1. GASB Update WGFOA Winter Conference
Presented by: Jake Lenell,
Principal, CliftonLarsonAllen

2. Effective Dates – Years beginning after
December 15, 2012 (December 31, 2013 and June 30, 2014 year ends)
Statement 65 – Items Previously Reported as Assets and Liabilities
Statement 66 - Technical Corrections an amendment of GASB Statements No 10 and No 62
June 15, 2013 (June 30, 2014 and December 31, 2014 year ends)
Statement 67 – Financial Reporting for Pension Plans - an amendment of GASB Statement No 25
Statement 70 - Accounting and Financial Reporting for Nonexchange Financial Guarantees
December 15, 2013 (June 30, 2015)
Statement 69 - Government Combinations and Disposals of Government Operations
June 15, 2014 (June 30, 2015)
Statement 68 – Accounting and Financial Reporting for Pension Plans - an amendment of GASB Statement No 27
Statement 71 - Pension Transition for Contributions Made Subsequent to Measurement Date - an amendment of GASB Statement No. 68

3. Items Previously Reported as Assets and Liabilities
GASB No. 65
Items Previously Reported as Assets and Liabilities

4. Background
Certain items previously identified as assets and liabilities are not really considered to be assets or liabilities
The use of the concept of deferred inflows and outflows was established to handle these items
This statement establishes those items which are now to be recast as deferred inflows and outflows

5. Deferred Inflows/Outflows
Previously restricted only to use in hedging and Service Concession arrangements
Deferred Outflows
A consumption of net position that is applicable to a future accounting period (e.g. deferred loss on refunding)
Shown as a separate category below assets
Deferred Inflows
An acquisition of net position that is applicable to a future accounting period (e.g. Unavailable revenue in a governmental fund)
Shown as a separate category below liabilities

6. Areas of Specific Guidance
Refundings of Debt
Debt issuance costs
Nonexchange transactions
Sales of Future Revenues
Leases
Acquisition costs related to insurance activities
Lending activities
Mortgage Banking activities
Regulated Operations
Revenue recognition in governmental funds
Use of the term Deferred
Major Fund criteria - effects

7. Specific Guidance Debt refundings Debt Issuance costs
Gain or Loss from a refunding resulting from a refunding
Deferred Inflow – Gain
Deferred Outflow - Loss
Debt Issuance costs
Report as a period expense when incurred, no longer amortized over the life of the debt

8. Specific Guidance Imposed Nonexchange transactions
Deferred inflows when resources are received or reported as a receivable before:
The period for which property taxes are levied
The period when resources are required to be used or first permitted

9. Specific Guidance
Government-Mandated or Voluntary Nonexchange transactions
Resources received/provided before time requirements are met, but eligibility requirements have been met
Provider reports a deferred outflow
Recipient reports a deferred inflow
Resources received/provided before eligibility requirements have been met
Provider reports an asset
Recipient reports a liability

10. Specific Guidance (continued)
Sale of Future Revenues
Transferor reports a deferred inflow for resources in both the government-wide and fund financial statements
Only exception is found in GASB 48, para 14 and has to do with revenue not previously recognized due to uncertainty of inability to measure
Intra-entity sales - recognize as deferred inflow and outflow until all revenue recognition criteria met(GASB 48, para. 15)

11. Specific Guidance (continued)
Leases
Operating lease – lessor
Record initial direct costs (acquisition, legal, etc) as a period cost
Sale/-Leaseback transaction
Gain/loss on sale/leaseback should be recorded as either a deferred inflow or outflow, as applicable
Revenue recognition in Governmental Funds
Revenue not recognized because of availability criteria should be reported as deferred inflows (e.g. property taxes)

12. Specific Guidance (continued)
Use of the term Deferred in GASB financial statements
Limited only to use in connection with “Deferred Inflows” and “Deferred Outflows”
Major Fund Criteria
Utilize deferred Outflows as part of assets and deferred inflows as part of liabilities in the calculations in determining major funds

13. GASB No. 66 an amendment of GASB No. 10 and 62
Technical Corrections – 2012

14. Fixed…
GASB No. 54, removed the limitation on using general fund or internal service fund for risk financing activities.
GASB No. 62, 13, and 48. Clarified language on issues related to:
Operating leases
Recognition of premium or discount on purchase of loans.
Servicing fees for receivables that have been sold.

15. Government Combinations and Disposal of Government Operations
GASB No. 69
Government Combinations and Disposal of Government Operations

16. Background APB Opinion No. 16, Business Combinations
Pooling of interests
Purchase method
Superseded by FASB No. 141 – Business Combinations
Did not apply to nonprofit organizations
Eliminated pooling of interests
FASB No. 164 – NFP Entities: Mergers and Acquisitions
Governments used superseded guidance in APB Opinion No. 16
Needed some GAAP for governments

17. Scope and Applicability
Establishes standards for government combinations and disposals of government operations
Government merger
Government acquisition
Transfer of operations
Transactions
Combinations of legally separate entities
NFP, For profit, government (new or continuing government is formed)
Mergers and acquisition of activities less than the entire legally separate entity

18. Scope and Applicability (cont.)
“Operations” – integrated set of activities conducted and managed for the purpose of providing identifiable services with associated assets and liabilities
Examples: fire department, golf course, parking garage, etc.
Disposal of “operations”
Statement does not apply to:
Assets and liabilities not considered an operation
Organizations that remain legally separate (GASB 14)
Equity interests in an organization (GASB 14)

19. Definitions
Government merger – combination of legally separate entities without significant consideration exchanged.
Government acquisition - combination of legally separate entities or operations with significant consideration exchanged.
Transfer of operations – combination of operations without significant consideration

20. Consideration Assets Assumption of liabilities Contingent assets
NOT assumption of negative net position

21. Merger
Government merger – combination of legally separate entities without significant consideration exchanged.
Two or more are now one
Can be a new entity or continuance of one of the previous entities
Similar to the former “pooling” method
Test for impairment
Eliminate transactions between the parties

22. Merger Measurement Rules
Effective date
New entity
Date of the merger
Existing entity
Beginning of the reporting period, regardless of the date of merger
Value
Carrying Value, with some adjustments allowed
Impairment
Methodologies
Change in estimates are current period transactions

23. Acquisition
Government acquisition - combination of legally separate entities or operations with significant consideration exchanged.
Similar to the former “Purchase” method
Intangible asset (i.e. goodwill-deferred outflow)
Detailed measurement rules

24. Acquisition Measurement Rules
Acquisition date
Control of assets
Obligated for the liabilities
Acquisition value – market-based entry price
Price that would be paid for acquiring similar assets, having similar service capacity or discharging the liabilities assumed
Exceptions
OPEB, pensions, compensated absences
Landfill, pollution remediation
Investments
Deferred inflows and outflows

25. Acquisition Measurement Rules
Consideration greater than Acquisition Value
Deferred outflows of resources
Recognized in a systematic and rational manner
Consideration less than Acquisition Value
Reduce noncurrent assets; or
Contribution revenue if intended

26. Transfer
Transfer of operations – combination of operations without significant consideration
Value
Carrying Value, with some adjustments allowed
Impairment
Methodologies
Transfer date
Control of assets
Obligated for the liabilities

27. Disposals
Gain or loss should be recorded as a special item

28. Disclosures Description of the combination, date, and reason
Amounts recognized
Significant adjustments

29. GASB No. 70
Accounting and Financial Reporting for Nonexchange Financial Guarantees

30. Background
Investors are looking for more credit enhancements and assurances on obligations
Minimize the possibility of nonpayment
Government often provide guarantees and receive guarantees for free
Belief nonpayment is not likely
Currently, a liability is recorded when
It is probable the government will be required to pay and amount can be reasonability estimated

31. Scope and Applicability
Government provides a financial guarantee as a nonexchange transaction
Government receives a financial guarantee as a nonexchange transaction
Key considerations
Three legally separate entities (component units qualify)
Not deemed guarantees for this statement
Withholding or garnishing revenues
Pledges of future revenues
Joint-and-several obligations

32. Three Legally Separate Entities
Obligation Holder
Issuer
Guarantor

33. Government as the Grantor
Assess the issuer’s ability pay using qualitative factors
If the government is more likely than not required to pay the issuer’s debt, then “book it”
More than 50% likelihood
Book -
The discounted present value of expected cash flows as the result of the guarantee, or
If the estimate is a range, and likelihood is equal, the discounted present value of the minimum expected cash flows (low part of the range)

34. Qualitative Factors Bankruptcy or financial reorganizations
Breach of debt contract
Covenants
Coverage ratios
Default
Other financial difficulty indicators
Loss of major revenue source
Debt holder concessions
Using earmarked funding to pay debt

35. “Book It” Journal entry Government-wide Financial Statements, and
DR: Expense/Expenditures
CR: Nonexchange Financial Guarantee Liability
Government-wide Financial Statements, and
Fund Financial Statement to the extent the liability is normally expected to be liquidated with expendable available financial resources.

36. Government as a Guarantor to a Group
You could analyze individually, or
You could analyze as a group using qualitative factor of the group -
Historical trends
Economic factors
Etc.
May book a liability similar to an allowance on bad debt, historical trends

37. Practical Timing Issue
The process should be ongoing and the books and records should be adjusted when the government becomes more likely than not to pay the debt of the issuer.

38. Disclosures

39. Government as Issuer Footnote disclosure explaining the guarantee
If the government is required to repay the guarantor, then the liability should be reclassified as a liability to guarantor when the guarantor begins to pay the debt.
If the government is legally released from the debt, a revenue is recognized for guarantor’s assumption of the liability.

40. Disclosure

41. Intra-Entity
Primary government guarantees a blended component unit’s debt
Blended component unit guarantees a primary government's debt
Blended component unit guarantees another blended component unit
A receivable should be booked in the amount of the liability booked by the guarantor.

42. Jake Lenell, CPA, Principal, Public Sector Group Jacob
Jake Lenell, CPA, Principal, Public Sector Group