1. GASB Update – November 2015 Michelle Drew, CPA Partner BDO USA, LLP mdrew@bdo.com

2. GASB Update – November 2015 GASB 72 – Fair Value Measurement and Application GASB 76 – The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments GASB 77 – Tax Abatement Disclosures Time Permitting – GASB Pension and OPEB discussions The gift that keeps on giving Pension - GASB 68, 71,73, Exposure Draft for union plans OPEB – GASB 74, 75 2

3. GASB Statement No. 72, Fair Value Measurement and Application Defines fair value as 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 (same as ASC 820) Fair value is an exit price and assumes the transaction takes place in a government’s principal market (or most advantageous if no principal market) The principal market – is the market with the greatest volume and level of activity for that asset or liability If no principle market exists, use the most advantageous market – which is the market that maximizes the price that would be received Fair value should not be adjusted for transaction costs (these are expensed) However, transactions costs are relevant in determining the most advantageous market 3

4. GASB Statement No. 72, Fair Value Measurement and Application Fair value should be determined at the unit of account such as: For investments held in a brokerage account it would be each individual security For an investment in a mutual fund the unit would be each share of the mutual fund Valuation techniques include: Market approach uses prices and other relevant information from transactions involving identical or comparable assets or liabilities Cost approach uses the amount that would be required to replace the present service capacity of an asset Income approach converts future amounts to a single current discounted amount Always maximize the use of relevant observable inputs and minimize the use of unobservable inputs 4

5. GASB Statement No. 72, Fair Value Measurement and Application Hierarchy of inputs used to measure fair value: Level 1 – quoted prices in active markets for identical assets or liabilities Level 2 – observable inputs, either directly or indirectly a)Quoted prices for similar assets or liabilities b)Quoted prices for identical or similar assets or liabilities in markets that are not active c)Other, such as yield curves, credit spreads d)Market corroborated inputs Level 3 – unobservable inputs, such as management assumptions Applies to liabilities such as interest rate swaps, taking into account nonperformance risk 5

6. GASB Statement No. 72, Fair Value Measurement and Application Certain items currently measured at fair value will now be measured at acquisition value (entry price): Donated capital assets Donated works of art Historical treasures Similar assets and capital assets received in a service concession arrangement Defines an investment as a security or other asset that a government holds primarily for the purpose of income or profit, and its present service capacity is based solely on its ability to generate cash, or to be sold to generate cash Definition of investments generally excludes student loan receivables, mortgage loan receivables when the purpose is to encourage home ownership and property held to preserve the natural environment 6

7. GASB Statement No. 72, Fair Value Measurement and Application Certain investments would be excluded from fair value measurement: Investments in 2a7-like pools Investments in money market instruments with maturity less than one year Investments in life insurance policies Investments in common stock that are eligible for equity method Investments in nonparticipating interest-earning investment contracts Investments in certain entities that calculate NAV per share Investments in joint ventures or component units Realized gains and losses should not be displayed separately in the financial statements 7

8. GASB Statement No. 72, Fair Value Measurement and Application Disclosures should be organized by type or class of asset and include: Fair value and level classification Description of valuation techniques Additional Level 3 disclosures Additional disclosures for investment in entities that calculate NAV per share Reason for nonrecurring fair value measurements Appendix C to the GASB 72 includes illustration examples and sample disclosures Effective Date: years ending June 30, 2016 8

9. GASB 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments This Statement supersedes GASB Statement No. 55 (Hierarchy) and amends GASB Statement No. 62 (Codification of pre-1989 Pronouncements) Category A GAAP: 1.GASB Statements 2.GASB Interpretations currently issued and in effect Level B GAAP: 1.GASB Technical Bulletins 2.GASB Implementation Guides 3.Literature of the AICPA that has been specifically cleared by GASB (e.g. AICPA Audit and Accounting Guides) 9

10. GASB 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments If it’s not in CATEGORY A and it’s not in CATEGORY B, then what? 1.Consider CATEGORY A and CATEGORY B treatment for a “similar transaction” -Be aware of certain prohibitions of applying “similar GAAP” 2.Consider non-authoritative accounting literature from other sources that does not conflict or contradict and authoritative GAAP. Sources of these items: -GASB Concepts Statements -FASB -FASAB (federal) -International Public Sector Accounting Standards Board -International Accounting Standards Board -AICPA, literature not specifically cleared by GASB, -Prevalent practices that are widely-recognized in state and local governments -Literature of other professional associations or agencies -Accounting textbooks, handbooks, and articles Effective date: years ending June 30, 2016, with early application permitted 10

11. GASB 77– Tax Abatement Disclosures Tax Abatement defined: “A reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which (a) one or more governments promise to forgo tax revenues to which they are otherwise entitled and (b) the individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or citizen of those governments.” 11

12. GASB 77– Tax Abatement Disclosures Tax abatements are widely used by state and local governments to encourage economic development Note disclosures required: Distinguish between government’s OWN agreements and agreements by other governments that affect the reporting entity Can be individually disclosed or aggregated Organized by abatement type or program (e.g. income tax vs. property tax incentive or film tax incentive vs. property enhancement incentive) Disclosures required from the date of agreement and should continue through the abatement expiration date. 12

13. GASB 77– Tax Abatement Disclosures For a government’s own abatement programs, if individual agreements are disclosed, consider a materiality threshold, but provide the following: Name and purpose of the program Identification of the abated tax (sale, income, property, etc.) Authority under which the abatement has been authorized Criteria for eligibility Mechanism of abatement (how the tax is reduced and how the amount is calculated) Recapture provisions Type of commitment by the recipient 13

14. GASB 77– Tax Abatement Disclosures Government’s own programs, continued Gross amount of tax reduction during the reporting period Information regarding amounts received or receivable from other governments in connection with the abatement including the name of the government, the authority for the program, and the dollar amount Any other required commitments related to the abatement program The quantitative threshold used for individual disclosure Any legal limitations on individual disclosure that result in omission of required information 14

15. GASB 77– Tax Abatement Disclosures If the reporting entity receives reduced taxes as a result of another government’s abatement program, then similar, but slightly less disclosure requirements. Tax abatements of discreet component units should be disclosed following the limited disclosures required in “another governments” section here or following it’s own abatement program rules if disclosure is required for fair presentation. Effective date: years ending December 31, 2016, with early application permitted 15

16. GASB Statement No. 68, Accounting and Financial Reporting for Pensions Amends GASB 27, Accounting for Pensions by State and Local Governmental Employers and GASB 50, Pension Disclosures, and applies to employer reporting of pension plans that are qualified trusts The net pension liability (NPL) is equal to total pension liability (TPL) less plan fiduciary net position Government is required to recognize the net pension liability in full accrual statements Prior to GASB 68 governments only recognized a liability if they didn’t fully fund the ARC Cost-sharing plans recognize their proportionate share of the net pension liability in full accrual statements For modified accrual statements the net pension liability is recognized to the extent it is liquidated with available expendable resources 16

17. GASB Statement No. 68, Accounting and Financial Reporting for Pensions Report deferred inflows and outflows for any changes in net pension liability that are not included in current pension expense Employer contributions subsequent to the measurement date should be reported as deferred outflows Required note disclosure General information about the plan Net pension liability and significant assumptions Long-term expected rate of return Discount rate – one calculated rate Sensitivity of NPL to changes in discount rate Information on pension expense and deferred outflow and inflows 17

18. GASB Statement No. 68, Accounting and Financial Reporting for Pensions RSI schedules for single and agent employers: 10-year schedule of changes in NPL and related key ratios 10-year schedule of actuarially determined contributions and actual amounts contributed RSI schedules for cost-sharing employers: 10-year schedule of changes in employers proportion of the collective NPL and related key ratios 10-year schedule of actuarially determined employer contributions and actual amounts contributed 18

19. GASB Statement No. 68, Accounting and Financial Reporting for Pensions Measurement date can be no earlier than the end of the employer’s prior fiscal year (12/31 Year End Clients – PERS?) Actuarial valuation must be within 30 months and 1 day of employer’s fiscal year-end Special funding situation is when a nonemployer entity is legally responsible for making contributions directly to a pension plan and either of the following conditions exist: The amount is not dependent upon one or more events or circumstances unrelated to pensions (i.e. required by statute to contribute a percentage directly to the plan) The nonemployer is the only entity with a legal obligation to make contributions directly to the plan 19

20. GASB Statement No. 68, Accounting and Financial Reporting for Pensions Employers participating in cost-sharing multiple-employer plans Group audit standards do NOT apply AICPA Whitepaper addresses issues related to employers recognizing their proportionate share of the NPL The Plan should prepare a Schedule of Employer Allocations and issue an AU-C 805 opinion on the Schedule The Plan should prepare a Schedule of Collective Pension Amounts and issue an AU-C 805 opinion on the Schedule These reports may be used as audit evidence by the employer’s auditor Employer auditor will need to perform additional procedures AICPA Audit Guide will have a new pension chapter with suggested procedures 20

21. GASB Statement No. 68, Accounting and Financial Reporting for Pensions Employer with a defined contribution pension must recognize pension expense for the amount of contributions to employees accounts, net of forfeited amounts Change in pension liability equals amount recognized as expense less amount paid by employer Notes should include info about the plan, terms, contribution rates and how they are determined and amounts attributed to employee service in the current period Effective date: years ending June 30, 2015 21

22. GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date Amends GASB Statement No. 68, Accounting and Financial Reporting for Pensions which requires an employer to recognize a net pension liability at the measurement date, which must be no earlier than the end of its prior fiscal year Once GASB 68 is implemented contributions made between the measurement date and the end of the governments’ reporting period would be reported as deferred outflow of resources GASB Statement No. 68 stated that if it is not practical to determine amounts of all deferred inflows/outflows at transition, then governments will report no deferred inflows or outflows, which would result in an understatement of beginning net position 22

23. GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date To correct this potential understatement, the proposed Statement would require a state or local government, when transitioning to the new pension standards, to recognize a beginning deferred outflow of resources for its pension contributions made during the time between the measurement date of the beginning net pension liability and the beginning of the initial fiscal year of implementation This amount would be recognized regardless of whether it is practical to determine the beginning amounts of all other deferred outflows of resources and deferred inflows of resources related to pensions Effective date: when GASB Statement No. 68 is implemented 23

24. GASB 73 – Accounting and Reporting for Pension Plans not within the scope of GASB 68 and Amendments to Certain Provisions of GASB 67 and 68 This statement applies the approach to accounting and financial reporting established in GASB Statements No. 67 and 68 to pension plans that are not within the scope of GASB 67 and 68, with certain modifications Plans that are not held in trust do not have any assets accumulated to offset the TPL and there are no separately issued plan financial statements Requires that footnote information similar to GASB 67 and 68 be included RSI schedules: 10-year schedule of changes in NPL and related key ratios 10-year schedule of actuarially determined contributions and actual amounts contributed Total Pension Liability (TPL) – the actuarial present value of projected benefit payments attributed to past periods of service 24

25. GASB 73 – Accounting and Reporting for Pension Plans not within the scope of GASB 68 and Amendments to Certain Provisions of GASB 67 and 68 Discount rate – yield or index rate for 20-year tax-exempt bonds with average rating of AA/Aa or higher Cannot use the long-term rate as there are no assets to pay benefits Entry age actuarial cost method to be used Measurement date can be no earlier than the end of the employers prior fiscal year Recognize in pension expense over closed period equal to remaining service lives of all employees in the plan: Difference between expected and actual experience for economic factors Changes of assumptions about future economic factors or other inputs Deferred outflows should be reported for amounts paid for benefits subsequent to the measurement date 25

26. GASB 73 – Accounting and Reporting for Pension Plans not within the scope of GASB 68 and Amendments to Certain Provisions of GASB 67 and 68 Any assets held to pay pension benefits should be reported as assets of the employer Any assets held related to a multiple-employer plan should be reported in an agency fund of the government that holds the assets Clarifies certain provisions of GASB 67 and 68 to provide that: Information about investment-related factors that affect trends should be limited to those factors over which the plan has influence (for example, change in investment policies) Information about external, economic factors should not be presented (for example, changes in market prices) Effective date: years ending June 30, 2017, early application encouraged AND retroactive reporting for all periods presented with exceptions for opening deferred amounts 26

27. Exposure Draft – Accounting and Financial Reporting for Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans Further amends GASB 68 to include certain cost-sharing defined benefit plans that meet GASB 68 criteria, however: 1.Are not State/Local Government Plans 2.Provide benefits to employees that are not government employees 3.Government employees are not the predominant participants As an example, these rules would apply to various UNION sponsored plans (Taft-Hartley / ERISA type plans that report under FASB standards) Pension expense should be recognized equal to the employers required contributions during the reporting period. A payable is recognized for any difference between required and actual contributions 27

28. Exposure Draft – Accounting and Financial Reporting for Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans Requires various specific note disclosure requirements Plan information, benefit terms, contribution requirements, withdrawal provisions, etc. Requires 10 year RSI schedules regarding contributions. Unlike GASB 68, this 10-year schedule is RETROACTIVE reporting REQUIRED. Effective date: years ending December 31, 2016, early application encouraged (concurrent with GASB 68). 28

29. GASB 74 – Financial Reporting for Postemployment Benefit Plans Other than Pension Plans This is the PLAN SIDE of the accounting Supersedes GASB Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans and Statement No. 57, OPEB Measurements by Agent Employers Generally mirrors the requirements of GASB 67 for pension plans In Alaska state and local governments – very few OPEB plans outside of PERS (with some notable exceptions) Effective Date: years ending June 30, 2017 with early application encouraged 29

30. GASB 75 – Accounting and Financial Reporting for Postemployment Benefits other than Pensions Supersedes GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions and Statement No. 57, OPEB Measurements by Agent Employers Generally mirrors the requirements of GASB 68 for employer reporting of pensions For defined benefit OPEB, the statement identifies methods and assumptions that would be used to project benefit payments, discount the projected payments to the actuarial present value and attribute that present value to periods of employee service Effective Date: June 30, 2018, with earlier application encouraged – For PERS this will be dependent upon receipt of the information from the State of Alaska 30

31. A Wealth of Information – http://gasb.org GASB Statements available for FREE GASB Implementation Guide 2015-1 available for FREE Additional Exposure Drafts released: Accounting and Financial Reporting for Certain External investment Pools Blending Requirements for Certain Component Units – amendment of GASB 14 Accounting and Reporting for Irrevocable Split-Interest Agreements Implementation Guide 20XX-1 Additional Preliminary Views released Leases Financial Reporting for Fiduciary Responsibilities 31

32. A Plug for GFOA – 20 th Annual Governmental GAAP Update 4 hour webcast – December 3, 2015, 9 am – 1 pm Sign up at www.gfoa.orgwww.gfoa.org Includes everything that I talked about today and then some 32

33. Questions? Contact: Michelle Drew BDO USA, LLP (907) 278-8878 mdrew@bdo.com 33