plan reporting was published in April 2017) When: Generally effective for periods beginning after June 15, 2017, the same as for Statement 75 The tech plan contemplates a final Statement in 2022 Comment deadline 2/28/2019 3 public hearings 2 user forums

Implementation Guidance More than 500 questions and answers related to employer accounting and financial reporting for OPEB Additional questions and answers related to OPEB plan reporting Statement 75 -Approximately 235 “discrete” Q&As (i.e., approximately 265 Q&As are variations to address different reporting circumstances—for example, OPEB that is not administered through a trust that meets the specified criteria). Statement 74

Illustrations Determination of benefit payments if blended premium rates are stated Determination of the discount rate in circumstances in which benefits are paid by the employer with its own resources as they come due and the OPEB plan is administered through a trust that meets the criteria in paragraph 4 of Statement 75 Determination of certain amounts to be presented in a single or agent employer’s required supplementary information (RSI) schedule of contribution-related information Note disclosures, RSI, and calculation of certain recognized amounts for a cost-sharing employer

Effective Dates The same as Statement 75: periods beginning after June 15, 2017, except: Questions 4.85, 4.103, 4.108, 4.109, 4.225, 4.239, 4.244, 4.245, and 5.1–5.4 Effective for actuarial valuations as of December 15, 2017, or later Questions 4.484 and 4.491 Effective for employer or nonemployer contributing entity in the first reporting period in which the measurement date of the (collective) net OPEB liability is on or after June 15, 2018

Certain Asset Retirement Obligations Statement No. 83

Certain Asset Retirement Obligations What: The Board issued Statement 83 to establish accounting and financial reporting standards for legal obligations to retire certain capital assets, such as decommissioning nuclear power plants and removing sewage treatment plants Why: Statement 18 addressed only municipal landfills but governments have retirement obligations for other types of capital assets; diversity exists in practice When: Effective for fiscal years beginning after June 15, 2018 Earlier application is encouraged Statement 49 requires reporting of pollution-related AROs at the time of retirement of the capital asset, if ARO is not previously reported. But Statement 49 does not address ARO reporting during periods leading up to the asset retirement. Now, Statement 83 supersedes Statement 49 paragraph 4, on those AROs that are used to be covered by Statement 49.

Asset retirement obligation Retirement of a tangible capital asset Definitions and Scope Asset retirement obligation Legally enforceable liability associated with the retirement of a tangible capital asset Retirement of a tangible capital asset The permanent removal of a capital asset from service (such as from sale, abandonment, recycling, or disposal) Examples Nuclear power plant decommissioning Coal ash pond closure Contractually required land restoration, such as removal of wind turbines Other similar obligations Excludes: Landfills (Statement 18) Pollution remediation obligations from abnormal operation (Statement 49) Conditional obligations

Recognition & Measurement Initial Recognition ARO liability when incurred and reasonably estimable. Incurrence manifested by both external and internal obligating events. Measured based on the best estimate of the current value of outlays expected to be incurred. Deferred outflow of resources—same amount as the ARO liability Subsequent Recognition At least annually, adjust for general inflation or deflation At least annually, evaluate relevant factors to determine if there is a significant change in the estimated outlays; remeasure liability when significant An outflow of resources (such as expense) in a systematic and rational manner over the estimated useful life of the capital asset. Immediately expense if capital asset is abandoned. External obligating events include laws, court judgments and contracts that legally oblige the government. Internal obligating events are actions the reporting entity takes that create an obligation for that entity. Internal obligating events vary depending on the type of capital asset and the type of ARO. “Best-estimate” approach: Incorporate all evidence that can be obtained at a reasonable cost

Measurement Exception for a Minority Owner of a Jointly Owned Capital Asset Minority share (less than 50 percent) of ownership interest in an undivided interest arrangement is one of the following: A nongovernmental entity is the majority owner No majority owner, but a nongovernmental owner has the operational responsibility Initial and Subsequent Measurement Exception The governmental minority owner should report its minority share of ARO using the measurement produced by the nongovernmental joint owner The measurement date of such an ARO should be no more than one year and one day prior to the government’s financial reporting date Specific disclosure requirements in this circumstance The measurement produced by the nongovernmental joint owner of the capital asset generally is different from Statement 83. That measurement usually would be calculated in accordance with guidance of another recognized accounting standards setter, such as FASB.

Effects of Funding and Assurance If legally required to provide funding and assurance, disclose that fact Do not offset ARO with assets restricted for payment of the ARO Costs to comply with funding and assurance provisions are period costs separate from the ARO expense If a government voluntarily set aside some money for the future payment of its liability, that money is not a legally required funding for AROs, and therefore, that fact is not required to be disclosed. Only legally required funding and assurance (such as a line of credit) is required to be disclosed.

Disclosures General description of ARO and associated tangible capital assets, including source of AROs (such as federal laws or regulations, contracts, court judgments) Methods and assumptions used to measure ARO liabilities Estimated remaining useful life of tangible capital assets How financial assurance requirements, if any, are being met Amount of assets restricted for payment of ARO liabilities, if not separately displayed in financial statements If a government has an ARO (or portions of an ARO) that is incurred but not yet recognized because it cannot be reasonably estimated, that fact and the reasons therefor These information are essential for financial statement users to understand a government’s ARO. There are things that the Board had considered but decided not to require for disclosure purposes, mainly for the concerns about cost and benefit. For example, a reconciliation schedule for the beginning and ending balances of AROs. The reason of not including that schedule is because current literature already requires a reconciliation schedule for the changes in ALL long-term liabilities. So, a separate schedule for AROs only would be redundant.

Fiduciary Activities Statement No. 84

Fiduciary Activities What: The Board issued Statement 84 to clarify when a government has a fiduciary responsibility and is required to present fiduciary fund financial statements Why: Existing standards require reporting of fiduciary responsibilities but do not define what they are; use of private-purpose trust funds and agency funds is inconsistent; BTAs are uncertain about how to report fiduciary activities When: Effective for fiscal years beginning after December 15, 2018 Earlier application is encouraged

When Should a Government Report Assets in a Fiduciary Fund? Four paths to making this determination: Are the assets held by a component unit? Yes No Are the assets held for a pension or OPEB arrangement? Yes No Yes No 1 2 3 4

Component Units That Are Postemployment Benefit Arrangements Are Fiduciary if… 1 They are one of the following arrangements: Pension plan administered through a trust that meets criteria OPEB plan administered through a trust that meets criteria Assets from entities not part of the reporting entity accumulated for pensions Assets from entities not part of the reporting entity accumulated for OPEB St. 67 ¶3 St. 74 ¶3 St. 73 ¶116 St. 74 ¶59

Other Component Units Are Fiduciary if… They have one or more of the following characteristics: Assets are: Administered through a trust in which government is not a beneficiary Dedicated to providing benefits, AND Legally protected from the creditors of government Assets are for the benefit of individuals Assets are not derived from government’s provision of goods or services to the individuals AND Government does not have administrative involvement or direct financial involvement w/ the assets Assets are for the benefit of organizations/ governments not part of the reporting entity AND Assets are not derived from government’s provision of goods or services to them 2 Examples of administrative involvement If it monitors compliance with the requirements of the activity that are established by the government or by a resource provider that does not receive the direct benefits of the activity If it determines eligible expenditures that are established by the government or by a resource provider that does not receive the direct benefits of the activity If it has the ability to exercise discretion in how assets are allocated Example of direct financial involvement If it provides matching resources for the activities or or

Postemployment Benefit Arrangements That Are Not Component Units Are Fiduciary if… 3 Arrangement is one of those in AND The government controls the assets of the arrangement Control means one or both of the following is true: 1 Government holds the assets Government has ability to direct the use, exchange, or employment of the assets in a manner that provides benefits to the specified or intended beneficiaries

All Other Activities Are Fiduciary if… 4 Arrangement meets one or more of the criteria in and The government controls the assets Those assets are not derived either: Solely from the government’s own-source revenues, or From grants, with the exception of pass-through grants for which the government does not have administrative or direct financial involvement 2

Fiduciary Fund Classes Pension and other employee benefit trust fund Investment trust fund Private-purpose trust fund Custodial fund External portions of investment pools that are not held in trust should be reported in a separate column under the custodial fund umbrella Trust agreement or equivalent arrangement should be present

Stand-Alone Business-Type Activities A stand alone BTA’s fiduciary activities should be reported in separate fiduciary fund financial statements. Exception: Resources expected to be held 3 months or less can be reported instead in the statement of net position, with inflows and outflows reported as operating cash flows in the statement of cash flows

Proposed Implementation Guide What: GASB cleared an Exposure Draft of Implementation Guide to Statement 84 on fiduciary activities Why: Guidance is needed by preparers and auditors for the implementation of Statement 84 When: Board expected to consider clearing a final for issuance in May 2019 The tech plan contemplates a final Statement in 2022 Comment deadline 2/28/2019 3 public hearings 2 user forums

Statement 84 Guide 53 proposed questions and answers, including: Classifying fiduciary activities Applying the criteria for control and own-source revenues Applying the clarified definitions of fund classes, including determining eligibility for the custodial fund exception for BTAs Fiduciary fund financial statements, including the determining eligibility for the exception to disaggregating certain additions and deductions Reporting fiduciary component units Proposed revisions to five existing questions and answers

Project Timeline Deliberations Began October 2018 Exposure Draft Cleared December 2018 Final Guide Expected May 2019

Omnibus 2017 Statement No. 85

Omnibus 2017 What: The Board issued Statement 85 which includes amendments to certain existing literature Why: Omnibus projects are used to address issues in multiple pronouncements that, individually, would not justify a separate project When: Effective for periods beginning after June 15, 2017 (may be early implemented by topic)

Component Units & Government Combinations Requirements for blending component units for single-column business-type activities Component units must meet a criterion for blending in paragraph 53 of Statement 14, as amended Treatment of goodwill and “negative” goodwill Reclassify existing goodwill as deferred outflows of resources Include existing negative goodwill as part of restatement of beginning net position

Fair Value Measurement & Application How to classify real estate held for both operations and investment purposes by insurance entities Based on whether unit of account meets the definition of an investment Measuring certain money market investments and participating interest-earning investment contracts at amortized cost May be measured at amortized cost to the extent permitted by paragraph 9 of Statement 31

Pensions & OPEB Timing of the measurement of pension and OPEB liabilities and related expenditures in financial statements prepared using the current financial resources measurement focus Based on reporting period (rather than measurement period) Recognition of on-behalf payments for pensions or OPEB in employer financial statements Primarily clarifies that expenditures and revenue should be recognized in employers’ financial statements prepared using the current financial resources measurement focus

OPEB Presentation of payroll-related measures in required supplementary information for OPEB plans present covered payroll, if contributions are based on pay; otherwise, no measure Employers present covered payroll, if contributions are based on pay; otherwise, covered-employee payroll Employer-paid member contributions for OPEB If employer makes payments to satisfy contribution requirements identified by OPEB plan terms as plan member contribution requirements, amounts should be classified as plan member (employee) contributions

OPEB (continued) Simplifications related to the alternative measurement method Applicability of Statement 75 for employers whose employees are provided with OPEB through multiple-employer defined benefit OPEB plans that have characteristics similar to those identified in Statement 78 Exceptions to application of Statement 75 for employers that provide OPEB through a cost-sharing OPEB plan that meets the criteria in paragraph 4 of Statement 75 and that: Is not a state of local government OPEB plan, Is used to provide defined benefit OPEB to both employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and Has no predominant state of local governmental employer (either individually or collectively

Certain Debt Extinguishment Issues Statement No. 86

Certain Debt Extinguishment Issues What: The Board issued Statement 86 to establish guidance for certain issues related to debt extinguishments, primarily in-substance defeasance of debt Why: Research found that Statements 7, 23, and 62 are working effectively, but that certain issues needed to be addressed When: Effective for periods beginning after June 15, 2017

In-Substance Defeasance Using Only Existing Resources Debt is considered defeased in substance (like advance refundings) if only existing resources are used to fund an irrevocable trust that is restricted to owning only essentially risk-free monetary assets (like for refundings) Recognize the difference between the net carrying amount of the debt and the reacquisition price as a gain or loss in the period of defeasance (unlike advance refundings, which defer and amortize the difference) Notes: Describe the transaction in the period it occurs (like refundings) Disclose remaining outstanding balance in each period the defeased debt remains outstanding (may combine with refunded amount) Prior guidance provided for in-substance defeasance only if new debt was issued to refund the old debt. Statement 86 expands that guidance to allow for in-substance defeasance of debt when only existing resources are used to fund a trust to pay off that debt.

Prepaid Insurance for All Debt Extinguishments At the time debt is extinguished/defeased, any related prepaid insurance that remains should be included in the net carrying amount of the debt for the purpose of calculating the difference between its reacquisition price and net carrying amount A consequence of Statement 65 was that it removed the guidance for how to treat prepaid insurance related to extinguished debt. Statement 86 reestablishes the prior guidance.

Note Disclosure on Substitution Risk Applies to all in-substance defeasances If substitution of the essentially risk-free monetary assets in escrow with monetary assets that are not essentially risk-free is not prohibited… In the period of defeasance In subsequent periods Disclose the fact that substitution is not prohibited Disclose the amount of debt defeased in substance that remains outstanding for which that risk of substitution exists

Leases Statement No. 87

Leases What: The Board issued Statement 87 to improve lease accounting and financial reporting Why: Existing standards in effect for decades without review in light of GASB’s conceptual framework; FASB and IASB conducted a joint project to update their lease standards; opportunity to increase comparability and usefulness of information and reduce complexity for preparers When: Effective for periods beginning after December 15, 2019

Scope and Approach Capital/operating distinction is eliminated Statement 87 applies to any contract that meets the definition of a lease: “A lease is a contract that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset) for a period of time in an exchange or exchange-like transaction.” Leases are financings of the right to use an underlying asset Statement 87 does not include nonexchange transactions, such as $1/year leases, because the Statement 87 reporting model based on leases being financing transactions does not work well for nonexchange transactions. (Report a $1 lease liability and asset?) The right-to-use asset is that “specified in the contract” Control is manifested by (1) the right to obtain present service capacity from use of the underlying asset and (2) the right to determine the nature and manner of use of the underlying asset In final deliberations, the Board decided to specifically note that the right to use a nonfinancial asset refers to the right to use another entity’s underlying asset. The Board also decided that the right-to-use asset should be what is “specified in the contract,” which would include the right to use the underlying asset for portions of time during a lease term, such as leases for certain days each week or for certain hours each day. The Board also agreed to add guidance for determining when a lease contract conveys control of the right to use the underlying asset. The guidance is similar to the FASB guidance but is based on the notions of control found in Concepts Statement No. 4, Elements of Financial Statements, including (1) the right to obtain the present service capacity from use of the underlying asset and (2) the right to determine the nature and manner of use of the underlying asset. The control criteria would be applied to the right-to-use asset as specified in the contract. The Board agreed that, unlike FASB, the criteria would not limit a lease to contracts that convey “substantially all” of the present service capacity from use of the underlying asset. Single approach applied to accounting for leases with some exceptions, such as short-term leases

Scope Exclusions Intangible assets (mineral rights, patents, software, copyrights), except for the sublease of an intangible right-to-use asset Biological assets (including timber, living plants, and living animals) Inventory Service concession arrangements (Statement 60) Assets financed with outstanding conduit debt, unless both the asset and the debt are reported by the lessor Supply contracts (such as power purchase agreements that do not convey control of the right to use the underlying generating facility)

Initial Reporting Assets Liability Deferred Inflow Lessee Intangible lease asset (right to use underlying asset)—value of lease liability plus prepayments and initial direct costs that are ancillary to place asset in use Present value of future lease payments (incl. fixed payments, variable payments based on index or rate, reasonably certain residual guarantees, etc.) NA Lessor Lease receivable (generally includes same items as lessee’s liability) Continue to report the leased asset Equal to lease receivable plus any cash received up front that relates to a future period FASB requires that lessors derecognize leased asset. GASB decided to not derecognize due to cost/benefit. Lease incentives also affect measurement of the lessee’s lease asset and liability, and the lessor’s receivable.

Subsequent Reporting Assets Liability Deferred Inflow Lessee Amortize the intangible lease asset over shorter of useful life or lease term Reduce by lease payments (less amount for interest expense) NA Lessor Depreciate leased asset (unless indefinite life or required to be returned in its original or enhanced condition) Reduce receivable by lease payments (less amount needed to cover accrued interest) Recognize revenue over the lease term in a systematic and rational manner Amortization of discount reported as interest revenue

Short-Term Leases Definition At beginning of lease, maximum possible term under the contract is 12 months or less Lessee accounting Recognize expenses/expenditures based on the terms of the contract Do not recognize assets or liabilities associated with the right to use the underlying asset Lessor accounting Recognize lease payments as revenue based on the payment provisions of the contract Do not recognize receivables or deferred inflows The GASB chose maximum possible term rather than lease term because GASB was concerned about potential misapplication of lease term guidance to manufacture short-term leases, thus avoiding recording liabilities.

Short-Term Lease Exception Practicality exception for short-term leases For a lease that is cancelable either by the lessee or lessor, such as month-to-month or year-to-year leases, the maximum possible term is the noncancelable period including any notice period The GASB definition of short-term lease differs from the FASB definition. The FASB definition is based on the maximum “lease term.”

Lease Term For financial reporting, when does the lease start and end? Starts with the noncancelable period, plus periods covered by lessees’ and lessors’ options to: Extend the lease, if the option is reasonably certain of being exercised Terminate the lease, if the option is reasonably certain of NOT being exercised Excludes “cancelable” periods Periods for which lessee and lessor each have the option to terminate or both parties have to agree to extend Rolling month-to-month leases Fiscal funding/cancelation clauses ignored unless reasonably certain of being exercised Paragraph 12: Periods for which both the lessee and the lessor have an option to terminate the lease (or if both parties have to agree to extend) are cancelable periods and are excluded from the lease term. For example, a rolling month-to-month lease, or a lease that continues into a holdover period until a new contract is signed, would not be enforceable if both the lessee and the lessor have an option to terminate and, therefore, either could cancel the lease at any time. Provisions that allow for termination of a lease due to (a) purchase of the underlying asset, (b) payment of all sums due, or (c) default on payments, are not considered termination options.

Lease Term — Example 1 3-year lease with lessee option to extend to 6 years and lessor option to cancel at end of year 4 Assumptions: Lessee is reasonably certain that it will extend lease to 6 Lessor is reasonably certain that it will not cancel at 4 Lease term = 6 years First 3 years included – noncancelable period Lessee option to extend for 3 more years included – because it was reasonably certain to be exercised First 3 years included. Noncancelable period. Lessee option to extend for three more years included IF reasonably certain of exercise. Lessor option period to cancel included IF reasonably certain that cancellation clause will not be exercised. (Both parties do not have option to cancel.) Conclusion: This is a six-year lease.

Lease Term — Example 2 3-year lease with lessee option to extend to 6 years and lessor and lessee options to cancel at end of year 4 Assumptions: Lessee is reasonably certain that it will extend lease to 6 years Lessor and lessee are reasonably certain that they will not cancel at 4 Lease term = 4 years Cancelable at end of 4th year because both lessee and lessor can cancel First 3 years included. Noncancelable period. Cancellation period excluded because, per the guidance, exclude if both parties can cancel. Conclusion: This is a four-year lease.

Reassessment of Lease Term Reassess the lease term only if one or more of the following occurs: Lessee or lessor elects to exercise an option even though originally determined that the lessee or lessor would not exercise that option Lessee or lessor elects to not exercise an option even though previously determined that the lessee or lessor would exercise that option An event specified in the contract that requires an extension or termination of the lease takes place. Paragraph 12: Periods for which both the lessee and the lessor have an option to terminate the lease (or if both parties have to agree to extend) are cancelable periods and are excluded from the lease term. For example, a rolling month-to-month lease, or a lease that continues into a holdover period until a new contract is signed, would not be enforceable if both the lessee and the lessor have an option to terminate and, therefore, either could cancel the lease at any time. Provisions that allow for termination of a lease due to (a) purchase of the underlying asset, (b) payment of all sums due, or (c) default on payments, are not considered termination options.

Other Topics Covered by Statement 87 Disclosures Lease term Contracts with multiple components Contract combinations Lease modifications & terminations Lease incentives Subleases Sale-leasebacks Lease-leasebacks   This slide is meant to simply identify these topics – do not go through them item by item.

Lease Incentives Lease Incentives—reduce the amount lessee has to pay Payments made to, or on behalf of, the lessee, for which there is a right of offset Other concessions Payments provided at or before inception of lease reported as Direct reductions of lessee’s lease asset Payments provided after inception of lease reported as Reductions of payments for period provided Reduces PV of lease liability (and lessor’s receivable)

Contracts with Multiple Components Separate contracts into lease and nonlease components or multiple lease components Allocate consideration to multiple underlying assets if: Differing lease terms, or Are in differing major asset classes for disclosure Allocation process: First — use any prices for individual components if price allocation not unreasonable based on contract terms and professional judgment (maximizing observable information) If no prices or if not reasonable, use best estimate based on professional judgment (maximizing observable information) If not practicable to determine best estimate, may account for components as single lease unit Observable standalone prices – those for identical or similar assets or services The GASB does not provide a practical expedient to establish a policy of accounting for all components as a single lease unit. The FASB does have such a practical expedient.

Contract Combinations Contracts entered into at or near the same time with the same counterparty should be considered part of the same lease contract if either of the following criteria is met: The contracts are negotiated as a package with a single objective The amount of consideration to be paid in one contract depends on the price or performance of the other contract Combined contract then subject to multiple components guidance

Lease Modifications & Terminations Result from amendments to lease contract, not from exercising options in that contract MODIFICATIONS Considered lease modification unless lessee’s right to use underlying asset decreases TERMINATIONS Considered partial or full lease termination if lessee’s right to use underlying asset decreases From paragraph 71: Examples of amendments include a change in consideration, amending the contract to lengthen or shorten the lease term, and adding or removing an underlying asset. Examples of lessee’s right to use the underlying asset decreasing include the lease term is shortened or the number of underlying assets is reduced.

Lease Modifications Report as new lease by both lessor and lessee if New assets are added and Not unreasonably priced Otherwise, remeasure as discussed on following slides From paragraph 71: Examples of amendments include a change in consideration, amending the contract to lengthen or shorten the lease term, and adding or removing an underlying asset. Examples of lessee’s right to use the underlying asset decreasing include the lease term is shortened or the number of underlying assets is reduced.

Lease Modifications for LESSEES Remeasure the lease liability on the effective date of modification Assess the need for an updated discount rate Adjust the right-of-use asset by the difference between the modified liability and the liability immediately before the modification If asset reduced to $0, any additional reduction is reported as a gain If change results from the lessor refunding related debt and passing savings on to the lessee, see remeasurement guidance in paragraph 74

Lease Modifications for LESSORS Remeasure the lease receivable on the effective date of modification Assess the need for an updated discount rate Adjust the deferred inflow of resources by the difference between the modified receivable and the receivable immediately before the modification However, to the extent any change relates to payments for the current period, recognize in current period flows statement (for example, revenue) If change results from refunding related debt and passing savings on to the lessee, see remeasurement guidance in paragraph 76

Lease Terminations for LESSEES For partial/full lease terminations (other than purchases), lessees reduce/remove the lease asset and obligation Recognize the difference as a gain or loss If the lessee purchases the underlying asset, reclassify to the appropriate asset class Adjust lease liability to reflect the payments yet to be made; reflect adjustment in cost of the purchased asset

Lease Terminations for LESSORS For partial/full lease terminations (other than sales), lessors reduce/remove the lease receivable and related deferred inflow of resources Recognize the difference as a gain or loss If the lessor sells the underlying asset, derecognize underlying asset Include in the calculation of any gain or loss

Subleases Accounted for as transactions separate from the original lease Do not offset original lease liability and sublease receivable Disclosures for original lessee (now the lessor) Include subleases in the general description of lease arrangements Lessor transactions related to subleases should be disclosed separately from the original lessee transactions

Sale-Leasebacks Qualifying sale required (otherwise it is a borrowing) Accounted for as two separate transactions—a sale transaction and a lease transaction—except that Any gain or loss on sale portion deferred and recognized over term of leaseback (but immediately recognize if leaseback is short-term lease) If terms are significantly off-market, report based on the substance of the transaction, for example: Borrowing, Nonexchange transaction, Advance lease payment Disclose terms and conditions of sale-leaseback Guidance for determining whether a qualifying sale has occurred is found in paragraphs 287–319 and 321–323 of Statement 62, which address real estate sales. These paragraphs include a discussion of continuing involvement as evidence that a sale has not yet occurred. The following are examples of off-market terms: a. A transaction has a sale price and lease payments that are both significantly higher than market. b. A transaction has a sale price that is significantly higher than market but the lease payments are at or below market. c. A transaction has a sale price that is significantly lower than market.

Lease-Leasebacks Example: A school district leases land to a developer. The developer builds a school and leases the school and land back to the school district. Accounted for as a net transaction (because of right of setoff) Disclose (both parties) Gross amounts of the lease and the leaseback

Intra-Entity Leases Leases with/between blended component units Eliminations for internal leasing activity take place before the financial statements are aggregated Leases with/between discretely-presented component units Treat like normal leases, but Present receivables and payables separately

Leases between Related Parties Recognize substance of the transaction, when substance is significantly different from legal form For example, a short-term lease is long-term if parties have an understanding that lease will be extended several years Use equity method for investments in stock Disclose the nature and extent of related-party leases

Effective Date & Transition Effective for periods beginning after December 15, 2019 Earlier application encouraged Transition Apply retroactively Restate if practicable, cumulative effect if not Leases recognized and measured using the facts and circumstances that exist at the beginning of the period of implementation (hindsight) Lessors should not restate the assets underlying their existing sales- type or direct financing leases Any residual assets for those leases would become the carrying values of the underlying assets

Implementation Ideas Implement internal controls to identify leases and lease modifications Update accounting systems for new information needs Consider impact on capitalization policy Consider effects of reporting lease liabilities on– Debt limitations Bond covenants Grant agreements

Proposed Implementation Guide What: GASB has cleared for public comment an Exposure Draft of a freestanding implementation guide to Statement 87 Why: GASB issues separate implementation guides for complex pronouncements to assist preparers and auditors to apply the standards When: Comment deadline: April 30, 2019 The tech plan contemplates a final Statement in 2022 Comment deadline 2/28/2019 3 public hearings 2 user forums

Statement 87 Guide 80 proposed questions and answers, including: Scope and applicability issues Determining the term of the lease Eligibility for exception for short-term leases Recognition, measurement, and disclosure for lessees and lessors Lease incentives Contracts with multiple components and contract combinations Terminations and modifications Sale-leasebacks, lease-leasebacks, and intra-entity leases

Project Timeline Deliberations Began December 2018 Exposure Draft Cleared February 2018 Final Guide Expected June 2019

Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements Statement No. 88

Debt Disclosures What: The Board issued Statement 88 to improve existing standards for disclosure of debt Why: A review of existing standards related to disclosures of debt found that debt disclosures provide useful information, but that certain improvements could be made When: Effective for periods beginning after June 15, 2018

Definition of Debt for Disclosure Purposes “A liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of payment of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established” For purposes of this determination, interest to be accrued and subsequently paid (such as variable-rate interest) or added to the principal amount of the obligation, such as capital appreciation bonds, would not preclude the amount to be settled from being considered fixed at the date the contractual obligation is established. Leases and accounts payable are excluded from the definition of debt for disclosure purposes.

New Disclosure Requirements Direct borrowings and direct placements of debt should be distinguishable from other types of debt for all disclosures New Disclosures about All Types of Debt Amount of unused lines of credit Assets pledged as collateral for debt Terms specified in debt agreements related to significant: Events of default with finance-related consequences Termination events with finance-related consequences Subjective acceleration clauses

Accounting for Interest Cost Incurred before the End of a Construction Period Statement No. 89

Interest Cost Incurred before the End of a Construction Period What: The Board issued Statement 89 to enhance the relevance of capital asset information and simplify financial reporting Why: Accounting guidance has been based on FASB Statements 34 and 62, which were incorporated into the GASB literature by GASB Statement 62 but were not reconsidered in light of GASB’s Concepts Statements When: Effective for periods beginning after December 15, 2019. Earlier application is encouraged.

Recognizing Interest Cost Financial statements prepared using the economic resources measurement focus: Interest cost incurred before the end of a construction period should be recognized as an expense in the period incurred. Financial statements prepared using the current financial resources measurement focus: Interest cost incurred before the end of a construction period should be recognized as an expenditure consistent with governmental fund accounting principles. Prospective application at transition Would retain existing accounting requirements under modified accrual in the governmental funds.

Accounting and Financial Reporting for Majority Equity Interests Statement No. 90 No longer timely for 12-31 FYEs

Majority Equity Interests What: The Board issued Statement 90 to clarify whether a majority equity interest should be reported as an investment or as a component unit and to provide consistent measurement of elements of acquired organizations and 100% equity interests in component units Why: Stakeholders requested that the GASB examine diversity in practice and potential conflicts in the existing guidance When: Effective for periods beginning after December 15, 2018

Does the Majority Equity Interest Meet the Definition of an Investment? YES NO Report as an investment Report as a component unit Measure the investment by applying the equity method prescribed in Statement 62, paragraphs 205–209 Exception: the following should apply fair value in accordance with Statement 72, paragraph 64: Special-purpose governments engaged only in fiduciary activities Fiduciary funds Endowments (including permanent and term endowments) and permanent funds Recognize an asset for the majority equity interest and measure by applying the equity method prescribed in Statement 62, paragraphs 205–209 Applied prospectively only

These provisions would be applied prospectively only 100% Equity Interest That Does Not Meet the Definition of an Investment Government holding the 100% equity interest would recognize an asset and measure by using acquisition value Component unit should remeasure assets, liabilities, and deferrals by applying acquisition value as described in Statement 69 If a government acquires a 100% equity interest in a legally-separate entity that does not meet the definition of an investment These provisions would be applied prospectively only

Implementation Guidance Updates 2017-1 and 2018-1

Implementation Guidance Updates What: GASB annually updates its Q&A implementation guidance Why: New guidance is added as new pronouncements are issued and new issues arise When: 2017-1 is effective for periods beginning after June 15, 2017 2018-1 is effective for periods beginning after June 15, 2018

Implementation Guide 2017-1 Pensions Tax abatement disclosures External investment pools Cash flows reporting Financial reporting entity Fund balance reporting Adds new questions related to Financial reporting model Deposit and investment disclosure Intangible assets Risk financing Nonexchange transactions Updates existing Q&A guidance related to

Implementation Guide 2018-1 OPEB Pensions Regulated operations Statistical section Tax abatement disclosures Adds new questions on standards regarding Capital assets Cash flows reporting Investment disclosures Net position Updates existing Q&A guidance related to

Current Technical Agenda Projects

Conceptual Framework— Disclosure Framework

Disclosure Framework What: The Board has added a conceptual framework project to further develop the concepts that guide standards-setting decisions regarding the information that should be disclosed in notes Why: The GASB reexamined existing note disclosure requirements and concluded that it was necessary to elaborate on the concept of “essential” as it relates to notes When: Deliberations began in October 2018

Concepts Related to Disclosures Concepts Statements guide the Board’s decisions when setting accounting and financial reporting standards Concepts Statement 3 establishes criteria for what communication method should be used to report information – financial statements, notes to financial statements, required supplementary information, and supplementary information Notes to financial statements are integral to financial statements and are essential to a user's understanding of financial position or inflows and outflows of resources.

Potential Topics to Consider Purpose of note disclosures, including user needs related to note disclosures Characteristics of essentiality Limitations of note disclosures Presentation and format of note disclosures, including consideration of the location of the information within the note disclosure section Consideration of note disclosures individually and as a whole

Project Timeline Pre-Agenda Research Started April 2016 Added to Current Technical Agenda August 2018 Deliberations Began October 2018

Conceptual Framework: Recognition

Preliminary Views: Recognition of Elements of Financial Statements What: The Board issued a Preliminary Views on concepts related to recognition of financial statement elements Why: Recognition concepts are one of the components needed to complete the conceptual framework When: Comment deadline was February 15, 2019 The tech plan contemplates a final Concepts Statement in 2022 Comment deadline 2/28/2019 3 public hearings 2 user forums

Recognition Concepts The measurement focus of a specific financial statement determines what items should be reported as elements of that financial statement. The related basis of accounting determines when those items should be reported.

Proposal: Recognition Hierarchy Follow a specific order when evaluating an item for recognition: Does it meet the definition of an outflow of resources or an inflow of resources? Yes: Recognize inflow/outflow No: Do not recognize the item Does it meet the definition of a deferred outflow of resources or a deferred inflow of resources? Yes: Recognize deferral No: go to next step Does it meet the definition of an asset or liability? Yes: Recognize asset or liability

Proposal: Recognition Framework Two Measurement Focuses Economic Resources (applied in government-wide, proprietary fund, and fiduciary fund financial statements) Short-Term Financial Resources (would replace current financial resources in the governmental funds) Subject to the limitations of financial reporting described in Concepts Statement 1.

Proposal: Recognition Framework (continued) Item meets definition of an element under the measurement focus Measurement of item sufficiently reflects qualitative characteristics Recognize the item in financial statement Qualitative characteristics of information in financial reports per Concepts Statement 1. Financial statements presented applying the short-term financial resources measurement focus would reflect the amount of fund balance at period-end that is available for spending in the next period, which may or may not be restricted for specific purposes, as well as fund balance that is legally or contractually required to be maintained intact. This is subject to the limitations of financial reporting described in Concepts Statement 1.

Project Timeline Preliminary Views Issued September 2018 Comment Deadline February 15, 2019 Public Hearings March 5, 12 & 14, 2019 User Forums March 6 & 14, 2019 Redeliberations Begin June 2019 Exposure Draft Expected June 2020

Conduit Debt Obligations

Conduit Debt What: In July 2018, the Board proposed improvements to the existing standards related to conduit debt obligations that would provide a single reporting method for government issuers Why: Interpretation 2 had been in effect for 20 years before its effectiveness was evaluated; based on GASB research, the Board believes improvements are needed to eliminate diversity in practice When: Final Statement expected to be considered for issuance in May 2018

Proposal: Definition of Conduit Debt There are at least three parties involved: the government-issuer, the third-party obligor (borrower), and the debt holder or debt trustee. The issuer and the third-party obligor are not within the same financial reporting entity. The debt obligation is not a parity bond of the issuer, nor is it cross-collateralized with other debt of the issuer.   The third-party obligor or its agent, not the issuer, ultimately receives the proceeds from the debt issuance.  The third-party obligor, not the issuer, is primarily obligated for the payment of all amounts associated with the debt obligation. The issuer’s commitment related to the debt service payments is limited.

Proposal: Limited and Additional Commitments Extended by Issuers Generally, issuers’ commitments are limited to the resources provided by the third-party obligor. For example: Extending a moral obligation pledge Extending an appropriation pledge Extending a guarantee Pledging its own property, revenue, or other assets as security Requesting appropriations without a moral obligation pledge or appropriation pledge Occasionally, an issuer may extend an additional commitment of its own resources and agree to support debt service in the event of the third-party obligor’s default.

Proposal: Recognition by the Issuer Do not recognize a conduit debt obligation as a liability May have a related liability arising out of an additional commitment Report a liability only when qualitative factors indicate it is more likely than not that the issuer will support debt service payments for a conduit debt obligation At least annually reevaluate whether recognition criteria are met while conduit debt is outstanding The list of examples in the ED for qualitative factors should be used to assess whether it is more likely than not an issuer will support debt service payments.

Proposal: Arrangements and Capital Assets Payments from the third-party obligor are for debt service payments and are made to the debt holder or debt trustee. Payment schedule for the arrangement coincides with the debt service repayment schedule and sometimes is characterized as lease payments.  Ownership (title) of the capital asset may pass to the third-party obligor at the end of the arrangement or remain with issuer. Some conduit debt obligations include  “arrangements” that involve capital assets to be used by the third-party obligor but owned by the issuer.

Proposal: Arrangements and Capital Assets (continued) Accounting by the issuer: Do not report those arrangements as leases Do not recognize a liability for the related conduit debt obligations Do not recognize a receivable for the payments related to those arrangements

Proposal: Arrangements and Capital Assets (continued) If title passes to third-party obligor at the end of the arrangement, issuer would not report a capital asset either during the term of the arrangement or at the end of the arrangement. If title never passes to the third-party obligor: …and the third-party obligor has exclusive use of the entire capital asset Issuer would not recognize a capital asset until the arrangement ends …and the third-party obligor has exclusive use of only portions of the capital asset Issuer would recognize capital asset and deferred inflow at inception of the arrangement Deferred inflow recognized as revenue over the term of the arrangement

Proposal: Arrangements and Capital Assets (continued) Does title pass to third-party obligor at end of arrangement? Does the issuer recognize a capital asset? Does the issuer recognize a deferred inflow of resources? Yes No No, and third party has exclusive use of entire capital asset Yes, when the arrangement ends No, and third party has exclusive use of only portions of the capital asset Yes, at the inception of the arrangement Yes, at the inception of the arrangement; deferred inflow recognized as revenue over the term of the arrangement

Proposal: Disclosures Aggregate outstanding principal amount Each type of commitment extended by the issuer A general description of the issuer’s conduit debt obligations, organized by type of commitment Beginning balances, increases, decreases, ending balances Cumulative payments that have been made Amounts, if any, expected to be recovered for those payments If the issuer recognizes a related liability

Project Timeline Added to Current Technical Agenda August 2017 Exposure Draft Approved July 2018 Comment Period Ended November 2, 2018 Final Statement Expected May 2019

Deferred Compensation Plans: Reexamination of Statement 32

Deferred Compensation Plans What: The GASB has added a project to consider improvements to Statement 32 on IRC Section 457 plans Why: Statement 32 became effective in 1999 and the relevant portions of the IRC have changed significantly since then When: Deliberations are schedule to begin in April 2019

Key Issue to Be Considered What standards should be applied to Section 457 plans that meet the definition of a pension plan – Statement 32, as amended, or the pension standards (Statements 67, 68, and 73, as amended)?

Project Timeline Added to Current Technical Agenda December 2018 Exposure Draft Expected June 2019

Financial Reporting Model Reexamination

Preliminary Views: Financial Reporting Model Improvements What: The Board proposed improvements to the financial reporting model―Statements 34, 35, 37, 41, and 46, and Interpretation 6 Why: A review of those standards found that they generally were effective, but that there were aspects that could be significantly improved When: Comment deadline was February 15, 2019 The tech plan contemplates a final Statement in 2022 Comment deadline 2/28/2019 3 public hearings 2 user forums

Concerns with Existing Reporting of Governmental Funds Lack of conceptual consistency in recognition of assets and liabilities Lack of conceptual foundation from which to develop standards for complex transactions Some consider it ineffective in conveying that the information is related to fiscal accountability (rather than operational accountability) Focuses on financial resources rather than on economic resources Shorter time perspective than information in government-wide financial statements Lack of consistency in short-term perspective

Proposal: Recognition in Governmental Funds Short-Term Financial Resources Measurement Focus Items Arising from Short-Term Transactions and Events Items Arising from Long-Term Transactions and Events Those that normally are due to convert to or generate cash (or other financial assets) or require the use of cash (or other financial assets) entirely within one year from the inception of the transaction or other event Those that normally are due to convert to or require the use of cash (or other financial assets) in periods that extend beyond one year from the inception of the transaction or other event Recognized when the underlying transaction occurs Recognized when the payments are due to be received or paid

Proposal: Presentation of Governmental Funds Financial statements presented in current and noncurrent activity format Noncurrent activity—related to purchase and disposition of capital assets and issuance and repayment of long-term debt Current activity— all other

Proposal: Presentation of Governmental Funds—New Terminology These financial statements would present a short-term view of governmental fund activities and report items of a long-term nature differently from how they are reported in government-wide financial statements Short-Term Financial Resources Balance Sheet Statement of Short-Term Financial Resource Flows Short-term assets Inflows of short-term financial resources for current activities Deferred outflows of short-term financial resources Outflows of short-term financial resources for current activities Short-term liabilities Net flows of short-term financial resources for noncurrent activities Deferred inflows of short-term financial resources Short-term financial resources fund balances

Statement of Short-Term Financial Resource Flows Current and Noncurrent Activity Format This is the lower half

Proposals: Proprietary Funds Separate presentation of operating and nonoperating revenues and expenses Activities other than nonoperating activities Operating Subsidies received and provided Revenues and expenses of financing Resources from the disposal of capital assets and inventory Investment income and expenses Nonoperating

Proposals: Proprietary Funds (continued) Add a new subtotal for operating income (loss) and noncapital subsidies Subsidies are resources provided by another party or fund for the purpose of keeping the rates lower than otherwise would be necessary for the level of goods and services to be provided

Proposal: Budgetary Comparisons Would be presented as required supplementary information (no option for basic statements) Required variances would be final-budget-to-actual and original-budget-to-final-budget

Major component unit presentations Other Proposals If it is not feasible to present major component unit financial statements in separate columns in the reporting entity’s financial statements, the financial statements of the major component units would be presented in the reporting entity’s basic financial statements as combining financial statements Major component unit presentations Governmental activities expenses by function or program Business-type activities expenses by different identifiable activity Schedule of government-wide expenses by natural classification would be presented as supplementary information

Tentative Proposals for the Exposure Draft: MD&A Users of MD&A “have different levels of knowledge and sophistication about governmental accounting and finance,” “may not have a detailed knowledge of accounting principles” (as in Concepts Statement 1, paragraph 63) Move budgetary analysis to be with the budgetary comparison schedule in RSI Move discussion of infrastructure assets to be with RSI presentation on the modified approach (if applicable)

Tentative Proposals for the Exposure Draft: MD&A (continued) Retain and Improve These Sections Brief discussion of the basic financial statements, including their relationships and significant differences – with additional clarification and structure Analysis of year-to-year changes – amended to emphasize the level of thoroughness of the analysis and the need to avoid unnecessary duplication Currently known facts, decisions, or conditions – requirements would be amended with examples, including: Trends in economic data Details of the subsequent year’s adopted or approved budget Actions government has taken on postemployment benefits, capital improvement plans, and long-term debt Actions other parties have taken that affect the government

Other Tentative Proposals for the Exposure Draft Debt Service Funds Reporting requirements would not be changed to provide additional information because the expected benefits do not justify the perceived costs of providing and auditing the information Special and Extraordinary Items Requirement to separately present them would be replaced with a requirement to separately present inflows and outflows of resources that are unusual in nature and/or infrequent in occurrence Disclose additional information about those inflows and outflows, including the programs, functions, or identifiable activities to which they are related and whether they are within the control of management

Project Timeline Pre-Agenda Research Started April 2013 Added to Current Technical Agenda September 2015 Invitation to Comment Issued December 2016 Preliminary Views Issued September 2018 Public Hearings March 5, 12 & 14, 2019 User Forums March 6 & 14, 2019 Redeliberations Begin June 2019 Exposure Draft Expected June 2020

Implementation Guidance Update 2019

Implementation Guidance What: GASB cleared an Exposure Draft of implementation guidance update for public comment Why: Guidance is needed by preparers and auditors for the implementation of various standards When: Comment deadline: January 31, 2019 The tech plan contemplates a final Statement in 2022 Comment deadline 2/28/2019 3 public hearings 2 user forums

Proposed Guidance Would add new questions on standards regarding Asset impairment/insurance recoveries Cash flows reporting Derivative instruments Fund balance Irrevocable split-interest agreements Intra-entity transfers of assets Nonexchange transactions Pensions and OPEB Tax abatement disclosures Would add new questions on standards regarding Majority equity interests Would update existing Q&A guidance related to

Project Timeline Deliberations Began October 2018 Exposure Draft Cleared November 2018 Final Guide Expected April 2019

Omnibus

Omnibus Project What: The Board added an Omnibus project in December 2018 Why: Omnibus projects are used to address issues in multiple pronouncements that, individually, would not justify a separate project When: An Exposure Draft is expected to be considered in June 2019

Topics to Be Considered Effective Date of Statement 87: Should the effective date of Statement 87 be changed from reporting periods beginning after December 15, 2019, to fiscal years beginning after that date? Definition of Collections: Should the definition in Statement 34 of “collections” be amended to reflect the updates introduced by the American Alliance of Museums? Intra-Entity Transfers of Assets: Should the guidance in Statement 48 be clarified to address how the transfer of assets reported by the primary government at historical cost be reflected in the financial statements? Certain Effects of Statement 84: Should the term “control” introduced by the Statement be replaced in instances when the guidance could be applied to the assessment of certain potential fiduciary component units associated with pensions and OPEB?

Topics to Be Considered (continued) Available to Be Issued: Should the concept of a financial report being “available to be issued” be introduced in determining subsequent events? Exceptions to Acquisition Value: Should Statement 69 be amended to exclude the use of acquisition value for measuring asset retirement obligations? Technical Correction to Statement 72: Should Statement 72 be amended to correct a misidentified paragraph reference to Statement 62, as amended? Reinsurance Recoveries: Should inconsistencies in how the insurance accounting standards refer to a netting provision for recoveries from reinsurers and excess insurers be resolved?

Project Timeline Added to Current Technical Agenda December 2018 Deliberations Began January 2019 Exposure Draft Expected June 2019

Public-Private Partnerships, including Reexamination of Statement 60

Public-Private Partnerships What: The Board is considering (1) establishing standards for public-private and public-public partnerships (P3s) that are not subject to Statements 60 or 87 and (2) making improvements to Statement 60 Why: GASB research found that some P3 transactions are outside the scope of Statement 60 and identified opportunities to improve Statement 60’s guidance for service concession arrangements (SCAs) When: Deliberations began in May 2018

Tentative Definitions Public-private partnerships and public-public partnerships (PPPs) are arrangements “in which a government (the transferor) contracts with an operator [governmental or nongovernmental] to provide public services by conveying control of the right to operate or use infrastructure or other nonfinancial assets (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction.” An availability payment arrangement (APA) “is an arrangement in which payments made by a government are tied to the availability of an underlying asset and may include design, finance, construction, or service components. In an APA, a government contracts with another entity to operate or maintain the government’s infrastructure or other nonfinancial asset, and that entity receives payments from the government based on the asset’s availability for use. The asset’s availability may be based on the physical condition of the asset or the achievement of certain performance measures.”

Tentative Definitions (continued) A service concession arrangement (SCA) “is an arrangement between a transferor and an operator in which all of the following criteria are met: The transferor conveys to the operator the right and related obligation to provide public services through the use and operation of a capital asset in exchange for significant consideration, such as an up-front payment, installment payments, a new facility, or improvements to an existing facility. The operator collects and is compensated by fees from third parties. The transferor determines or has the ability to modify or approve which services the operator is required to provide, to whom the operator is required to provide the services, and the prices or rates that can be charged for the services. The transferor is entitled to significant residual interest in the service utility of the facility at the end of the arrangement.

Tentative Decisions A PPP that meets the definition of a lease in Statement 87 – but not the definition of an SCA – would be reported under Statement 87. An APA that is related to the design, finance, or construction of an infrastructure or other nonfinancial asset in which ownership of the asset transfers by the end of the contract would be reported as a financed purchase of the asset. An APA that is related to operations would be accounted for as flows of resources (for example, expense) in the period to which the payments relate.

Tentative Decisions: Transferors If underlying PPP asset is an existing asset, recognize: Receivable for installment payments to be received, if any Deferred inflow of resources for the assets recognized, including payments received from the operator at or before start of the PPP term If underlying PPP asset is a new asset purchased or constructed by the operator, or an existing asset that has been improved by the operator: And PPP is an SCA, recognize: Capital asset for the underlying PPP asset, measured at acquisition value when the asset is placed in operation And PPP is not an SCA, recognize: Receivable for the underlying PPP asset, measured at expected acquisition value as of the future date of the transfer in ownership

Tentative Decisions: Governmental Operators If underlying PPP asset is an existing asset, recognize: Intangible right-to-use asset Liability for installment payments, if any If underlying PPP asset is a new asset purchased or constructed by the operator, or an existing asset that has been improved by the operator: And PPP is an SCA, recognize: Liability for underlying PPP asset measured at acquisition value And PPP is not an SCA, recognize: Underlying PPP asset until ownership of the underlying PPP asset is transferred measured at expected acquisition value as of the future date of the transfer The governmental operator’s right-to-use asset measured as the sum of: 1. The amount of the initial measurement of the liability for installment payments, if any 2. PPP payments made to the transferor at or before the commencement of the PPP term 3. Initial direct costs that are ancillary charges necessary to place the underlying PPP asset into service

Project Timeline Pre-Agenda Research Approved April 2017 Added to Current Technical Agenda April 2018 Exposure Draft Expected June 2019

Revenue and Expense Recognition

Revenue and Expense Recognition What: The Board is redeliberating stakeholder input on an Invitation to Comment as part of developing a comprehensive model for recognition of revenues and expenses Why: Guidance for exchange transactions is limited; guidance for nonexchange transactions could be improved and clarified When: Redeliberations began in June 2018

Project Scope The project scope broadly encompasses revenue and expense recognition but excludes the following: Topics with guidance developed considering the current conceptual framework Topics related to financial instruments Topics related to transactions arising from recognition of capital assets or certain liabilities For example, pensions and other post-employment benefits For example, investments, derivatives, leases, and insurance For example, depreciation, asset retirement obligations, and pollution remediation obligations

Revenue and Expense Recognition Models The are three components of a revenue and expense recognition model Classification is the process of identifying the type of transaction (for example, is the transaction exchange or nonexchange?) Recognition is the process of determining what element should be reported and when (for example, recognize revenue when earned) Measurement is the process of determining the amount to report for the element (not addressed in the Invitation to Comment)

Exchange/Nonexchange Model Classification Is the transaction an exchange? YES NO Earnings recognition approach: Government controls a resource, or incurs an obligation to sacrifice a resource, and The change in net assets is not applicable to a future period Provisions of Statement 33: Derived tax revenue Imposed nonexchange revenue Government-mandated nonexchange transaction Voluntary nonexchange transaction Recognition Measurement was not addressed in the Invitation to Comment but is expected to be addressed in a later due process document. Measurement

Performance Obligation Definition A binding arrangement is a legally enforceable mutual understanding between a government and another party. Another party can be a customer, a vendor, a resource provider, an employee, and so on. Distinct goods or services are separately identifiable and can provide benefits on their own. A specific beneficiary would be identifiable and distinguished from the general public. A performance obligation is a promise in a binding arrangement between a government and another party to provide distinct goods or services to a specific beneficiary.

Performance Obligation/ No Performance Obligation Model Classification Does the transaction contain a performance obligation? YES NO Performance recognition approach: Determine consideration Allocate consideration to performance obligation(s) Recognize revenue or expense as each performance obligation is satisfied (at a point in time or over time) and the transaction is applicable to the reporting period(s) Provisions of Statement 33: Derived tax revenue Imposed nonexchange revenue Government-mandated nonexchange transaction Voluntary nonexchange transaction Recognition Measurement is not addressed in the Invitation to Comment but is expected to be addressed in a later due process document. Measurement

Project Timeline Pre-Agenda Research Started September 2015 Added to Current Technical Agenda April 2016 Invitation to Comment Cleared January 23, 2018 Redeliberations Began June 2018 Preliminary Views Expected May 2020

Secured Overnight Financing Rate – London Interbank Offered Rate Replacement

SOFR – LIBOR Replacement What: The Board added a project to consider amending existing standards that reference LIBOR Why: LIBOR – which is included as a reference rate in billions of dollars of financial instruments, including derivatives – effectively sunsets in 2021 When: Deliberations will begin in April 2019

Topics to Be Considered How should the replacement of LIBOR be addressed: (1) by replacing existing citations of LIBOR with SOFR or other new reference rates or (2) by describing the characteristics of an acceptable reference rate? If the latter, what are the characteristics of an acceptable reference rate? Do the circumstances related to the revision or replacement of derivative instruments in response to the end of LIBOR merit an exception to the hedge accounting termination provision of Statement 53, similar to exception in Statement 64?

Project Timeline Added to Current Technical Agenda December 2018 Exposure Draft Expected August 2019

Subscription-Based Information Technology Arrangements

Subscription-Based IT Arrangements What: The Board is considering establishing standards related to reporting subscription-based information technology arrangements (SBITAs), such as cloud computing contracts Why: Stakeholders are concerned that these transactions may not be covered by the guidance in Statements 51 or 87; diversity exists in practice When: Deliberations began in August 2018

Tentative Decisions A subscription-based information technology arrangement (SBITA) “is a contract that conveys control of the right to use another party’s (the vendor’s) hardware, software, or a combination of both, including IT infrastructure (hereinafter referred to as the underlying hardware or software) as specified in the contract for a period of time in an exchange or exchange-like transaction.” To determine whether a contract conveys control of the right to use the underlying hardware or software, a government would assess whether it has both: The right to obtain the present service capacity from use of the underlying hardware or software as specified in the contract The right to determine the nature and manner of use of the underlying hardware or software as specified in the contract.

Tentative Decisions (continued) An SBITA would be reported under provisions effectively the same as those for a lessee under Statement 87. Tentative Decisions (continued) Measurement of the subscription asset would include certain capitalizable implementation costs based on stages like those for internally developed software in Statement 51: Preliminary project stage Initial implementation stage Post-implementation/operation stage

Tentative Decisions (continued) Preliminary project stage Outlays would be expensed as incurred Initial implementation stage In general, outlays would be capitalized However, if no subscription asset is recognized (such as for a short-term SBITA), outlays would be expensed as incurred Post-implementation/ operation stage

Project Timeline Pre-Agenda Research Approved April 2017 Added to Current Technical Agenda April 2018 Deliberations Began August 2018 Exposure Draft Expected May 2019

Pre-Agenda Research Activities

Compensated Absences: Reexamination of Statement 16

Compensated Absences What: The GASB is evaluating the effectiveness of Statement 16 and consider whether additional guidance needs to be developed Why: The GASB routinely reviews whether existing standards are meeting their intended objectives; Statement 16 became effective in 1994 When: The Board added the pre-agenda research in August 2018

Topics to Be Considered What method(s) do governments use to calculate the liability for compensated absences: the termination payment method or the vesting method (as described in paragraph 8 of Statement 16)? Should there continue to be a choice regarding how to calculate the liability? Should one method be eliminated?

Going Concern Disclosures: Reexamination of Statement 56

Going Concern Disclosures What: The GASB is reviewing existing standards related to going concern considerations, which were incorporated into GASB literature mostly as-is from the AICPA literature in Statement 56 Why: As it is currently defined, going concern may not be meaningful for governments, which hardly ever go out of business; AICPA and others have asked the GASB to examine the issue When: The Board added the pre-agenda research in April 2015 The tech plan contemplates a final Statement in 2022 Comment deadline 2/28/2019 3 public hearings 2 user forums

Topics to Be Considered Are the current going concern indicators presented in note disclosures appropriate for state and local governments, in light of the fact that, even under severe financial stress, few governments cease to operate even when encountering such indicators? What other criteria might better achieve the objective of disclosing severe financial stress uncertainties with respect to governments? What information do financial statement users need with respect to the disclosure of severe financial stress uncertainties?

Prior-Period Adjustments, Accounting Changes, and Error Corrections: Reexamination of Statement 62

Reexamination of Statement 62 What: The GASB is reviewing existing standards related to prior-period adjustments, accounting changes, and error corrections, which are based on several sources of accounting standards, some of which have been superseded Why: Much of the relevant guidance has been in effect without review by the GASB for decades When: The Board added the pre-agenda research in August 2018

Topics to Be Considered How prevalent are prior-period adjustments, accounting changes, and error corrections in state and local government financial statements? What is the nature of those that are being reported? How large are the amounts involved? Are users aware of their reporting? Do users understand what they mean? Is the reported information valuable to users for making decisions and assessing accountability? How is it used?

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