1. National Association of State Comptrollers GASB Update—A Look Forward 1 The views expressed in this presentation are those of Chairman Vaudt and Mr. Bean. Official positions of the GASB on accounting matters are reached only after extensive due process and deliberation.

2. Recent Changes  New Board members -Brian Caputo—local government preparer -Bill Fish replacement—2016 -Jan Sylvis replacement—2017  New FAF chair -Chuck Noski 2

3.  2016 -Statement 72—Fair value—Measurement and application -Statement 73—Pensions—Related assets (outside the scope of Statements 67 and 68) and Statements 67 and 68 amendments -Statement 76—GAAP hierarchy -Statement 79—External investment pools -Implementation Guide—2015-1  2017 -Statement 73—Pensions—Employers (outside the scope of Statement 68) -Statement 74—Other Postemployment Benefits (OPEB) plan reporting -Statement 77—Tax abatements disclosures -Statement 78—Pensions provided through certain multiple-employer defined benefit pension plans -Statement 80—Blending requirements for certain component units -Implementation Guide—2016-1 Effective Dates—June 30, 2016 and 2017 3

4.  2018 -Statement 75—OPEB—Employers -Statement 81—Irrevocable split-interest agreement Effective Dates—June 30, 2018 4

5. Expected Effective Dates—June 30  2017 -Pension issues  2019 -Fiduciary activities -Asset retirement obligations  2020 -Leases 5

6. When We Look To The Future… The Financial Reporting Model is Front and Center 6

7. What Is the Focus Of the Initial Deliberations on Financial Reporting Model Project?  First Due Process Document—December 2016 -Governmental funds—what should they convey -Role of cash flows statements -Statement of activities—format -Fiduciary funds—method of communication 7

8. What Are the Governmental Fund Approaches Currently Being Considered?  Near term  Working capital  Total financial resources 8

9. What Do We Need to Worry About Now? 9

10. What Statements That Should Be On A State Comptroller’s Radar?  Statement 72—Fair value  Statement 76—GAAP hierarchy  Statement 79—External investment pools  Statement 77—Tax abatements  Statements 74 and 75—Other postemployment benefits 10

11. Fair Value Measurement and Application: Statement 72 11

12.  Definition of fair value—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  Definition of investment—a security or other asset that a government holds primarily for the purpose of income or profit and with a present service capacity that is based solely on its ability to generate cash or to be sold to generate cash What Are The Key Features Of The Fair Value and Investment Definitions? 12

13.  Unit of account—plays a major role in the application of the investment definition -Stand-alone asset or liability or a group of assets or liabilities -May be determined by the standard that requires fair value measurement or is subject to professional judgment  Land –Mineral rights (included or not included with land) –Plots (all or by acre) Why Is The Unit Of Account So Important? 13

14.  Fair value is an exit price  Certain assets are being acquired not to generate cash  Certain assets are not as liquid Why Did The Board Move The Measurement Of Some Assets From Fair Value To Acquisition Value? 14

15. GAAP Hierarchy: Statement 76 15

16. Why Is Statement 76 So Important?  Implementation guides have been ignored by some preparers and auditors  Sufficient guidance did not exist for situations where the answer could not be specifically found in Category A or B literature -Analogies—to Category A or B -Non-GAAP –Conceptual Framework –Other Standard-Setters –Textbooks 16

17. External Investment Pools: Statement 79 17

18. What Are The Primary Pool Requirements?  Transacts with its participants at a stable net asset value per share (for example, at $1.00 net)  Portfolio maturity  Portfolio quality  Portfolio diversification  Portfolio liquidity  Shadow pricing 18

19. What Are The Major Changes From the 2010 Version of SEC Rule 2a7?  Portfolio quality requirements related to ratings or comparable credit quality  Portfolio quality requirements related to custodial credit risk—align with Statements 3 and 40  Shadow prices requirements—monthly  Additional implementation time provided for those provisions—effective for reporting periods beginning after December 15, 2016 19

20. Other Postemployment Benefits: Statements 74 and 75 20

21. Are Implementation Guides Planned for the OPEB Standards?  Plan—February 2017 (Exposure Draft—October 2016)  Employer—November 2017 (Exposure Draft—June 2017) 21

22. What Else Is Out There On the Horizon? 22

23. What Are the Current Proposals?  Asset Retirement Obligations  Fiduciary Activities  Leases 23

24. Certain Asset Retirement Obligations: Exposure Draft 24

25. What Is the Definition of an ARO?  Asset retirement obligation—A legal obligation associated with the retirement of a capital asset -Retirement of a tangible capital asset—The other-than-temporary removal of a capital asset from service (such as from sale, abandonment, recycling, or disposal) 25

26. What Is Covered In the Scope of the ARO Exposure Draft?  Retirement of tangible capital assets, for example: -Nuclear power plant decommissioning -Coal ash pond closure (those that are not landfills) -Contractually required land restoration such as removal of wind turbines -Other similar obligations  Disposal of a replaced part that is a component of a capital asset  Environmental remediation associated with a requirement of tangible capital assets that results from the normal operations of those tangible capital assets 26

27. What Is Excluded From the Scope?  Obligations associated with: -Plan to solely sell or otherwise dispose of a tangible capital asset -Preparation of a tangible capital asset for an alternative use -Asbestos removal that result from the other-than-normal operation of a tangible capital assets -Maintenance, rather than retirement, of a tangible capital asset  Cost of replacement part that is a component of a capital asset  Landfill closure and postclosure care obligations, including those not covered by Statement 18  Conditional obligations to perform asset retirement activities 27

28. Initial RecognitionARO liability when incurred and reasonably estimable—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 RecognitionAt least annually remeasure the current value for the effects of inflation or deflation At least annually evaluate relevant factors to determine if there is a significant change in the estimated outlays Recognize a reduction as an outflow of resources (for example, expense) in a systematic and rational manner over the estimated useful life of the tangible capital asset When Should an ARO Be Recognized and Measured? 28

29. Fiduciary Activities: Exposure Draft 29

30. When Is a Government a Fiduciary?  An activity is a fiduciary activity of a government if: -The government controls the assets of the activity, -Those assets are not derived solely from the government’s own-source revenue, and -One of the following is met:  The assets result from a pass-through grant for which the government does not have administrative or direct financial involvement in the program  The assets are administered through a trust agreement or equivalent arrangement in which the government itself is not a beneficiary  The assets are to be used for the benefit of individuals that are not required to be residents or recipients of the government’s good and services as a condition of being a beneficiary  The assets are to be used for the benefit of organizations or other governments that are not part of the financial reporting entity 30

31.  A government controls assets in a fiduciary capacity if those assets: -are used by the government (or its assignee) to provide benefits to specified or intended beneficiaries -AND EITHER OF THE FOLLOWING IS TRUE (1) The government holds the assets (2) The government has the ability to administer or direct the (a) Use (b) Exchange, or (c) Employ the present service capacity of the assets in any other way that provides benefits. What Is Control In The Government Environment and Why Is It Important? 31

32. What Are Some Of The Other Key Proposals In The Exposure Draft?  Fiduciary fund types: -New definitions for pension trust funds, investment trust funds, and private-purpose trust funds that focus on the resources that should be reported within each.  Trust agreement or equivalent arrangement should be present for an activity to be reported in a trust fund. -Custodial funds would report fiduciary activities for which there is no trust agreement or equivalent arrangement.  A stand alone BTA’s fiduciary activities should be reported in separate fiduciary fund financial statements.  Governments engaged in fiduciary activities should be required to present additions disaggregated by source and deductions disaggregated by type in a statement of changes in fiduciary net position for all fiduciary funds. 32

33. Leases: Exposure Draft 33

34. How Should A Lease Be Initially Reported? AssetsLiabilityDeferred Inflow LesseeIntangible 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 34 LessorLease receivable (generally including same items as lessee liability) Continue to report leased asset NAEqual to lease receivable plus any cash received up front that relates to a future period

35. How Should A Lease Be Subsequently Reported? AssetsLiabilityDeferred Inflow LesseeAmortize over shorter of useful life or lease term Reduce by lease payments (less amount of interest expense) NA 35 LessorDepreciate leased asset (unless indefinite life or required to be returned in its original or enhanced condition) Reduce receivable by lease payments (less payment needed to cover accrued interest) NARecognize revenue over the lease term on a systematic and rational basis

36. What Is A Short-Term Lease and How Should They Be Reported?  At beginning of lease, maximum possible term under the contract is 12 months or less  Lessees 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 for short-term leases -Disclose short-term leases expense/expenditure recognized during the reporting period  Lessors recognize lease payments as revenue based on the terms of the contract -Do not recognize receivables or deferred inflows associated with the lease 36

37. What Are The Current Research Activities?  Debt disclosures  Going concern  Revenue recognition for exchange and exchange-like transactions 37

38. Questions? 38 Visit www.gasb.org