National State Auditors Association GASB Update The views expressed in this presentation are those of Chairman Vaudt and Mr. Bean. Official positions of the GASB are determined only after extensive due process and deliberation. © Copyright 2014 by Financial Accounting Foundation, Norwalk, CT

Hot Button Issues  Pension implementation  2-a-7-like investment pools  Financial reporting model reexamination  FAF policy on GASB scope  Jurisdiction 2

Pension Implementation  GASB has issued two new pension implementation guides in the past year -Plan—June Employer—January 2014  The guides are key components of the GASB toolkits that can be accessed on the website  Auditing issues 3

2-a-7-like Investment Pools  SEC proposal—significantly reduces the application of amortized cost-based measures  Stakeholder reaction—unintended consequences, especially for government investment pools  Potential alternatives -No standards-setting action -Develop criteria (types of securities held and maturity limits) to replace 2-a-7 for the application of amortized cost-based measures  GASB  Third-party with GASB input 4

Financial Reporting Model Reexamination  Added to the agenda in August 2013  Staff research roundtables held in October 2013  Preparer survey now being conducted -Auditor and user surveys are being developed -Individual interviews will be scheduled based on the survey results  Research scheduled to be completed by June 2015  What will the outcome be? -Stay tuned 5

FAF Policy on GASB Scope  Policy issued in November 2013 recognizes: -GASB’s independence as a standards-setter -Trustees’ role in determining the scope of the GASB -The need to reach the appropriate balance (if the Trustees’ authority is exercised)  Potential standards setting activities are tentatively classified: -Group 1 topics—clearly in scope -Group 3 topics—clearly out of scope -Group 2 topics—additional consultation required before a subject is added to the GASB’s technical agenda  Pre-agenda research 6

Jurisdiction  Arrangement established in FASB –private and not-for-profits -GASB—state and local governments  Standards setting powers -FASB—SEC -GASB—State governments  Jurisdiction challenged in Special entities change proposed by FAF Board of Trustees -States considered withdrawing support  Jurisdiction arrangement reaffirmed November 30, 1989  Some are now raising this issue again -From the FAF President’s desk 7

Effective Dates—FYE June 30  Statement 65—Assets and Liabilities—Reclassification and Recognition -Statement 66—Technical Corrections -Statement 67—Pension Plans -Statement 70—Nonexchange Financial Guarantees  Statement 68—Pension Accounting for Employer and Nonemployer Contributing Entities -Statement 69—Government Combinations and Disposals of Government Operations -Statement 71—Pension Transition for Contributions Made Subsequent to the Measurement Date 8

Three Things That You Need To Know

Statement 65 Items Previously Reported as Assets and Liabilities Effective for Periods Beginning After December 15, 2012

Statement 65—Three Things  GASB Standards identify all deferred inflows of resources and deferred outflows of resources -Debt refundings -Nonexchange transactions—timing requirements  Debt issuance costs, except any portion related to prepaid insurance costs, should be recognized as an expense in the period incurred.  Deferred inflows and deferred outflows apply to governmental funds -Availability period 11

Statement 66 Technical Corrections— 2012 Effective for Periods Beginning After December 15, 2012

Statement 66—Three Things  Statement 13 -Statement 62 guidance on leases  Statement 48 -Statement 62 guidance on  Purchase of a loan or group of loans  Servicing fees related to mortgage loans  Statement 10 -Statement 54 guidance on special revenue funds  Risk financing pools 13

Statement 70 Nonexchange Financial Guarantees Effective for periods beginning after June 15, 2013

Statement 70—Three Things  Scope -Based the same definition of nonexchange that is found in Statement 33  Excludes exchange and exchange-like transactions  Recognition  When qualitative factors and historical data, if any, indicate that it is more likely than not that a payment will be made on an extended nonexchange financial guarantee, the event should recognize a liability  Measurement -Amount equal to the discounted present value of the best estimate of the future outflows expected to be incurred as a result of the guarantee 15

Statement 68 Accounting and Financial Reporting for Pensions Statement 67 Financial Reporting for Pension Plans 16

Pensions—Three Things  Planning—never too soon  Allocation -Primary government -Component units  Education -Oversight bodies, including legislature -Media -Public 17

Statement 69 Government Combinations and Disposals of Operations Effective for Periods Beginning After December 15, 2013

Statement 69—Three Things  Mergers and transfers -Assets, liabilities, and deferrals should be reported at carrying values  Presumption of GAAP  Acquisitions -Assets, liabilities and deferrals should be reported at acquisition value—a market-based entry price -Exceptions—pensions, OPEB, pollution remediation  Disposals (sales and transfers) -Gains and losses reported as special items 19

Current Technical Agenda  Fair Value—Measurement and Application  Fiduciary Responsibilities  GAAP Hierarchy  Irrevocable Charitable Trusts  Leases  Postemployment Benefits  Tax Abatement Disclosures 20

Fair Value—Three Things  Fair Value Definition -The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Investment Definition -A security or other asset that a government holds primarily for the purpose of income or profit and its present service capacity is based solely on its ability to generate cash or to be sold to generate cash  Disclosures—amendments based on current FASB standards (including fair value hierarchy—levels 1-3) 21

Fiduciary Responsibilities—Three Things  Fiduciary definition -A government that controls assets either:  as a trustee for the sole benefit of its own employees or recipients other than the financial reporting entity, or  for which it does not have administrative or direct financial involvement over the assets used to provide benefits to individuals that are not part of its citizenry, or organizations or other governments that are not part of the financial reporting entity.  Fiduciary activities continue to be reported as basic financial statements  Custodial funds -An expanded fund type that includes any fiduciary arrangement that is not governed by a formal trust agreement or equivalent arrangement 22

GAAP Hierarchy—Three Things  Reduce GAAP Hierarchy from four levels to two levels -Level 1—GASB Statements -Level 2—GASB Technical Bulletins and Implementation Guides and AICPA pronouncements cleared by the GASB  Nonauthoritative—further clarifies role of concepts statements and includes prevalent practice  Requires broader public exposure of comprehensive implementation guide 23

Irrevocable Charitable Trusts—Three Things  Currently not reflected in governmental financial statements  Project will define irrevocable charitable trusts and establish accounting and financial reporting guidance  Exposure Draft scheduled for May

Leases—Three Things  Single approach—right of use -No classification of leases into operating/capital or other categories -Potentially develop some exceptions -Underlying assumption that leases are financings  Practicality exception—short-term lease -Lease that, at the beginning of the lease, has maximum possible term under the contract, including any options to extend, of 12 months or less  Lessor—symmetry with lessee accounting 25

Postemployment Benefits—Three Things  Three Exposure Drafts -Other Postemployment Benefits (OPEB)—Plans -OPEB—Employers -Pensions—Plans that are not qualifying trusts  OPEB proposals based on new pension standards  Certain modifications made, including provision for healthcare trend rates 26

Tax Abatement Disclosures—Three Things  Definition -A reduction in taxes that results from an agreement between one or more governmental entities and an individual taxpayer in which:  One or more governmental entities forgo tax revenues that the taxpayer otherwise would have been obligated to pay and  The taxpayer promises to take a specific action that contributes to economic development or otherwise benefits the government(s) or its citizens.  Specific note disclosures  Amount  Timing of abatement  Compliance with agreement  Due process -Exposure draft scheduled to be released in October

Proposed Effective Dates  Fair Value—periods beginning after June 15, 2015  OPEB Plan—periods beginning after December 15, 2015  OPEB Employer—periods beginning after December 15, 2016  Pension “Nonqualified” Trusts—periods beginning after June 15, 2016  Irrevocable Charitable Trusts  Tax Abatement—To be determined 28

What Is Next?  Issues being deliberated -Specific note disclosures  Amount  Timing of abatement  Compliance with agreement  Due process -Exposure draft scheduled to be released in October 2014  Final Statement—August

Definition  A reduction in taxes that results from an agreement between one or more governmental entities and an individual taxpayer in which: -One or more governmental entities forgo tax revenues that the taxpayer otherwise would have been obligated to pay and -The taxpayer promises to take a specific action that contributes to economic development or otherwise benefits the government(s) or its citizens. 30

Questions? 31 Web site—