11

NSAA/NASC Joint NSAA/NASC Joint Middle Management Middle Management

ConferenceConferenceApril 16, 2007April 16, 2007

GASB UpdateGASB Update

Gerry Boaz, CPA, CGFM, Technical Analyst, Gerry Boaz, CPA, CGFM, Technical Analyst, Tennessee Division of State AuditTennessee Division of State Audit

The views expressed in this presentation are those of Mr. Boaz. Official The views expressed in this presentation are those of Mr. Boaz. Official positions of the GASB are determined only after extensive due process positions of the GASB are determined only after extensive due process and deliberation.and deliberation.

22

Recently Issued GASB Recently Issued GASB PronouncementsPronouncements

33

New PronouncementsNew Pronouncements—2004—2004

Statement No. 43, Statement No. 43, Financial Reporting for Financial Reporting for Postemployment Benefit Plans Other Than Postemployment Benefit Plans Other Than Pension Plans—Pension Plans—AprilApril

Technical Bulletin 2004-1, Technical Bulletin 2004-1, Tobacco Tobacco SettlementSettlement IssuesIssues—April—April

Statement No. 44, Statement No. 44, Economic Condition Economic Condition Reporting: The StatisticalReporting: The Statistical SectionSection—May—May

Statement No. 45, Statement No. 45, Accounting and Accounting and Financial Reporting by Employers for Financial Reporting by Employers for Postemployment Benefits Other Than Postemployment Benefits Other Than Pension Plans—Pension Plans—JuneJune

44

New PronouncementsNew Pronouncements—2004—2004 Technical Bulletin 2004-2, Technical Bulletin 2004-2,

Recognition of Pension and OPEB Recognition of Pension and OPEB Expenditures/Expense and Expenditures/Expense and Liabilities by Cost-Sharing Liabilities by Cost-Sharing Employers—DecemberEmployers—December

Statement No. 46, Statement No. 46, Net Assets Net Assets Restricted by Enabling LegislationRestricted by Enabling Legislation——DecemberDecember

55

New PronouncementsNew Pronouncements—2005—2005 Statement No. 47, Statement No. 47, Accounting for Accounting for

Termination Benefits—Termination Benefits—JuneJune

66

New PronouncementsNew Pronouncements—2006—2006 Technical Bulletin 2006-1, Technical Bulletin 2006-1, Accounting Accounting

and Financial Reporting by Employers and Financial Reporting by Employers and OPEB Plans for Payments from the and OPEB Plans for Payments from the Federal Government Pursuant to the Federal Government Pursuant to the Retiree Drug Subsidy Provision of Retiree Drug Subsidy Provision of Medicare Part D—Medicare Part D—JuneJune

Statement No. 48, Statement No. 48, Sales and Pledges of Sales and Pledges of Receivables and Future Revenues and Receivables and Future Revenues and Intra-Entity Transfers of Assets and Intra-Entity Transfers of Assets and Future RevenuesFuture Revenues—September—September

77

New PronouncementsNew Pronouncements—2006—2006 Statement No. 49, Statement No. 49, Accounting Accounting

and Financial Reporting for and Financial Reporting for Pollution Remediation ObligationsPollution Remediation Obligations—November—November

88

Effective DatesEffective Dates

June 30, 2007June 30, 2007– Statement 34, Retroactive infrastructure—Statement 34, Retroactive infrastructure—

Phase IIPhase II– Statement 43—Phase 1Statement 43—Phase 1

June 30, 2008June 30, 2008– Statement 45—Phase 1Statement 45—Phase 1– Statement 43—Phase 2Statement 43—Phase 2– Statement 48Statement 48

June 30, 2009June 30, 2009– Statement 49Statement 49

99

GASB Statement No. 47GASB Statement No. 47

Accounting for Termination Accounting for Termination BenefitsBenefits

1010

OverviewOverview

Issued June 2005Issued June 2005 Establishes accounting and Establishes accounting and

reporting requirements for reporting requirements for allall forms of termination benefitsforms of termination benefits

Supersedes guidance in NCGAI 8 Supersedes guidance in NCGAI 8 for for special termination benefitsspecial termination benefits

1111

ScopeScope

Voluntary termination benefitsVoluntary termination benefits– Inducements to hasten the termination of Inducements to hasten the termination of

servicesservices– Ex.: early-retirement incentivesEx.: early-retirement incentives

Involuntary termination benefitsInvoluntary termination benefits– Benefits provided as a consequence of the Benefits provided as a consequence of the

early termination of servicesearly termination of services– Ex.: severance payEx.: severance pay

Includes COBRAIncludes COBRA Excludes unemployment compensationExcludes unemployment compensation

1212

Termination Benefits Termination Benefits vs. OPEBvs. OPEB ED included discussion in BFC; final Statement ED included discussion in BFC; final Statement

includes discussion to Standards section and includes discussion to Standards section and discusses further in BFCdiscusses further in BFC

Determine whether the nature of arrangement Determine whether the nature of arrangement is to provide benefits:is to provide benefits:– In exchange for the early termination of services (a In exchange for the early termination of services (a

termination benefit)termination benefit)– As compensation for services (OPEB)As compensation for services (OPEB)

Consider all relevant factors, including:Consider all relevant factors, including:– Employer’s intentEmployer’s intent– Employees’ view of the benefitsEmployees’ view of the benefits– Whether conditioned on termination of employment Whether conditioned on termination of employment

prior to normal retirement ageprior to normal retirement age– Length of time benefits have been made availableLength of time benefits have been made available

1313

Recognition Recognition Requirements—Accrual Requirements—Accrual BasisBasis Voluntary termination benefitsVoluntary termination benefits

– Liability and expense recognized Liability and expense recognized when:when: Employees accept the offerEmployees accept the offer Amounts can be estimatedAmounts can be estimated

– Measurement updated at end of Measurement updated at end of each subsequent reporting periodeach subsequent reporting period

1414

Recognition Recognition Requirements—Accrual Requirements—Accrual Basis (cont.)Basis (cont.) Involuntary termination benefitsInvoluntary termination benefits

– Generally, liability and expense Generally, liability and expense recognized when:recognized when: Plan of termination approved and Plan of termination approved and

communicatedcommunicated Amounts can be estimatedAmounts can be estimated Measurement updated at end of each Measurement updated at end of each

subsequent reporting periodsubsequent reporting period

1515

Recognition Recognition Requirements—Accrual Requirements—Accrual Basis (cont.)Basis (cont.) Involuntary termination benefits Involuntary termination benefits

(cont.)(cont.)– Plan of involuntary terminationPlan of involuntary termination

Identifies, at a minimum:Identifies, at a minimum:– Number of employees to be terminatedNumber of employees to be terminated– Job classification or functions and locations Job classification or functions and locations

affectedaffected– When terminations are likely to occurWhen terminations are likely to occur

Provides sufficient detail for employees to Provides sufficient detail for employees to determine the type and amount of benefits determine the type and amount of benefits they will receive if they are terminatedthey will receive if they are terminated

1616

Recognition Recognition Requirements—Modified Requirements—Modified Accrual BasisAccrual Basis Liabilities and expenditures Liabilities and expenditures

recognized to extent the liabilities recognized to extent the liabilities are normally expected to be are normally expected to be liquidated with expendable liquidated with expendable available financial resourcesavailable financial resources

See paragraph 14 of See paragraph 14 of Interpretation 6Interpretation 6

1717

Effective Date and Effective Date and TransitionTransition Generally, effective for periods beginning Generally, effective for periods beginning

after June 15, 2005after June 15, 2005 However, those that affect defined benefit However, those that affect defined benefit

OPEB simultaneous implementation with OPEB simultaneous implementation with Statement 45Statement 45

In initial year, requirements should be In initial year, requirements should be applied to any previous commitments of applied to any previous commitments of termination benefits that remain unpaid at termination benefits that remain unpaid at effective dateeffective date– Not included in ED; added in response to Not included in ED; added in response to

respondents’ requests for clarificationrespondents’ requests for clarification

1818

Sales and Pledges Sales and Pledges of Receivables of Receivables and Future and Future Revenues and Revenues and Intra-Entity Intra-Entity Transfers of Transfers of Assets and Future Assets and Future RevenuesRevenues

Statement No. 48

1919

Sales and Pledges-Sales and Pledges-ScopeScope

Government Government receives proceedsreceives proceeds in exchange for the rights to in exchange for the rights to future cash flows from:future cash flows from:– Receivables:Receivables:

Delinquent property taxesDelinquent property taxes Mortgages Mortgages Student loansStudent loans

– Future RevenuesFuture Revenues

2020

Guidance is provided for Guidance is provided for allall transactions involving the transfer transactions involving the transfer of assets (sold or donated) between of assets (sold or donated) between components of a common reporting components of a common reporting entity, including individual funds.entity, including individual funds.– No new basis, carrying value is No new basis, carrying value is

retained retained – Difference is a transfer/subsidy Difference is a transfer/subsidy

Sales and Pledges-Sales and Pledges-ScopeScope

2121

Sales and PledgesSales and Pledges

Is it a Sale or a Borrowing?Is it a Sale or a Borrowing? Borrowing by default, unless you can Borrowing by default, unless you can

prove otherwise, based on evaluation ofprove otherwise, based on evaluation of Continuing involvement—controlContinuing involvement—control

Does the transferor government retain control, or Does the transferor government retain control, or is control relinquished?is control relinquished?

– Criteria provided for receivablesCriteria provided for receivables– Criteria provided for future revenuesCriteria provided for future revenues

(Intent of the parties, terms of the agreement are not (Intent of the parties, terms of the agreement are not determinative)determinative)

2222

Are Are receivablesreceivables sold or pledged? sold or pledged? Is the transferee able to sell or pledge?Is the transferee able to sell or pledge? Are the receivables and cash collected Are the receivables and cash collected

isolatedisolated from seller (and its creditors) from seller (and its creditors)– Legally separate Legally separate – No access to cash No access to cash – Source and timing of paymentsSource and timing of payments– Satisfaction of accountsSatisfaction of accounts– Bankruptcy protectionBankruptcy protection

No No option or abilityoption or ability to replace or to replace or repurchase accountsrepurchase accounts

ReceivablesReceivables

2323

ReceivablesReceivables

If sale criteria are not met (collateralized If sale criteria are not met (collateralized borrowing):borrowing):

Pledging government:Pledging government:– Does not de-recognize receivablesDoes not de-recognize receivables– Recognizes liability for the proceeds Recognizes liability for the proceeds

receivedreceived– Payments reduce liability (G/F expenditure)Payments reduce liability (G/F expenditure)

Transferee government recognizes a Transferee government recognizes a receivable receivable

2424

If the conditions for sale treatment are met:If the conditions for sale treatment are met: Selling government:Selling government:

– De-recognizes receivablesDe-recognizes receivables– Recognizes revenue/gain (loss) in the Recognizes revenue/gain (loss) in the

government-wide statements or enterprise funds government-wide statements or enterprise funds for the difference between proceeds and carrying for the difference between proceeds and carrying value.value.

– Proceeds are recognized as revenue in Proceeds are recognized as revenue in governmental funds (net carrying value assumed governmental funds (net carrying value assumed to be zero)to be zero)

Purchasing government:Purchasing government:– Intra-entity--Purchased receivables are reported at Intra-entity--Purchased receivables are reported at

carrying valuecarrying value– Outside of the reporting entity--receivables at costOutside of the reporting entity--receivables at cost

ReceivablesReceivables

2525

Are Are future revenuesfuture revenues sold or pledged? sold or pledged? Is the transferee able to sell or pledge?Is the transferee able to sell or pledge? Does the transferor continue to have Does the transferor continue to have

aactivective involvement in the generation of involvement in the generation of the revenues?the revenues?– By nature, own-source revenues involve By nature, own-source revenues involve

continuing active involvement.continuing active involvement. TaxesTaxes User chargesUser charges

– Some grants, entitlements, shared revenues, Some grants, entitlements, shared revenues, rents, royalties may meet the criteria for sale rents, royalties may meet the criteria for sale treatment, depending on treatment, depending on activeactive involvement involvement

Isolation—similar to receivablesIsolation—similar to receivables

Future RevenuesFuture Revenues

2626

Future RevenuesFuture Revenues

If sale criteria are not met (collateralized If sale criteria are not met (collateralized borrowing):borrowing):

Pledging government:Pledging government:– Continues recognition of revenues pledgedContinues recognition of revenues pledged– Recognizes liability for the proceeds Recognizes liability for the proceeds

receivedreceived– Payments reduce liability (G/F expenditure)Payments reduce liability (G/F expenditure)

Transferee government recognizes a Transferee government recognizes a receivable receivable

2727

If the conditions for sale treatment are met:If the conditions for sale treatment are met: Selling government:Selling government:

– Has no asset to de-recognize for future revenuesHas no asset to de-recognize for future revenues– Proceeds will usually be recognized as deferred revenue Proceeds will usually be recognized as deferred revenue

and amortized over the life of the agreementand amortized over the life of the agreement– Deferral depends on Deferral depends on whywhy revenue had not been previously revenue had not been previously

recognized by the sellerrecognized by the seller

Purchasing government:Purchasing government:– Intra-entity--Payment to selling government for rights to Intra-entity--Payment to selling government for rights to

future revenues is reported as a deferred charge (and future revenues is reported as a deferred charge (and amortized) amortized)

– Outside of the reporting entity--asset (rights) reported at Outside of the reporting entity--asset (rights) reported at costcost

Applied prospectivelyApplied prospectively

Future RevenuesFuture Revenues

2828

Other assets and Other assets and liabilitiesliabilities Assets:Assets:

– Residual interests—subordinate note Residual interests—subordinate note or residual certificate that represents or residual certificate that represents the rights to:the rights to:

Excess receivable collections (probability Excess receivable collections (probability of collection)of collection)

Excess future revenues (revenue Excess future revenues (revenue recognition event)recognition event)

Liabilities:Liabilities:– Recourse and other obligations (FAS 5)Recourse and other obligations (FAS 5)

2929

Sales and PledgesSales and Pledges

Disclosures—Future Revenues:Disclosures—Future Revenues:For direct or indirect For direct or indirect pledges pledges (while debt is (while debt is

O/S)O/S)What revenue?What revenue?Purpose of the debtPurpose of the debtFor how long?For how long?Significance of pledged amountSignificance of pledged amountCoverageCoverage

For future revenues For future revenues sold (sold (year of the sale)year of the sale)What revenue?What revenue?For how long?For how long?Significance of amount soldSignificance of amount soldPresent valuePresent value

3030

Sales and PledgesSales and Pledges

Tax Increment Revenues Pledged Tax Increment Revenues Pledged The city has pledged a portion of future sales tax The city has pledged a portion of future sales tax revenues to repay $2.8 million in sales tax revenues to repay $2.8 million in sales tax increment bonds issued in June 2003 to finance the increment bonds issued in June 2003 to finance the refurbishing of the Southtown business district. The refurbishing of the Southtown business district. The bonds are payable solely from the incremental bonds are payable solely from the incremental sales taxes generated by increased retail sales in sales taxes generated by increased retail sales in the refurbished district. Incremental sales taxes the refurbished district. Incremental sales taxes are projected to produce 128 percent of the debt are projected to produce 128 percent of the debt service requirements over the life of the bonds. service requirements over the life of the bonds. Total principal and interest requirements for the Total principal and interest requirements for the bonds are $3,490,900, payable semiannually bonds are $3,490,900, payable semiannually through June 2013. For the current year, principal through June 2013. For the current year, principal and interest paid and total incremental sales tax and interest paid and total incremental sales tax revenues were $395,150 and $403,291, revenues were $395,150 and $403,291, respectively. respectively.

3131

Sales and PledgesSales and Pledges

Sale of Future Rental Revenue Sale of Future Rental Revenue During the year, the city entered into an During the year, the city entered into an agreement with a private party under which the agreement with a private party under which the city relinquishes its rights to receive and retain city relinquishes its rights to receive and retain future rental income from beachfront properties future rental income from beachfront properties owned by the city. In July, the city received a owned by the city. In July, the city received a lump-sum payment of $13.1 million in exchange lump-sum payment of $13.1 million in exchange for 100 percent of its rights to the rental for 100 percent of its rights to the rental payments through December 2030. Total rental payments through December 2030. Total rental income from the beachfront properties during income from the beachfront properties during that period under normal occupancy conditions that period under normal occupancy conditions is estimated to be $26.9 million. Based on this is estimated to be $26.9 million. Based on this estimate, the city calculated the present value estimate, the city calculated the present value of the future rental payments to be $12.9 of the future rental payments to be $12.9 million at the time of the sale. million at the time of the sale.

3232

Effective DateEffective Date

For Periods Beginning After For Periods Beginning After December 15, 2006December 15, 2006

Retroactive Application, Retroactive Application, Except:Except:– Provisions for Future Revenue Provisions for Future Revenue

Sales to be Applied Sales to be Applied ProspectivelyProspectively

3333

Statement 49 — Statement 49 — Accounting and Accounting and Financial Reporting Financial Reporting for Pollution for Pollution Remediation Remediation ObligationsObligations

3434

GASB’s Pollution GASB’s Pollution ProjectProject

Project added to research agenda in Project added to research agenda in 20012001– for issues not covered in GASB 18for issues not covered in GASB 18

Preliminary Views issued March 2005Preliminary Views issued March 2005– 39 respondents39 respondents– Public hearingPublic hearing

Exposure Draft issued January 2006Exposure Draft issued January 2006– 45 respondents45 respondents

Statement—November 2006Statement—November 2006

3535

Impact of Pollution Impact of Pollution on State and Local on State and Local GovernmentsGovernments

3636

Legal Liability Legal Liability StandardsStandards Varies by state and lawVaries by state and law

– Many are similar to SuperfundMany are similar to Superfund Liable under Superfund—Liable under Superfund—

– Current and previous site owners Current and previous site owners and operatorsand operators

– DisposersDisposers– TransportersTransporters

3737

Accounting for Accounting for Pollution Pollution Remediation Remediation ObligationsObligations

3838

ScopeScope

Pollution Pollution REMEDIATIONREMEDIATION Obligations Obligations– Excludes Excludes prevention or control prevention or control

obligationsobligations– Excludes asset retirement obligationsExcludes asset retirement obligations

—including landfills (Statement 18)—including landfills (Statement 18)– Excludes fines, penalties, toxic torts, Excludes fines, penalties, toxic torts,

product or process safety outlays product or process safety outlays (NCGA Statement 4)(NCGA Statement 4)

3939

Obligating EventsObligating Events

a.a. Compelled to take remediation Compelled to take remediation action because of pollution-caused action because of pollution-caused imminent endangermentimminent endangerment

b.b. Violate pollution-prevention permit—Violate pollution-prevention permit—for example, RCRA permitfor example, RCRA permit

c.c. Named, or evidence indicates govt. Named, or evidence indicates govt. will be named, as responsible party will be named, as responsible party or PRP for remediation (or cost or PRP for remediation (or cost sharing)sharing)

4040

Obligating Events Obligating Events (continued)(continued)

d.d. Named, or evidence indicates Named, or evidence indicates govt. will be named, in lawsuit to govt. will be named, in lawsuit to participate in remediationparticipate in remediation Excludes lawsuits having no meritExcludes lawsuits having no merit

e.e. Govt. commences, or legally Govt. commences, or legally obligates self to commence obligates self to commence Limited to portion legally required Limited to portion legally required

to completeto complete

4141

RecognitionRecognition

Component approachComponent approach– Recognize components of liability as Recognize components of liability as

they become reasonably estimablethey become reasonably estimable– Recognition benchmarksRecognition benchmarks

Cost accumulation, not fair valueCost accumulation, not fair value Current value, not present valueCurrent value, not present value Expected cash flow techniqueExpected cash flow technique

4242

Two Contingencies—FAS 5 Two Contingencies—FAS 5 Recognition Recognition

Potential Potential PaymentPayment

ProbabilitProbabilityy

(a) x (b)(a) x (b)

$0$0 60%60% $0$0

$200$200 40%40% $80$80$80$80

Potential Potential PaymentPayment

ProbabilitProbabilityy

(a) x (b)(a) x (b)

$0$0 60%60% $0$0

$200$200 40%40% $80$80$80$80

4343

Two Contingencies—FAS 5 Two Contingencies—FAS 5 Recognition Recognition

Potential Potential PaymentPayment

ProbabilitProbabilityy

(a) x (b)(a) x (b)

$0$0 60%60% $0$0

$200$200 40%40% $80$80$80$80

Potential Potential PaymentPayment

ProbabilitProbabilityy

(a) x (b)(a) x (b)

$0$0 60%60% $0$0

$200$200 40%40% $80$80$80$80

$1

Now it’s 100% probable. But how much do you

record?

4444

Two Contingencies—Two Contingencies—Expected Cash FlowExpected Cash Flow

Permutations of Potential Permutations of Potential PaymentsPayments Joint Joint

ProbabilitiProbabilitieses

ContingenContingency 1cy 1

ContingenContingency 2cy 2

TotalTotal

$0$0 $0$0 $0$0 36%36%

$0$0 $200$200 $200$200 24%24%

$200$200 $0$0 $200$200 24%24%

$200$200 $200$200 $400$400 16%16%100%100%

4545

Two Contingencies—Two Contingencies—Expected Cash FlowExpected Cash Flow

Permutation math

$200 X .48 = $96

$400 X .16 = $64

$160

Shortcut math

$200 X .4 = $80

$200 X .4 = $80

$160

OR

4646

Which Outlays?Which Outlays?

All All direct direct outlays attributable to outlays attributable to remediationremediation– All outlays—not just incremental costsAll outlays—not just incremental costs– Consistent with Statement 18Consistent with Statement 18– Includes payroll, pension, and OPEBIncludes payroll, pension, and OPEB

May include indirect outlaysMay include indirect outlays– General overheadGeneral overhead– A matter of professional judgmentA matter of professional judgment

4747

Capitalization Criteria:Capitalization Criteria:

a.a. Cleanup to prepare property for sale (limited Cleanup to prepare property for sale (limited to fair value)to fair value)

b.b. Polluted property bought and cleaned for use Polluted property bought and cleaned for use (limited)(limited)

c.c. Asset impaired and cleanup restores lost Asset impaired and cleanup restores lost service utility (limited)service utility (limited)

d.d. Acquire PP&E that have future alternative use, Acquire PP&E that have future alternative use, e.g., land (limited to future service utility)e.g., land (limited to future service utility)

For a. & b.—capitalize only if incurred within For a. & b.—capitalize only if incurred within reasonable periodreasonable period

4848

Expected Recoveries Expected Recoveries from PRPs and from PRPs and InsuranceInsurance Reduce expense (and Reduce expense (and

expenditure, if available) and . . .expenditure, if available) and . . . If not realized or realizable—If not realized or realizable—

– Net against remediation liabilitiesNet against remediation liabilities When realized or realizableWhen realized or realizable

– Accrete liability and report separate Accrete liability and report separate recovery assets (cash or receivable)recovery assets (cash or receivable)

4949

Recoveries exampleRecoveries example

Expected outlays Expected outlays $10,000 $10,000

Expected recoveries Expected recoveries 3,000 3,000

Net remediation expense Net remediation expense $7,000 $7,000

If recovery If recovery notnot realized or realizable: realized or realizable:• Pollution remediation liability = Pollution remediation liability =

$7,000 $7,000

If recovery realized or realizable:If recovery realized or realizable:• Recovery asset (receivable) = $3,000Recovery asset (receivable) = $3,000• Pollution remediation liability = $10,000Pollution remediation liability = $10,000

5050

Financial Reporting Financial Reporting DisplayDisplay

Government-wideGovernment-wide– Program cost, orProgram cost, or– Special item, orSpecial item, or– Extraordinary itemExtraordinary item– No separate display of liability requiredNo separate display of liability required

Governmental fundsGovernmental funds– Expenditures recognized when liquidated Expenditures recognized when liquidated

with expendable available resourceswith expendable available resources– No pollution liability, only payables for No pollution liability, only payables for

goods and services usedgoods and services used

5151

DisclosuresDisclosures

For recognized liabilities and For recognized liabilities and recoveriesrecoveries– Nature and source of the pollution Nature and source of the pollution

remediation obligation—for example, remediation obligation—for example, federal or state lawfederal or state law

– Liability, if not apparent on statementLiability, if not apparent on statement– Methods and assumptionsMethods and assumptions– Potential for change in estimatePotential for change in estimate– Estimated recoveries reducing the liabilityEstimated recoveries reducing the liability

5252

DisclosuresDisclosures

For liabilities (or portions thereof) For liabilities (or portions thereof) not yet recognized because not yet recognized because not reasonably estimablenot reasonably estimable– General description of nature of the General description of nature of the

pollution remediation obligationpollution remediation obligation– Supersedes FAS 5 disclosure of Supersedes FAS 5 disclosure of

“reasonably possible”“reasonably possible”

5353

Effective Date & Effective Date & TransitionTransition Period beginning after December Period beginning after December

15, 200715, 2007 Measure liabilities at beginning of Measure liabilities at beginning of

that period so beginning net assets that period so beginning net assets can be restatedcan be restated

Apply retroactively if you have Apply retroactively if you have sufficient objective verifiable sufficient objective verifiable information to apply to prior periodsinformation to apply to prior periods

Early application encouragedEarly application encouraged

5454

Technical Bulletin 2006-1Payments from the Federal Payments from the Federal Government Pursuant to Government Pursuant to the Provisions of Medicare the Provisions of Medicare Part DPart D

5555

Derivatives ProjectDerivatives Project

First added to the Technical First added to the Technical Agenda in 1994. Current Agenda in 1994. Current study started in 2002. study started in 2002.

5656

What Is the Objective of the What Is the Objective of the Derivatives Project?Derivatives Project?

• To consider establishing additional financial reporting and disclosure requirements for derivatives accounting.

• Within the context of the governmental environment and the governmental reporting model

5757

What is a Derivative for What is a Derivative for Financial Reporting Financial Reporting Purposes?Purposes? FASB Statement No. 133, FASB Statement No. 133,

Accounting forAccounting for Derivative Derivative Instruments and Hedging Activities,Instruments and Hedging Activities, definition used (issued in 1998). A definition used (issued in 1998). A derivative has:derivative has:– One or more underlyings and one or One or more underlyings and one or

more notional amountsmore notional amounts– Requires no (or little) net investmentRequires no (or little) net investment– Net settlementNet settlement

5858

Examples of Examples of DerivativesDerivatives

Interest rate swapInterest rate swap– Variable-rate to fixed-rateVariable-rate to fixed-rate– Fixed-rate to variable-rateFixed-rate to variable-rate

Basis swapBasis swap– Exchange payments based on the Exchange payments based on the

changes of two variable rateschanges of two variable rates SwaptionSwaption

– Gives the purchaser of the option the Gives the purchaser of the option the right, but not the obligation, to enter right, but not the obligation, to enter into an interest rate swapinto an interest rate swap

5959

Examples of Examples of DerivativesDerivatives Commodity swapCommodity swap

– Reduce exposure to a commodity’s Reduce exposure to a commodity’s price riskprice risk

6060

Project TimetableProject Timetable

Preliminary Views document – Preliminary Views document – April 2006April 2006

Public hearing on Preliminary Public hearing on Preliminary Views document—July 2006Views document—July 2006

Exposure Draft second quarter of Exposure Draft second quarter of 20072007

Final standard fourth quarter of Final standard fourth quarter of 20072007

6161

Fund Balance Reporting Fund Balance Reporting and Governmental Fund and Governmental Fund type Definitionstype Definitions

6262

Fund Balance Fund Balance ReportingReporting Separate project to reexamine fund balance Separate project to reexamine fund balance

reportingreporting– User interviews and surveysUser interviews and surveys

What are the needs?What are the needs? What are the problems? What are the problems?

Among the issues addressed:Among the issues addressed:– Government as a whole, or “column” perspective?Government as a whole, or “column” perspective?– Clarify fund type definitionsClarify fund type definitions

Special revenueSpecial revenue– Proceeds of specific revenue sources Proceeds of specific revenue sources – Legally restrictedLegally restricted– Expenditure for specified purposesExpenditure for specified purposes

Capital projectsCapital projects– Financial resources to be used for. . .Financial resources to be used for. . .

Debt serviceDebt service– Accumulation of resources for. . .Accumulation of resources for. . .

6363

Fund Balance Fund Balance ReportingReporting Classification and display Classification and display

alternativesalternatives Two examples:Two examples:

– Restricted vs. unrestrictedRestricted vs. unrestricted– Committed to specific uses vs. Committed to specific uses vs.

available for purposes of the fundavailable for purposes of the fund

6464

Major Major Major Method 1 Special Revenue Funds Debt Capital

General Transportation School Aid Service Projects OtherFund Fund Fund Fund Fund Funds Total

Fund balances: Not available for appropriation Encumbrances 69,319 42,615 — — — 2,354 114,288 Long-term receivables 37,000 — — — — — 37,000 Inventory 104,500 50,763 1,095 — — 2,042 158,400 Rainy-day resources 1,143,562 — — — — — 1,143,562 Restricted for: Highways — 459,796 — — — — 459,796 Social services 241,563 — — — — — 241,563 Law enforcement — — — — — 214,687 214,687 Parks and recreation 78,950 — — — — — 78,950 Education 54,125 — 119,155 — — — 173,280 Debt service — — — 287,610 — 12,345 299,955 Capital projects — — — — 1,111,110 — 1,111,110 Other purposes 61,562 — — — — 140,703 202,265 Unrestricted: Assigned to: Library acquisitions 21,125 — — — — — 21,125 Debt service — — — 76,543 — — 76,543 Public pool — — — — 73,256 — 73,256 City Hall renovation — — — — 51,562 — 51,562 Capital projects — — — — 98,518 — 98,518 Other purposes 33,275 — — — — 12,700 45,975 Unassigned 129,708 — — — — — 129,708 Total fund balances 1,974,689 553,174 120,250 364,153 1,334,446 384,831 4,731,543

Distinguishing between restricted and unrestricted

6565

Identifying resources committed to specific uses

Major Major Major Method 4 Special Revenue Funds Debt Capital

General Transportation School Aid Service Projects OtherFund Fund Fund Fund Fund Funds Total

Fund balances: Not available for appropriation Encumbrances 69,319 42,615 — — — 2,354 114,288 Long-term receivables 37,000 — — — — — 37,000 Inventory 104,500 50,763 1,095 — — 2,042 158,400 Rainy-day resources 1,143,562 — — — — — 1,143,562 Available for appropriation: Committed to specific uses: Highway maintenance — 193,975 — — — — 193,975 Pothole repair — 102,770 — — — — 102,770 Social services 241,563 — — — — — 241,563 Law enforcement — — — — — 35,426 35,426 Parks and recreation 78,950 — — — — — 78,950 Library acquisitions 21,125 — — — — — 21,125 Education 54,125 — — — — — 54,125 School construction — — — — 313,654 — 313,654 Public pool — — — — 73,256 — 73,256 City Hall renovation — — — — 51,562 — 51,562 Other specific capital projects — — — — 141,773 — 141,773 Other purposes 94,837 — — — — 108,025 202,862 Available for purposes of the fund, reported in: General fund 129,708 — — — — — 129,708 Special revenue funds — 163,051 119,155 — — 224,639 506,845 Debt service funds — — — 364,153 * — 12,345 376,498 Capital projects funds — — — — 754,201 — 754,201 Total fund balances 1,974,689 553,174 120,250 364,153 1,334,446 384,831 4,731,543

6666

Fund Balance Fund Balance ReportingReporting Invitation to comment (ITC) – Invitation to comment (ITC) –

October 2006October 2006– Alternative interpretations of termsAlternative interpretations of terms– Different classification and display Different classification and display

approachesapproaches

6767

GASB Exposure DraftGASB Exposure Draft

Intangible AssetsIntangible Assets

6868

IntroductionIntroduction Intangible assets included in description of Intangible assets included in description of

capital assets in GASB 34capital assets in GASB 34 Inconsistency in practice on how intangible Inconsistency in practice on how intangible

assets are treated for accounting and assets are treated for accounting and financial reporting:financial reporting:– As capital assetsAs capital assets– As intangible assets as considered in APB 17As intangible assets as considered in APB 17– Expensed in period that costs are incurredExpensed in period that costs are incurred

Objective of the proposed Statement is to Objective of the proposed Statement is to reduce the inconsistency in reportingreduce the inconsistency in reporting

6969

Scope of EDScope of ED

For purposes of the ED, intangible assets are assets For purposes of the ED, intangible assets are assets that possess the following characteristics:that possess the following characteristics:– Lack of physical substanceLack of physical substance– Nonfinancial natureNonfinancial nature– Initial useful life extending beyond a single reporting Initial useful life extending beyond a single reporting

periodperiod Examples may include:Examples may include:

– Easements (right-of-way, permissive, restrictive)Easements (right-of-way, permissive, restrictive)– Land use rights (water, timber, mineral, air rights)Land use rights (water, timber, mineral, air rights)– Computer softwareComputer software– Patents, trademarks, copyrightsPatents, trademarks, copyrights– Licenses, permits and other rightsLicenses, permits and other rights

7070

Scope of EDScope of ED

Intangible assets acquired or created Intangible assets acquired or created through a combination transaction:through a combination transaction:– Goodwill—provisions of ED are not Goodwill—provisions of ED are not

applicableapplicable– Other intangible assets—only recognition Other intangible assets—only recognition

and measurement provisions are not and measurement provisions are not applicableapplicable

Provisions of ED are not applicable to Provisions of ED are not applicable to assets resulting from capital lease assets resulting from capital lease transactions reported by lesseestransactions reported by lessees

7171

ClassificationClassification

All intangible assets subject to provisions of the ED All intangible assets subject to provisions of the ED should be classified as capital assetsshould be classified as capital assets

Existing guidance related to capital assets should Existing guidance related to capital assets should be applied to intangible assets as appropriate:be applied to intangible assets as appropriate:– RecognitionRecognition– MeasurementMeasurement– Depreciation (amortization for intangibles)Depreciation (amortization for intangibles)– ImpairmentImpairment– PresentationPresentation– DisclosureDisclosure

Rest of ED provides guidance specific to intangibles Rest of ED provides guidance specific to intangibles that should be applied in addition to, or in lieu of if that should be applied in addition to, or in lieu of if appropriate, capital asset guidanceappropriate, capital asset guidance

7272

RecognitionRecognition

An intangible asset should only be An intangible asset should only be recognized if it is identifiable:recognized if it is identifiable:– The asset is separable from the The asset is separable from the

government; orgovernment; or– The asset arises from contractual or The asset arises from contractual or

other legal rights, regardless of other legal rights, regardless of whether rights are separablewhether rights are separable

7373

Effective Date and Effective Date and TransitionTransition Proposed effective date in ED is Proposed effective date in ED is

periods beginning after June 15, periods beginning after June 15, 20092009

ED issued December 27, 2006ED issued December 27, 2006 Comments due March 23, 2007Comments due March 23, 2007 Final Statement expected to be Final Statement expected to be

issued by June 2007 issued by June 2007

7474

Other GASB ProjectsOther GASB Projects

Recognition and Measurement Recognition and Measurement Attributes—Concepts StatementAttributes—Concepts Statement

Economic Condition ReportingEconomic Condition Reporting Electronic Financial ReportingElectronic Financial Reporting Intergovernmental Financial RisksIntergovernmental Financial Risks Pension Accounting and ReportingPension Accounting and Reporting Reporting Units/Statement 14 RevisitedReporting Units/Statement 14 Revisited Service Efforts and Accomplishments Service Efforts and Accomplishments

ReportingReporting

7575

GASB ResourcesGASB Resources

7676

GASB Website—GASB Website—www.gasb.orgwww.gasb.org Downloads and ordering Downloads and ordering

information (Exposure information (Exposure documents, Statements, Q&As)documents, Statements, Q&As)

Summaries of standardsSummaries of standards Project pagesProject pages Technical inquiry formTechnical inquiry form Staff contactsStaff contacts

7777

Gerry Boaz, CPA, CGFMTN State Audit Technical

Analystphone: (615) 747-5262email:

Gerry.Boaz@state.tn.usor

GASB Phone: (203) 847-0700

WWW.GASB.ORG

Questions?Questions?