Governmental Accounting and Reporting Update

Governmental Governmental Accounting and Accounting and

Reporting Reporting UpdateUpdateGFOA Spring Conference

May 3, 2010

AgendaAgenda

Federal perspectiveFederal perspective EnvironmentEnvironment Implementation storiesImplementation stories What is happening now?What is happening now? What is waiting?What is waiting? Future considerationsFuture considerations

Remaining GASB Remaining GASB 34/35 Issues / 34/35 Issues /

InconsistenciesInconsistencies

GASB 34 / 35 IssuesGASB 34 / 35 Issues MD&A requirements for BTAs, MD&A requirements for BTAs,

clarification of clarification of exceptions to general requirementsexceptions to general requirements Grants and contracts, exchange and Grants and contracts, exchange and

exchange-likeexchange-like Federal financial aid, Pell grants, direct Federal financial aid, Pell grants, direct

lending lending Library booksLibrary books Split-interest agreementsSplit-interest agreements Perkins LoanPerkins Loan

Other IssuesOther Issues

Fund raising function used?Fund raising function used? Other functions / programs Other functions / programs Matrix presentation for functional Matrix presentation for functional

and natural expensesand natural expenses

Federal Federal PerspectivePerspective

Federal PerspectiveFederal Perspective IPEDS Technical Review Panel focused IPEDS Technical Review Panel focused

on - on - Consistency of reporting (GASB/FASB)Consistency of reporting (GASB/FASB) Need for more useful information Need for more useful information

IPEDS changes – Part C Expenses IPEDS changes – Part C Expenses Optional for FY June 30, 2009, allows for Optional for FY June 30, 2009, allows for

similar allocation of FASB institutions - similar allocation of FASB institutions - Operations and Maintenance of PlantOperations and Maintenance of Plant DepreciationDepreciation Interest ExpenseInterest Expense

Part C-Expenses and Other Deductions Part C-Expenses and Other Deductions (non Aligned)(non Aligned)

Part C- Expenses and Other Part C- Expenses and Other Deductions (Aligned)Deductions (Aligned)

($ in millions)

Before Allocation

After Allocation

Change

Instruction 173 197 24

Research 125 143 18

Public Service 68 78 10

Academic Support

35 40 5

Student Services 25 28 3

Institutional Support

27 31 4

Auxiliary Enterprises

81 91 10

Operations and Maintenance of Plant

35 0 -35

Depreciation 33 0 -33

Interest Expense 6 0 -6

Total 608 608 0

NACUBO AR 2010-1NACUBO AR 2010-1

Issued February, 2010Issued February, 2010 Offers guidance for public Offers guidance for public

institutionsinstitutions For IPEDS Reporting only For IPEDS Reporting only


Select categories of costSelect categories of cost Review methodologies of costReview methodologies of cost Explore availability of dateExplore availability of date Consider mission, objectives and Consider mission, objectives and

practices of your institution practices of your institution


The NACUBO APC and NACUBO survey The NACUBO APC and NACUBO survey support the use of the following common support the use of the following common allocation methodologies - allocation methodologies - Direct assignment based on functional Direct assignment based on functional

category of space category of space Assignable square footage Assignable square footage Salaries and wages, or salaries and wages plus Salaries and wages, or salaries and wages plus

benefits benefits Total expenses by function Total expenses by function Combination of the above Combination of the above

Governmental Reporting Governmental Reporting EnvironmentEnvironment

Codification of FASB, AICPA, Pre GASB Codification of FASB, AICPA, Pre GASB authoritative authoritative

GASB GASB Concepts Concepts Focus on AccountabilityFocus on Accountability

Service Efforts and AccomplishmentsService Efforts and Accomplishments FAF confirmed jurisdictional authority to include FAF confirmed jurisdictional authority to include

in financial accounting and reporting standardsin financial accounting and reporting standards International Financial Reporting International Financial Reporting

StandardsStandards

Watch Out !Watch Out !

New changes – OPEB, Pollution New changes – OPEB, Pollution Remediation DerivativesRemediation Derivatives Impact on legal restrictionsImpact on legal restrictions Bonds covenantsBonds covenants Labor / collective bargaining Labor / collective bargaining

negotiationsnegotiations

FY 2009 Implementation FY 2009 Implementation Stories Stories

Statement 45 – Accounting and Statement 45 – Accounting and Reporting by Employers for Other Reporting by Employers for Other Post Employment Benefits Post Employment Benefits

Statement 49 – Accounting and Statement 49 – Accounting and Financial Reporting for Pollution Financial Reporting for Pollution Remediation ObligationsRemediation Obligations

Statement 52 - Land and Other Real Statement 52 - Land and Other Real Estate Held as InvestmentsEstate Held as Investments

2009 GASB Implementation Guide – 2009 GASB Implementation Guide – Pell GrantsPell Grants

What is Happening Now?What is Happening Now?

Effective FY 2010 –Effective FY 2010 – Statement 51 – Accounting and Financial Statement 51 – Accounting and Financial

Reporting for Intangible AssetsReporting for Intangible Assets Statement 53 – Accounting and Financial Statement 53 – Accounting and Financial

Reporting for Derivative InstrumentsReporting for Derivative Instruments Statement 55 – Hierarchy of GAAP for Statement 55 – Hierarchy of GAAP for

State and Local GovernmentsState and Local Governments Statement 56 – Codification of Statement 56 – Codification of

Accounting and Financial Reporting Accounting and Financial Reporting Guidance Contained in the AICPA SASGuidance Contained in the AICPA SAS

What is Happening Now?What is Happening Now?

Statement 58 – Accounting and Statement 58 – Accounting and reporting for Chapter 9 reporting for Chapter 9 BankruptciesBankruptcies

Concepts Statement 4 – Elements of Concepts Statement 4 – Elements of Financial Financial StatementsStatements

Concepts Statement 5 – Service Concepts Statement 5 – Service Efforts and AccomplishmentsEfforts and Accomplishments

2009 GASB Implementation Guide2009 GASB Implementation Guide

Statement 51

Accounting for Intangible Accounting for Intangible AssetsAssets

Effective for periods Effective for periods beginning after June 15, 2009 beginning after June 15, 2009

(FY 2010)(FY 2010)

Intangible Assets

Easements Water rights Timber rights Patents Trademarks Computer software

Recognition

Must be identifiable Specified conditions approach for

internally generated assets (computer software)

Amortization

Required over useful life Limited by legal or contractual

provisions May have indefinite life if no limits

Implementation

Retroactively GASB 34 - Phase 1 or 2

Assets acquired after June 30, 1980 Except indefinite useful life Except internally generated assets

GASB 34 – Phase 3 Retroactive application encouraged not

required

Statement 53Statement 53

Accounting and Financial Accounting and Financial Reporting for DerivativesReporting for Derivatives

Effective for periods Effective for periods beginning after June 15, 2009 beginning after June 15, 2009

(FY 2010)(FY 2010)

Derivatives

Fair Value Derivative instruments are measured on the

statement of net assets at fair value Fair value changes are reported on the

“changes statement” as investment income Hedges are an exception -

Changes in fair value are reported on the statement of net assets as a deferral, charges or credits

Derivatives ? Interest rate swap

Variable rate to fixed rate Fixed rate to variable rate

Basis swap Exchange payments based on changes of two variable

rates Swaption

Gives the purchaser of the option the right but not the obligation to enter into interest rate swap

Commodity swap Reduce exposure to a commodity call risk

What is Not a Derivative

Normal purchase or sale contracts Loan commitments Financial Guarantees Contracts not exchanged – traded

(earthquake or weather derivatives) Investments (endowments) where

underlying asset is a derivative

Hedge and Hedge Accounting

Requirements Association – instrument is associated with a hedgeable

item Substantial offsets – instrument is effective in providing

changes in cash flows or fair values that substantially offset the cash flow or fair value of a hedgeable item

If the requirements are met, hedge accounting must be applied.

Accounting is not dependent on documentation

Hedge Accounting

Effectiveness must be evaluated Qualitative method Quantitative method

When a method becomes ineffective in a later period, another method may be used

Disclosure Requirements Significant terms Risks – credit, interest rate, basis, termination,

rollover, market access, foreign currency If another evaluation method is used , details

must be provided Investment derivative requires credit, interest

rate, foreign currency risks Contingencies Hedged debt Synthetic guaranteed investment contracts


Hierarchy of Generally Hierarchy of Generally Accepted Accounting Accepted Accounting

Principles for State and Principles for State and Local GovernmentsLocal Governments

Effective immediatelyEffective immediately

Moves the definitions from AICPA Moves the definitions from AICPA Audit GuideAudit Guide


Codification of Codification of Accounting and Accounting and

Reporting Guidance Reporting Guidance Contained in the AICPA Contained in the AICPA Statements of Auditing Statements of Auditing

StandardsStandardsEffective immediatelyEffective immediately

Moves the definitions from AICPA Moves the definitions from AICPA Statement of Auditing StandardsStatement of Auditing Standards


Accounting and Accounting and Financial Reporting for Financial Reporting for Chapter 9 BankruptciesChapter 9 Bankruptcies

Effective immediatelyEffective immediately

Addresses bankrupt governmental Addresses bankrupt governmental units under chapter 9units under chapter 9

Concepts Statement 4

Elements of Financial Statements

Concepts Statement -Concepts Statement -Elements of Financial Elements of Financial

Statement Statement Resource – An item of present service capacityResource – An item of present service capacity Assets – Resources the entity presently Assets – Resources the entity presently

controlscontrols Liabilities – Present obligations to sacrifice Liabilities – Present obligations to sacrifice

resources or future resources that the entity resources or future resources that the entity has little or no discretion to avoidhas little or no discretion to avoid

Deferred outflow of resources – A consumption Deferred outflow of resources – A consumption of net resources by the entity that is applicable of net resources by the entity that is applicable to a future reporting period to a future reporting period


Statement Statement

Deferred inflow of resources – An Deferred inflow of resources – An acquisition of net resources by the acquisition of net resources by the entity that is applicable to a future entity that is applicable to a future reporting period reporting period

Net Position – The residual of all Net Position – The residual of all other elements presented in the other elements presented in the statement of financial position statement of financial position


Statement Statement Outflow of resources – A consumption of net Outflow of resources – A consumption of net

resources by the entity that is applicable to the resources by the entity that is applicable to the reporting periodreporting period

Inflow of resources – An acquisition of net Inflow of resources – An acquisition of net resources by the entity that is applicable to the resources by the entity that is applicable to the reporting periodreporting period

Before an item can be reported in a financial Before an item can be reported in a financial statement it must meet appropriate statement it must meet appropriate recognition and measurement criteria. A recognition and measurement criteria. A separate project will define these criteria. separate project will define these criteria.

Concepts Statement 5

Service Efforts and Accomplishments

Reporting

Concepts Statement -Concepts Statement -SEA Reporting SEA Reporting

Amended Concept Statement 2 Amended Concept Statement 2 Clarifies scope limitation “beyond the scope of the Clarifies scope limitation “beyond the scope of the

GASB” to exclude –GASB” to exclude – Goals and objectives of governmental servicesGoals and objectives of governmental services Specific nonfinancial measures or indicators of service Specific nonfinancial measures or indicators of service

performanceperformance Standards or benchmarks of service performance Standards or benchmarks of service performance

Focuses on types of SEA performance measures –Focuses on types of SEA performance measures – Measures of service effortsMeasures of service efforts Measures of service accomplishmentsMeasures of service accomplishments Measures that relate service efforts to service Measures that relate service efforts to service

accomplishments accomplishments

What is Waiting?What is Waiting? Effective FY12 -Effective FY12 - GASB 54 - Fund Balance Reporting and GASB 54 - Fund Balance Reporting and

Governmental Fund Type definitionsGovernmental Fund Type definitions GASB 57 – OPEB Measurements by Agent GASB 57 – OPEB Measurements by Agent

Employers and Agent Multiple –Employer Employers and Agent Multiple –Employer PlansPlans

Exposure Draft - Reexamination of GASB Exposure Draft - Reexamination of GASB 1414 Issued March, 2010Issued March, 2010 May be effective in FY 13May be effective in FY 13

International International Financial Financial Reporting Reporting StandardsStandardsIFRSIFRS

Future ConsiderationsFuture Considerations

Exchange – like revenues Exchange – like revenues Fiduciary responsibilitiesFiduciary responsibilities In-kind contributionsIn-kind contributions Irrevocable charitable trustsIrrevocable charitable trusts Reporting unit presentation and Reporting unit presentation and

GASB 14GASB 14 Financial performance measuresFinancial performance measures

Reexamination ProjectsReexamination Projects

Compensated absences Compensated absences Debt refundingsDebt refundings Deferred compensation plansDeferred compensation plans

FASB component units disclosures in FASB component units disclosures in a GASB based financial reporta GASB based financial report

GASB 14 Revisited GASB 14 Revisited

Alternative SRECNAAlternative SRECNA

Pell and Direct LendingPell and Direct Lending

NACUBO IssuesNACUBO Issues

Questions?Questions?

[email protected]@clemson.edu

Documents

Governmental Accounting and Reporting Update