1. New GASB Statements: A Preparers Perspective Tim Becker, CPA Manager, Financial Reporting Section State of Michigan Office of Financial Management NASACT Annual Conference Omaha 2006

2. GASB Pronouncements Implemented This Fiscal Year Statement 42: Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries Statement 44: Economic Condition Reporting: The Statistical Section Statement 46: Net Assets Restricted by Enabling Legislation Statement 47: Accounting for Termination Benefits Technical Bulletin 2006-1: Medicare Part D

3. Objectives of GASB 42 Establish requirements for accounting and reporting of impaired capital assets Prior standards lacked a mechanism to reduce carrying value Prior to GASB 42 the only option to reduce the value was through depreciation Establish authoritative guidance for insurance recoveries for all funds

4. Statement 42 - Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries Significant and unexpected decline in service utility indicated by: Physical damage Legal or environmental changes Technological development or obsolescence Change in manner or duration of use Construction stoppages Impairment is not only for infrastructure

5. Key Factors in Decision Tree: Is event significant? Is decline in utilization unexpected? IF YES to BOTH above 2, impairment is present. IF NO – disclose if asset is idle Is evidence of temporary nature of impairment unavailable? If NO – disclose if asset is idle Will asset continue to be used? IF NO – write down to lower of carrying or FMV Recoveries – separate transaction Other financing source or extraordinary item Can also be recoveries of non-capital items Statement 42 - Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries

6. How to identify impairments Clear policy and procedures Target the keepers of capital assets records Provide specific examples in the policy and procedures Statement 42 - Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries

7. Develop / Confirm policy – new policy should address Who makes impairment decision Must be able to gauge five factors explained before Must judge if temporary or permanent Must be involved in deciding fair market values or service units Who is in charge of disclosure insurance recoveries Statement 42 - Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries

8. Objectives of GASB 44 Improved the understandability and usefulness of information presented as supplementary information in CAFR Statistical Section NCGA Statement 1 was prior standard for statistical section Lack of specificity in NCGA 1 led to divergence of practice NCGA 1 did not require government-wide, accrual based information established by GASB 34

9. Statement 44 – Economic Condition Reporting States if part of GFOA CAFR program are doing much of GASB 44 work already Financial trends Revenue Debt Demographic / Economic Operations

10. Key for states to focus on OPERATING INFORMATION – why? Focus on information that is Verifiable Replicable Tells the story that should be told Statement 44 – Economic Condition Reporting

11. OPERATING INFORMATION – basic requirements: By GASB 34 Activity category: Number of government employees Indicators (e.g. performance measures) of the demand of level of service Indicators of capital asset usage

12. Pitfalls to watch out for as a middle manager recommending courses of action to a decision maker Not getting consensus on what an employee is or what is the employees home agency Not agreeing with policymakers up front as to what the key indicators should be for operations What do you think key indicators should be for your state? Statement 44 – Economic Condition Reporting

13. Objectives of GASB 46 Clarifies meaning of phrase legally enforceable as it relates to restrictions imposed on net asset use by enabling legislation Cant be removed by Government easily External – legal constraints Can be imposed by public interest groups or citizens in judicial finding

14. Statement 46 – Net Assets Restricted by Enabling Legislation Succeeding in implementing 46 Review all current restrictions Special revenue funds are not necessarily restricted revenue Beware of earmarking Work with legal or legislative staff if uncertain on legislative intent Create a database / spreadsheet of restrictions

15. Statement 46 – Net Assets Restricted by Enabling Legislation Statement 46 database or spreadsheet Agency/ Type of activity Fund Account Legal cite or source of restriction Internal or external restriction Analysis (explanation for audit trail)

16. Statement 46 – Net Assets Restricted by Enabling Legislation Statement 46 database or spreadsheet Amount of net assets (%) that could be restricted Category of restriction Constitution Enabling Legislation External Restriction Have any net assets been used for other than this purpose? What and why Treatment for statutory restrictions if different than GAAP

17. Objectives of GASB 47 Provide guidance to governmental employers for accounting of all termination benefits Prior guidance only covered special termination benefits (those offered for a short period of time) Termination benefits are Early retirement incentives Severance benefits Excluding pensions and OPEB (covered by other standards)

18. Statement 47 – Accounting for Termination Benefits Keys for managerial success Establish a line of communication with HR decision makers to Quantify population Calculate benefits due Understand timing Health care costs related to early retirement will increase pensions and OPEB Work with actuary to make sure changes are done

19. Objectives of GASB Technical Bulletin 2006-1 Clarifies the application of existing standards of accounting and financial reporting to payments that an employer or DB OPEB plan receives from Federal Government pursuant to retiree drug subsidy provisions of Medicare Part D Bulletin clarifies guidance by providing responses to four common questions

20. T.B. 2006-1 Medicare Part D Question 1: How should an employer account for and report payment from the Federal Government pursuant to retiree drug subsidy (RDS)? Answer: The payment is a voluntary nonexchange transaction between the Federal Government and employer Record asset and revenue Per GASB 33 Paragraph 7 Payment is a separate transaction from the exchange of salaries and benefits for services between the employer and employee

21. T.B. 2006-1 Medicare Part D Question 2: How does RDS payment affect the accounting and financial reporting by a DB OPEB plan? Answer: The transaction does not affect accounting for employer contributions or the financial reporting presentation by a DB OPEB in which the employer participates An OPEB plan should apply measurement requirements of GASB 43 to determine actuarial accrued liability, ARC, and annual OPEB without reduction for RDS payment

22. T.B. 2006-1 Medicare Part D Question 3: How should an employer account for and report RDS payment to the DB OPEB plan? Answer: plan administration dictates OPEB administered as qualifying trust RDS is an on-behalf payment for fringe benefits Employer recognizes revenue and expense per GASB 24 and disclose amounts recognized Multiple-employer OPEB not administered as a qualifying trust Plan is to be reported as an agency fund Employer recognizes asset and revenue

23. T.B. 2006-1 Medicare Part D Question 4: How should a DB OPEB plan account for and report RDS payment to the plan? Answer: GASB 43 Paragraph 34 requires the plan and its participating employer should apply the same actuarial methods and assumptions DB OPEB administered as a qualifying trust should measure the actuarial accrued liability, ARC, and annual OPEB cost without reduction for RDS payments

24. Questions? Take advantage of resources GASB Staff Early implementing governments NASACT members and groups Dont be afraid of mistakes, just keep them small enough!