National State Auditors Association GASB Update The views expressed in this presentation are those of Messrs. Attmore and Bean. Official positions of the GASB are determined only after extensive due process and deliberation.

Current Events

Where Are We Now?

Effective Dates—June 30 June 30, 2009 – Statement 43—Phase III (OPEB plans) – Statement 45—Phase II (OPEB employers) – Statement 49 (Pollution remediation) – Statement 52 (Land held as investments) – Statement 55 (GAAP hierarchy) – Statement 56 (AICPA omnibus) June 30, 2010 – Statement 45—Phase III – Statement 51 (Intangibles) – Statement 53 (Derivatives) June 30, 2011 – Statement 54 (Fund balance reporting) 4

Accounting and Financial Reporting for Derivative Instruments Statement 53 5

What Do You Need To Know About Statement 53? Derivatives are reported at fair value Hedge accounting is required to be applied to qualifying transactions – Changes in fair value would be deferred – Assessment of hedge effectiveness is determined at the end of the reporting period Consistent critical terms Quantitative techniques – Synthetic instrument – Dollar offset – Regression – Other qualifying quantitative methods – Deferrals are generally recognized when the hedge is terminated, including no longer being effective 6

Statement 54 Fund Balance Reporting and Governmental Fund Type Definitions 7

What Do You Need To Know About Statement 54? Governmental fund definitions have been clarified Fund balance classifications have been restructured 8

Fund Type Definitions Special revenue—expanded Capital projects—expanded Debt service – Paragraph 30 requirements highlighted 9

Fund Balance Classifications Format based primarily on use of resources versus availability for appropriation Format: – Nonspendable—Inventory, long-term receivables – Spendable Restricted—Statement 34/36 definition Committed—Formal action of governing body Assigned—Similar to designations Unassigned 10

Statements 55 and 56 Governmental Accounting Guidance Found in Other Literature

Sources of Guidance American Institute of Certified Public Accountants (AICPA) – Committee on Accounting Procedures—Accounting Research Bulletins – Accounting Principles Board—Opinions and Interpretations – Auditing Standards Board—Statements on Auditing Standards (SASs) Financial Accounting Standards Board (FASB)— Statements and Interpretations 12

GASB Approach To Incorporating Literature Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards Current Technical Agenda Project—Pre- November 30, 1989 AICPA and FASB literature (discussed later) 13

Statement 55 Incorporates GAAP hierarchy guidance found in SAS No. 69, The Meaning of “Present Fairly in Conformity With Generally Accepted Accounting Principles, basically “as is.” Some modifications made to clarify and update the guidance and reflect the government environment – Removed reference to AICPA and FASB standards in the hierarchy. Once GASB adopts—source is no longer relevant – International Accounting Standards Board (IASB)—other accounting literature – International Public Sector Accounting Standards Board (IPSASB) and Federal Accounting Standards Advisory Board (FASAB)— other accounting literature 14

Statement 56 Incorporates guidance found in SASs basically “as is.” – Related party transactions – Subsequent events – Going concern Again, modifications were made to clarify and update the guidance and reflect the government environment 15

AICPA and FASB Pronouncements Pre-November 30, 1989 Literature

Codification of Pre-November 30, 1989 FASB and AICPA Pronouncements Why November 30, 1989? – FAF reaffirmed jurisdictional arrangement and determined that subsequent FASB pronouncements should be considered other accounting literature unless specifically adopted by the GASB – Eliminated “negative” standard setting Why do this project now? – Older literature harder to find, may be exacerbated by FASB codification project – Inconsistencies in practice—what applies, what does not apply What will be addressed? – AICPA—Accounting Research Bulletins, Opinions, and Interpretations – FASB—Statements and Interpretations 17

Other Projects

Current Projects—Due Process Due Process Documents – Pension Accounting and Reporting—ITC – Service Efforts and Accomplishments Reporting— Voluntary Guidelines – Service Concession Arrangements – Chapter 9 Bankruptcy – Financial Instruments Omnibus—2a7-like pools – OPEB Implementation Issues 19

Scope of the Postemployment Benefits Project Basic approach – Funding base with parameters – Liability driven – Something in between How the actuarial liability should be measured – Salary projects – Discount rate Plan reporting Cost sharing allocations for employers 20

SEA Proposals Suggested guidelines for voluntary reporting Essential components of SEA reports – Purpose and scope – Major goals and Objectives – Key measures of SEA performance – Discussion and analysis of results and challenges Qualitative Characteristics of SEA performance information Effectively communicating SEA performance information 21

Service Concession Arrangement Proposals Who should report the capital in a service concession arrangement—transferor versus the operator? – The transferor determines or regulates what services the operator is required to provide and how the operator is required to provide them with the property, to whom the operator is required to provide them, and the price ranges or rates that can be charged for services; – The transferor is entitled to—through ownership, beneficial entitlement, or otherwise—significant residual interest in the property at the end of the arrangement. When should upfront payments be recognized? – Generally, over the life of the agreement. 22

Other Current Projects—Not Ready for Prime Time Concepts Statements – Recognition and Measurement Attributes Statement 14 Reexamination 23

Why The Conceptual Framework Is Important The “Map Quest” or “Google Earth” of standards Most recent concepts statement, Elements of Financial Statements, already has had an affect on standards – Intangible assets – Derivative instruments Recognition and Measurement Attributes will do the same – Governmental funds—what belongs in a fund for financial reporting purposes – Fair value (remeasured value) versus historical cost (initial value) 24

Statement 14 Reexamination Fiscal dependency—is it enough? Misleading to exclude criteria for inclusion Blending versus discrete presentation Criteria for major component units Fiduciary activities Disclosures 25

Research Agenda Economic Condition Reporting Electronic Financial Reporting Fair Value Measurement Government Combinations Interpretation 1—Demand Bonds 26

Calling All Issues Agenda is full; however, emerging issues still need to be addressed – GASB is not fishing for issues If you have identified an issue that you believe warrants the GASB’s attention, please submit that issue via to Agenda reviewed three times a year the GASB 27

Questions? 28 Telephone—(203) Web site—