1. Presented By Joel Knopp, CPA Audit Manager
GASB 63/65 Implementation
Presented By
Joel Knopp, CPA
Audit Manager

2. GASB 63/65 Implementation
Concepts Statement No. 4 – Elements of Financial Statements
GASB 63 – Reporting Deferred Outflows, Inflows and Net Position
GASB 65 – Items Previously Classified as Assets and Liabilities

3. Concepts Statement No. 4

4. Background to GASB 63 and 65 Issued in June 2007
Establishes definitions for 7 elements that make up government financial statements:
Assets
Liabilities
Deferred outflow of resources
Deferred inflow of resources
Net position
Outflow of resources
Inflow of resources

5. New Definitions New definitions focus on “Resources”
Assets – resources with present service capacity that the government presently controls
Liabilities – present obligations to sacrifice resources that the government has little or no discretion to avoid
Deferred outflow of resources – a consumption of net assets by the government that is applicable to a future reporting period
Deferred inflow of resources – an acquisition of net assets by the government that is applicable to a future reporting period

6. Asset Definition
Assets – resources with present service capacity that the government presently controls
Present service capacity – existing capability to enable the government to provide services and fulfill its mission
Not associated with charges to recipients of the service
Does not need to be able to be sold
May be tangible or intangible
Regulatory powers of a government – a resource but no present service capacity until exercised

7. Asset Definition (Con’t.)
Control of an asset – ability of the government to utilize the resource’s present service capacity and to determine the nature and manner of the use
Directly use the present service capacity to provide services or benefit
Exchange the present service capacity for another asset
Generally arises from contractual rights or legal ownership
Sometimes a government can receive the benefit from the present service capacity of a resource but does not control the resource

8. Liability Definition
Liabilities – present obligations to sacrifice resources that the government has little or no discretion to avoid
Present obligation – a duty or responsibility to sacrifice resources that the government has little or no discretion to avoid based on a past event
Legally enforceable from legislation (nonexchange)
Constructive liability arising from exchange transaction
Event must have occurred
Commitments to provide services or acquire assets in the future do not constitute liabilities (ex., approval of budget, establishment of grant program)

9. Outflow of Resources Definition
Outflow of Resources (expenses/expenditures) – a consumption of net assets by the government that is applicable to the reporting period
Consumption of net assets results in:
1) a decrease in assets in excess of any related decrease in liabilities (ex., use of cash to make direct aid payments to recipients; loss of a building through fire) or;
2) an increase in liabilities in excess of any related increase in assets (ex., accrued payroll)

10. Inflow of Resources Definition
Inflow of Resources (revenues) – an acquisition of net assets by the government that is applicable to the reporting period
Acquisition of net assets results in:
1) an increase in assets in excess of any related increase in liabilities (ex., sale of taxable merchandise by a vendor) or;
2) a decrease in liabilities in excess of any related decrease in assets (ex., performing the eligibility conditions of a grant received in advance)

11. Applicability of the Reporting Period
Measurement focus is critical to determining the nature and period to which an outflow or inflow of resources is applicable.
Concept of “interperiod equity”
the state in which current period inflows of resources equal current period cost of services so that the burden of the cost of services is borne by present-year taxpayers and revenue providers
Economic resources focus (full accrual presentation)
A relevant metric to assess accountability

12. Deferred Outflows of Resources Definition
Deferred Outflow of Resources – a consumption of net assets by the government that is applicable to a future reporting period
Same definition as “outflows of resources,” except that the outflow is applicable to a future reporting period, rather than to the current reporting period

13. Deferred Inflows of Resources Definition
Deferred Inflow of Resources – an acquisition of net assets by the government that is applicable to a future reporting period
Same definition as “inflows of resources,” except that the inflow is applicable to a future reporting period, rather than to the current reporting period

14. Net Position Definition
Net Position – the residual of all other elements included in the statement of financial position
Difference between (a) assets and deferred outflows of resources and (b) liabilities and deferred inflows of resources
Theoretically equals the cumulative total of all resource flows statement activity from inception
May be a positive or negative balance

15. Application of Definitions
Recognition of deferred outflows of resources and deferred inflows of resources should be limited to those instances identified by GASB in authoritative pronouncements
Scope of resources measured may be different, depending upon the measurement focus (full accrual vs. modified accrual vs. cash)

16. GASB 63

17. GASB Statement No. 63
Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position
Issued June 2011
Effective for fiscal years beginning after December 15, 2011
Applies to Florida governments FYE 6/30/2013 and 9/30/2013

18. For Governmental Funds
For Proprietary Funds
Net approach is encouraged
Balance Sheet approach is allowed
For Governmental Funds
Balance Sheet approach still appropriate
Difference is still called Fund Balance

19. Definitions Deferred outflows of resources
A consumption of net assets by the government that is applicable to a future reporting period
Has a positive effect on net position, similar to assets
Deferred inflows of resources
An acquisition of net assets by the government that is applicable to a future reporting period
Has a negative effect on net position, similar to liabilities
Net position
The residual of all elements presented in a statement of financial position

20. Statement of Net Position
Assets + Deferred Outflows = Total Assets and Deferred Outflows
Liabilities + Deferred Inflows = Total Liabilities and Deferred Inflows
Net Position

21. Display Requirements
Deferred outflows should be reported in a separate section following assets
Similarly, deferred inflows should be reported in a separate section following liabilities
Net position components resemble net assets components under Statement 34, but include the effects of deferred outflows and deferred inflows
Governmental funds continue to report fund balance

22. Net Investment in Capital Assets
Consists of capital assets, net of accumulated depreciation reduced by the outstanding balances of bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets
Deferred outflows/inflows attributable to the capital assets or related debt should also be included in this component
Unspent debt proceeds or deferred inflows should not be included in the calculation

23. Net Investment in Capital Assets
“Capital-related debt” also includes construction retainages and accounts payable attributable to that construction (Implementation Guide )
Net investment in capital assets should not include the portion of capital debt that was used to establish a bond and interest reserve (Implementation Guide )

24. Restricted Net Position
Consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets
- What liability will be liquidated with the restricted assets reported?
Restricted component of net position should include the portion of capital debt that was used to establish a bond and interest reserve (Implementation Guide )

25. Example
Sample City has the following financial statement elements in its Statement of Net Position:
How do you calculate the net position components?
Unrestricted Cash
$ ,000
Restricted Assets - Capital
4,000
Restricted Assets - Debt Service
1,000
Capital Assets, Net
15,500
Deferred Outflow - Derivative
Construction A/P and Retainage
(500)
Capital Improvement Bonds
(10,000)
Net Position
(13,000)

26. Example (Con’t.) Sample City Investment in Capital Restricted
Unrestricted
Total
Unrestricted Cash
$ ,000
Restricted Assets - Capital
$ ,000
4,000
Restricted Assets - Debt Service
1,000
Capital Assets, Net
$ ,500
15,500
Deferred Outflow - Derivative
Construction A/P and Retainage
(500)
Capital Improvement Bonds
(5,000) -
(10,000)
$ ,000 $
$ ,000

27. Disclosures
Provide details of different types of deferred amounts if components of the total deferred amounts are obscured by aggregation on the face of the statements
If the amount reported for a component of net position is significantly affected by the difference between deferred inflows or outflows and their related assets or liabilities, provide an explanation in the notes

28. GASB 65

29. Items Previously Classified as Assets and Liabilities
GASB Statement No. 65
Items Previously Classified as
Assets and Liabilities
Objective: Establishes accounting and financial reporting standards so certain items previously reported as assets and liabilities are now either:
Reclassified as deferred outflows of resources or deferred inflows of resources
Recognized as outflows of resources (expenses/ expenditures) or inflows of resources (revenues)

30. Before Statement 65
Recognition of deferred outflows of resources and deferred inflows of resources should be limited to those instances identified by GASB in authoritative pronouncements
Before GASB 65, there was only:
Statement 53 - Accounting and Financial Reporting for Derivative Instruments
Statement 60 - Service Concession Arrangements

31. Scope and Applicability
Amends or supersedes guidance for:
Certain items previously required to be reported as assets and liabilities
Requirements for the determination of major funds
Addresses other statement of net position and governmental funds balance sheet presentation issues
Applies to full accrual statements only, with the exception of specific paragraphs that also apply to governmental funds

32. Refundings of Debt For current and advance refundings:
The difference between the reacquisition price and the net carrying amount of the old debt should be recognized as a deferred outflow or deferred inflow of resources
Previously reported as deferred amount on refunding and reported as deduction or addition to new debt
Recognized as a component of interest expense in a systematic and rational manner over the remaining life of the old debt or the life of the new debt, whichever is shorter

33. Refundings of Debt (Con’t.)
For lease provision changes resulting from a refunding by the Lessor of tax-exempt debt where:
The perceived economic advantages of the refunding are passed through to the Lessee and
The revised lease agreement is classified as a capital lease by the Lessee
Then, the Lessee should adjust the lease obligation to the PV of the future minimum lease payments using the effective interest rate under the revised lease
The difference is reported as a deferred outflow or inflow of resources.

34. Refundings of Debt – GFOA vs. GASB
GFOA Position
Application of proceeds from current refunding should be reported as debt service expenditures (2012 GAAFR pgs , Q8.27b in General Purpose Checklist)
GASB Position
Payments to escrow agents associated with current refundings should be reported as “other financing use” (GASB Codification D and AICPA A&A Guide, SLG, Paragraph 8.99)

35. Nonexchange Transactions
Imposed Nonexchange Revenue Transactions:
When resources or enforceable legal claim to resources are received before:
The period for which property taxes are levied
The period when resources are required to be used or use is first permitted by enabling legislation
Then, deferred inflow of resources should be reported.

36. Nonexchange Transactions (Con’t.)
Government-mandated Nonexchange Transactions and Voluntary Nonexchange Transactions:
Resources transmitted before eligibility criteria are met (excluding time requirements) should be reported as assets by the provider and as liabilities by the recipient
Resources received before time requirements are met but after all other eligibility criteria have been met, should be reported as deferred outflows of resources by the provider and deferred inflows of resources by the recipient

37. Sales of Future Revenues
When a government receives proceeds in exchange for the right to cash flows from specific future revenue sources, the transferor government should report the proceeds as deferred inflow of resources and recognize as revenue over the duration of the sales agreement
Previously reported as deferred revenue

38. Intra-Entity Transfers of Future Revenues
When a sale/transfer of future revenues occurs within the same financial reporting entity (ex., primary government and component unit):
Transferee government should report the amount paid as a deferred outflow of resources
Transferor government should report the amount received as a deferred inflow of resources
Recognized over the duration of the sales agreement
Previously reported as deferred charge and deferred revenue

39. Debt Issuance Costs
Old - GASB 62, para. 187, stated that “Issue costs should be reported in the statement of net assets as deferred charges”
New - GASB 65, para. 15, states that “Debt issuance costs, except any portion related to prepaid insurance costs, should be recognized as an expense in the period incurred
Prepaid insurance costs should be reported as an asset and recognized over the duration of the related debt

40. Initial Direct Costs of Operating Leases
Old - GASB 62, para. 227c., stated that “Initial direct costs should be deferred and allocated over the lease term…”
New - GASB 65, para. 17, states that “The Lessor should recognize initial direct costs of an operating lease as an expense/expenditure in the period incurred.”

41. Sale-Leaseback Transactions
The gain or loss on the sale of property that is accompanied by a leaseback of all or any part of the property for all or part of its remaining economic life should be recorded as a deferred inflow of resources or deferred outflow of resources.

42. Acquisition Costs Related to Insurance Activities
Old - GASB 62, para. 412 and 413, stated that “costs that vary with and are primarily related to the acquisition and renewal of insurance contracts should be capitalized and charged to expense in proportion to premium revenue…”
New - GASB 65, para. 20, states that “Acquisition costs should be recognized as an expense in the period incurred.”

43. Lending Activities Discussed in Paragraphs 431-451 of GASB 62
Loan origination fees, except for points – Recognize as revenue in period received
Points received by government lender – Report as deferred inflow of resources and recognize over the duration of the related loan
Loan origination costs – Recognize as expense in the period incurred

44. Mortgage Banking Activities
Discussed in Paragraphs of GASB 62
If loan is held for investment, loan origination fees except for points, and loan origination costs – Recognize as revenue or expense
Points received by government lender – Report as deferred inflow of resources and recognize over the duration of the related loan
If loan is held for sale, all origination fees and costs should be reported as deferred inflows and deferred outflows until the loan is sold
Once loan is sold, deferred inflows/outflows are recognized as revenues/expenses

45. Regulated Operations
Rate actions of a regulator can result in a liability or a deferred inflow of resources being imposed on a regulated business-type activity
If the obligation is to the customers, then report as a liability (ex., regulator requires refunds to customers)
If an acquisition of nets assets from customers that is applicable to a future reporting period, then report as deferred inflow of resources (ex., regulator established current rates intended to recover costs that are expected to be incurred in the future)
If gain or reduction of costs to be given to customers over future periods, report as deferred inflow of resources

46. Revenue Recognition in Governmental Funds
Governmental fund revenues are recognized when they become both measurable and available.
When an asset is recorded in a governmental fund but the revenue is not available, the government should report a deferred inflow of resources until the revenue becomes available.

47. Use of the Term “Deferred”
Use of the term “Deferred” should be limited to items reported as deferred outflows of resources or deferred inflows of resources
Major Fund Criteria
Assets should be combined with deferred outflows of resources and liabilities should be combined with deferred inflows of resources for determining which elements meet criteria for major fund determination

48. Effective Date and Transition
Effective for periods beginning after 12/15/2012 (FL FYE 6/30/14 and 9/30/14); earlier application is encouraged
Accounting changes adopted to conform to the provisions of GASB 65 should be applied retroactively by restating for all periods presented, if practical
If not practical, the cumulative effect, if any, should be reported as a restatement of beginning net position or fund balance for the earliest period restated
Disclose the nature of the restatement and its effect

49. Questions?